Remade in Singapore

Five years ago Singapore faced an economic crisis as competition from China and the outsourcing of service jobs threatened its hard-won prosperity. After a rapid makeover, it is making a strong comeback.

When a proposal to allow a casino in Singapore landed on Lee Hsien Loong’s desk in 2002, the then–deputy prime minister and Finance minister wasted little time in killing it. He fired off a missive to the head of the government’s tourism working group warning that casinos “could lead to undesirable activities like money laundering, illegal money lending and organized crime” and concluding that although “one can try to mitigate these effects, the long-term impact on social mores and attitudes is more insidious and harder to prevent.”

Lee’s rebuff was hardly a surprise. It reflected the uncompromising antigaming stance of his father, Singapore founder and longtime prime minister Lee Kuan Yew, who had worked assiduously to develop the city-state’s squeaky-clean image ever since independence in 1959.

Then in April 2005 the younger Lee made a stunning U-turn. Just eight months after his appointment as prime minister, he abandoned the government’s longstanding opposition and approved the opening of not one but two casinos. What was at stake, he argued, was not morality, but survival. Singapore’s share of Asian tourism arrivals had fallen from 8 percent in 1998 to 6 percent in 2002. By contrast, the former Portuguese colony of Macao, where gambling is the major attraction, was enjoying a boom. Last year tourist arrivals to Macao swelled by 40 percent, to 16.7 million — more than twice Singapore’s 8.3 million. Other Asian countries are also looking to open or expand casinos, while Hong Kong is hoping to lure leisure travelers with a Disneyland theme park that opened last year. Unless Singapore could come up with its own attractions, it risked losing out in the world’s fastest-growing tourism market.

The about-face on casinos, Lee explains, was no gamble at all. In a recent interview at his office in an annex of the Istana, the colonial-era presidential palace set in 100 acres of lush grounds off the bustling Orchard Road shopping district, he told Institutional Investor, “Eventually, we decided to do it because, as we understood better how these resorts operate and the way Las Vegas was going and the way the tourism scene was developing across Asia, it became clear that it was not just a plus which we were forgoing, but if we did not do this, we might be out of the game.”

Such pragmatism is a Lee trademark — and a key ingredient in Singapore’s transformation in the space of two generations from a poor colonial port to one of the world’s wealthiest cities, with a per capita income of $28,940, ahead of Hong Kong ($26,565) and not too far behind Italy ($29,014) and Japan ($34,590), according to the International Monetary Fund. The secret of the Lion City’s extraordinary success, Lee says, is “a willingness to work hard, make changes and adapt to the world as it is and not as we wish it to be.”

Thanks in no small part to that attitude, Singapore’s economic prospects today are brighter than they have been in years. The government recently upgraded the outlook for growth this year to between 6.5 and 7.5 percent, from an earlier forecast of 4 to 6 percent.

Still, Singapore can’t afford complacency. Competition from China and India is growing by the day, and recent economic gains, although impressive, have failed to touch the lives of many Singaporeans. The poorest 20 percent of the population saw their incomes fall nearly 15 percent in nominal terms between 1998 and 2003, to an average of 795 Singapore dollars ($506) a month, government figures show. Like policymakers around the world, Lee and his ruling People’s Action Party are aiming to restructure the economy while cushioning the impact on older, less qualified workers, who are being displaced as Singapore moves into higher-valued-added industries and services. Lee calls this “churn” one of the country’s biggest challenges.

Chee Soon Juan, secretary general of the opposition Singapore Democratic Party, says it’s a challenge the government is failing to meet. “They are clutching at straws,” Chee tells II. “If we have to resort to casinos to try to prop up the economy, I think we are in a lot more trouble than the government is letting on.”

Singapore was certainly in trouble five years ago. In 2001 the city-state experienced its worst recession since independence. The economy contracted by 2.3 percent, and unemployment hit a 15-year high of 4.7 percent. The country was still reeling from the 1997–’98 Asian financial crisis and the bursting of the dot-com bubble when it was hit by the global downturn that followed the September 2001 terrorist attacks on New York and Washington.

Tectonic changes in the global economic landscape exacerbated the downturn. The rise of China as the world’s workshop posed a threat to Singapore’s manufacturing base, which accounted for a quarter of GDP at the start of the decade. Factory output contracted by 11.6 percent in 2001, with the electronics sector plunging by 21.4 percent. Globalization also brought outsourcing pressures to the country’s services sector. Four out of every ten workers laid off in Singapore between 2000 and 2005 were in services.

