PAP Singapore: a Case Study of Stationary Bandit in a Market

A Case Study of Stationary Bandit in a Market Economy

Chan Heng Kong

A thesis submitted to the University of New South Wales

in fulfilment of the requirements for the degree of

Doctor of Philosophy

2005 DECLARATION

I hereby declare that this submission is my own work and to the best of my knowledge it contains no material previously submitted or written by another person, nor material which to a substantial extent has been accepted for the award of any degree or diploma at UNSW or any other educational institution, except where due acknowledgment is made in the thesis. Any contribution made to the research by others, with whom I have worked at UNSW or elsewhere, is explicitly acknowledged in the thesis.

I also declare that the intellectual content of this thesis is the product of my own work, except to the extent that assistance from others in the project’s design and conception or in style, presentation and linguistic expression is acknowledged.

Chan Heng Kong

ABSTRACT

This study investigates the role of the state in Singapore’s political economy. The conventional methodology in the neoclassical economics tradition is essentially apolitical and is thus inadequate to appraise the inner working mechanism of the Singapore polity, given the pervasive influence of politics in policy decisions. This study therefore synthesizes a new analytical methodology, drawn from neo- institutionalism, to analyse the interrelations of state, market and social institutions in the Singapore of the People’s Action Party (PAP). Ronald Coase’s theorem of transaction costs, Steven Cheung’s economics of property rights and Douglass North’s theories of institutions and institutional change, collectively, provide a theoretical framework that allows this study to examine the intrinsic nature and characteristics of the Singapore polity.

Three major areas are investigated using this research paradigm. The first is the post-war political transition from colony to self-rule and the eventual emergence of an independent Singapore in the context of Cold War politics. The second is the process of social engineering through reconstitution, resettlement and socialization, a process that has aimed to alter the institutional environment that regulates the state and people and has tended to generate a submissive social ethos. The focus of the third is the redefining of property rights through nationalization, industrialisation, and privatisation that, in effect, has resulted in the extensive transfer of private wealth to the state.

Four case studies are offered to demonstrate the impact of politics in the making of economic policy, the general effect of which has been to eradicate entrepreneurs in favour of state-owned entities. The analysis concludes that Singapore is essentially to be characterised as a predatory state, and adopts Mancur Olson’s ‘stationary bandit’ theory to reconcile the state’s predatory behaviour with Singapore’s record of positive economic development. The study identifies nine unique features that

ii have characterised the Singapore polity, the single most important feature being the emergence of ‘Lee’s Law’ which amounts to the paramount Singapore informal rule in regulating all aspect of social exchange. It is paramount because without reference to this rule the inner working mechanism of Singapore’s political economy cannot be explicated. But the predominance of PAP control imposes a heavy social cost as it risks Singapore’s long-term viability as a national state because of the likely emergence of distributional collusion and institutional sclerosis. Singapore’s long-term viability is therefore contingent upon the kind of political reformation that would reinstitute a low transaction cost mediation mechanism that would then facilitate incremental institutional change.

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ACKNOWLEDGMENTS

I would like to express my sincere gratitude to my thesis supervisor Professor James Cotton, for his keen interest, guidance, and insightful direction throughout the writing of this thesis. Professor Cotton’s valuable criticisms and corrections have enhanced the quality of my research work.

I dedicate the thesis to my family Wei Fong Mei, Dawn Yanni, Justin Yannong and Novella Yandian.

TABLES OF CONTENTS

DECLARATION i

ABSTRACT ii

ACKNOWLEDGMENTS iv

ABBREVATION and ACRONYMS ix

Chapter One: The State in the Political Economy: Theoretical Foundations 1

1.1 Introduction 1 1.2 Theorisation on the Role of the State in the Political Economy 5 1.3 A New Paradigm in Economic Theorisation 14 1.4 Overview of Literature on Singapore’s Political Economy 21 The Singapore School 23 The Management of Economic Success 24 Revisiting Economic Development 27 Assessment of the Singapore School 29 The Singapore Critique 36 The Domination of Foreign Capital in Singapore’s Economy 38 The Domination of the PAP State in Singapore’s Domestic Economy 43 An Appraisal of the Singapore Critique 51 An Overview of the Literature on Social Institutions 58 1.5 Theoretical Foundation of Singapore’s Political Economy 71 1.6 Structure of the Dissertation 76 1.7 Conclusion 79

Chapter Two: Singaporean Dualism and the Political Economy 81

2.1 Colonisation and Formation of the Mainstream Economy 81 Pre-British Malay–Sultanate Singapore 81 Mercantile Expansion in South-East Asia 84 Financing the Free Port Settlement 90 Straits Settlements 93 Development of an Entrepôt Economy 95 British Dominance in the Economic Coalition 99 2.2 Chinese Clanship and the Advent of the Informal Economy 104 Clan and Kinship in Chinese Society 104 Social Foundations of the Informal Economy 105

Informal Chinese Business Networks 108 Economics of Informal Chinese Institutions 109 Chinese Culture as an Informal Institution 111 Guanxi and Xinyong as Informal Institutions 115 2.3 Economic Coalitions of Resource Owners 119 Opium Economy 120 Timber Economy 122 Coolie Economy 125 Rubber Economy 130 2.4 Conclusion 138

Chapter Three: Singapore’s Post-war Political Transformation 141

3.1 Post-war Singapore Politics 141 Dawn of Singapore Politics 141 Malayan Union and Malay Politics 144 Communists in Singaporean Politics 147 Malayan Politics in Singapore 149 Manipulation in Singapore Politics 151 3.2 Singapore’s Local Governments 154 The Rendel Constitution and Chinese Politics 154 The Battle for Political Power in the 1950s 157 David Marshall and the First Constitutional Talks 160 Lim Yew Hock and the Second Constitutional Talks 162 3.3 People’s Action Party Politics 165 Political Coalition 165 The British Factor and PAP Politics 167 Ascendance of the Lee Faction in the PAP 171 3.4 The Battle for Singapore’s Political Leadership in the 1960s 173 Power Struggle in the Lee Faction 173 Malay Politics in Singapore 175 Barisan Sosialis 177 3.5 Arithmetic of PAP Politics 180 Right-Wing Chinese Voters 180 Chinese Voting Patterns 181 Changed Political Alliances 185 Emergence of a Single Dominant Party 187 3.6 Singapore in Malaysian Politics 193 New Political Alliance 193 Merger Referendum 196 Merger Debacle 200 3.7 Conclusion 205

Chapter Four: The State in Social Engineering: Reconstitution, Resettlement and Socialisation 208 4.1 PAP Supremacy 211 4.2 Reconstitution 214 New Institutional Environment 214 The Executive and the Legislature 217 Legislators and Bureaucrats 221 The Judiciary 225 The Bureaucracy 230 Manipulation of the Electoral System 235 4.3 Resettlement 241 New Physical Environment 241 Redefining the Relations between the State and the People in Public Housing 243 Creditor and Debtor Relations 244 Landlord and Tenant Relations 249 4.4 Socialisation 255 New Social Environment 255 Political Ideology in Socialisation 257 Ideology of Survival 258 Ideology of Pragmatism 262 Ideology of Meritocracy 263 Asian Values in Socialisation 266 Shared Values in Socialisation 273 4.5 Conclusion 279

Chapter Five: The State in the Market Economy: Nationalisation, Industrialisation and Privatisation 281

5.1 Nationalisation 281 The Land Factor in the Economy 284 The Labour Factor in the Economy 290 The Domestic Capital Factor in the Economy 297 5.2 Industrialisation 304 Manufacturing Economy in Historical Perspective 309 Structural Change and Economic Development 312 Dismantling the Domestic Private Economy 317 Bugis Junction – A Case Study of Resettlement 318 Credit Crunch – A Case Study of Market Failure 326 Public Transport – A Case Study of State Intervention 332 The Newspaper Industry – A Case Study of Politics in the Economy 336 Activist Role of the State in the SOE Economy 342 Origin and Types of SOE Economy 343 Nature of the SOE Economy 346 Hidden Costs in the SOE Economy 348

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5.3 Privatisation 350 Ersatz Privatisation 352 Echt Privatisation 357 5.4 Conclusion 361

Chapter Six: A Predatory PAP State: Present and Future 364

6.1 Nature and Characteristics of the PAP State 368 The Some-Men-No-Vote Election System 368 Technical and Dependent Judiciary 372 The PAP as a National Movement 373 Lee’s Law as the Supreme Informal Institution 375 Rational Ignorance of the Citizenry 378 Procedural Rationality in the Standardisation of Social Behaviour 380 Forfeit of Common Property Rights 381 Forced Consumption in Personal Finance 383 User-Pays Society 384 6.2 The PAP State as Stationary Bandit 387 6.3 Remaking Singapore: Crisis and Opportunity 389 The Crisis of Distribution 392 The Crisis of Institutional Sclerosis 395 Reformation and Opportunity 399 Political Reforms 399 Creditable Information in the Public Domain 401 The Role of the State in Economy 402 Development Funds 403 The Chinese Business Network 404 6.4 Conclusion 406

Chapter Seven: Conclusions 407

Lee’s Law in Singapore’s Political Economy 407

Bibliography 420

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ABBREVATION and ACRONYMS

ACUs Asian Currency Units AMCJA All-Malayan Council of Joint Action ASEAN Association of Southeast Asian Nations BT Business Times CCC Citizen Consultative Committee CEC Central Executive Committee CNA Channel News Asia CPF Central Provident Fund DBS Development Bank of Singapore DP Democratic Party EDB Economic Development Board EOI Export Oriented Industrialisation GDP Gross Domestic Product GIC Government of Singapore Investment Corporation GLCs Government Linked Corporations GPC Government Parliamentary Committee GRC Group Representation Constituency GST Goods and Services Taxes HDB Housing and Development Board IAC Industrial Arbitration Court IPS Institute of Policy Studies IMF International Monetary Fund ISA Internal Security Act ISD Internal Security Department KMT Kuomintang MAS Monetary Authority of Singapore MCA Malaysia Chinese Association MCP Malayan Communist Party MDU Malayan Democratic Union MINDEF Ministry of Defence MNC Multi-Nationals Corporation MP Member of Parliament MRT Mass Rapid Transits NCMP Non-Constituency Member of Parliament NICs Newly Industrialising Countries NIDL New International Division of Labor NMP Nominated Member of Parliament NS National Service NTUC National Trades Union Congress NU Nanyang University NUS National University of Singapore NWC National Wages Council OCBC Overseas Chinese Banking Corporation

