Why it can't be more of the same: Economist Linda Lim

Singapore needs less attachment to 'growth fetishism' and more risk taking by its people, says economist
Susan Long, Straits Times 11 Mar 09;

THERE is no better time than the worst recession in history to 're-examine old business models and beat new paths to the future', says eminent economist Linda Lim.

The last time the economy faltered in 2001, Singapore looked under the hood and started cranking out a slew of Economic Review Committee (ERC) proposals to overhaul society. But the tinkering ground to a halt when good times returned.

'As soon as Singapore went back to cruising on the financial sector growth bubble, we thought we didn't have to make the changes after all.'

Now that Singapore is stalled by the world's deepest slump yet, it is time to start a national conversation on its identity and values as a nation.

'Before we figure out what kind of growth path we want, we have to figure out who we are, what we want and for whom, and how to get there. This will decide what our unique competitive advantages are, what others cannot do as well as we can, no matter how they try to emulate us,' says the Singaporean professor of strategy at the University of Michigan's Ross School of Business. She was here recently on a regional research sabbatical.

She readily concedes that Singapore's economic growth record to date has been impressive but notes a disturbing 'growth fetishism' here.

Growth is a means but not an end in itself. Focusing on 'how much' growth does not necessarily tell us 'how good' it is, or 'for whom', she says, pointing to a stagnation in median real wage and a decline in low-income wages, despite rapid gross domestic product (GDP) growth here.

But isn't the growing income gap a worldwide phenomenon?

Also, shouldn't Singapore seize all opportunities, not turn away big investors, and capitalise on the boom years to offset the bad ones?

She says: 'One critical difference is that the income divide in other advanced economies is seen as being due to domestic market forces, rather than foreign participation and state policy.

'Certainly, to generate growth, just by adding more input, you can get more output. But what is the opportunity cost? How much did we pay to attract such investment and what else might have been done with the money, tax revenue foregone and other local resources? Because we are a small economy, big, lumpy capital-intensive investments that we do not control also increase our risk and our vulnerability to downturns, rather than protect us from them.'

Ultimately, economic growth, she says, should seek to increase the 'income, welfare, stability and security of all Singaporeans'. 'It should be 'growth for people', not 'people for growth'.

'In the long run, a lower rate of growth which delivers a higher ratio of benefits to Singaporeans may be more desirable than a higher rate of growth which is more unstable and inequitable,' she says.

Long overdue also is a remaking of Singapore's self-image, built upon standing out as a shiny beacon of difference in contrast to the rest of chaotic South-east Asia. 'We like to think of ourselves as a good house in a bad neighbourhood,' she says.

A 2007 survey found that young Singaporeans were the least likely to identify themselves as Asean citizens. Only about one out of four Singaporeans surveyed felt a similarity with their neighbours, the lowest among Asean countries.

But a change in 'spatial dimensions' is required. Singapore must root itself in the region and embrace the neighbourhood, if it hopes to succeed.

'Singapore is part of the region. The region is not New York, London, Shanghai or even Guangzhou. It is South-east Asia. That is how multinationals view us,' she says.

For the last 40 years, Singapore has viewed itself as 'an outpost of Western empire, catering to those scared of the jungle and needing an intermediary'.

'Frankly, no one comes here to go to India or China, no point trying to be a gateway when people can go there directly,' she says.

Instead of trying to be a 'secondary global node', Singapore should focus on being a 'primary regional one' and leverage its 'unique location-specific advantages'.

For example, in this era of 'green business', being situated next to the biggest tropical forests in the world, Singapore is well-placed to participate in resource-based activities from scientific forest and fisheries management to ecobiology, environmental consulting, carbon finance and commodity trading.

But what about Asean's sluggishness in fostering intra-regional cooperation so far and the very real political obstacles?

To that, she says there is no denying that neighbourly political frictions exist. 'I'm a business type, and problems are to be managed, not avoided or ignored.

'Our neighbours are not opposed to trade, investment or external linkages - they keep promoting these to the rest of the world. They also welcome Chinese investment, from Hong Kong, Taiwan and China. We need to ask: Why have they apparently singled us out? Any problem has two sides.'

Singapore, she says, cannot take the obvious lead in Asean economic integration but it can 'work behind the scenes and be enthusiastic' about it. As for trade, a high proportion of Singapore's linkages with its neighbours are due to its entrepot function. 'There is relatively little of domestic exports, imports and investments and could be much more.'

One obvious political problem is having government-linked companies (GLCs) invest in neighbours, she says. 'There are understandable concerns, even further afield, about foreign government investments. These concerns would be mitigated if it was private enterprises doing the investing and many have without any trouble. But there just aren't enough of them.'

Dr Lim worries that this is because many Singaporeans are stumped by a 'can't do' culture of limitation. Oft-heard excuses are: 'We're too small' and 'Our neighbours hate us.'