To draft new strategies, then–prime minister Goh Chok Tong in late 2001 appointed Lee to chair an economic review committee. One year later that body recommended that Singapore transform itself into a knowledge-based economy driven by creativity, innovation and entrepreneurial spirit. Singapore should become “the most open and cosmopolitan city in Asia,” the committee said. More recently, Lee has said Singapore needs to create the “X-factor — that buzz that you get in London, Paris and New York.”

The country isn’t ignoring the needs of multinational companies in industry and services, which have fueled development here for the past 40 years, but future growth will increasingly depend on new markets. Lee’s economic committee recommended focusing on segments such as wealth management, medical tourism for wealthy Asians in need of hospital treatment, elite education for the region’s best brains and biomedical sciences. Those sectors are already kicking in: Emerging service industries have grown at about 11 percent a year since 2000, and they contributed 10 percent of GDP in 2005, up from 6 percent in 2002.

Singapore’s emergence as a wealth management center is one of the more notable success stories. Private banking assets have increased 20 percent annually for the past three years. Swiss giant Credit Suisse has decided to run its international private banking business out of Singapore in a move that could triple staff there, to 1,000, within two to three years.

“Where Singapore is building an advantage is in private wealth,” says Peter Douglas, founder of hedge fund consulting firm GFIA and head of the Singapore chapter of the Alternative Investment Management Association. “The product decisions for a lot of the world’s biggest private banks are being made in Singapore.”

Singapore also has been successful in attracting hedge funds. The Monetary Authority of Singapore, the country’s central bank and chief regulator, says there are now more than 100 hedge funds in the city-state, up from less than 20 before 2001. Douglas estimates that these funds manage between $20 billion and $25 billion in assets.

The economic resurgence means that “in the short to medium term, the government has adjusted the economy quite effectively,” says Garry Rodan, a Singapore expert and professor of political science at the Asia Research Centre at Murdoch University in Perth, Australia.

Still, two key challenges loom for the longer term. The first is how to assist those left behind by the restructuring toward higher-value-added activities. Unemployment stands at just 3.4 percent, well below its 2001 peak, but for unskilled workers older than 40, the rate is nearly twice as high.

Under a so-called progress package, the government handed out S$2.6 billion in cash to Singaporeans in April — just weeks before the general election — with payments weighted to the needy. But Lee acknowledges that the move “doesn’t solve the problem fundamentally. If you want to solve the problem fundamentally, you have to continue to create jobs which this group have a hope of learning to do.”

Thus the decision to allow two casinos, each of which will anchor what Singapore calls integrated resorts. The first, to be built in Marina Bay near the city’s financial center, is due to open by 2009; the other will be on the island resort of Sentosa, about 20 minutes south of the center. Together they are expected to cost S$5 billion, generate as much as 2 percent of GDP in revenue and create some 10,000 jobs directly and as many as 25,000 more indirectly.

Those expected economic benefits “set Singapore up to be a relative outperformer in Asia over the next three years,” says Christopher Gee, head of Singapore research at JPMorgan Chase Bank.

A bigger question is whether Singapore’s tradition of top-down development and strong central control can foster the open, innovative, entrepreneurial economy that Lee envisions. The government exerts a strong influence over the local economy, controlling five of the ten largest companies on the Singapore Exchange, including such blue chips as Singapore Telecom and DBS Group Holdings, one of the country’s top banks.

Singapore’s aggressive overseas investment strategy is generating some political tensions too. State-owned Temasek Holdings — headed by Lee’s wife, Ho Ching — has taken flak for recent purchases in Thailand and China. When a consortium led by Temasek bought Thai Prime Minister Thaksin Shinawatra’s 49.6 percent stake in telecommunications group Shin Corp. for $1.87 billion in January, it triggered political turmoil in Thailand because Thaksin paid no capital gains tax on the sale and because he was seen as putting a key national asset in foreign hands. Lee and his wife were burned in effigy on Bangkok’s streets, and Temasek’s stakes in Shin and a broadcasting subsidiary, iTV, have since plummeted in value. Antiforeign sentiment in China recently prompted Beijing to halve the Bank of China stake it had agreed to sell to Temasek, to 5 percent.