PA People’s Association PAP People’s Action Party POSB Post Office Savings Bank PP Progressive Party PSA Port of Singapore Authority RC Resident Committee SAF Singapore Armed Forces SAP Special Assisted Program SARS Severe Acute Respiratory Syndrome SB Statutory Board SBS Singapore Bus Service SCCC Singapore Chinese Chamber of Commerce SCMSSU Singapore Chinese Middle School Students’ Union SERS Selective En-bloc Redevelopment Scheme SFTU Singapore Federation of Trade Unions SLF Singapore Labour Foundation SLP Singapore Labour Party SIA Singapore International Airline SingTel Singapore Telecom SMNO Singapore Malay National Organization SMU Singapore Management University SOE State-owned Enterprises ST Singapore Technologies ST The Straits Times STC Singapore Traction Company STUC Singapore Trade Union Congress TNC Transnational Corporation UK United Kingdom UNMO United Malays National Organisation UOB United Overseas Bank UPP United People Party US United States of America WP Workers’ Party

Chapter One

The State in the Political Economy: Theoretical Foundations

1.1 Introduction

This study is an investigation of the role of the state in the political economy. Singapore offers an interesting case study because the nature and characteristics of the state of Singapore are elusive, defying most attempts to offer an accurate and impartial appraisal. Firstly, the victors and victims of Singaporean politics differ in their views on the nature of the state of Singapore. Ruling politicians perceive Singapore to be a success story, as reflected in the claim of economic achievement where Singapore’s evolution is described as a transformation from a third world to a first world country.1 Singaporean scholars also espouse such official views and offer up the Singaporean economic model as a paragon for other developing countries to emulate.2 Opposition politicians, however, tell a more disheartening story, one that relies on painful personal suffering and that testifies to a different Singapore from this paragon of third world politics. Chia Thye Poh’s detention without trial for 25 years, and the fact that he did not regain his freedom of movement, speech and activity until November 1998, offers a glimpse into Singapore politics. 3 Chia’s 32-year forfeit of his personal freedom exceeds the period of Nelson Mandela’s detention under the South African apartheid system, a regime notorious for its human rights violations. The claim that Singapore is a first world economy is challenged by the counter-claim that Singapore exhibits a third

1 Lee Kuan Yew, 2000 offers a PAP version of Singapore’s ‘road map’ from third world to first world country. 2 Peter Chen, 1983: Preface, ‘Its strategy for development had set a model for rapid growth, not only for developing countries but also for industrial countries as well.’ In November 1993 Singapore hosted a conference for African politicians and the organiser Singapore International Foundation published Can Singapore’s Experience Be Relevant to Africa (1994). Wong Poh-Kam, 2001: 557, ‘[The Singapore model] should hold interesting lessons especially for other developing countries, especially small countries that are similarly constricted by a lack of natural resources and a small domestic market.’ 3 Chris Lydgate, 2003: 52, 53; see also Chee Soon Juan, 1995.

1 world political system, and it calls for a reappraisal of Singapore’s political economy.

Secondly, the dualist nature of Singapore’s economy has not only escaped scholars’ attention, but it has also obscured the study of Singapore’s political economy. Researchers offer contrasting views on the matter. The classic dichotomy is between the views of Milton Friedman and John Kenneth Galbraith on Singapore as an economic model. 4 Friedman perceives Singapore as a model of the free market economy, with free port status, free of foreign exchange controls and import tariffs. In short, Friedman attributes Singapore’s economic performance to economic liberalism and adherence to the principle of free trade. Galbraith’s position appears to be the polar opposite, viewing Singapore as a model of state interventionism. The state of Singapore owns, controls and regulates land, labour, and capital resources and the state holds absolute authority over resource allocation. The state sets or influences many of the prices on which private investors base their business calculations and investment decisions. There is, however, no contradiction in the views of the two great economists. Friedman is referring to the mainstream economy where the People’s Action Party (PAP) has neither the political will nor the financial resources to intervene. And Galbraith is commenting on the domestic economy where the PAP dominates and rules with absolute authority. The Singapore political economy is characterised not only by the presence of a division between formal mainstream and informal domestic economies but also by the existence of state planning in the market economy. Indeed, Singapore’s political economy is further complicated by the activist role of state planning in the market economy. That is, extensive state planning is carried out alongside an operational price mechanism. Clearly, the presence of a dual–dualist economy is problematic for any study of the nature and characteristics of the Singaporean state. It is

4 Linda Lim, 1983 b: 753–755, Charles Wolf Jr. 1997: 1–4.

2 therefore necessary first to re-examine Singapore’s political economy.

Thirdly, between these two opposing views are scholars who adopt a variety of research methodologies and who have derived rather different conclusions.5 The conventional research models are coded in the context of market-centric or state- centric approaches, and these models have restricted scholars to either an advocacy of economic liberalism or activist state planning. They focus mainly on a comparison between the roles of the state under different political ideologies, an approach that confines debate to the merits of the market versus the state in the political economy. The assumption is that the market and the state are antagonistic institutions. Thus the scholars engage in a broad spectrum of labelling Singapore as capitalist, state-dependent capitalism, social democratic, administrative state, developmental state, authoritarian, illiberal democracy, corporatist, paternalistic, pragmatic, and other elements of the political lexicon. It is a case of the six blind men and the elephant, with each is describing a part of the whole animal. This categorising is not just confusing; it is also potentially misleading because of the inherent complexity of Singapore’s political and economic structure. Added to this, Singapore’s colonial past and its position in the international division of labour in the context of Cold War politics further compounds the problems of the study of the role of the state in the political economy. Given the bewildering state of affairs in appraising the nature and characteristics of the Singaporean state, there is a need for a new paradigm in research methodology to reappraise Singapore’s political economy.

The objective of this study is threefold. First and foremost, it is to construct a new research paradigm in the framework of neo-institutionalism. The new research framework evaluates the intrinsic nature and characteristics of Singapore’s political economy through studies of the transactional processes between state policy and its

5 By and large Singaporean researchers adopt either a market-centric or state-centric methodology, and as a rule, local researchers perceive Singapore’s polity as social democratic, and as a model market economy.

3 intended and unintended policy outcomes in relation to the specific social issue that the state intends to resolve. This approach redirects the focus of study to a new dimension in analysing how institutional arrangements of market and state interact in the political economy. Importantly, by removing the moral values implicit in the underlying political ideology the issue is no longer a search for a ‘right’ or ‘wrong’ economic policy but rather to understand how institutional arrangement affects economic development. The new analytical methodology enables an interpretation free from conventional ideological differences in policy formulation and the effectiveness of policy outcomes. Secondly, it aims to incorporate social cost, which measures harmful effects in evaluating policy and policy outcomes. This is crucial to an analysis of Singapore’s political economy, given the pervasive social engineering that has taken place in restructuring Singapore into a society defined by the PAP. The resettlement that has taken place since the 1960s, not only destroyed the old settlements but also the embedded social institutions that had developed inside the demolished housing estates. Re-housing has been extensive, with over 80 per cent of the population uprooted and resettled. The inherent social cost of this policy is therefore immense. Importantly, the concept of social cost is rarely addressed in the literature of Singaporean politics and the economy. 6 Thirdly, it is to apply the new research methodology to ascertain the embedded working mechanisms of Singapore’s political economy. This is critical in determining policy for Singapore, especially in the face of the fast-changing international political economy. Without an accurate and comprehensive understanding of changes over time of the inner working mechanisms of the Singaporean state, past institutions cannot be properly understood, present developments cannot be adequately appraised, and Singapore’s future directions cannot be projected. In this connection, this study offers a diagnosis of the present state of Singapore’s political economy and identifies the crises of ‘distributional

6 Social cost reflects the harmful effects of policy. The concept of social cost has so far escaped scrutiny because neoclassical economics precludes such evaluation, as under perfect information there is no social cost.

4 coalition’ and ‘institutional sclerosis’ that challenge Singapore’s long-term future viability. The study concludes that the long-term viability of the state of Singapore lies not in more political control but rather the advent of an unfettered market economy within the world capitalist system.

1.2 Theorisation on the Role of the State in the Political Economy

Anarchy precludes any meaningful economic exchange, since in a society without the role of the state in maintaining social order and protecting property rights, voluntary exchanges are deemed infeasible except involuntary exchanges in the form of theft and robbery. Without the state to maintain social order, economic development is hampered. Mancur Olson, (2000) notes that in ‘a Hobbesian anarchy, where there is no restraint on individuals’ incentive to take things from another, or in a kleptocracy, where those in power seize most assets for themselves, there is not much production or many gains from social cooperation through specialization and trade’. 7 This is because ‘some of the labour in an anarchic society will be devoted to taking or stealing rather than producing’.8 The structure of property rights of a society with its embedded incentives predetermines the propensity of productive and unproductive activity in economy. Ronald Coase (1960) theorises that in the real world economy where transaction costs are greater than zero, the structure of property rights is the prerequisite for voluntary market exchanges.9 As the state defines, monitors, measures and enforces property rights, it is therefore clear from the outset that in a real world economy there is no market that can be entirely free from state regulation. The role of the state in the economy is therefore not controversial. However, the extent and nature of state involvement in the developmental process remains a controversial issue in the realm of political economy, with vastly different theorisations.

