SPEECH BY BG LEE HSIEN LOONG DEPUTY PRIME MINISTER AT THE NANYANG TECHNOLOGICAL UNIVERSITY (NTU) STUDENTS' UNION FORUM ON FRIDAY, 10 FEBRUARY 1995 AT 6.00 PM

SINGAPORE'S STARR IN THE 21ST CENTURY AND THE ROLE OF UNDERGRADUATES

Introduction

I am happy that you have invited me to talk about 's stake in the 21st century, and the role of undergraduates. We are living in an exciting period, and it is useful from time to time to sit back from day to day preoccupations and take stock of longer-term trends which affect us. I propose to review how successful Singapore has been so far, and how strong is the competition we face. To illustrate how we respond to competition, I will give examples of how we maintain Singapore's position as a regional hub, in telecommunications, in sea and air transport. The key lesson from these examples is the absolute imperative of always staying ahead of the competition, fully expecting others to follow in our foot steps and occupy the place we stood not so long ago. Finally, I will discuss three long-term issues which face Singapore: Maintaining social cohesion, maintaining the vigour and vitality of Singapore society, and managing the high expectations of the population.

Success and Challenges

What will the world be like in the 21st century? We cannot forecast the future, but we can see where present trends are leading. The pace of change, driven by technological 2 progress, will be even faster than today. The global economy will be more tightly integrated and interdependent, as advances in technology and higher standards of living will depend on greater economies of scale and international division of labour. Human resources rather than natural endowments will be the key ingredient of economic success. The premium on skills and knowledge will be even larger. Barring major upheavals, and especially assuming that all goes well in China, the Asia Pacific should be a prosperous, dynamic region, a major centre of the global economy.

The progress of the region will either help us to a progress with it, or else leave us behind. Whether we progress or fall behind depends on what we do.

We are doing well. The World Bank recently published figures comparing the per capita Gross National Product (GNP) of countries, adjusted for purchasing power parity (PPP), i.e. allowing for differences in the cost of living in different countries. We rank very high - ninth in the world. The only countries ahead of us are Luxembourg, US, Switzerland, Hong Kong, Japan, Germany and some oil states. We are ahead of all the European countries except Germany. In PPP terms, our per capita income (US$20,470) is only 20 per cent lower than the US (US$24,750).

This high ranking did not happen by accident. We achieved it by getting our overall policies right - maintaining high savings rates, emphasising education and training, investing in infrastructure, avoiding handouts and state welfare. Foreign investors and the financial markets know this. Recently, financial markets around the world were shaken by the devaluation of the Mexican peso. The currencies of several countries in this region came under speculative pressure, because investors worried that what had happened to Mexico could also happen to them. The Singapore dollar was hardly affected. Unlike the other central banks, the Monetary Authority of Singapore (MAS) did not have to 3 raise interest rates to support the Singapore dollar, In fact, money came into Singapore, to seek refuge during the unsettled conditions.

The Asian Wall Street Journal (AWSJ) recently published an article on "Other Mexicos in the Emerging World" by David Roche, president and global strategist of Independent Strategy in London. [AWSJ, 6 Feb]. Roche studied all the "emerging markets" in the developing world. He constructed an index to measure the key social, economic, political and cultural success factors in economic development. On this index, Singapore ranked top among all the countries studied. Hong Kong ranked second after us. We are an emerging market, not a submerging one.

Roche described the common features of successful emerging economies:

"First, they have homogenous societies that focus on getting rich and have legal systems to match that ambition. Second, they finance over 95 per cent of their development needs out of their own pockets and limit expenditure on external finance to long-term money inflows not exceeding five to six per cent of gross domestic product (GDP). Third, their governments boost domestic national savings rates by running budget surpluses (or at least balanced budgets), and focus resources on education, health and industrialisation. And fourth, their economies are wide open to international trade, and run current account deficits no greater than three to four per cent of GDP."

