Singapore Economics

University Degree Business and Administrative studies

Question 1

Obtain data on GDP or GNP (real GDP data preferred) of a country for five years. Using the information gathered, discuss and assess the economic growth of this country. Explain the pros and cons of growth and provide evidences to prove your findings.
Suggest an alternative method of measuring economic welfare/happiness of a country.

Table of Contents

Introduction

Singapore is a highly developed and successful free market economy which enjoys stable prices, high income, is ranked 4th in the Corruption Perception Index in 2008 and is the 8th wealthiest country in the world. Singapore has established itself as a reputable international financial and trading hub.

Singapore’s economy largely consists of exports, entrepot trade and re-exports especially in electronics and manufacturing. MNCs account for more than two-thirds of manufacturing output and direct export sales, with heavy exports to countries such as China and US. With bulk of its earnings depending on exports, Singapore’s economic stability is closely linked with its fellow countries.

Economic Growth of Singapore

Property Right

Singapore has a strong property right, due to enforcement of strict laws. It has developed the necessary regulations to ensure its citizens and investors are well protected. Intellectual Property Rights Branch enforcement was established to protect against intellectual property rights infringements. Singapore is also known for its administrative efficiency and lack of red tape. The success of such measures was evident when Singapore was ranked 1st in 2007 as the easiest place to set up businesses. (GTI, 2007a).

Patents, Copy Right and Technology

The government developed Intellectual Property Office of Singapore (IPOS) to ensure that patents and copyright are well enforced. Such protection acts help to encourage innovation and technological advancements as entrepreneurs can rest assured that they will receive the due credit for their innovations.

Intellectual protection in forms of patents and copyrights are necessary to sustain Singapore’s economy. Singapore can no longer compete with countries like China as its labour costs are higher. It needs to look into developing new innovations to lower the cost of production so as to remain competitive. (Lim, H.K 2009).

Singapore has to ensure constant flow of innovative new technology into the country. Investors must have the confidence to invest money to develop their product here, to leverage on Singapore’s FTA

Source: ASTAR, 2006

Ever since, the number of patents applied and the expenditure on R&D increased yearly. The government also helped investors by providing funds for R&D, promoting entrepreneurship and attracting foreign talent. Human resource is the main resource that Singapore posses, the government have to ensure that people and their ideas remain locally. The government will continue to invest in R&D, manpower and infrastructure to strengthen long-term competitiveness. This sector accounts for $8,882 million about 20.4% of estimated government expenditure in 2009. (MOF, 2009a).

Financial Institution

Singapore has most efficient financial institutions, Monetary Authority of Singapore (MAS), which acts as the central bank and ranked 3rd for transparency in 2009. MAS are to promote sustained non-inflationary economic growth and financial agent for the government.

Investment in Human Resource

Source: Singapore Census of Population 2000 and the Inter-Ministerial Committee

Report on the Ageing Population (1999)

Singapore does not produce enough people for the work force each year as birth rate is declining and is grappling with an ageing population. To combat the declining birth rate in the country, the government encourages families to procreate via incentives such as the baby bonus and increased materiality leave.

Source: MOM, 2008

To make up for labour shortage, Singapore turns to foreign talent. The foreign labour force helps to meet the shortfall in the labour force and the keeps wages at a competitive level hence, assisting Singapore’s growth (Lee, H, L, 2009). ‘If Singapore is not aggressive in trying to woo talented migrants, it will face a serious brain drain’. (Goh, K.W.G., 2009) The aggressive pursuit of foreign talent has paid off with the increased number of foreign employment.

Literacy and Education

Soruce: SDS, 2009

The government takes every opportunity to ensure that its citizens ...

This is a preview of the whole essay

Source: MOM, 2008

Literacy and Education

Soruce: SDS, 2009

The government takes every opportunity to ensure that its citizens receive education and nurture their talents. $8 billion has been spent this year on education (MOF, 2009b). Primary education is compulsory for all citizens and special schools.

