Brexit UK dreams of Singapore solution
The two economies are starting from quite different places and to believe otherwise is magical thinking
Inside two months, the UK might have crashed out of the EU into a “no deal” limbo. What happens then? For some Brexiteers, the answer seems to be to blame this disaster on the EU and then turn the UK into Singapore, or what they imagine Singapore to be.
These people are right on one thing: Singapore has been a great economic success. But it is not a laissez faire paradise.
On the contrary, its success has been built on hard work, forced sacrifices and a (relatively benign) authoritarianism.
We should learn from Singapore, but must not think it a plausible model for the UK’s future.
Of the economic successes of the UK’s former colony, there is no doubt. By 1980, Singapore’s real gross domestic product per head had converged on the UK’s. By 2018, it was more than twice as high. According to the IMF, Singapore’s real GDP per head is fourth in the world (after Qatar, Macau and Luxembourg).
As a city-state with a tiny domestic market, Singapore’s future lay in attracting foreign multinationals and skills. With no domestic market to speak of, free trade was an obvious choice. But free trade is not laissez faire. Singapore promoted new industries. It continues to have large shareholdings via Temasek, its sovereign wealth fund.
Singapore has exploited a superb location in the fast-growing Asian region, its increasingly high-quality workforce and low taxes to turn itself into a premier hub for international business. But it has also participated actively in regional integration via the Association of Southeast Asian Nations. Crucially, the reliability of Singapore’s “offer” to the world is underpinned by the fact that just one highly competent governing party has ruled it throughout its history as an independent country.
Among complementary explanations for Singapore’s fast growth is that it invests so much: between 2008 and 2018, it invested an average of 29 per cent of GDP, while the UK invested a mere 17 per cent. This also helps explain why Singapore’s infrastructure is exceptional.
Singapore had a staggering savings rate of 47 per cent of GDP in those years, against the UK’s miserable 12 per cent. Singapore’s gross savings rates are heavily distorted by inclusion of the profits of multinationals. Yet even savings rates in “indigenous GDP” have been around 30 per cent.
One explanation for these high savings is the “central provident fund”, which compels workers and employers to contribute 37 per cent of wages and salaries up to age 55. People use this money for house purchases, health and pensions: it is Singapore’s alternative to a redistributive welfare state.
Another explanation is fiscal surpluses: between 2008 and 2018, these averaged 5 per cent of GDP. Amazingly, Singapore’s net international assets reached 340 per cent of gross national income in 2017.
How can anybody imagine this is
How can anybody imagine this is a credible model for Brexit Britain?
a credible model for Brexit Britain? Far from being able to offer stability to global businesses, the UK is busily blowing up the basis on which many of them came to the UK. Far from guaranteeing favourable access to its most important regional economic arrangement, the UK is leaving it, possibly without any deal at all. And, far from being a city-state of 5.6 million people, the UK is a geographically, socially and politically diverse democratic polity of 66m. Its future should not — and will not — be determined by people and businesses enticed by turning it into nothing more than a haven of low taxation and light regulation. That cannot stand.
It would be wrong to argue that the UK lacks everything Singapore possesses. Its civil service is non corrupt, for example, and the rule of law remains entrenched. It would be quite wrong, too, to argue that the UK is unable to learn a great deal from Singapore. Indeed, it would be a good idea for the UK to learn from successes elsewhere. A determined effort to raise abysmally low savings and investment rates, improve infrastructure and transform educational standards, all hallmarks of Singapore’s development, would be highly desirable. Singapore has also raised home ownership to an extraordinary rate of 91 per cent. All these are achievements from which the UK could seek to learn. But they also demand difficult political choices and sacrifices. The idea that eliminating tariffs and regulations and slashing taxes will deliver broadly-shared prosperity in post Brexit Britain is a fantasy.
The Singapore example is far more complex and nuanced than that. The two economies and polities are starting from different places, with different histories and possibilities. To believe otherwise is magical thinking. To inflict magical thinking on real lives is an unforgivable political sin.