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Export-Oriented Industrialisation and Dependent Development: the Experience of Singapore

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Export-Oriented Industrialisation and Dependent Development: the Experience of Singapore Export-Oriented Industrialisation and Dependent Development: the Experience of Singapore Cheah Hock Beng Introduction metropolitan multinational companies (MNCs) whIch Development which relies in varying degrees upon the have generally established processing and assembly export of manufactured goods is not a new phenomenon. plants, utilising cheap local labour for largely unskilled It was in many ways significant in the early development and labour-intensive parts of the production process. experiences of a number of the advanced industrial Such production is generally based upon the import of countries. Indeed, stressing the role of exports and the most or all of the key manufacturing inputs (with high importance of the foreign trade multiplier, Kaldor value added operations and R and D activities confined ¡1977! has argued that the growth of all rapidly to the metropoles), in operations which are externally industrialising countries has been export-led. vertically integrated. The general consequence is that minimal benefit (in terms of local linkages, local The most recent school to advocate export-oriented learning and local control of the production process) industrialisation (EOI) as the appropriate strategy for accrues to the developing country involved, while the developing countries has sought its justification maximum advantage accrues to the MNCs (in terms of not so much in the historical experience of the earlier control over production, pricing, profits and general industrialisers as in the reputed failures of import- economic leverage over the local labour force and the substituting industrialisation (ISI). In general, this local state) ¡ see Sutcliffe 1971, pp 270-80; Helleiner school has a theoretical and policy perspective associated 1973; Trajtenberg 1976; AMPO 1977; Nayyar 1978; with the orthodox growth .and-modernisation approach and Fröbel, Heinrichs and Kreye 19801. to development, and it sees EOI as the strategy through which a Rostow-type development process could be This paper seeks to draw out the implications of the initiated and sustained in the developing countries, experience of the EOI strategy in Singapore for these where ¡SI failed see Keesing 1967; Little, Scitovsky opposing views and in particular, to assess the extent and Scott 1970; Balassa 1971; Myint 1972; Johnson to which it challenges the dependency approach. 1973; ¡LO 1974; and Little 1979!. The proponents of the EOI strategy argue that it Development Strategy: the Context and the would promote a form of industrialisation which would Policies Adopted be more efficient and internationally competitive, and Development efforts in Singapore should be viewed in more in tune with the employment needs of developing the context of a relatively new and very vulnerable countries, because it would be concerned with political entity, attempting to establish a place for developing production in lines in which these countries itself in an unstable and changing world a small have an obvious comparative advantage, namely, labour- island city-state which has sought to overcome the intensive manufactures. Starting on these lower rungs immense domestic and external pressures impinging of manufacturing, these countries could, over time, upon it through undertaking the most rapid form of progress towards more sophisticated manufacturing development open to it. With a population of only activities. All this would go along with the opening up about two million, a land area of only 616 sq km, of the economy, greater reliance on the free-market resulting in high population density and strong pressures price mechanism, the elimination of impediments on on employment opportunities, it has traditionally been trade, investments and other financial flows, and dependent on trading and other service activities and generally increased integration with the international on imports of energy resources, raw materials and economy. food for its population and production activities. Despite the rapid growth of industry, the tertiary sector as a However, the critics of this strategy allege it has high whole continues to be the dominant economic sector. economic and social costs, such as the increasing dependence of the economies concerned and the Following the break from Malaysia in 1965 the city- growing exploitation of their labour-forces, and argue state was left with only its small domestic market. The against both the desirability and the likelihood of the economic strategy (up to this point largely ¡SI) was long-term success of the strategy. The main force of consequently modified to emphasise export-oriented their arguments is that the EOI strategy has served to industries that would cater for the general world promote an influx of foreign investment, mostly by market. The MNC then seemed to be an ideal ally in Bulletin, 1980, vol 12 no 1, Institute of Development Studies, Sussex 35 this regard, because it had the technical expertise competition between major US European and Japanese which could help to raise local skills,its labour- firms, and increasing US direct foreign investment. intensive operations would create substantial employ- These investments were directed largely towards Europe, ment, and it had established access to foreign markets. to take advantage of the relatively more rapid growth Moreover, the entrenchment of foreign capital, expertise rates, lower wages and higher productivity, to expand and other supporting institutions in the country would the total world market share of US firms and also to ensure external interest in the survival and continued hedge against decline in the value of the US dollar. growth of the city-state. Consequently, the main thrust However, many subsidiaries were also established in a of the economic strategy was to integrate the domestic number of developing countries, to benefit from the economy more closely with the international economy, cheaper cost of labour, employed in processing and with the associated aim of maximising the rate of assembly activities vertically integrated into the broader economic growth. international operations of US MNCs, so as to acquire a competitive edge over European and Japanese The policies associated with this strategy involved firms. offering fiscal incentives, providing an extensive and modern infra-structure, redefinition of the contractual The response of European and Japanese firms to this relationship between employers and employees, challenge from US companies has been varied, but it imposition of restraints upon the local labour movement, also includes more direct foreign investment on their the import of foreign labour, and a general policy of part and the transfer of certain production activities to wage restraint. There was an acceptance of the fact a number of developing countriesnot so much to that foreign investors are primarily profit-seeking. expand market shares in those areas themselves (as The concessions provided were justified by reference previously) but rather to follow US MNCs into externally to the employment opportunities and the access to vertically integrated production processes capitalising developed country markets provided, in particular by upon cheaper labour sources. These, then, were the the MNCs. conditions under which the introduction and rapid growth of export-oriented manufacturing occurred in Less attention and support was provided to the generally Singapore and, with some variations, in a number of smaller local firms and industries, because they were other Asian countries. mainly engaged in processing and repairing activities not oriented towards export. Insofar as these local industries harboured a significant proportion of the Structural Change In Manufacturing and labour force while the new industries encountered Associated Developments increasing labour shortages, justifications were found In 1965, direct exports of manufactures from Singapore to eliminate, directly or indirectly, many of the local constituted only 32 per cent of total sales value in the establishments and to rationalise the rest to be more in manufacturing sector. If the criterion for an export- tune with the overall industrialisation strategy. oriented industry is taken as direct exports accounting for 50 per cent or more of total sales, only four An important aspect of the problem was that the city- industry groups qualified as such. They were textiles state had not traditionally had as strong an involvement (including wearing apparel) and footwear (SSIC 23+24), in manufacturing as, for instance, Hong Kong. This leather products (SSIC 29), rubber products (SSIC posed serious difficulties for any indigenous efforts to 30), and electrical machinery (SSIC 37). Together, develop a significant and internationally competitive these four industry groups contributed only about 17 manufacturing sector in the short or. medium term. per cent of all direct manufactured exports. The Instead, it was thought that an open-door' policy greater part of direct manufactured exports was would be more successfuldespite its costs. And, contributed by other industries which were primarily based upon a realistic assessment of the difficulties catering for the local market. The relative insignificance involved in acquiring and developing sophisticated of the export industries at this time is further evidenced technology, an equally pragmatic approach was by the fact that they accounted for only about 14 per formulated for the longer-term development of domestic cent of all manufacturing establishments,
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