Despite having minimal natural resources, Singapore has emerged as one of the most advanced economies in the world due to its unique blend of liberal economics and efficient governance.
Singapore gained independence in 1965 with a GDP of $975 million. Today, its GDP totals close to $400 billion.
Even more remarkable is that it has managed to perform this growth with a workforce of only three million people. This gives it the second-highest GDP per capita in the world.
Modern Singapore ranks number one worldwide for economic freedom, labour force quality, and lack of future political risks. It is also the fourth least corrupt country in the world.
This has led to the country being called the “20th century’s most successful development story”. Prominent economist Milton Friedman famously said it is the perfect example of how to do development right.
Singapore’s economic success can be traced back to an intense economic and political reform period in the late 1960s and early 1970s.
From independence in 1965 to 1972, its economy grew at over 10% per annum under the leadership of Lee Kuan Yew.
Singapore’s success can be attributed to free trade and free capital. However, its clampdown on corruption and crime also played a major role in attracting investment.
Furthermore, its government was intimately involved in developing several key sectors of the economy, such as shipbuilding and electronics.
Singapore’s lack of natural resources and an industrial base forced it to look abroad for investment and productive capacity.
It looked to the example of Israel, which managed to leapfrog its Arab neighbours, as an example of developing without resources.
Singapore sought to mimic Israel’s strong ties with European nations and the United States and encourage them to invest in it.
To make itself attractive to foreign investors, Singapore liberalised its economy by reducing import tariffs, decimating capital requirements, and streamlining approval and licensing processes.
Famously, you can start a business within three hours in Singapore.
However, Singapore also had to create an environment free of corruption, crime, and instability which plagued many of its neighbours.
To this end, Lee Kuan Yew began an intense anti-crime campaign with the death penalty instituted for drug dealing and “intensive corruption”.
Trade unions were repressed and consolidated into an organisation controlled by the government, with any threats to Singapore’s stability dealt with swiftly and harshly.
This draconian yet business-friendly environment became very appealing to foreign investors, with over a quarter of all firms being foreign-owned or funded by 1972.
Capitalising on foreign investment
Singapore did not rest on its laurels but instead sought to capitalise on increased foreign investment.
In particular, the government used its new-found revenue to invest heavily in technical colleges and key industrial sectors, such as shipbuilding.
Most crucially, Singapore pushed multinational companies to train local workers in high-skill industries such as electronics, medicine, and aerospace.
Thus, by the 1990s, Singapore was no longer an exporter of textiles and garments. Instead, it now exported semiconductors, biotech hardware, medicines, and aerospace components.
It has now become one of the most advanced economies on Earth. Over 3,000 multinational companies operate in Singapore, with a GDP of nearly $400 billion.