These are precisely the policies that we have followed. 4 Roche goes on to cite Singapore as an example of how successful economies manage capital inflows by letting their exchange rates appreciate:

"A rising currency gives a market signal to domestic producers: Move your product upmarket and boost productivity, or else lose competitiveness in domestic and export markets. Singapore has been producing ever-more sophisticated goods for years, while letting the currency appreciate. The rest of Southeast Asia will have to follow."

We are therefore well prepared to compete and to benefit from the dynamism of the region. But our high income level also means that we are now up against formidable competition. The competition is not so much our immediate neighbours Malaysia and Indonesia. We are also competing against the other emerging economies who are getting their fundamentals right e.g. Hong Kong, Thailand, South Korea, and in the longer term, China. In fact, to some extent even the developed countries are our competitors. Our PPP-adjusted per capita GNP may be higher than many European countries. But our economy does not yet have the depth, breadth and maturity of theirs, whether in terms of educated manpower, technological know-how, or well-established MNCs. More than once, the Economic Development Board (EDB) has competed for an investment project, where the alternative to Singapore has been not another developing country, but a European country or a state in the US. so to sustain real income levels comparable to the developed countries, Singapore needs to equal the performance of the developed countries, if not across the board, then in specific key niches.

This formidable competition means that it is entirely possible for us to fall behind, and lose our edge over others. We have become so used to 25 years of apparently effortless success that we may find it difficult to imagine that this can 5 happen. But in fact it can easily happen. External factors totally beyond our control may overwhelm us, despite all that we do. A global economic crisis may cause the world trading system to break down into protectionist blocs, and deprive us of export markets, without which our industries cannot survive. Or serious difficulties in some countries in the region may undermine regional stability and order, and prevent the other countries from prospering peacefully as we have done thus far. Alternatively, something may go wrong within Singapore. We may become complacent, or elect an incompetent government, or pursue wrong policies which bankrupt us e.g. welfare. Then we will suddenly find ourselves off the virtuous circle of high growth, budget surpluses and rising incomes, and in a vicious spiral of a stagnant economy, budget deficits and poverty.

Preserving Our Hub Status

An important strategy for economic success has been to make ourselves a regional hub for all kinds of business activity. This is how we have become a telecommunications hub, a sea hub and an air hub. This hub position is not the inevitable result of any natural geographical advantage or monopoly position. It is the result of deliberate effort and long-term planning, to build up our capabilities and facilities, and make it worthwhile for people and companies all over the region to do business or travel through Singapore. Maintaining this hub position requires continual effort. Whether in providing telecommunications, operating a container port, or running Changi Airport, we face challenges ahead.

Telecoms

We have made ourselves a telecommunications hub by systematic long-term planning. Singapore Telecom, and before that Telecommunication Authority of Singapore (TAS), has for many years invested heavily in new systems and technologies. Many submarine communication cables from this region to Europe, Japan 6 and US originate in Singapore. The telecom services available in Singapore are the best in the region and equal to any developed country.

But the situation is dynamic. Worldwide, the trend in the telecommunications industry is away from the traditional government-owned monopolies towards greater competition. New technologies and services are rapidly being developed and marketed: Mini-satellite dishes, satellite handphones, mobile data services, Internet, call-back international telephone services. They provide alternative means of communicating which are much cheaper and more convenient than traditional telephone and long-distance calls. Users will be able to link up more directly to the party they want to talk to, and bypass the network of traditional (PTT) operators. There is no geographical or operational reason why a satellite uplink should be in Singapore, rather than Thailand, Malaysia or Indonesia. Indeed, companies can have their own satellite uplinks, instead of depending on a central satellite dish owned by a government monopoly.

These trends will make it harder for Singapore to maintain its hub position in telecommunications. We must adjust quickly to them, keep our telecommunications charges competitive, and stay abreast of new services and technologies. Provided we do this, we will remain an important telecommunications node in the region, even though we may not be the dominant hub for tele- communications. Then overall Singapore will benefit from the changes, because better telecommunications will link us more closely to other business centres in the region and around the world, and enable us to become a cosmopolitan total business centre.