7 Mancur Olson, 2000: 1. 8 Mancur Olson, 2000: 63. 9 Ronald Coase, 1960.

5 Adam Smith’s classical economics advocates the market mechanism in resource allocation and offers the state a minimum role in maintaining social order.10 But the outcomes of the industrial economy were not the opulence or equality that was expected under capitalism. In the face of the hardships of life in capitalist society, Marxism perceives the state as agents of the bourgeoisie, the dominant class in capitalist society, to further bourgeois interests over and against those of other classes, especially the proletariat, in advanced capitalism.11 Statism in Marxism tradition distrusts markets, thus the state is assigned the task of resource allocation. On the other end of the spectrum the Austrian School, central to the defence of private enterprise in market economy, offers a strong argument against socialism and economic planning. In Friedrich Hayek’s view, centralised control of economic activity is The Road to Serfdom. 12 Under the conventions of liberalism, an individual’s choice in economic decision-making is paramount, and the state is envisaged as a mere night watchman.13 Arthur Pigou’s welfare economics justifies state intervention in case of market failure 14 but James Buchanan and Gordon Tullock counter-argue the likelihood of government failure, that is, state intervention cannot guarantee improvements to economic welfare. Finally, public choice theorists advocate an unfettered market economy.15

The Great Depression in the 1930s with its resultant mass unemployment called into question classical theories on the self-regulating market mechanism. John Maynard Keynes saw the cause of depression as reduced aggregate demand and prescribed as the solution an increase in total spending. Keynes argued for government intervention to increase aggregate demand through the fiscal policy of

10 Ekelund Jr. and Hebert, 1997: 119 Smith reserved three roles for the state: to administer justice, to provide national defence, and to offer public goods. 11 Adrian Leftwich, 2000: 74. 12 Friedrich Hayek, 1944. 13 Chang Ha Joon, 1994: 7–32 offers a comprehensive review of theories of state intervention. 14 Arthur C. Pigou, 1920, The Economics of Welfare offers a justification for the redistribution of income. In welfare economics, market failure justifies state intervention. Market failure happens when the price mechanism fails to provide an optimum allocation of scarce resources. 15 Roger Backhouse, 2002: 312; Charles Wolf, 1997: 5. James Buchanan and Gordon Tullock (1962). Public choice adherents theorise that politicians and bureaucrats are self-interested and that their inability to monitor their own performance is one of the reasons for government failure.

6 tax cuts and an increase in direct government expenditure. He reasoned that a policy of deficit financing would amplify the multiplier effect to stimulate demand that, in turn, would induce new investment. 16 In the ensuing years Keynesian economics offered a strong theoretical foundation for the role of the state in managing national economies. In 1973 the oil crisis plunged the world economy into recession and brought about a stage of stagflation in the economy, when inflation and unemployment rose simultaneously. Rising unemployment necessitated additional government spending but such policies, in turn, worsened inflation. Keynesianism had failed to explain stagflation and it lost credibility as a policy tool. 17 Milton Friedman, an economic liberal, is a strong advocate of economic freedom and opposes any form of state intervention in the market economy. He opposes an active monetary policy of easing monetary policy to achieve full employment or tightening monetary policy to halt inflation. Instead, Friedman recommends the use of monetarism or money supply to control the rate of inflation. 18 In the realm of the political economy, Milton Friedman sees economic arrangements as playing a dual role in promoting a free society. To him, economic freedom is a means towards the achievement of political freedom. Hence, the organisation of economic activity through private enterprise operating in a free market is a system of economic freedom and a necessary condition for political freedom. He supports laissez faire liberalism as a means of reducing the role of the state in economic affairs and thereby enlarging the role of the individual in the economy.19 Friedman’s theorisation laid the economic and political foundation in the 1980s for the calls to roll back the role of the state in the economy. The New Right emphasises free market capitalism as advocated by Friedrich Hayek and Milton Friedman. It stresses the efficacy of the free market and political freedom and calls for an all-out attack on institutions such as trade unions and the welfare state that were seen to interfere with the free market. The New Right sees the

16 Daniel Fusfeld, 1999: 136. 17 Daniel Fusfeld, 1999: 208. 18 Milton Friedman, 1962: 4–8. 19 Milton Friedman, 1962: 4–8.

7 market as the solution to all economic problems, the only solution.20 In America under Ronald Reagan, rolling back state was carried out through deregulation and small government. In Britain under Thatcherism, it was more a matter of curbing union power and privatising state owned enterprises.21

After the Second World War, during the Cold War era, the dogmatic dichotomy between free market capitalism and centrally planned socialism complicated the real issue of the role of the state in economic development. In this political and economic milieu, development economics emerged to address the issue of underdevelopment in third world countries. Keynesianism was the backbone of development economics in resolving social issues.22 This was because without a capitalist class, only the state could mobilise the limited resources for meaningful economic development. Clearly, economic freedom was an irrelevance in societies facing poverty and famine. Third world economists perceived structural differences between the rich and poor states as the main cause of underdevelopment. Gunder Frank’s theory of underdevelopment in Latin America observes that ‘the domestic economic, political and social structure of Chile always was and still remains determined first and foremost by the fact and specific nature of its participation in the world capitalist world.’23 Raul Prebisch explicated the problem in terms of structural relations within the international division of labour between the western capitalist states and those of Latin America as core and periphery countries. 24 Within relations so structured, the development of the first world economy was at the expense of the underdevelopment in the third world economy. The disparity between the prices of raw materials and manufactured goods was viewed as the main cause of foreign exchange deficits in poor countries.

20 Ray Canterbery, 2001: 350. 21 Ray Canterbery, 2001: 411. 22 Roger Backhouse, 2002: 302. 23 Martin Staniland, 1985: 122, quoting from Gunder Frank’s Capitalism and Underdevelopment in Latin America. 24 Roger Backhouse, 2002: 302.

8 Faced with such inherent structural constraints, the solution was for the state to undertake initial economic planning for industrialisation, which was viewed as a more reliable economic activity to earn foreign exchange. Various industrialisation programs were initiated to promote a manufacturing economy as a critical step in moving away from an agricultural economy engaged in primary production. Rosenstein-Rodan proposed the ‘Big Push’ industrialisation model. He envisaged an interventionist state in these economies because of the low levels of national saving and the lack of entrepreneurship in underdeveloped economies.25 Ragnar Nurkse called for a ‘balanced growth’ model, whereby the state coordinates ex ante investment in developing complementary industries. 26 Albert Hirschman disapproved of the balanced growth model and suggested instead creating disequilibrium or unbalanced economic growth. He reckoned that expansion in a single industry would create opportunities for stimulating widespread interdependences and links with other related industries.27 Alexander Gerschenkron was of the view that for late-latecomers in industrialisation the state needed to play an even bigger role in financing investment. This is because of the extensive catching up in big technology gaps between the earlier and later late starters in industrialisation.28

Foreign exchange deficits were one of the prime economic issues at that time. The policy outcome of development economics in the 1950s was pervasive state-led

25 John Martinussen, 1997: 57. Rosenstein-Rodan compared the big push with an aeroplane’s take off from the runway. There is a critical ground speed, which must be passed before a craft can become airborne. Similarly, launching a country into self-sustaining growth requires a critical mass of simultaneous investment and other initiatives. 26 John Martinussen, 1997: 58, 59: Ragnar Nurkse advocates an actively intervening state, offering strong incentives to invest along with increased mobilisation of investible funds. This requires a significant expansion of the market through simultaneous massive and balanced capital investment in a number of industrial sectors. 27 John Martinussen, 1997: 59: Albert Hirschman identifies the cause of economic backwardness as lack of entrepreneurship and management capacity. Hence, resources should be invested in selected key sectors that have many links backwards and forwards in the economy, so that they can pull other parts of the economy along with them. 28 Robert Gilpin, 2001: 176, Alexander Gerschenkron is of the view that the stage or timing of economic development determines the nature and appropriateness of an economic system. Hence a different stage of development requires a different level of capital investment. Later development requires state-led investment.

9 import substitution industrialisation. Third world economists envisaged a bigger role for the state in economic planning, partly because of the absence of a capitalist class to mobilise productive resources and also partly due to the ideological preferences in the post-colonial era. Indeed in the post-independence stage of national development, the state plays a key role in nation building, and economic development is a necessary part of overall state planning. The role of state in the economy is also augmented by the fact that in the missing element of representative politics inevitability accorded the ruling party unfettered power in policy formulation. The result was state supremacy in most third world economies.

The role of the state in import substitution industrialisation was, however, much criticised by the neo-liberal theorists. 29 In the view of free market proponents, import substitution industrialisation failed to consider Ricardo’s law of comparative advantage and weakened international trade. The small domestic market ensured monopolistic manufacturing and thus the economy was producing at a sub- optimum level. Import substitution industrialisation called into question the efficiency of resource deployment. Non-price interventions also created rent- seeking activity, causing wastage of scarce resources. Tariffs protected non- competitive manufactures and state owned enterprise were perceived as less efficient than privately owned enterprises. In short, to the neo-liberal market-centric theorists, an act of state intervention is a distortion of market efficiency. But in a different light the covert motive of advanced countries in advocating a policy of free trade was essentially to pry open the protected domestic markets of developing countries.

In the 1980s the emergence of the Newly Industrialised Economies (NIEs) in East and Southeast Asia challenged the perception of underdevelopment in developing countries and denied the basic argument of the dependency theory.30 NIEs also

29 Robert Gilpin, 2001: 309–312. 30 Roger Backhouse, 2002: 304.

10 refuted modernisation theory’s claim that democracy is a precondition for economic development, a theory drawn from development experience in western society.31 In distinction to the western experience, NIEs developed in a less than democratic political environment despite the presence of election systems. NIEs began life in the late 1960s when the US electronic manufacturing sector sought offshore production centres that used cheap labour and this resulted in an influx of direct foreign investment that paved the way for export-oriented manufacturing. Japanese manufacturers also sought production using cheap labour, thus accelerating the development of export-oriented manufacturing in Southeast Asia. Manufacturing by transnational corporations outsourcing cheap labour formed the foundation of export-oriented manufacturing, with the economies of South Korea, Taiwan, Hong Kong and Singapore emerging as NIEs.