“In Asia there’s a tendency to see Singapore as a bull in a china shop that doesn’t think things through before it does them,” says Singapore-based independent risk management consultant Bruce Gale.

Opposition politician Chee criticizes the People’s Action Party, which has governed the country since independence, for possessing an authoritarian streak that he says is incompatible with the development of a dynamic society. Chee was declared bankrupt in February for failing to pay S$500,000 in damages after losing a libel suit brought by Lee Kuan Yew and former prime minister Goh Chok Tong over remarks he made during the 2001 election campaign. After the verdict, Chee read out a statement questioning the integrity of the judiciary, and was convicted in March of contempt of court and sentenced to eight days in jail. Chee and his sister, Chee Siok Chin, are currently facing a libel suit brought by Prime Minister Lee and his father over an article in the Singapore Democratic Party’s newspaper that linked a corruption scandal at the National Kidney Foundation to the way Singapore is governed.

Former U.S. ambassador Frank Lavin cautioned about restrictions on free speech in a farewell address last October, saying the government would “pay an increasing price for not allowing full participation of its citizens.” And early last month the government announced stricter controls on the Far Eastern Economic Review, International Herald Tribune, Financial Times, Newsweek and Time magazine. To continue to circulate in the country, the publications were each required to post a S$200,000 security deposit in case of lawsuits and to appoint a legal representative in the city-state to receive any legal actions. The moves came shortly after the Far Eastern Economic Review published an article about Chee entitled “Singapore’s Martyr.”

In August the government announced that its strict laws on protests — which require police permits for gatherings of more than four people outdoors — would not be relaxed during this month’s IMF-World Bank meetings. Police chief of staff Soh Wai Wah said the risk of terrorism justified the measure.

World Bank officials were seeking to negotiate a compromise late last month with Singaporean authorities to allow protests. “The bank’s preference for these meetings and all others has been to seek space for civil society to protest peacefully outside,’’ the bank’s East Asian spokesman, Peter Stephens, said in a statement. “That remains our preferred position.”

Lee dismisses criticism of the government’s stance toward dissent. In words that echo his father’s past extolling of “Asian values,” he insists that Singapore has the right model for its multiethnic society. “What you are looking for is not excitement in politics but the system which will give the country good government, stability, prosperity and progress,” he says.

Creating an innovative and entrepreneurial society is a long-haul challenge, Lee acknowledges, but he contends that the government is making progress. Schools are fostering a “spirit of vibrancy, of inquiry, of debate, of people being willing to speak up,” he says. The tiny city-state also has made a good start in promoting business innovation, he says, citing pioneers such as Sim Wong Hoo’s Creative Technology, the maker of the Sound Blaster system used in personal computers.

The prime minister and his team aren’t just waiting for homegrown talent to sprout. They are trying to jump-start the process by attracting some of the world’s best brains to Singapore. Recent recruits include David Lane, co-discoverer of the p53 gene that is found in half of all cancers, from the University of Dundee in Scotland. The government is more than doubling its spending on research and development over the next five years, to S$12 billion, and it has awarded grants and scholarships to more than 500 of Singapore’s best and brightest to study at top U.S. and European universities.

Will Lee’s gamble — seeking to foster an entrepreneurial economy while moving very slowly to loosen the apron strings of Singapore’s nanny state — pay off?

Consultant Gale wonders whether Singapore can succeed in the long run without more political liberalization, but he acknowledges that “people have been saying it will fail for a long time, and Singapore is still pretty successful. It’s hard to argue with success.” Murdoch University professor Rodan says the challenge for the government is “to reinvigorate the capacity of Singaporeans to be creative — and that’s not a simple thing.”

But Singapore has faced its share of challenges before and succeeded. When Lee Kuan Yew threw open the city-state’s doors to foreign investment back in the 1960s, few could have imagined that it would become one of the world’s most successful and wealthiest countries. With that track record, it’s no surprise that investors today are betting serious money on the younger Lee, and Singapore, playing another winning hand. I

View from the top: An interview with Prime Minister Lee

In January 1983 an oil rig being towed out to sea became entangled in the lines of the cable car system linking Singapore to the Sentosa Island resort. Two cable cars plunged into the ocean, killing seven people, while 13 others were left dangling precariously in high winds, thunder and lightning. Lee Hsien Loong, then a 30-year-old colonel and chief of staff of the Singapore Air Force rescue squadron, quickly sprang into action. He organized a delicate six-hour helicopter rescue in which airmen winched down and plucked the terrified passengers to safety.

