Closing Case

Singaporean good governance, prosperity and future challenges

Introduction
Singapore's success story of rapid economic development
has been examined extensively by admirers from near
and far, as the small island state has risen since the 1960s
to become a global city that attracts skilled professionals
and multinational enterprises (Ghesquiere 2007; Lim
2009). Singapore's success has highlighted the crucial
importance of good public governance, one able to
adapt to new circumstances over time:
After spending forty years engaged in the economic
development of Singapore, I am convinced that
the most important condition for success is good
government. A good government is one led by able,
honest, selfless men and women (Ngiam 2006: 88).
The People's Action Party (PAP) leadership's highly
pragmatic leanings, a reputation for prudent financial
management and an effective anti-corruption stance
has meant that foreign political and enterprise leaders
have found the Singaporean government easy to engage
w ith. Recent efforts throughout the late 1990s and first
decade of the 2000s to attract MNEs at the forefront
of innovation (biotechnology, medicine, advanced
electronics) have come off the back of a 30-year record
of attracting and developing partnerships with MNEs
looking to utilise Singapore at lower-level technical
skills capacities (broad consumer electronics, shipping
maintenance and others).
The Singaporean government's relationship with private
enterprise is clear; it has been willing to participate in
the national economy across many sectors, but has
never sought to protect domestic enterprises at the
expense of foreign MNEs interested in investing in the
national economy. State enterprises, government-linked
corporations (GLCs) and state-encouraged enterprises
were all founded and developed by the government,
largely to enhance trade activity and support MNEs'
operations in the island-state. Singapore Airlines,
Changi Airport, the Port Authority of Singapore (PSA)
and the SGX (Singapore Stock Exchange), to name but
a few, were all established and run by the Singapore
government and are now internationally recognised for
excellence in their respective sectors. As a city-state
with a small market and a large, strategically located
port, the government and commercial elite (often one
and the same) has been a constant champion of global
free trade. Today, Singapore remains active in both

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bilateral and multilateral trade processes (such as the

Singapore-Australia Free Trade Agreement (SAFTA) and
the multilateral WTO Doha Round of free trade talks).
The Singaporean government argues that even when
multilateral processes such as the Doha Round break
down, free trade agreements (FTAs) remain the pathway
forward for the city-economy (Singapore FTA Network).
Singapore's political and macroeconomic environments,
therefore, are all attuned to the needs and wants of MNEs
seeking a risk-free environment from which to launch
their products and services into greater Asia. Indeed,
there is little risk in stating that Singapore is without peer
in enacting policy prescriptions that are favourable to
MNEs' operations, and in supporting these with an array
of practical infrastructure, legal, human resource and
social initiatives.
The dominance of the People's Action Party and the
economy
Since its independence in 1959, Singapore has been
ruled by one party: the People's Action Party. For
much of the time it was led by Lee Kuan Yew (195990), who took the political position that Singapore
could not accommodate open political contests like
more developed economies such as the United States
and Britain . Lee saw political stability as an essential
requirement for attracting much-needed foreign MNE
capital and enterprise to the island-state, which at the
time suffered from chronic unemployment. To ensure
that MNEs viewed Singapore as a politically stable
environment for all manner of investments, Lee was
more than prepared to utilise the full repressive powers
of the state (a legacy of British rule) against his political
opponents. In this he was very successful, and Singapore
quickly established itself throughout the 1960s and
1970s as the premier location in Southeast Asia for
politically risk-free foreign investment. In election
after election, the PAP took an even firmer grip on the
institutions of the Singapore state, to the point where
the differentiation between the PAP and the Singapore
government became simply academic.
By the early 1990s Lee Kuan Yew was ready to hand
on the prime ministership to a selected successor, Goh
Chong Tong (1990-2004), who proceeded to maintain
and develop further Lee's work so that the 1990s
saw Singapore firmly establish itself as a global city
within MNE planning and operations. Goh came to be
very much admired within the international business

Chapter 7 Political and legal systems in national environments

community as a steady governing hand, leading a

government that clearly understood their business
requirements, and domestically he was seen as politically
less abrasive than his predecessor. In the political realm,
he maintained the PAP's take-no-prisoner approach to
political opposition, which had been firmly established
by Lee, and in the economic realm led Singapore
throughout the 1997 Asian financial crisis and 2001 dotcom downturn. Goh, in turn, managed the transition in
2004 to the current prime minister, Lee Hsien Loong,
with what has come to be seen as typical Singaporean
efficiency. The current prime minister is in fact the son of
Lee Kuan Yew, and came to the position after a decadelong apprenticeship in core financial ministry positions,
including managing Singapore's banking and financial
sector th roughout the 1997 Asian financial crisis. As a
result, Lee Hsien Loong came to the prime ministership
well versed in international finance and MNE operations,
and the international business community knew him to
be a well-credentialled policy operative. Equally so, it
has come as little surprise that Prime Minister Lee has
maintained a firm grip on Singapore's political space.
His actions show clearly that the PAP leadership firmly
believes that Singapore cannot afford even the slightest
hi nt of political risk. The PAP's legitimacy resides in its
ability to govern for Singapore's prosperity through
domestic state-owned enterprises and by retaining the
confidence of the leaders of MNEs, which continue to
deliver significant investment into the city-state across
a wide array of sectors, from finance to integrated
resorts.
The global financial crisis and Singapore's response
Singapore's S$248 billion economy scraped in a 1.1
per cent growth rate for 2008, compared to 7.7 per
cent growth in 2007. It then shrank to -1.3 per cent for
the whole of 2009 (www.singstat.gov.sg/stats). What
shocked most observers was the speed of the decline of
the Singaporean economy. Having grown 6.7 per cent in
t he first quarter of 2008, it then fell off a cliff, plunging to
-0.6 per cent of GOP for the third quarter and to -3.7 per
cent in the fourth quarter (Chong 2009: 291 ; Nicholas
2008). For a nation that had growth rates of over 7 per
cent for the previous year, the dramatic nature of the
economic decline was stark. Multinational and domestic
enterprises immediately began re-engineering and
enacting retrenchment as their export orders evaporated.
Singapore's Creative Technologies Ltd, a large domestic
technology firm, cut its workforce by 2700 in 2008 as
international orders dried up.
Singapore's economic decline in 2008 and 2009
prompted questions regarding the country's economic
policy of ultra-globalisation. Even at the height of its