The roles of the state in the 1980s NIEs differed greatly as domestic politics influenced the formulation of industrial policy. Hong Kong experienced little state intervention as the then British colony operated in the tradition of laissez-faire. The Hong Kong economy was therefore relatively free from state intrusion in comparison to the other NIEs. Robert Wade (1990) perceives Taiwan as a governed market where the state was a senior partner in the economic coalition. In this form of ‘alliance capitalism’ the state assisted in channeling capital from the banking system into the chosen industries and thus promoted rapid industrialization. The state also offered protection to infant industries by insolating disruptive external influence to ensure their survival. Similarly, South Korea also deployed industrial policy to shape its industrialization. As the state dominated the banking industry it determined the allocation of investment capital. The state also enforced the transition from a reliance on light industry to heavy and chemical industries. Tax incentives were offered to the export oriented sector while tariffs were deployed to

31 Adrian Leftwich, 2000: 33. Samuel Huntington views development as modernisation. His approach presumes that human societies develop from simple forms of traditionalism to complex expressions of modernity. Modernisation contrasts tradition and modernity. Hence, learning from the west is a process of westernisation which leads towards democratisation.

11 protect the domestic market. State intervention thus ensured the emergence of the Chaebol as Korean’s dominant economic actors in the international economy. The experience of Singapore as an NIE in the 1980s was very different. It was foreign capital that played the key role in industrialization as the state had rejected the socialization of risk as a strategy for assisting local businesses during the transformation from the trading economy to the manufacturing economy. The state offered neither market protection to infant industries nor financial assistance to indigenous manufacturers. The state justified such industry policy on the basis that the local manufacturers were lacking in competitive advantage in the international market. Hence Singapore industrialization in the 1990s remained much dependent on imported technology. Singapore appears to have offered a rather unusual experience in industrialization in that state intervention prevented the emergency of a private indigenous manufacturing economy. This is a unique experience where industrialization has taken place but without much private local business participation in the economy. The state has instead internalized social benefits within the SOE while allowing the state itself to emerge as a major economic actor in both ownership and management of the domestic economy.

NIEs outperformed Latin American economies, in strong contrast to western economies, which were then hampered by the monetarists’ tight money policy that caused high interest rates and high unemployment. Against such a background in the late 1980s the theory of the developmental state emerged to challenge orthodox neo-liberal theories on NIEs. According to the neo-liberals, the NIEs’ success was due to pursuing market-conforming economic policy, and it was the market rather than the state that played the decisive role in development.32 In the view of the neo- liberals, the NIE miracle was the result of the operation of the market economy in free trade and export-led manufacturing. In contrast, the theory of the

32 Robert Gilpin, 2001: 306, 316.

12 developmental state placed the emphasis on the role of the state in guiding economic development. In their view, it was the state and its industrial policy that brought about successful economic development.33 Nationalist politics, ideology and an ambition to catch up with the west were cited as motives in economic decisions.34 Industry policy not only offered incentives to strategic industries, but also exposed priority sectors to international competition. State-led manufacturing was initiated when the market failed to provide leadership. And NIEs deliberately got prices ‘wrong’ and also used non-price measures to influence firms’ economic decisions. In short, developmental state theory assigned the state an activist role in economic development.35

The Asian financial crisis in July 1997 called for a rethinking of the economic role of the state. The debt debacle discredited the NIE model and called into question the wisdom of assigning the state an activist role in the economy. In the 1990s, amid disarray in East and Southeast Asian economies there was a resurgence of private enterprise in the American economy, which had by that time recovered from the slump.36 There was also a revival of the ideas of free trade and the market economy. The aid and loans programs of international institutions such as the International Monetary Fund and the World Bank were conditional on economic reforms and financial deregulation. Restructuring programs once again advocated a free market economy without state intervention and called for a rolling back of the state in the economy. In China, the success of the market economy, albeit one with a socialist flavour in a developing economy, gave a new lease of life to theories about price mechanisms, economic freedom and private enterprise.

33 Adrian Leftwich (2000: 157) provides an account of the advent of the theory of the developmental state. It was after Chalmers Johnson’s seminal work on East Asian developmental states that the phrase developmental state made its formal debut and a serious attempt was made to conceptualise it. As Peter Evans puts it: ‘to bring the state back in’. 34 Adrian Leftwich, 2000: 154. 35 Robert Gilpin, 2001: 317, see also Robert Wade, (1990) on managed economies in East Asia. Ruth McVey, ed., Southeast Asian Capitalists (1992) offers a collection of essays on Southeast Asian economies. 36 Daniel Fusfeld, 1999: 194.

13 Beginning 2000, the World Bank has also adopted a new paradigm in neo- institutional economics and placed great emphasis on the building of market institutions in economic development. 37 The World Bank began to accept the reality of a real world economy where transaction costs are positive and it thus began to opt for a holistic approach in the study of economic development, placing equal weight on history, culture, custom, social structure, legislation and politics in influencing transaction costs in the economy.

1.3 A New Paradigm in Economic Theorisation

The seminal work of Ronald Coase (1960), George Stigler (1961) and Kenneth Arrow (1962) laid the theoretical foundation for transaction cost economics, and prompted the advent in the 1960s of neo-institutional economics.38 It marked the beginning of a paradigm shift from an idealised, perfect economy where transaction costs are zero to a real world economy where transaction costs are greater than zero. The awards of Nobel Prize for Economics to Ronald Coase in 1991, and Douglass North in 1993 reaffirmed the paradigm shift in economic theorisation.

Ronald Coase’s The Nature of the Firm (1937) explains that firms exist to internalise transactions within the organisation. This is because there is a cost in using markets, and firms are formed to economise on the cost of transactions across markets. To use Coase’s words: ‘The main reason why it is profitable to establish a firm would seem to be that there is a cost of using the price mechanism. The most obvious cost of “organizing” production through the price mechanism is that of discovering what the relative prices are … costs of negotiating and concluding a separate contract… must also be taken into account.’39 Coase’s The Problem of

37 In 2002 the World Bank has adopted the new paradigm of neo-institutional economics. See World Development Bank Report, 2002, Building Institutions for Markets, Oxford University Press for the World Bank. 38 Steven Cheung, 2002: 150, Ronald Coase’s (1960) The Problem of Social Cost, George Stigler’s (1961) The Economics of Information and Kenneth Arrow’s (1962) Economic Welfare and the Allocation of Resources for Invention. 39 Ronald Coase, 1937: 38, 39. For the theory of the firm, see also Nicholas Kaldor’s (1934) The Equilibrium if The Firm, George Richardson’s (1972) The Organization of Industry, Alchian & Demsetz’s (1972) Production, Information Costs, and Economic Organization, Jensen &

14 Social Cost (1960) in examining the conditions, under which allocation implications of neoclassical theory held, demonstrates that inefficient economic outcomes – harmful effects on others – in the neoclassical model come from the implicit presence of transaction costs. Only in the absence of transaction costs did neoclassical theory yield implicit economic efficiency. George Stigler later formalised this finding, as ‘under perfect competition private and social costs will be equal’ and named it the Coase Theorem.40 The Coase Theorem specifies that neoclassical equilibrium exists only when transaction costs are zero. The contribution of the Coase Theorem is the explicit introduction of transaction costs into economic analysis.41

The existence of firms in the economy to economise on transaction costs calls into question the neoclassical overemphasis on the price mechanism as the only means of resource allocation. This is because ‘in the real world we find that there are many areas where this [the price mechanism] does not apply. If a workman moves from department Y to department X, he does not go because of a change in relatives prices, but because he is ordered to do so.’42 Clearly, transactions within a firm depend on managerial orders, which in reality is a suppression of the price mechanism. Thus ‘[within] a firm these market transactions are eliminated, and in place of the complicated market structure with exchange transactions is substituted the entrepreneur–co-ordinator, who directs production. It is clear that these are alternative methods of co-ordinating production.’43 In other words, in addition to the price mechanism as a coordinating instrument, the entrepreneur–coordinator also exists to facilitate coordination in the economy. The issue of resource allocation is then a choice between two mechanisms and subject to the costs of carrying out the appropriate alternative.

Meckling’s (1976) Theory of The Firm: Managerial Behavior, Agency Costs, and Ownership Structure , Oliver Williamson’s (1979) Transaction-Cost Economics: The Government of Contractual Relations, and Oliver Hart’s (1989) An Economist’s Perspective On The Theory of The Firm in Buckley & Michie ed., Firms, Organization and Contracts. 40 Ronald Coase, 1988: 14. 41 Ronald Coase, 1991: 9. 42 Ronald Coase, 1937: 35. 43 Ronald Coase, 1937: 35, 36.

15 Steven Cheung (1983) restates Coase’s central argument, and postulates that coordination of the factors of production in the economy could be effected through appropriate contractual arrangements among the coalitions of resource owners. He goes on to state that the choice between the alternatives depends on which set of contractual arrangements supplies the product at the lowest cost. 44 Implicitly, coalition arrangements negate the distinction between market and non-market allocation. This is because the merit of the choices of mode of production within a firm or across the market is not absolute but relative to the costs of carrying out the economic process. Explicitly, economic activity could be organised through an optimum configuration of market and non-market activity that collectively yields the least cost. Clearly, such reasoning raises the question of what is the optimum amount of entrepreneur planning. Put another way, what is the optimum size of the firm?

A firm can become bigger by organising additional transactions by order of the entrepreneur–coordinator or become smaller by abandoning such intra-firm transactions. In such circumstances, why does the entrepreneur organise one less transaction or one more? If by organising one can eliminate certain costs and in fact reduce the cost of production, why are there any market transactions at all? Why is it all production not carried on by one big firm?45 Coase cited Lenin’s Russia as being run as one big factory. In other words, to what extent is planned ordering conducive to economic production given the fact that there are ‘diminishing returns to management’? The cost of organising another transaction within the firm may raise, and the larger the firm, the more likely it is that there will be managerial mistakes, and that the costs of other factors will also rise.46 Given such constraints the size of the firm is thus subject to the ‘costs of organizing an extra transaction within the firm became equal to the costs of carrying out the same transaction by

44 Thrainn Eggertsson, 1990: 163. 45 Ronald Coase, 1937: 42, 43. See also Buckley & Michie (1996: 4–12) for an overview on the nature and size of the firm in the market economy. 46 Ronald Coase, 1937: 43, 45.

16 means of an exchange on the open market or the costs of organizing in another firm’.47 Simply put, firm size is conditioned at the margin so that firms’ production costs are the lowest possible relative to the open market and its competitors.