Ever since then, it seems, Lee, now prime minister, has been called on when Singapore faces a crisis. In 1985, one year after entering Parliament and serving as junior minister in the Ministry of Trade and Industry, he was put in charge of a committee charged with steering Singapore out of a severe recession. His recommendation to cut corporate taxes and slash employers’ contributions to the country’s mandatory pension scheme helped the economy rebound quickly.

In early 1998, Lee’s father, Lee Kuan Yew, then senior minister, called on his son to revamp the city-state’s overregulated and uncompetitive financial services sector. Lee eased regulations, promoted asset management, urged the stock and futures exchanges to merge and set in motion the deregulation of brokerage commissions, all of which helped spur dramatic growth in the financial sector. More recently, Lee chaired a separate committee that helped the country bounce back from its 2001 recession by devising strategies to cope with the globalization of service sector jobs and the rapid rise of China as a manufacturing powerhouse (see story).

Thus, when Lee became prime minister — the country’s third, after his father and Goh Chok Tong — in August 2004, he was seen as an ultrasafe pair of hands to take the helm. “Lee Hsien Loong has not been in the back seat for the past ten or 15 years,” says Garry Rodan, an expert on Singapore politics at Murdoch University in Perth, Australia. “He’s been in charge of the major economic portfolios, and he has been deputy prime minister, and he has had a significant say in most major policies. He is on a trajectory that was largely set before he became prime minister.”

Lee also has faced major crises in his personal life. In 1982 he lost his first wife, Wong Ming Yang, to a heart attack three weeks after she had given birth to their second child. A decade later Lee was diagnosed with colon cancer; he underwent three months of intensive chemotherapy and was given a clean bill of health five years later.

He married Ho Ching, a Stanford University–educated electrical engineer, in late 1985; they have two sons. Ho ran defense contractor Singapore Technologies for five years before being appointed chief executive of giant state investment company Temasek Holdings in 2002.

Lee’s interest in politics was nurtured by his father, who founded modern Singapore in 1959 and served as prime minister for 31 years. Lee Kuan Yew began to take his son on constituency visits when the boy was 11. The younger Lee graduated from the University of Cambridge in 1974 with a first-class degree in mathematics. He obtained a master’s degree in public administration at Harvard University in 1981, then joined the Singapore armed forces, rising to become a brigadier general before entering politics in 1984.

In late June, Lee, 54, met with Institutional Investor Editor Michael Carroll and Hong Kong Bureau Chief Kevin Hamlin to discuss key issues affecting Singapore and the global economy.

Institutional Investor: Singapore’s development over the past 40 years has been an extraordinary story that you must be proud of. What are the key elements of this success story?

Lee: Well, first, we had to fight for our lives and come through. That was seminal because it set everybody’s minds to work together and make this place work. Secondly, I think there was a willingness to work hard, make changes and adapt to the world as it is and not as we wish it to be. Thirdly, we tried very hard to work as one country, as a national team, because the world is complicated enough without having internal complications. With a multiracial and multireligious society, it was crucial that our society stayed together harmoniously so that we could solve our problems together. Fourthly, I would say leadership. The first-generation team was exceptional in commitment and skills. They renewed themselves and brought new generations of leaders in so that we didn’t grow old and become a gerontocracy. Finally, I would say the right policies. We went for free markets, free trade and foreign investments. We decided that it was more important to create wealth than to redistribute in a socialist sort of way. So we were able to make this economy succeed and give everybody a stake and a share of this success. The challenge now is to keep it going.

Does Singapore’s economic success story provide lessons for other developing countries?

We are very hesitant to set ourselves up as a “city upon a hill.” We are small; our circumstances are very special. We succeeded, but it was not foreordained. Maybe if you talk about good governance or rational economic policies or absence of corruption, these are principles which apply to everybody. How you work them out in each country, how you get the political consensus to implement them — that, you have to decide country by country, because I don’t think our formula is exportable.

How do you assess prospects for the global economy and Singapore?