The graph above shows significant progress as 70% of Singaporeans have completed higher secondary education in 2008, as compared to 39.2% in 1998. Given the changes in technology, a highly educated work-force will be required to meet the growing demand for a skilled workforce.

Infrastructure

Singapore has been investing in infrastructure to make the country attractive for potential investors. Areas such as Jurong Island were developed into industrial parks to attract manufacturing firms.

Free Trade

Singapore adopts a free market system so that local industries can response to market signals and adjust their strategies appropriately. This also ensures that the economy’s limited resources are allocated efficiently.

FTA has been influential in helping Singapore-based businesses to improve international trade by eliminating or reducing import tariff rates, providing preferential access to services sectors, easing investment rules, improving IP regulations.

Singapore Growth Analysis

Source: SDS 2009

During SARS period in 2003, unemployment rate hit 4.0% with only 3.8% growth. In 2004, Singapore bounced back fetches a record high of 9.3% real GDP growth. All sectors achieved positive growth, with the exception of construction. However in 2005, the government decided to construct IR with the aim of boosting the tourism industry and creating more job opportunities. Construction grew stronger with 0.1% increase in growth in 2005 in comparison to 0.7% in 2009. Even the global crisis in 2008 did not stop construction from growing, in fact the demand for construction fetch a record high of $34.6 billion and created 64,000 job opportunities. (MTI, 2008).

Singapore has no natural resource; therefore Goods Producing Industries contributed 31% of the overall GDP, while the rest came from service sector. The total labour force of Singapore was 2.95 million and 32.1% came from Goods Producing Industries, while service sector accounted for the rest. (MOM, 2009)

Singapore economy registered growth of 1.1% in 2008, a significant fall from the 7.8% from previous year. Taking into account global economy and credit crunch, the sustainability of any incipient rebound is uncertain. Moreover, the severity of the Influenza A (H1N1) was a set back 2008.

Source: SDS, 2009

Export of goods is the main contributor of Singapore GDP good such as electronics and pharmaceuticals. In 2004 and 2007, there was a 7% growth but rate dropped to 1.2 % in 2008 because of global financial crisis. As trade is dependent on the US at around 19%, the collapse in trade due to the financial crisis spread to Singapore. The Government had to take active measures in assisting businesses overcome the challenges posed by the global economic slowdown and re-position the Singapore economy for the future. Administrative measures from the Resilience Package and SPURS aided those affected by the economic slowdown.

Source: SDS

Inflation in 2008, hit a record high of 6.5% since 1981, such as higher petrol prices, rise in cost of transport and food. The lowest income households absorbed the most impact with 7.4%. Data showed that the CPI rose faster for the lowest 20 per cent because more expensive food, accommodation and electricity tariffs were weighted relatively higher in the index for this group.

Regardless any crisis, Singapore has the capability to recover from adverse economic situations. Government are well prepared to ensure Singapore is economically sustainable. For instance Singapore is now focusing on different avenues for development in economy that will be less susceptible to demand cycles of world. Singapore economy invites in production of medical technology and pharmaceuticals.

3.1 Positive of Growth

Source: SDS, 2009

There are many benefits for economic growth, from the above graph, we can see a large sum of investments flowing into Singapore. This will boost the confidence of the economy, allowing the government to invest in education, infrastructure and reserve funds.

Source: MOM, 2009

Based on the graph above, growth is essential in order to keep unemployed low. The trend for job vacancy is increasing and unemployment declines.

Source: MOM, 2009

Individual wealth will increase together with growth. After studying the above data, when inflation rate is stable, an employee getting higher pay each. Hence, an individual will have more money for household expenditure and normal goods. In 2008, household expenditure averaged at $4,388 compared to $3,738 in 2002 (SDS, 2009). Also, the facilities available to people improved. 70% of households had internet in 2008 as compared to 2002, with 55% (SDS, 2009).

Life expectancy in 2008 reached 80.9 as compared to 75.3 in 1990 with healthcare made affordable. (SDS, 2009).

3.2 Negative of Growth

There can be negative repercussions in continuous growth as well such as the inequality of income. This will widen income disparity in the country.