Transaction cost economics has neither a preference for price-induced transactions in the open market or for non-price ordering within firms because its choice of mode of transaction is predicated on the costs of transacting. Although the Coase Theorem demonstrates that when transaction costs are zero, the Pigovian solution of government action is unnecessary to resolve the case of divergence between private and social costs. However, ‘it does not imply, when transaction costs are positive, that government actions (such as government operation, regulation or taxation, including subsidies) could not produce a better result than relying on negotiations between individuals in the market’. 48 Thrainn Eggertsson in the neoinstitutional approach suggests a macro version of Coase’s law: ‘[the] economic growth and development of a country are basically unaffected by the type of government it has, if the cost of transacting in both the political and economic spheres is zero. However, when transaction costs are positive, the distribution of power within a country and the institutional structure of its rule-making institutions are critical factors in economic development.’49 Clearly, the state has a bearing on transaction costs in the economy.

Incidentally, Coase also challenges the thesis of state intervention in externalities. Coase suggests instead that if property rights are properly defined, the parties, both the victim and perpetrator, could trade their right for clean air with the right to pollute without having to resort to state intervention. 50 Coase is critical of the convention that penalises the perpetrator and rewards the victim in the case of externalities, arguing that such a judicial view hinders optimum resource allocation, and thus prevents assets from reaching their highest valued use. Property rights

47 Ronald Coase, 1937: 44. 48 Ronald Coase, 1991: 11. 49 Thrainn Eggertsson, 1990: 248. 50 Ronald Coase, 1960.

17 could be exchanged through a bidding process in the market without resorting to judiciary arbitration. Clearly, government action per se is not the issue of concern but the cost of contractual arrangements between coalitions of resource owners. In a real world environment, information is never complete, and so transaction costs are relative to the completeness of information. As the economists of the Austrian School argue, the price mechanism is the only required information in resource allocation and central planning in the economy faces the problem of acquiring adequate information. From a practical perspective, the information cost plays a strategic part in determining the mode of transaction. Indeed, George Stigler prefers the concept of information cost to transaction cost as the former entails a precise definition while the latter embraces a wider scope.51

Property right is a core concept in transaction cost economics, as well-defined property rights in an exchange minimise the costs of negotiation, contracting and measuring performance. In offering of standardised measures, the state reduces the costs in transacting. According to Cheung (1978), an asset is defined as private property if, and only if, three distinct sets of rights are associated with its ownership. The first of these is the exclusive right to use or to exclude other individuals from its use. Second, is the exclusive right to receive income generated by the use of the asset. The third right is the full right to transfer or freely alienate its ownership. In practice, exclusivity and transferability are matters of degree.52 Property rights in economics differ from legal rights in law, which are cast in the light of the neoclassical framework, where an exchange of a ‘uni-dimensional’ good is completed with the transfer of all rights embraced in the physical good. Economics perceives property rights as assets with many attributes. Thus, an exchange of assets is a transfer of a bundle of rights associated with the attributes of the exchanged economic asset. In the real world, property rights can never be

51 Steven Cheung, 2002: 142. Given perfect information reduces the transaction cost to zero, the concept of information cost accords a more precise measurement of the adequacy of information in transactions. 52 Steven Cheung, 1978: 51. This is because in the real world, information is never perfect.

18 absolutely defined because of positive transaction costs. 53 Undefined property rights are in the public domain as common rights, allowing others to exploit them. Given such an understanding, the better property rights are defined, the lower the transaction costs of economic exchange.

In the real world economy, transactions are costly because perfect competition does not exist. Information is never perfect and economic actors have bounded rationality.54 The fact is that when positive transaction costs prevail, institutions matter. North (1981) defines institutions as humanly devised formal rules and informal codes of behaviour that regulate economic exchange. Institutions as a set of rules, and moral and ethical behavioural norms constrain the behaviour of individuals.55 In other words, institutions are the rules of the game that players follow. Institutions reduce transaction costs because they provide the framework within which human beings interact in ways that minimise the costs of negotiating, contracting and monitoring performance. 56 For example, highway codes that motorists follow negate the need for individual negotiation, and reduce the costs of travel. Institutions, however, cannot be assumed to be efficient. Inefficient institutions are pervasive in economic history. This is because people with vested interest shape and define social institutions.57

North’s theory of institutional change explains the relationship between institutional changes and economic performance. North postulates that institutions change over time because changes in relative price alter incentive structures, leading to changes in economic development. An evolved institutional environment that reduces transaction costs encourages economic development and growth. Consequently, economic performance differs because its underlying institutional environment differs. 58 In this framework, the institutional environment is the

53 Thrainn Eggertsson, 1990: 39. 54 Oliver Williamson, 1996: 56, Bounded rationality, according to Herbert Simon’s Administrative Behavior 2nd Edition (1957), is human behaviour that is ‘intendedly rational, but only limitedly so’. 55 Douglass North, 1981: 201. 56 Douglass North, 1990: 6, 62, 63. 57 Douglass North, 1990: 7, 69 58 Douglass North, 1990.

19 totality of the makeup of the society, apart from the legal framework and social norms. This includes the inherent culture, religion, ideology and knowledge stock of a society.59 North’s theoretical framework, which incorporates socio-political elements into the study of economic history, has broadened the scale and scope of economic analysis. Adopting the notion of transaction costs further enables the quantification of culture and ideology in economic performance. For example, a society that emphasises honesty as a virtue encourages self-enforcing contracts and thus reduces the costs of measuring performance.

Within neo-institutional economics, the state and the market are but two major institutions that govern economic exchanges in society. There is no antagonism between the state and the market. ‘Broadly speaking, political rules in place lead to economic rules, though the causality runs both ways.’60 That is, the state plays a key role in defining the institution of property rights that determine a society’s incentive structure. In turn, the embedded incentives within the institution determine the society’s preference for productive or unproductive economic activity. In this way, the commensurate learning of new skills affects the pace and direction of economic development. A society that rewards piracy will produce better pirates.61 Economic interests, however, also attempt to influence the political structure through lobbying or bribery. This is a case of players inventing new strategies to circumvent or change the rules of the game. 62 Neo-institutional economics thus seeks to understand the coalitions of resource owners that form in the process of production. Institutional analysis therefore differs from the state or the market approach in economic analysis. The neoliberal theorists advocate market supremacy while the development economics emphasizes the activist state. In this perspective there is antagonism between institutions of the state and the market.

Importantly, in the context of neo-institutional economics, the real issue is not

59 Douglass North, 1990. 60 Douglass North, 1990: 48. 61 Douglass North, 1990: 78. 62 Douglass North, 1990.

20 about the merit of state intervention per se but rather the economic outcome of state intervention in increasing or decreasing transaction costs. Therefore an examination of the role of the state in the economy is best approached not as an issue of state intervention but rather as one of the role of the state in the institutionalisation of the structure of production in the economy.63 The issue then becomes not a debate on the choice of whether the state or the market should be paramount in the economy, but rather how state and market as two factors that constitute the institutional environment of a society can coordinate to lower transaction costs to facilitate economic development, and hasten economic growth.

Institutional analysis has some inherent limitations. Transaction cost economics faces the problem of the difficulty of measuring precisely transaction costs in economic exchanges, however in practice this difficulty does not handicap the application of the concept in explaining economic behaviours. The imputation of voluntary exchange and contracting, thus assuming the absence of conflicts in exchange, has also brought about some criticisms. The development of theories of the state is an attempt to resolve the issue of political hierarchy in economic transaction. William Dugger (1993) and Yoram Barzel (2000) offer some insight into the role of the state in regulating exchange, disputes, public provisions, and as a third party enforcer. The theories of Coase, North’s and Cheung’s are extensions to the neoclassical approach but on the premise that in a real world economy transaction cost is greater than zero. There is however another branch of institutional economics, for example Wolfgang Kasper (1998) seeks to offer an alternate economic theorization.

63 Ronald Coase, 1991a.

21 1.4 Overview of Literature on Singapore’s Political Economy

The aims of this section are firstly, to offer an overview of the literature on Singapore’s political economy. Secondly, to investigate the deficiency of the conventional methodologies in the analysis of Singapore economic development, that is to identity imperatives that should be incorporated into the methodology proposed in this study. Thirdly, it is to establish a theoretical justification for the formulation of a new research paradigm. Given these specific objectives, the review covers mainly work in the field of economic development to facilitate comparison. For heuristic purposes, the literature on Singapore’s political economy is roughly classified into the ‘Singapore School’ and the ‘Singapore Critique’. This classification is designed to meet the aforementioned objectives, notwithstanding the fact that there are often theoretical distinctions between works within each of the schools. As social institutions also play some key roles in institutional development, an overview of some selected works on social variables is offered separately in the ensuing section.

The Singapore School as a distinctive grouping emerged in the political discourse on Asian Values in the late 1980s. The debate took place in the wake of the collapse of the Berlin Wall. Asian politicians, threatened by western domination and encouraged by the success of the NIEs, attempted to negate the absolutism and universalism of western values, in particular, individual liberalism. Singapore academics and researchers were mobilised to espouse the PAP’s view of Asian Values as an alternative to the structure of institutional relations between the state and the people. The Singapore School is broadly referred to as a school of thought or the work of academics and researchers that conforms in general to the views of Singapore’s ruling party. The Singapore School expounds the official view on policy, and provides justification for policy decisions. As a rule it glorifies the

22 PAP’s economic achievements.

The Singapore Critique, as a group, is simply the literature that falls outside the realm of the Singapore School and offers alternative views to the ruling PAP. This classification does not imply any antagonism between the two groups but rather reflects differences in theoretical orientation and ideological inclination. The bulk of the literature comes from the Singapore School, which provides valuable first hand material that contributes to the Singapore Critique. The presence of the Singapore Critique helps to provide a balanced overview on Singapore. Collectively, the two schools provide fairly comprehensive accounts on Singapore’s political economy.