If you look at the trends, the American economy is strong but slowing, with some concern of inflation. The saving grace is that the rest of the world is picking up some of the slack, at least in terms of growth. Japan is out of its problems. Europe is still very slow, but if you look at Germany at a micro level, things are improving. Asia itself will continue to grow. There’s a considerable momentum within China and India too. So I think that overall we are reasonably confident that things will carry on. What you don’t know is if there is some blowup or some incident in the Middle East which disrupts the energy supplies, and so you have a spike in prices and end up with a global recession.

You spoke recently about the danger of the rise of economic nationalism. Can you elaborate on that?

It’s a problem in a lot of countries. The result of very big new players coming into the global economy — China first and then India — will cause major shifts in the pattern of trade and considerable apprehension both for the Europeans and the Americans. It is a worry on the economic side as well as the strategic side. There’s always this pressure to hold back, to prevent a deal from going through when it is politically inconvenient. It happens with steel, it happens with agriculture, it happens with textiles. Mittal buying Arcelor — a highly fraught deal. Dubai Ports buying half a dozen ports in America caused an enormous explosion which even the administration didn’t expect. One American told me that the mail to congressmen was running ten-to-one against, so no congressman was going to stand up and say, “I believe in principles.” But the more we cave in to this and the less people understand that it’s good for countries to have stakes in one another, then I think the more the potential for friction, rivalry and, therefore, fragility in the globalized system. And that worries us greatly because we are small; we are completely dependent on a globalized system. I have to embrace globalization, and if having one partner is risky, I try to have more partners and find safety in numbers. I think that it’s the duty of the leaders to stand up and say, “The world is changing, and we have to change with it.” You have to find ways to make the message acceptable and to buffer the downside, but it’s your duty to do it. I think Angela Merkel is trying, the British are very much along this way. The Bush administration — well, this is the rhetoric, but when it comes to specific deals, sometimes it makes expedient trade-offs. What to do? That’s the reality of your political system.

Are you optimistic about the Doha round of world trade negotiations?

We are worried because it does not look like the stars are in the right places. The mood in America for opening up is not strong; the mood in Europe is not there at all. I think that some way or other, a deal will be cobbled together, but I fear that it will not be as ambitious a deal as we ought to have.

Five years after 9/11, how would you assess the security situation here in the region and in the world?

We’ve made progress in the war on terror. Knocking out Al Qaeda, and knocking out terrorist elements in Southeast Asia. But the problem is not over because it morphs. It’s not just a centralized group but a dispersed virus infection. The British group last year who bombed the London Underground were indigenous. They spoke Yorkshire English and were born in England. The Canadian group was indigenous too, and now they’ve found a group in Chicago which is homegrown. So I think that the virus is in the air and you cannot prevent incidents from time to time. What you have to do is make sure there’s confidence between the Muslim community and the non-Muslim community, and the Muslim community sees this as their responsibility, that these are people who do not represent the soul of Islam and we’ve got to reject them. You’ve got to condemn them. You’ve got to make quite clear that you stand differently from them and that we are all for progress and harmony and peace and living together. If you just go fighting the terrorists, you can make progress, but you can’t kill them off because really the seeds are upstream. It’s in the ideology, it’s in the preachers.

Singapore was an early enthusiast for free markets, but now, as you see greater competition coming from China and India, how do you stay ahead?

We still have to go on free markets because if we close ourselves up and try to make a living by ourselves — 3 million, 4 million [people] — we are going to starve. It’s not possible. Even America can’t make a living by itself. So you have to make a living based on talent, based on skills and based on the ability to perform together. There I think we have an advantage because as a small country there are things which we can do which a huge continent cannot do so quickly. We can get everybody on the same wavelength, we can change policies when we need to, and if we need to bring in talent and need to create a new capability, we can focus our resources, train our people and produce the skills which we need.

What do you see as the biggest challenges for Singapore’s economy over the next five to ten years?

You need to be prepared to move out of old activities or transform the old activities at the same time as you bring new ones in. To bring new ones in, you need to train people in the new skills; you need to get your young people educated in the right disciplines and across the spectrum. But to get out of old activities, that’s another set of problems, because you can’t just say, “Well, the old jobs are gone, and these people are left on the streets.” You’ve got to be able to retrain them, to reskill them, to give them another career, to give them hope that this upgrading actually gives something for them too and they are not just thrown out. And that’s very tough. We just published our household survey. The bottom three deciles had no wage increase at all over ten years. I believe that for the unskilled workers it’s not easy to push the wages up, because if you try to push them up, the jobs will move elsewhere. This is a dramatically different pattern from what it was before the Asian crisis, when our nominal wages were going up maybe 9, 10 percent a year at every income decile. Now it’s a couple of percentage points per year, and if you look at the topmost segment — lawyers, bankers, accountants — they are doing very, very well.