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mid-decade boom (2002-07), some were alarmed at the

country's high levels of exposure to global economic
fluctuations:
With a broad lens one can begin to identify the
signs of a maturing capitalist economy. Structural
unemployment, the disappearance of low-skilled
jobs, the economic marginalization of the old and less
educated, and the widening income gap between the
haves and the have nots, all suggest that the neecapitalist processes are deeply embedded in the
national economy and are, consequently, making
the domestic workforce and industries vulnerable to the
capricious forces of globalization. (Chong 2006: 269)
Prior to the global financial crisis policymakers had,
at different times, made their concerns clear~over the
economy's considerable exposure to a US economic
downturn.ln the second half of 2008 Singapore slid into
recession and, with no signs of economic recovery in
early 2009, Prime Minister Lee warned that Singapore
would continue to suffer throughout 2009. He stated:
The recession is a global one, and we must expect
to see exports and growth remain negative for more
months, and perhaps for the whole year. (Asean
Affairs 2009)
Lee responded to the crisis by introducing a S$20.5
billion (US$13.7 billion) stimulus package equivalent
to 8 per cent of Singapore's GOP, within which his
government included S$5.8 billion to spur bank
lending, S$5.1 billion to help save jobs, S$2.6 billion
in ta x measures and grants for business, S$4.4
billion in infrastructure spending and S$2.6 billion
for households. Most notably, S$4.9 billion of the
package came from government reserves, the first
time Singapore's policymakers had ever resorted to
such a measure. It could be argued that the amount
was not significant when compared to Singapore's
massive foreign reserves and Government Investment
Corporation (GIC) managed funds, but the symbolism
was noted widely. The government had made it
known that it would intervene to stem the economy's
decline.
In 2010 the Singapore economy roared back to life, with
globalisation proving that a city inextricably linked into
the process can recover as quickly as it can decline. What
is also clear is that Singapore's position on public debt is
in stark contrast to that of other developed economies,
particularly the European Union and the United States.
Singapore is a net exporter of capital, with savings levels

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Part 2

The environment of international business

equal to those in other Asian economic powers such as

Japan, Taiwan, South Korea and an emerging China.
This capital position, driven by government-initiated
savings regimes and budgetary strict discipline, can be
expected to provide Singapore with significant future
competitive advantages. Also notable has been the
Singapore government's willingness to use its ample
reserves to invest in providing Singapore with a worldclass infrastructure, from Changi Airport to high-speed
broadband, which pays dividends once the economy
reverts to a high growth trajectory.
Case questions

1. Can Singapore now be defined as a politico-global

state, one in which globalisation, and not one
domestic political party, truly governs t he country?
2. Does Singapore's developmental experience prove
false the old dichotomy of the private sector being
inherently superior to public enterprise?

3. Is Singapore a val id model for other countries, or does

its status as a city-state make it relevant only to other
small city-state entities (Hong Kong and Dubai being
two obvious cases)?
Sources: 'Singapore: Recession May Last Whole of 2009', Asean
Affairs: The Voice of Southeast Asia, 25 January 2009; T. Chong (2006),
'Singapore: Globalizing on its Own Terms', in D. Singh and L. C. Salazar
(2006). Southeast Asian Affairs 2006, Singapore: Institute of Southeast
Asian Studies; H. Ghesquiere (2007), Singapore's Success: Engineering
Economic Growth, Singapore: Thomson; C. Y. Lim (2009), 'Transformation
in the Singapore Economy: Course and Causes', in W. M. Chai and
H. Y. Sng, Singapore and Asia in a Globalized World: Contemporary
Economic Issues and Policies, Singapore: World Scientific, pp. 3-24;
T. D. Ngiam, with introduction and edited by S. S. C. Tay (2006), A
Mandarin and the Making of Public Policy: Reflections by Ngiam Tong
Dow, Singapore: NUS Press; K. Nicholas, 'Asian Tiger Begins to Lose its
Vitality', Australian Financial Review, 22 February 2008; Singapore FTA
Network, www.fta.gov.sg, accessed 2 April 2009; Singapore Statistics,
Government of Singapore, www.singstat.gov.sg/stats.
This case was written by /an Austin, Edith Cowan University, Australia,
2010.

Key terms
country risk, p. 181
extraterritoriality, p. 201
intellectual property, p. 199

legal system, p. 184

political system, p. 183
rule of law, p. 190

transparency, p. 202

Summary
In this chapter, you learned about:
1. What is country risk?

International business is influenced by political

and legal systems. Country risk refers to exposure
to potential loss or to adverse effects on company
operations and profitability caused by developments
in a country's political and legal environments.
2. What are political and legal systems?

A political system is a set of formal institutions

that constitute a government. A legal system is a
system for interpreting and enforcing laws. Adverse

developments in political and legal systems increase

country risk. These can result from events such as a
change in government or the creation of new laws or
regulations.
3. Types of political syst ems

The three existing major political systems are

totalitarianism, socialism and democracy. These
systems are the frameworks within which laws are
established and nations are governed. Most countries
today employ some combination of democracy and
socialism. Democracy is characterised by private