1.4.1 The Singapore School

The Singapore School engages primarily in statistical analysis of economic data that explains structural economic changes over time. However, statistical analysis is not economic analysis and its inherent apolitical and ahistorical approach is inadequate in examining the role of the state in the Singapore political economy. Singapore School economists are mostly in the neoclassical tradition and are ambivalent about the nature of the role of the state in the economy. This is because in the theoretical framework of economic liberalism, the Singapore School believes in free trade in a market economy and subscribes to a minimalist role for the state as a kind of night watchman maintaining law and order. But in reality state involvement in the economy is extensive and cannot be ignored. Hence the Singapore school offers a notion of the Singapore state as one that practices a free market economy but intervenes when necessary.64 The Singapore School attributes Singapore’s economic performance to the PAP’s correct economic policy and has resulted in the fallacious PAP claim to be visionary in economic decision-making.

64 Lim Chong Yah, 1983: 6.

23 Under such theoretical settings the PAP state is perceived to be benevolent and altruistic.

The work of the Singapore School can be split into two phases, in line with changes in policy directions. Until the Asian financial crisis of 1997 it was the phase of management of economic success, despite the recession of 1985. Although the recession brought about some major policy revisions, there were few changes in policy direction. The PAP’s belief that the state plays a positive role in economic development remained intact. In December 2001 through the Economic Review Committee, PAP initiated the Remaking Singapore movement that marked the beginning of a change in policy direction. The policy focus was directed to rethinking and not just fine-tuning the working mechanisms of Singapore’s economy. That is, the PAP re-examined the wisdom of the role of the activist state in the economy, and engineered a Yellow-Pages principle that discourages state- owned-enterprises (or SOEs) in the private sector economy. The directive discourages SOEs to participate in businesses already listed on the Yellow-Pages Telephone Directory.

A spillover effect in academia has been the expansion of the “Voice” option to speak out, balanced against the previous “Exit” option of leaving. 65 This indicates that PAP-controlled political discourse is opening up into a managed version of academic freedom. The self-imposed constraint of eschewing political comment in the Singapore School has relaxed somewhat and the changed academic environment has enabled a more dynamic approach to researching Singapore’s political economy. The relationship between the state and business, especially the role of the state in the economy, is now afforded more explicit recognition in the Singapore School. Besides, by the early 1980s, the PAP state has had become the largest domestic economic actor, making it impossible for the Singapore School to

65 Albert Hirschman, 1970: 4 ‘some members leave the organization: this is the exit option’ or ‘through general protest addressed to anyone who cares to listen: this is the voice option.

24 ignore the role of the state in the economy.

The Management of Economic Success

The Singapore School is the prime source of economic information; it is worthwhile highlighting some of its major work as an overview of the Singapore political economy. Lee Soo Ann’s (1974) Economic Growth and the Public Sector in Malaysia and Singapore 1948–60 is a pioneer work. The scope of the research is concisely illuminated in its title, and the approach is Keynesian. The objective was to shed light on the postwar role of the government in the development of economy. Lee acknowledged upfront the ‘[A] full description of the role of government would have to cover both the political as well as the economic activities of the government but as this is beyond the competence of the writer, it is proposed to follow a more limited frame of reference comprising the major financial activities of the central government.’66 Lee’s reliance on the theories of H. Myint and Arthur Lewis in economic development envisaged a role for government in managing Singapore’s open economy. His policy recommendations were to sustain economic growth through improving productivity and encouraging investment, a fiscal policy to pass on increased benefits to the whole economy and a balanced growth policy, containing the inherent inflation of development. The work offered a fair historical account of Singapore’s economic development up to 1960.

Singapore Development Policies and Trends (1983) is a classic work of the Singapore School. The book is a collection of fifteen essays which aim to analyse the trends and policies of Singapore’s social, economic and political development. Peter Chen, the editor, provides an overview of Singapore’s social achievement in the preface: ‘Singapore is a global city-state, which has boldly implemented

66 Lee Soo Ann, 1974: 2.

25 ambitious development policies and has successfully achieved remarkable economic growth and social stability in less than sixteen years since it became an independent state in 1965, its per capita Gross National Product has increased nearly four times to S$9,293 (equivalent to US$4,425) in 1980, being the second highest in the East and Southeast Asian region. During this period Singapore has constantly maintained a rapid economic growth rate, full employment, high productivity, and low inflation rates. Its strategies for development have set a model for rapid growth, not only for developing countries but also for industrial countries as well.’ In Chen’s view the PAP’s economic model is apt even for industrial countries to emulate. 67 The book gives a flattering account of PAP economic development up to 1980.

Management of Success: The Moulding of Modern Singapore (1989) has forty-nine chapters and involved fifty-six authors. The book is in reality the PAP’s ‘Manifesto’, a testimony to the party’s political, social and economic policies and their achievement. The objective of the book is ‘to elicit the means by which they [Singapore’s achievements] have been effected, to assess the measure of their success, and, perhaps, inadvertently to gain some understanding of the reasons why the standard prescriptions for development and modernization are so little applicable to the Singapore experience.’ 68 The book’s preface claims that Singapore ‘is now a modern, secular, independent republic with a parliamentary system in the charge of one of the most stable and respected governments in Asia’. ‘It boasts an advanced mixed-enterprise economy with a high rate of growth, an exceptionally strong currency, one of the lowest inflation rates in the world, and what must surely by the highest rate of personal saving.’ ‘Its population of 2.6 million has been partially redeployed across the island in comprehensively planned and virtually self-sufficient new towns and housing estates, and the discordant,

67 Singapore Development Policies and Trends, 1983: Preface. 68 Kernial Sandhu and Paul Wheatley, eds, 1989: vii.

26 slum-ridden fabric of the old urban nucleus on the South side of the island reworked into a modern, efficiently serviced, tropical garden city.’69 The book is a project to record PAP’s success story. And it is a sequel to Socialism That Works: The Singapore Way (1976), edited by Devin Nair in defence of the PAP’s political ideology and economic policy in the face of its impending removal from membership of the Socialist International. These publications provide documented empirical evidence to support the PAP’s political ideology. But the PAP success story is secured without accounting for the social costs of development.

Revisiting Economic Development

Peebles and Wilson’s Economic Growth and Development in Singapore: Past and Future (2002) adopts an integrated approach that incorporates economic, social and political perspectives in revisiting the economic past and in assessing Singapore economic future.70 The study identifies the institutions and policy directions that propelled Singapore’s economic development and evaluates their relevance to Singapore’s future development in view of changes in the exogenous environment and PAP leadership. It examines in detail the role of the state in the mobilisation of resources and domination of the economy. While there is an emphasis on analysing the political determinants of economic policy and the book also examines the relationship between politics and economy, the prime focus is on structural changes in Singapore’s economy over time. On the question of Singapore’s future, the authors identify thirteen pertinent problems associated with changes in policy direction but does not offer any view on the likely policy outcome. The work offers an objective assessment of PAP’s economic model. Given its extensive coverage of development in the 1990s, the book serves as a useful complement to W. G. Huff’s (1994) The Economic Growth of Singapore: Trade and Development in the Twentieth Century in offering a comprehensive history of Singapore’s economic

69 Kernial Sandhu and Paul Wheatley, eds, 1989: vi. 70 Peebles and Wilson, 2002.

27 development. Huff offers independent assessments as well as authoritative accounts of how the Singapore economy has evolved from 1819 until the 1990s.

Wong Poh-Kam’s The Role of the State in Singapore Industrial Development (2001) provides a broad review of Singapore’s industrial policies; especially those introduced after 1991 in the context of “The Next Lap”, that is the next phase of Singapore development under Goh Chok Tong. 71 Wong estimates that foreign capital owned more than 70 per cent of total manufacturing output throughout 1970s, 1980s and 1990s. The lopsided structure was because local businesses, which were mainly engaged in trade and related services, lacked both the expertise and the long-term view necessary to mount an industrialisation drive. Wong sees Singapore’s manufacturing economy as the result of industry policy, which was perceived to be either market-friendly or intended deliberately to get the prices wrong. The industry policy engaged in a wide range of policy interventions: on all the key factors from land, labour and capital to infrastructure and related supporting industries. In Wong’s assessment many industrial policies have been largely positive in the sense that they either contributed towards ameliorating market failures or otherwise enhanced the working of the various factors markets. And a major contributing factor to the relative effectiveness of state interventions in Singapore is the quality of state intervention as measured by various dimensions of governance such as political stability and the quality of bureaucracy. Importantly, Wong is of the view that ‘quality intervention’ has not adversely affected the freedom of private economic agents. Wong therefore concludes that the Singapore model holds interesting lessons for other developing countries, especially small countries that are similarly constrained by a lack of natural resources and a small domestic market. Accordingly, the work is in line with neo-liberal theorisation on economic development in Newly Industrialised Economies.

71 ‘The Next Lap’ was Goh Chok Tong’s road map of social change in the 1990s.

28 Assessment of the Singapore School

The Singapore School, as a grouping, is characterised by certain commonalities, outcomes of the institutional environment that govern the realm of academic research in Singapore. First and foremost, it is a well-articulated informal PAP rule that domestic politics is strictly a matter for Singaporean politicians, and violation carries severe penalties. Indeed, the PAP has warned foreign academics that anyone who criticises basic government policy will be on the next plane out of the country.72 In the study of economic development there is therefore a tendency to avoid an interdisciplinary approach in preference for a descriptive statistical approach. Arising from the PAP’s political culture of fear, researchers consciously avoid commenting on the political implications of economic policy. It is not uncommon to find disclaimers in publications intended to minimise the inherent risk of antagonising ruling politicians so as to avoid the risk of a defamation lawsuit. Peebles and Wilson (2002) offer a classic example: ‘Any mistakes of fact or interpretation in this book are solely the result of our ignorance and incompetence and are not due to any malicious intent.’ The authors, having collectively worked in Singapore for 23 years, appear to have acquired the wisdom to comply with the PAP’s informal rules.73

Given the constraints, the natural consequence of the Singapore School’s approach is in Peter Preston’s (1994) view, as reflected in his critique of a Singaporean economist, ‘Examples of this sort of essentially descriptive and deferential analysis could be multiplied. It is characteristically Singaporean.’ 74 Lily Rahim (2001) remarks that ‘any meaningful economic analysis requires that politics be seriously brought into the picture’. Unfortunately, this useful methodology has been avoided by most Singaporean-based economists who are inclined to avoid qualitative analysis of a critical nature particularly on the more controversial issues.