A few years ago there was great concern about whether Singapore could compete with China. Yet manufacturing’s share of GDP has actually gone up in recent years. Can that continue?

You must assume that what you’re doing today they’ll be doing tomorrow and in some cases they’re already doing today. The Chinese ambition is not to be low-cost labor. The Chinese ambition is to improve the lives of their people, and in fact their wages are going up, and their skills are going up, and if you look at what the multinationals are doing, the kind of activities they’re putting into China now are not just sweatshops but also R&D centers. Take Microsoft. A couple of years ago when we were upgrading our computer systems in MAS [Monetary Authority of Singapore], we found that they were supporting us technically out of China, out of Shanghai.

So you must have skills which will match them, and you must have an environment which will match theirs or be better than theirs. And I think you can do that, because you can’t transform the whole of China overnight. If you’re talking about intellectual property rules, we can enforce them. If you’re talking about having a completely transparent environment for running a financial system, we can have that. If you want an incorrupt government so that everything works, you can do everything completely aboveboard, we can do that. The Chinese are striving for that, but it is not something they can do overnight.

You have said the decision to allow casinos into Singapore was the most difficult you have taken as prime minister. Why?

Because if you’re making a decision where the advantages are clear-cut and the opinions are not polarized, it’s easy to do. But here the advantages were not so clear, and the dissenters had valid arguments, which we ourselves subscribed to for a very long time. But now the world is changing, and we’re starting to think that we have to reexamine our position. Eventually, we decided to do it because, as we understood better how these resorts operate and the way Las Vegas was going and the way the tourism scene was developing across Asia, it became clear that it was not just a plus which we were forgoing, but if we did not do this, we might be out of the game. And so we really did not have a lot of choice.

So the question was, how then do I buffer my people? This is going to be on the Marina Bay front, right in the middle of the city. So it has to be a salubrious, decent place which I am going to be proud of. And if it looks like a seedy, rundown riverboat joint, I will have a problem. I will be very sorry for 60 years, at least.

How do you view competition from India?

We wish that India will take off, because from Southeast Asia’s point of view, with India as well as China, it will be a more balanced pattern of development for Asia. And we think there are many opportunities in India opening up for us to link up with them. It will mean competition for us, but I think we can do business with them.

Is Dubai, as it expands into port services, financial services and tourism, trying to steal Singapore’s rice bowl?

Oh, yes. They don’t say they want to be like Singapore, they say they have overtaken Singapore. Well, we take that in our stride. I have not been to Dubai. I am told that it is a fairyland, things coming up everywhere — shopping centers, hotels sprouting. I think they will pose some competition. Emirates Airline is a good airline. We take them seriously.

Do you see competition from Dubai as a major economic challenge?

It depends on what segments you are talking about. If you are talking about tourism, we are in different parts of the world. In financial services, they are in a different time zone. But if you are talking about Islamic banking services, they will have some strengths to compete against us.

Is Singapore’s overseas investment strategy working or do you worry about a backlash against foreign investment in some countries?

If you are in the region, there are sensitivities. Even in America there could be sensitivities. When one Temasek company invested in Global Crossing, it went through the CFIUS [Committee on Foreign Investments in the United States] process. It was quite a delicate business maneuvering it through. But we accept that as one of the constraints. It’s partly because the owner is the Singapore government. But I would say it is not just that. Even if it were a Singapore private entity that size investing anywhere in Asia, it would be noted. In some parts of the world, it is a plus. I mean, if you invest in China, the Temasek imprimatur is worth something because if Temasek goes in, then it is a sign that Temasek has done its homework and believes that this is a serious proposition and financially viable. But there are other places where it raises sensitivities.

A good example would be Thailand [where a Temasek-led consortium bought 49.6 percent of Shin Corp.].

Yes. But in Thailand, of course, [Prime Minister] Thaksin’s enemies were out for him before Shin was sold. In fact, his family sold Shin in the hope of minimizing his problems with his enemies.

Given what has happened to iTV [the Shin Corp. subsidiary has plummeted in value], do you think in retrospect that there was a mistake?