Source : MOEWR, 2009

Air pollution is another repercussion that comes with economic growth. The increased output tends to put more pressure on the environment. Factories might produce more to meet growing demand and increase the strain on the environment.

Source : SDS 2009

From the graph, a proportionate increase in cars with growth in the economy. Singapore has to control the number of car preventing any further damage to the environment.

Source: SDS, 2009

The increase of companies and population will increase the amount of electricity consumed. The expansion of the economy comes at the expense of the quality of the natural environment (Bleys, B., 2009)

Source: URA, 2009

Singapore continually faces the challenge of meeting the development needs of a growing nation with limited land. From the above graph, it clearly reflects that when the economy is good, the price is increasing. Housing prices continues to rise as Singapore’s economy improves (Lee, K,Y., 2009).

Individuals will tend to be complacent. Individual will not upgrade themselves, resulting to a lack of skills to meet the change. In 2007, 150,000 training was conducted as compared to 200,000 in 2008 by WDA.

During the growth of economy, there will be a higher turnover rate. In 2004, the turnover rate hit as high as 2.4 %( MOM, 2009). Hence, employees were less loyal to the company which may result in inefficient work, cost of new employment and retraining.

Survey from GTI 2007b found that management work for 54 hours per week. From this survey, we can infer that individuals were spending less time with family. Additionally, Singapore is ranked among the top in the world for stress level at a stress level of 69% (Othman, D., 2009).

Source: SDS, 2009

Source: MOM, 2009

The increase of working hours and stress levels leads to family problems, resulting in increased social problem such as declining birth rates and increased divorce rates. The above statistics can be interpreted as an increasing trend of divorce average of 4% every year and decreasing birth rate a 16% decline in 2008 compare to 2004.

4.0 Introduction to Alternative Method on Happiness

Countries with high economic growth may not be good indicators that these countries are generally happy. It is rather, reflecting the standard-of-living and wealth of the countries. GDP does not reflect the income disparity and well being, or welfare. It also does not indicate whether this scale is relevant in gauging the ecological and social impacts of economic activities. Economic growth and economic welfare are thus thought to be closely related (Bleys, B., 2009).

4.1 Alternative Method on Happiness / Welfare

Another method of measurement that can be measured can be the Index for Economic Freedom (IEF). IEF measures the freedom a country’s citizen has to control his or her own labor and property. In an economically free society, individuals are free to work, produce, consume, and invest in any way they please, and that freedom is both protected and unconstrained by the state. In economically free societies, governments allow labor, capital and goods to move freely, and refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself.

They measure 10 core areas which are:

Business Freedom
Trade Freedom
Fiscal Freedom
Government Size
Monetary Freedom
Investment Freedom
Financial Freedom
Property rights
Freedom from Corruption
Labor Freedom

IEF provides more information on the nation progress. From the table we can see countries which ranked top for IEF are developed country such as Singapore and Hong Kong.

Source: IEF, UNDP, CIA (2009)

Economic freedom refers to the quality of a free market in which individuals voluntarily carry out exchanges in their own interests (Friedman, 1991).

Business freedom is the process to setting up a business, as government supporting individual to create business. In Singapore with just $15 you can register a business name, Government office is developed to assist any individual and fund support for potential business (Spring Singapore, 2009). Moreover with FTA with several countries this allow individual to have more opportunities in their business. There is freedom of speech and freedom of press. Certain countries like China where press and websites are blocked by the government.

5.0 Conclusion

There are numerous ways to evaluate happiness and welfare and there is no absolute solution. Money may make individuals happy, but some may classify better health care or world peace as being more important. Survey conducted showed that for 81% of Britain’s population would rather the government makes them happier than richer (Business week, 2006). As such, if an individual is just looking for investment opportunities, IEF is good measurement.

Countries have to adopt a mixture of all types of alternative measures such as economic welfare, well-being and sustainability to offer the best perspectives for policymaking. These entire measurements can be used to comprehensively assess the progress of societies

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APPENDIX

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