Port

Stamford Raffles developed Singapore into a free port because of its strategic location on the trade route between 7 Europe and China, at the southern tip of the Malay peninsula and the southern end of the Straits of . But this geographical advantage is now less important. Modern container ships stop at only a few hub ports as they travel around the world. Each hub port covers a large catchment area. Feeder ports from all over the catchment funnel containers into the hub. e.g. containers going from India to Europe come to Singapore to be transhipped here. The exact location of the hub port is no longer so critical. The hub port could be anywhere - Port Klang, Kao Hsiung or Hong Kong.

what is now critical is how efficiently the hub operates - how quickly it can turn ships around, how cheaply it handles each container, how well it uses computers to track the millions of containers passing through, plan the loading and unloading of ships even before they reach harbour, and keep everything running round the clock without any hiccup. Fortunately for us, the Port of Singapore Authority (PSA) has done all this Well.

Hong Kong port handles about as many containers per year as PSA. But Hong Kong has one major advantage over Singapore: it has South China as a vast natural hinterland. So, unlike Hong Kong, PSA depends heavily on transhipment cargo. PSA handles more transhipment containers than containers destined for or originating in Singapore. The result is PSA can grow fast - faster than the rest of the Singapore economy. But it also means that PSA's business can go elsewhere once PSA is unable to provide a competitive service, whereas Hong Kong's container business will be secure as long as China is booming.

PSA is now building a new container port at Pasir Panjang. By the time it is completed, it will be seven times the size of the port. The project will take us 30 years to complete. There is a risk, but to stay on top we have to be bold, and plan well ahead. If one day PSA loses its hub port status and becomes a feeder port, then Singapore will become a backwater. Airport

Changi Airport has become an air hub. Twenty million passengers pass through it every year. Changi has built up for itself a reputation of safety, efficiency and excellence. It regularly wins awards for being the best airport in the world. SO it has become a hub. But Changi is not the only air hub in the region. Other countries have built or are building major airports in the region. Thailand has expanded Don Muang airport in Bangkok. Malaysia is building a large airport at Sepang. Indonesia is expanding Hang Nadim airport on . Hang Nadim will have two runways capable of taking jumbo jets, longer than the runways in Jakarta.

It is completely natural and justifiable that these countries want to compete for a larger share of air traffic, against Changi Airport and against one another. They enjoy some advantages over Changi e.g. for the Europe - Far East route, Bangkok is a more convenient stopover point than Singapore. Furthermore, Bangkok has more base load of tourists visiting Thailand. Airlines will only make Changi the stopover point for their flights if Changi offers better service, and remains one step ahead of others.

We welcome friendly competition in civil aviation and airport services, as we do in other areas. We are happy if other airports in the region like Bang Nadim, Sepang or Don Muang succeed, because if their countries prosper, Singapore will also benefit. But at the same time Changi must keep improving its services to remain a hub.

Staying Ahead

These three examples concern maintaining Singapore's position as a transport and telecommunications hub. But the moral of these examples is general, and crucial. We must make it our basic axiom and policy objective that we will always stay 9 ahead of the competition. This is so in all fields of endeavour - whether it is in manufacturing industry, finance and banking services, or the business of government. We are doing well, but like a sports champion, our position is never secure. After winning one tournament, the champion must immediately start training for the next one. He stays on top only so long as we fight to maintain this leading position.

Likewise with Singapore. We cannot succeed by holding others back, or by hoping for a walkover. Other countries are progressing rapidly. We must take full advantage of the opportunities their progress offers us, investing in them, trading with them, servicing their growing needs. At the same time we must make progress ourselves. Then even as others prosper, we remain useful to them and relevant to the world economy.

Our immediate neighbours, Indonesia and Malaysia, are progressing rapidly. Indonesia is deregulating its economy, promoting free trade, and attracting substantial foreign investments. It now earns more foreign exchange from exporting manufactured goods than from oil and gas. In Malaysia, Prime Minister Mahathir is mobilising the country with Vision 2020, a national plan to make Malaysia a developed country, in all respects, by the year 2020. I visited Kuala Lumpur and Penang last month, and found my hosts brimming with dynamism, optimism, and confidence. Over the last five years, Malaysia's average growth rate has been higher than ours. There is nothing that Singapore is doing today, which Malaysia does not hope to do in due course.