72 Joseph Tammy, 1996: 29 Lee Kuan Yew in a speech in the University of Singapore. 73 Peebles and Wilson, 2002: xiii, 11. 74 Peter Preston, 1994: 137.

29 Consequently, their writings tend to be largely descriptive and reduced to celebratory narratives of the PAP’s management of success.’75 It appears that the Singapore School is working in a sterilised environment regulated by self-imposed informal codes of behaviour. Self-censorship inevitably constrains and limits the scale and scope of scholarship. However, since 1997, the gradual opening up of political discourse, albeit in a managed environment, has facilitated the expansion of the scale and scope of study of Singapore’s economy. Nonetheless the fear of PAP political retaliation and economic sanctions remains a concern among local researchers. Non-confrontational research remains an informal PAP rule.

The Singapore School is conventionally apolitical and ahistorical. This is the case because political and historical factors are often not taken into consideration in the study. An apolitical and ahistorical approach to the study of Singapore’s political economy is potentially misleading because history matters. History is the source of information to map out sequences of political events that explain causality in social interaction. History is essential to the study of the motive for policy changes and in examining resulting policy outcomes. Without first establishing the causality in social development, it confuses causes and consequences in policy motives and policy outcomes. And unintended outcomes hinder a correct regression analysis. Fashioning a study as one concerning political economy by merely juxtaposing political and historical events with economic consequences is meaningless if the interrelationship between the policy and the particular socio-political event and its implications for economic outcomes is neglected.

The apolitical and ahistorical attributes thus create some common fallacies in the Singapore School that needed to be readdressed. For example, the shift from import substitution to an exported oriented economy in the 1960s was not a result of the PAP’s visionary policy but rather an outcome of its political failure to establish a

75 Lily Rahim 2001: 221.

30 common market with Malaysia. In the same vein, neither was the Asian Currency Unit in 1968 a PAP policy outcome but purely a matter of economic realism, making up for the void left by the impending British withdrawal from Singapore. The Bank of America was the agent of change in the financial market evolution while the PAP’s role was mainly as facilitator. Similarly, advocacy of the global city in the late 1960s appeared visionary in the context of the 1990s globalised economy but given the fact that Singapore is an island economy without a hinterland, a decision for globalisation could only have been a very obvious one.76 These apolitical and ahistorical attributes while contributing to the fallacy of the PAP’s policy correctness, also inevitably overstated its effectiveness in policy formulation.

The Singapore School tends to adopt endogenous economic models, which take the institutional environment that regulates the economy as a given. Studies of Singapore’s economy therefore centre on economic growth and structural change. The technical approach reduces research to statistical analysis of national income accounting, to determine growth or decline in gross national product and changes in the contributing segments of the national economy. Studies tend to be limited to providing year-to-year, and quarter-to-quarter statistical comparisons.77 The fact that United States is Singapore’s largest trading partner means that changes in Singapore’s statistics are mostly explained by reference to the US economy. For example, the lacklustre economic performance in the first half of 2003 was attributed to the weak US economy, the Iraq war and the resultant increasing energy costs and also to the outbreak of Severe Acute Respiratory Syndrome or SARS, which halted most forms of travelling and disrupted economic routines. More importantly, the approach implicitly overstates the effectiveness of the PAP’s economic policy in allowing it a free ride on the performance of US economy.

76 For a general account of the ACU, see Tan Chwee Huat, 1999. 77 The ministry’s economist offers regular updates on local economic statistics and local academics offer ex post statistical analysis of the economic data.

31 A statistical analysis of economic numbers explains away the PAP’s political responsibility for institutional sclerosis and any policy failure. This is because the economic model does not evaluate the institutional environment. Pertinent questions such as the embedded high business costs in institutional arrangements are seldom addressed. This approach also often ignores the matrix of causality between the PAP’s policies and their policy outcomes. For example, if a study of the labour economy has avoided a causality matrix of population policy with issues such as sterilisation, eugenics, abortion law, influx of foreign labour, and unemployment.78 Then the PAP would not be responsible for failed population and education policies that have resulted in a falling birth rate, an influx of foreign labour and the displacement of middle-aged Singaporeans in the labour market. Given such research methodology the PAP politicians can do no wrong, as any economic misfortune must be, by default, the result of exogenous changes. Intentionally or otherwise, the Singapore School establishes the myth of the invincibility of PAP’s political and economic achievements.

The Singapore School depends heavily on the state for statistics and information as inputs for their studies. The PAP completely controls the supply of vital information and only dispenses it on a need-to-know basis. Clearly, the problem of information scarcity, accuracy and reliability is problematical in the Singapore School’s approach to statistical analysis. This is because the accuracy of their research conclusions is conditional on both the completeness and the quality of the information. That is, their research conclusions face a high risk of suffering the ‘garbage in and garbage out’ syndrome. Haggard and Low (2002) qualify their work on incomplete information: ‘Information… is surprisingly difficult to find…. unavailable to the public…. is limited ….is restricted to use.’79 Similarly, Peebles and Wilson (2002) attribute ‘the lack of official data’ as the main reason for

78 For discussion of population policy, sterilisation, eugenics and abortion law, see Peter Hall, 1973 and Saw Swee Hick, 1991. 79 Haggard and Low, 2002: 305.

32 different views on Singapore savings rates.80 In the face of incomplete information, the quality of Singapore School research is compromised.

While information scarcity is a troubling issue, the accuracy of information poses yet another serious problem. Iain Buchanan (1972) began his study by questioning the accuracy of all government statistics in Singapore. ‘In most countries, official statistics are as reliable as the Government chooses them to be. The data available on Singapore’s economic and social development are extremely uneven and often grossly inaccurate; figures for trade with Indonesia, Singapore’s second major trading partner, have been officially withheld since 1963; figures for the composition and growth of national income and national product are both ambiguous and various; figures for employment and unemployment are often either “guess-timates” or mis-statements; and figures relating to private investment and income are vague and highly tentative.’ 81 In July 2003 an Indonesian minister challenged the accuracy of Singapore’s published trade statistics with Indonesia.82 Hafiz Mirza (1986) also reveals a great disparity in the 1984 trade statistics, reported by Singapore and Vietnam as $82 million and $200 million, respectively. The Singapore statistic was apparently understated because it was then politically incorrect to trade with Vietnam.83 Similarly, a US Embassy report claims that the SOE economy accounted for as much as 60 per cent of Singapore’s GDP, is in contrast to Singapore official’s claim of 10.6 per cent in 1996, 11.3 per cent in 1997 and 12.9 per cent in 1998.84 In the United States those scandalous cases of creative accounting and the consequences of untrue and unfair views in the financial statements of giant US corporations raise the question of creative statistics. It is important that the sources of data are verifiable by researchers, much

80 Peebles and Wilson, 2002: 84. 81 Iain Buchanan, 1972: 5. For a critique see Lim Chong Yah (1980: 47) ‘The style and presentation, though lucid and interesting, are journalistic and polemical …His knowledge of development economics is obviously superficial…that he makes his gloomy, and wrong, diagnosis and prognostication of Singapore economy. And in Hafiz Mirza, (1986: 48) ‘Ten years later Buchanan’s analysis remains essentially correct and is reinforced by Singapore’s recent expansion…’ 82 Straits Times (ST), 08 17 2003, 14 07 2003 83 Hafiz Mirza, 1986: 45. 84 Wong Poh-Kam, 2001: 557.

33 as an auditor needs to assess source documentation in verifying the composition of financial statements. The methodological inadequacies in statistical analysis reflect the lack among the Singapore School of a reliable framework in which official statistics can be appraised.

A dispute that took place in August 2003 between two researchers and a PAP politician on the conclusions derived from published labour statistics is a case in point. The researchers concluded that from 1997 to 2002, three in four new jobs had gone to foreign workers. A PAP acting minister rubbished the finding as inaccurate, irresponsible, unprofessional and sensational. He instead relied on unpublished statistics and claimed nine in ten new jobs in the past five years had gone to Singaporeans. In other words, the PAP resorted to classified data to rebut the ‘sensational’ finding. Interestingly, a seconded official mocked the research finding by commenting that anyone who could have extrapolated such a massive shift in the economy from numbers in the public domain ‘[could] get a Nobel prize’.85 The caustic remark inadvertently shows that insiders are fully aware that the published official statistics are incapable of explaining economic phenomena. Ironically, the official remark reaffirms Iain Buchanan’s implicit claim of inaccuracy, irresponsibility and unprofessional in Singapore’s official statistics. Obviously, completeness and accuracy of official information is a necessary precondition to determine the quality of the research outcomes of the Singapore School. In other words, under ceteris paribus, the quality of research output is contingent on the quality of the research input.

The Singapore School, intentionally or otherwise, has a tendency to focus disproportionately on the positive policy outcomes of the PAP’s economic model by neglecting the negative externalities of policy. For example, the disappearance of filmmaking and fishing industries was not a concern to the economists. They fail

85 ST, 01 08 2003:H6.

34 to explain anomalies in the domestic economy. Besides, the harmful effects of the SOE economy on the private economy are also under-researched. The Singapore School is quick to cite certain development projects as PAP achievements, but fails to investigate why PAP successes have not benefited the private economy. Public housing is often touted as a socio-economic model for third world countries to emulate, and Singapore’s Changi Airport and the Mass Rapid Transport system are also publicised as world-class infrastructures, but fail to recognise the fact that Singapore has no renowned architects and builders. On the contrary, many local contractors have gone bankrupt while involved in public housing projects.86 There is barely a single landmark building in Singapore that Singaporeans can associate with local architects and builders. Although, on an individual level, some local architects are well known, a man such as William Lim is better known for his teaching on post-modernist architecture and Tay Kheng Soon for his vocal anti- establishment stand against the demolition of the National Library, a landmark building, for the sake of the convenience of traffic. 87 Given that Singapore’s seaport economy saw the birth of the Neptune Orient Line, and its airport economy propelled Singapore Airlines, the market failure of the construction industry is puzzling. Clearly the economic relationship between the PAP’s policy and the private economy is not yet properly understood. This economic anomaly is, however, being addressed by the Singapore Critique.