You will have to ask Temasek. I am sure they have done their homework and evaluated their worst-case scenarios. I don’t think they expect to lose money.

Given what happened in Thailand, were there lessons learned that will prompt you to reformulate your overseas acquisition strategy?

No. I think each time Temasek goes in, it has to calculate the political risks. This is a commercial decision, and we have to operate that way because if it becomes a political decision and we invest or don’t invest for political reasons, I think that leads us into even bigger problems. The decision has to be a commercial one. I am sure, if you ask Temasek, that will include allowing for the possibility of their running into political difficulties.

Your People’s Action Party’s share of the vote declined in May’s general elections. Do you see that as a setback?

No, I don’t. The last election [in November 2001] was an anomaly. We had 75 percent of the vote, and it was because we held it immediately after 9/11, and there was a flight to safety. Every Singaporean knows that in a crisis you want the PAP to take charge of the government and to take charge of Singapore. Our purpose is not to create a crisis, but to get out of a crisis. And in the last five years, we have been successful in doing that several times. It was not just 9/11, but also SARS and other problems which came after that. And we went to elections this time with the economy having had two strong years of growth, unemployment down, confidence up. So we were not aiming for 75 percent. Sixty-six percent is the best we have had since 1980, except for 2001. So I think it is a good mandate.

Thirty-three percent of the voters end up with only two seats in Parliament. Does that make the system look somewhat unrepresentative?

The NCMP [nonconstituency members of Parliament, or seats allotted to leading opposition candidates] will have three. But it is not meant to be a proportional representation system. It is first past the post. It’s designed to produce a decisive outcome, so the government which is elected is able to govern the country and not have gridlock in Parliament.

What is important is that the PAP represents a broad mainstream of views. I don’t see the government’s responsibility as being to help the opposition to grow. There has to be a mechanism where they can express their views, speak up and present their alternatives. Their members of Parliament can do so in Parliament. It doesn’t depend on the number they have. It depends on whether they can articulate and present their arguments. Unfortunately, if you look at their performance over the last few years, they have not been offering alternatives.

The young seem to want faster change. In a recent local television program, a group of young Singaporeans told Minister Mentor Lee Kuan Yew that they wanted choice, political vibrancy and a media that can reflect both the views of the opposition as well as the ruling party. Is this a growing problem?

Well, I think there is some sentiment among the population which is reflected by that quote. But you would have read the transcript of the program or watched it and heard Minister Mentor’s explanations and replies, why he didn’t think that this was the whole story and why it is that there are constraints and limits and finally what you are looking for is not excitement in politics but the system which will give the country good government, stability, prosperity and progress. If you go for a system based on theoretical ideals, well, you can look around for examples where it has worked in Asia, and I think you will find it hard to come up with good examples. I mean, you have seen the Philippines. They have got the most comprehensive set of fair and balance, checks and restrictions you can think of.

Which was a gift to them . . .

From the U.S., which they were very grateful for. And they added to it after EDSA [the People Power mass protests that forced Ferdinand Marcos from power], but it hasn’t worked. They are trying to change to a prime ministerial system. Ramos tried, didn’t succeed. You look at Taiwan, and that’s got a very open system, completely open media, dozens of television stations. I’m not sure that’s a model you want to follow. Or you look at even at India. It is a democracy, but it works in a completely different way from Singapore. Now without Congress dominance, you have a coalition government with parties preventing it from doing things which are desperately needed for the country. So I don’t think if you look around Asia you will find very many examples of ideal democracies working according to the textbook as written by the Western liberals or by idealistic young Singaporeans who list the desiderata. But what we do have in Singapore is a system of democracy which works, adapted to our circumstances and where the system remains open and if you disagree with the government, you can come in, you can contest, you can speak up and be heard.

A former U.S. ambassador to Singapore [Frank Lavin] and financier George Soros said a similar thing — that prosperity has come at the cost of political freedom, and without such freedom Singapore will find it hard to compete in the 21st century. Do you agree?

I think it depends what you are looking for. If you are looking for something which George Soros’ Open Society foundation will support, well, maybe that approach works in Eastern Europe, perhaps.

We have had a long-running argument with the U.S. government, more intense in earlier years, over media freedoms and where the boundaries lie. And at the time, when we acted against a group which the U.S. government was overtly supporting in the 1980s, we had a very strong exchange with them and we put it all on the record. And they used to say, “Why do you impose these limits? Why do you lock up people without trial?” That was before Guantánamo Bay and before George W. Bush objected to the New York Times publishing facts about financial transactions being secretly screened. Now perhaps we are not as far apart.