The progress of Indonesia and Malaysia is not a threat to us, because if even if these two countries fail to develop, many others in the region will. Far better for us that our immediate neighbours do well, and we share in their prosperity, than that their economies collapse, and we suffer the fallout. 10

What will Singapore's role be when Malaysia achieves Vision 2020? The only answer is for Singapore to become like Switzerland. Switzerland is surrounded by the developed countries of Europe, yet it still prospers, and sustains a standard of living higher than its neighbours. Switzerland prospers not by having lower wages than its neighbours, or because its neighbours are weak. It prospers because the Swiss people have the skills and training to justify their higher wages, their banks enjoy a worldwide reputation for prudence and discretion, and their companies are developing opportunities and business all over the world, and not just in Switzerland or even in Europe.

I cannot predict that Singapore will become like Switzerland, come what may. Whether that happens depends on what Singapore does. But I do know that unless we strive to our utmost to achieve what Switzerland has done, we are in serious trouble. We must always stay ahead.

Long-Term Issues

What long-term issues should we worry about, in order to stay ahead? a. Maintaining social cohesion b. Maintaining vigour and vitality C. Managing high expectations

Maintaining Social Cohesion

One of Singapore's major strengths has been our cohesive society. We have shown unity of purpose, and a consensus on national goals. We are prepared to put aside individual interests to achieve these goals, confident that while not everyone will benefit from every measure or policy, in the long run all will benefit from Singapore's progress. 11 This social cohesion has been a vital competitive advantage, which has compensated for our small size and other limitations. It has helped us to develop a sense of common nationhood, of belonging together and owing a responsibility towards one another, without which no amount of creative policy- making by the Government could have succeeded. It has enabled us both to set and realise long-term goals, as well as to make prompt tactical adjustments when circumstances change, and old policies are no longer appropriate.

This social cohesion has arisen out of the shared experience of the difficult early years of independence, the strong leadership provided by the Government, and the rapid economic growth which has improved the lives of all Singaporeans and given everyone a stake in Singapore, especially in the form of an Housing and Development Board (HDB) fiat. It has also grown out of the Asian values of the population, which puts the community before the individual, and does not treat individual rights as absolute and uncompromisable, unlike the Western tradition of individualism.

Conditions in the 21st century will be quite different from they were in the second half of the 20th century, especially from the 1960s to 1980s. Singapore will be more open than ever before to external influences. Living standards will be on a totally different plane. Singaporeans will no longer feel as vulnerable as they did during the first phase of independence, when they pulled together for sheer survival. Instead they will want to widen the limits of what is permissible, and move the out-of-bounds markers, understandably so. We must maintain and strengthen social cohesion into the next generation, in these very different circumstances.

Japan is a society with strong social cohesion. After the recent Kobe earthquake, an enormous natural disaster, the Japanese demonstrated a deeply impressive sense of community. Despite the widespread damage to property, there was no looting. 12 Even the yakuza helped out in disaster relief. Immediately after the earthquake, the first organisation on the scene to distribute emergency supplies like food and blankets was not the Japanese government, but the Yamaguchi-gumi, Japan's biggest crime syndicate. As a former Japanese construction minister said in a speech: "The feeling of Japanese being considerate to Japanese has been shown in relief [operations] after the huge quake.... I may be nationalistic ... but the state of Japan as one race, one country and one language is an identity that has created this sort of national power after the war." [Reuters, 29 Jan].

Unlike Japan, Singapore is not a country of one race and one language. But social cohesion is as important to us as to the Japanese. In a crisis, will we pull together like the Japanese? Singapore runs a meritocratic system, which gives individuals every incentive to do well for themselves, and to compete against each other. This is the right way to release the drive and energy of our people, and the fair way to distribute the fruits of Singapore's success. But at the same time, this element of individual competition must be balanced by a strong sense of social cohesion.