'Too small might have been an issue 40 years ago,' she retorts. 'No longer. In terms of GDP, we're probably mid-sized in the world. Globalisation has broken down barriers and made our economic space bigger.

'Smallness is not a reality but a state of mind. Everyone else, the Thais and Indonesians, think: 'If only we had a fraction of your resources...'. It will never be enough if we have this kind of 'think small' attitude. Singapore is one of the richest countries in the world according to per capita income. If wealth did not buy you the liberty to think bigger, then you've failed.'

She dearly hopes that this crisis will change Singaporeans - 'to be more willing to change, to innovate, to take risks, to trust ourselves and each other, to draw on our native inventiveness, to get out of our comfort zone'.

Elsewhere, when there are problems, the people rise in collective action.

In China, Taiwan and Hong Kong, she notes, small export-oriented factories are struggling but quickly innovating on their own to survive. But in Singapore, news reports only mention what the Government is doing by way of handouts.

She relates: 'On my way in from Changi Airport, I asked my taxi-driver if he was worried about the recession. He said: 'It's okay. Our Government will come up with the solution'.'

But perhaps this reflexive abdicating of solutions to the state is the 'problem of perfection' here, she says.

She cites Infosys Technologies founder Narayana Murthy, who attributes the flourishing of India's IT sector, which was largely unregulated by its government, to the 'value of imperfection'.

'Because Indians live in such an imperfect place, they think big to solve problems and developed an imagination beyond constraints.'

But it is not too late for Singapore.

'I believe part of our humanness is our ability to change. We are adaptive organisms. If our environment and incentive changes, we can change too.'

As a parting shot, she quotes newly-elected US President Barack Obama's inaugural address on Jan 20: 'The world has changed - and we must change with it.'

To that she adds: 'If we think we're the only ones who don't have to change, then we're the ones being contrarian.'

New growth model beyond Jack-of-all-hubs needed
Straits Times 11 Mar 09;

GLOBAL developments make it unlikely that Singapore's past growth model can be continued, let alone be successful, going forward, says Dr Linda Lim.

It is becoming increasingly risky and expensive for the state to try to pick winners, target particular industries with tax breaks and subsidies and woo MNCs here to drive key sectors.

'You can't have everything, even if you're not small and resource-constrained. Comparative advantage in one sector means comparative disadvantage in another. Trying to do everything will only push up resource costs and make you uncompetitive overall.'

There is no way, she says, Singapore can be a Jack of all hubs - from semiconductors, life sciences, health care, education, financial services, digital media and creative industries to casino tourism. By trying to do it all, it risks becoming a master of none.

'If we try, all sectors will face rising costs as they compete with each other for scarce land and talent. And negative externalities such as inflation, congestion and environmental degradation will balloon,' she warns.

Singapore's recent economic growth model, she charges, has both tried to 'do too much, and achieved too little' in delivering returns for Singaporeans, relative to foreign firms and foreigners.

Only a 41 per cent share of Singapore's gross domestic product (GDP) goes to wages and salaries here, which is one of the lowest such shares in the world, as is the similarly low share of aggregate consumption in GDP.

Meanwhile, more than a 50 per cent share of GDP goes to corporate profits, interest and dividends, which is one of the world's highest. At the same time, the foreign share of domestic production and income has also increased, to around 40 per cent, she notes.

Externally too, says Dr Lim, Singapore's MNC-led, manufacturing export-intensive model is hobbled by challenges, not least its high-cost structure. Worldwide, there is also less tolerance for government industrial targeting policies, which 'unlevel the playing field', she says, pointing to controversies over automobile policies in countries such as the United States, France, Italy and Brazil.

The World Trade Organisation and other international trade agreements are also starting to clamp down on Asian 'mercantilist' policies, including export and capital subsidies.

There is also the emergence of new competitors with larger home markets and talent bases, particularly China and India in pharmaceuticals and electronics; Vietnam, Cambodia and the Philippines in casino and other tourism; Malaysia, the Philippines and Thailand in medical tourism; Malaysia and the Philippines in education.

The way forward for Singapore, she says, is to allow the market to 'diversify on its own', with resource allocation done by market forces and entrepreneurs, instead of the state and bureaucrats.

'Do we devote our carefully husbanded national savings, accumulated over generations, to letting the state make big bets on a few major, capital-intensive, risky and expensive projects?

'Or do we privatise the economy, releasing capital and talent to local entrepreneurs to create value in smaller but nimbler enterprises? At least, if they fail, it will take only small parts, rather than big chunks, of the economy down with them.

'It's much better to send out 100 motorboats, rather than one huge aircraft carrier, into the unknown. I would bet on at least some of the motorboats making it, instead of the aircraft carrier, a sitting duck, which could get blown up.'