Singapore has been called the nanny state. How do you loosen up to encourage greater creativity and entrepreneurship?

That is a theoretical argument. What is true is that you do want a spirit of vibrancy, of inquiry, of debate, of people being willing to speak up. And if you look at our schools, you will find that, in fact, we have gone a long way toward doing this.

The atmosphere is not as you’ve described it: stifled, tight, buttoned-down, with somebody standing behind every last lamppost, trying to find out what is going on. Spend some time, walk around the streets, meet Singaporeans, talk to them. All sorts of views are expressed. Read their blogs. There is a young lady who had a few minutes of fame because she attended a seminar with a permanent secretary in the Foreign Ministry, and she, [17-year-old student blogger] Gayle Goh, wrote criticizing him. He replied and had an exchange with her. It was a very civilized exchange. I don’t think he persuaded her. And I don’t think she is tied down.

In your personal life you’ve faced tragedies: the loss of your first wife and your own battle with cancer. How have these experiences influenced you?

You cannot go through something like that without it leaving a mark on you, and if after that you’re still a teenager, something is not quite right. But you have to move beyond that, and you have to deal with the world as it is and the problems which you face now, not what happened to you in the past. It affects your outlook. It affects the way people see you and empathize with you, which is helpful. But really, in life I think there will be very few people my age who haven’t had some personal crisis or other to go through. i

An island of determination

As a port on the Strait of Malacca, one of the world’s major shipping lanes, Singapore has always been a vital crossroads. Trade has long defined the city-state’s economy, and a variety of ethnic, cultural and religious influences have shaped its society.

Size: 692 square kilometers, nearly half the size of greater London

Population: 4.5 million

Ethnic makeup: 77 percent Chinese, 14 percent Malay, 8 percent Indian

Colonial era

In 1819, British East India Co., led by Sir Thomas Stamford Raffles, signed an agreement with the sultan of Riau and Johore establishing Singapore as a free port. Trade in medicine, tea, spices, rice, opium and metals flourished with China, Siam and Vietnam. Raffles created a city plan with separate districts for the major ethnic groups — a concept that survives today in racial quotas for public housing.

In February 1942, Japan captured the city in the Battle of Singapore. Britain regained control in September 1945 before granting independence in 1959.


In 1954, Lee Kuan Yew and three allies founded the People’s Action Party, which championed workers’ rights and Singaporean independence. The party won 84 percent of the seats in the 1959 election for Singapore’s first self-governing assembly. Lee became prime minister, a post he would hold for the next 31 years. In 1990 he was succeeded by Goh Chok Tong; his son Lee Hsien Loong was appointed prime minister in 2004.

Believing that Singapore was too small to survive on its own, the elder Lee took the country into a federation with Malaysia in 1963. But tensions between Malaysia’s ruling United Malays National Organization, which favored a policy of positive discrimination for ethnic Malays, and the PAP, which had its base in Singapore’s Chinese majority, erupted in riots in 1964 and led to the federation’s breakup in 1965.

Economic policy

Determined to ensure Singapore’s self-sufficiency, the government adopted an export-led growth strategy with tax breaks for exporters and multinational companies. By the late 1980s the biggest industries were computer and telecommunications equipment manufacturing, petroleum refining and oil trading. More recently, the government has encouraged services and science: It invested 500 million Singapore dollars ($287 million) in a biotechnology complex, dubbed “Biopolis,” which opened in 2003, and it has sought to recruit internationally renowned scientists.

Per capita income, which at $427 in 1960 was approximately half of Japan’s and a quarter of the U.K.’s, has since closed the gap; it now stands at $28,940, not far behind Japan ($34,600) and the U.K. ($36,900).


Rather than foster a “melting pot,” the government has sought to create a Singaporean identity that preserves the country’s racial and cultural diversity. There are four official languages: English is used in government, business and education, while Mandarin, Malay and Tamil are considered languages of culture and values.

Lee Kuan Yew was a vocal proponent of so-called Asian values, a Confucian-influenced concept that emphasizes the importance of family and community over individuality, as well as allegiance to the state, hard work and social discipline. — Danielle Beurteaux