When education and advancement is by merit, successful parents will tend to have successful children e.g. children of better educated parents tend to do better at school and university. The same pattern is confirmed by a wide range of statistics. One may argue which is the more important cause of this correlation between parents and children: Genes or the environment. But that this correlation exists, and the Bell curve is real, there is no doubt.

Over time, this trend will cause our society to become more stratified. This happens to all societies as they mature, unless they undergo a major upheaval or a revolution. We cannot prevent it from happening to us, but we must slow down the process wherever possible. We must emphasise and broaden the common ground between the well-off and the less well-off. 13 Singapore is a different society from Hong Kong. In Hong Kong, it is socially acceptable to display one's wealth, in fine clothes, fine dining, Rolls Royces. But if affluent Singaporeans flaunt their success, and deliberately distinguish themselves from others less well-off by the way they dress, the lifestyles they lead, the overseas holidays they take, this will lead to unhappiness and resentment.

We should also keep lines of social mobility open, and give able children from poor homes every opportunity to move up. The most important avenue up is through education. No talented student should ever be denied a good education just because his or her family cannot afford it. We already have a good universal education system. But there is still room for us to improve it, especially in terms of meeting the needs of the more able students. This is why we created independent schools and autonomous schools. Affluent pupils do not need these schools - their parents can hire the best tutors available to tutor them, or even send them to private schools abroad. But poorer pupils have no such options. They are the ones who benefit most from the independent and autonomous schools.

Another consequence of meritocracy is that we invest more in the education of those with greater talent and ability. This is so whether we look at the total cost of the education, or at the government subsidy e.g. we subsidise university graduates much more than '0' and 'A' level graduates. Investing in the most promising talent is the way to get the best value for what we spend on education, in terms of what the student achieves. But this only makes sense if the graduates in turn contribute something back to society which nurtured them, and which gave them the opportunities and the support to succeed. Otherwise, those who do not make it to university will legitimately ask: What is the point of investing more in the most able?

Graduates cannot afford to worry only about their own families and careers, houses and cars. They must take an 14 interest in the society around them, and play a role in community and civic groups. They must put their leadership and organisational skills to good use, for among them will be many natural leaders of society. And in each cohort we must find enough committed and able people with the interest and the aptitude to take part in politics, either at the grassroots level, as Members of Parliament (MPs), or as Ministers running the Government. Only then will society hold together.

Maintaining vigour and vitality

To stay ahead, we need to sustain exceptional performance, both as individuals and as a country, over the long- term. How do we do this without slackening, without getting tired? We have inculcated in the population the need always to be outstanding, because otherwise we lose our reason for existence. Never settle for being second best. But how can we be sure that after some time, someone will not say: Why must we be the best in everything we do? Can't we take things a little easier? Won't it be good enough if we are just number two once in a while?

Societies which are put under severe long-term stress eventually become exhausted. Even Israel, with several thousand years of Jewish history and religion to bind the citizens l together, found the decades of war with the Arab countries overwhelming. In a purely military sense, Israel won all the wars it fought, but the strain on the society was enormous. Israel was the homeland for Jews from around the world, yet eventually emigration from Israel exceeded immigration into Israel. This was only reversed when the Soviet Union collapsed and large numbers of Soviet Jews started coming to Israel.

On the other hand, societies under no stress at all get slack and flabby. The Gurkhas come from Nepal, on the rugged foothills of the Himalayas, not from any South Sea Island. 15 Singapore is not a South Sea Island. No breadfruit trees grow naturally to provide for our needs. We face major challenges ahead. But because we have done so well, and the potential problems seem so remote, we risk lulling ourselves into complacency. Issues which are not of life and death importance, like Certificates of Entitlement (COEs) and property prices, loom larger. This Sunday Times cartoon captures the mood.

We must never discourage or demoralise Singaporeans by exaggerating the difficulty of the task. Whatever problems may lie ahead, they are far less daunting than the dangers Singapore faced, and surmounted, when we became independent, and when we were far less equipped to deal with them. At the same time, we must get Singaporeans to understand the unique circumstances we live under, and to strive harder to do well despite the constraints. This is a fine balance to maintain.

Managing High Expectations

Despite years of high growth, Singaporeans are still not satisfied with life. This dissatisfaction manifests itself in complaints about high costs of living, when in fact inflation has been very low. The real problem is high expectations - standards of living have gone up, but Singaporeans want still faster improvement in their lives.

One reason for high expectations is our smooth and apparently effortless success - no recessions, no disasters. A second reason is the dramatic improvement of our education system. Twenty per cent of cohort now go to university, compared with 11 per cent in 1984, and 4.5 per cent in 1974. In 10 years, the number of graduates has tripled (from 33,000 in 1980 to 85,000 in 1990). If we include polytechnics, 55 per cent of cohort now receive tertiary education, of 29 per cent in 1984, and 10.5 per cent in 1974. 16 We have created a broad middle class, and equipped a majority of Singaporeans with the skills and training to pursue rewarding professional careers. Unfortunately, graduates and diploma holders tend to compare themselves with graduates and diploma holders who are five or 10 years older. Several young people have lamented to me that they should have been born a few years earlier. They think that if only they had been born earlier, they would by now have bought the car and house, which instead they can only dream of. But they forget that the older group of graduates formed a much smaller fraction of their cohort. If they really had been born five or 10 years earlier, they might never have had the opportunity to go to the polytechnic or the university!

In dollar terms, most fresh graduate&today earn more than their counterparts five or 10 years ago, even adjusted for inflation. Unfortunately, prices of houses and cars have gone up even more, as a result of limited supply and strong demand. The Government could double and quadruple the university and polytechnic intakes. But to double and quadruple the supply of land for housing or road space for cars was beyond its powers.

Graduates have to adjust their expectations, and accept this as one of the constraints of living in Singapore. But the prospects for them to own a car or a property are not so bleak. One third (32 per cent) of Singaporean households own cars, and the proportion is rising. Among middle-aged households (i.e. married heads of households, aged 40 to 59), 40 per cent own cars. There is no reason a graduate who works hard should not eventually be able to afford a car. But if he expects to own one immediately upon graduation, that may be difficult.

Housing in Singapore is much less expensive than in other major cities like Hong Kong or New York. Everyone can afford to own an HDB flat, though maybe not the very unit he is eyeing in the new town which he prefers. The quality and finish of HDB flats is now very close to, and sometimes even better than, 17 private condominiums. Despite this, many Singaporeans aspire to own private property. Private properties make up 15 per cent of houses in Singapore. By 2010, the Urban Redevelopment Authority (URA) plans to increase the private property share to 25 per cent. Of course, if you aim for a landed property, then you must do well enough in your career to afford one. In Singapore, that depends on your merit and ability.

It is not only graduates who have high expectations, but the population at large. We have never had a period of such rapid growth in standards of living as we experienced&over the last five years. The benefits have been spread widely - not just l among an elite few, but to all income groups. Yet amazingly, when Singaporeans are polled for their views, a substantial number disagree that life has improved for them over the last five years.

We have to reconcile the expectations of the population with what we can realistically achieve. We should never be satisfied with what we have, and should always feel the drive to do better. But if our expectations are not realistic, then we may create disappointment for ourselves, and build up a mood of resentment when none is in fact justified. This will not help us to do better. l Conclusion

What Singapore becomes in the 21st century depends on what we make of it. The omens are fair. The region is booming, Singapore is competitive and prepared for the future, our people have the skills and organisation to prosper in a period of rapid change, and to make Singapore an outstanding country to live in. You are undergraduates today, but you will not remain students for very long. Your parents and fellow Singaporeans have great hopes invested in you. Over the next 30 years, your generation will progressively occupy all the key positions in Singapore: In business, in the civil service, and in the political leadership. your actions and choices will decide which direction the country takes, what policies the Government adopts, and finally whether Singapore succeeds or fails. It is up to you to build on what Singapore has already achieved, and in doing so improve the lives of all Singaporeans.

MTI(6)/dpmfebl0.'95