The opening up of discourse affords the new breed of Singapore School researchers the opportunity to incorporate non-economic variables into the study of the economy. The outcome has been a juxtaposing of political and historical information into their work, which is then fashioned as political economy. While they’re broad based analyses that carry a welcome investigative aspect, nonetheless they remain ‘characteristically Singaporean’, that is, conforming and not putting

86 ST, 27 09 2003: H1 reported delays in five public housing projects because contractors were having financial problems. It also reported that in the first three months of the year, six contractors went out of business. 87 The National Library at Stamford Road was closed for demolition on 31 March 2004.

35 forward views that would lack PAP’s support. These second-generation studies remain essentially focused on economic variables as independent factors, while social and political factors are incidental and dependent on economic variables. This characteristic is intrinsic to the research model, which is economic in nature. Indeed it is this crucial feature that distinguishes the Singapore School from the Singapore Critique. Although there is a certain convergence between the two groupings in the scope of their studies on the role of the state in the political economy, they remain separate because of their intrinsic differences in political allegiance.

1.4.2 The Singapore Critique

The principle characteristic of the Singapore Critique is that as a grouping, it offers alternative views that do not conform to those of the PAP. Here, a non-conforming view means an independent, non-PAP-sponsored view. There is nothing in this definition that suggests that an alternative view to the PAP’s must be anti-PAP in nature and, indeed, this position is but one strain within the Singapore Critique. While to be anti-PAP is not unlawful, it carries a high and punitive personal cost that effectively deters researchers from wandering into this forbidden domain. The PAP avails itself of a self-decreed, unilateral ‘right of reply’, among other legal measures, to handle ‘misleading’ media reports.88

To the extent that information supplied by the PAP is deemed to be the ‘gospel truth’, any deviation from it is suspected of sinister motives and runs the risk of being labelled as ‘fraudulent’ on the basis that anyone accusing it of ‘untruth’ must be a liar.89 This position is reaffirmed by the informal rule that if the PAP says so it must be so. Given such inhibitions, most members of the Singapore Critique seek to analyse the Singapore political economy from a theoretical framework and

88 Derek Davies, 1999. 89 The PAP has a culture of belittling their adversaries. Chan Heng Chee, 1976: 228 S. Rajaratnam who spoke of ‘opposition party consisting of bums, opportunists and morons…’ John Drysdale, 1984: 242 Lee Kuan Yew labelled Ong Eng Guan ‘a liar and rogue’ with ‘a multiplicity of wives’.

36 confine all their conclusions to the realm of research. This means that research is restrained within the academic realm and becomes purely an academic exercise in political economy. This diminishes the risk of becoming involved in domestic politics. As expected, the Singapore Critique operates in a much more constrained environment, and the difficulty are noted in Bello and Rosenfeld’s (1990) acknowledgements: ‘others – without whose assistance this research would not have gone off the ground – requested anonymity’. This was a perfectly understandable request from people living in the Lee Kuan Yew’s ‘Brave New Isle’.90

There is also a tendency for the Singapore Critique to rely more on data mining from published research material. This is partly because secondary material that has already been scrutinised by the authorities is considered to be politically onus-free. Besides, it is unlikely to conduct field research by interviewing ruling politicians, save for the privileged scholars from the Singapore School. Hence Chris Lydgate (2003) acknowledges his heavily reliance on published materials from other authors in writing his book. Given the constraints, it cannot be otherwise.91 Faced with limitations in field investigation, the Singapore Critique in general relies much more on a chosen theoretical framework to analyse Singapore economy. Their studies focus more on the relationship between socio-political factors, economic structure and economic development, and less on statistical changes over time. The Singapore Critique differs in theoretical framework and political ideology and offers different conclusions. As a result, the Singapore Critique has enriched the understanding of the working mechanisms of Singapore’s economy. The Singapore Critique in general discerns a greater state role in Singapore’s political economy than the Singapore School. This is because politics and social policy are endogenous in their analytical framework. Within their respective theoretical

90 Bello and Rosenfeld, 1990: xvi. 91 Chris Lydgate, 2003: ix.

37 frameworks, researchers seek to examine the independent and interdependent relationships in the structural variables of politics, economic, cultural and social attributes in economic development. More specifically, in this branch of study, economic development is viewed as a social process of resource allocation under certain formal rules and informally defined norms in society.92 Consequently, the role of the state in the economy attracts much more attention.

The Singapore Critique presents a wide diversity of views on Singapore’s political economy. Researchers adopt different theoretical frameworks and there are variations in their conclusions on the nature and characteristics of the state of Singapore. The following survey sets out in chronological order some key research on Singapore’s economic development. The emphasis, however, is primarily on the respective research and theoretical frameworks of this work and the conclusions it forms. An appraisal of the Singapore Critique is presented in the ensuing section.

The Domination of Foreign Capital in Singapore’s Economy

Iain Buchanan’s (1972) Singapore in Southeast Asia offers a contrasting perspective to Lee Soo Ann’s (1974) analysis of the same historical events. The work is an examination of Singapore in the context of postwar ‘newer imperialism’. From the perspective of international politics, it explores the relationship between domestic politics and economic development. In Buchanan’s view, the British played an increasingly subordinate role in postwar Singapore to that of the United States. Since opposition to foreign political control, in itself, could not sustain independence, thus there was a need for the ex-colonial state to be submissive to the western alliance for economic gain. From that time there was a hardening of western colonial-style exploitation in the newly independent nation. As a result, exogenous variables, specifically postwar ideological competition between the

92 Adrian Leftwich, 2000: 25.

38 United Stated and Russia, determined the nature and characteristics of regional political contestation. The resultant path circumscribed the scale and scope of domestic politicians’ policy choices. Domestic politics was but a reflection of exogenous political competition. In the context of the Cold War, local politicians were mere agents of foreign principals. Domestic economic policy was therefore a derivative of Singapore’s international relationships with the world capitalist system. The demobilisation of the leftist labour movement and the subsequent legislation regarding employment and direct foreign investment were the results of domestic politicians’ meeting foreigners’ demands. Buchanan offers a balanced view on the events leading to Singapore’s merger with Malaysia, the eventual break-up and the formation of the independent republic. Significantly, Buchanan is of the view that Singapore had already achieved de facto status as an independent state in 1959 rather than having it politically ‘forced upon’ it in 1965.93

Frederic Deyo (1981) applies the concept of the bureaucratic-authoritarian corporatist state to examine inter-class relations between the state, employers and the unions in the context of Singapore in a world market oriented industrialisation. Deyo studies the structural relationships between the PAP, transnational corporations (TNCs), and the National Trades Union Congress (NTUC) in Singapore’s industrialisation. Under this newly established industrial order, the PAP and TNCs formed an equitable economic alliance. It was equitable because the presence of competition among TNCs lessened the political pressure in the government’s favour. That is, the PAP enjoyed relative autonomy in public policy. Structurally, the subordinated NTUC became an agent of the economic alliance. Under bureaucratic corporatism, the PAP subordinated the NTUC into a role whereby it directed the labour force to meet foreign investors’ objectives in employing not only cheap but also disciplined workers in the manufacturing

93 Iain Buchanan, 1972: 24.

39 economy. This objective of the TNCs was achieved through the ‘corporatist labour legislation’ initiated by the PAP.94 Under the new industrial order, the NTUC was impotent in dealing directly with TNCs without the endorsement of the PAP. And the NTUC, in turn, subjected unionised workers to its absolute command. This was achieved because the PAP had deregistered most unions that were not affiliated to the NTUC. Under this corporatist form, domestic capitalists played an insignificant role in the manufacturing economy. This was because the PAP’s policy, although not intended for them, nonetheless ‘favored international over domestic private investors’. 95 In the mid-1970s the PAP, once again acting through the NTUC, created a new industrial community to placate workers’ dissatisfaction which was manifested in job-hopping and ‘bad’ working attitudes. Consequently, workers were allowed some participation at symbolic, material and political levels in Singapore’s industrialisation. In this adjustment the PAP’s ideology on industrial relations was transformed and under this changed authoritarian corporatism, the PAP took on a paternalistic stance in labour and social management. Implicitly, under the corporatist state framework, TNCs had demanded strong labour controls, the PAP obligingly supplied ‘corporatist labour legislation’, and the NTUC as agents implemented and supervised the new labour rules to the satisfaction of the TNCs. And throughout this structural relationship, labour as ‘digits’ or ‘atomised factor of production’ remained at the bottom of the economic hierarchy defined by the PAP while domestic capital was sidelined in the manufacturing economy.96

Noeleen Heyzer (1983) provides an analysis on the role of the state in the context of international production and social change. In Heyzer’s view, Singapore’s industrialisation is an economic model chosen by the state in the course of the island’s integration into the world economic market. But this relationship is vulnerable to external fluctuations that the state has little control over. Therefore

94 Frederic Deyo, 1981: 56. 95 Frederic Deyo, 1981: 74. 96 Frederic Deyo, 1981, reprinted in Understanding Singapore Society 1997: 367 ‘During the 1960s and even into the early 1970s, Lee Kuan Yew often referred to Singapore’s workers as “digits”….’

40 the introduction of the ‘Second Industrial Revolution’, which together with the refocus on the identified eleven key industries, was a domestic attempt to regain control over the economy. Heyzer offers some observations on the Singapore economy. She views the Speak Mandarin Campaign as economically motivated, an attempt to reap economic benefits from China’s economic modernisation. Domestic capital was asked to form joint ventures with foreign capital in Singapore’s manufacturing sector, or to invest in services, trade and real estate or to move low- skill manufacturing activity to neighbouring countries. In responding to the changed policy, patterns of employment and social stratification also changed. ‘Paper qualifications’ and pecuniary success determine social stratification. In spite of higher wages, poverty has not been eradicated, primarily because of the increasing cost of living. Social welfare assistance is very low, and thus not helpful to the poor. The state played an activist role in the construction of the ‘New Society’, one that aimed at accommodating social change. The ‘New Society’ is defined as ‘modern’, ‘technocratic’, ‘disciplined’, ‘realistic’, ‘rational’ and ‘pragmatic’. The new economic model also requires the co-option of the NTUC in labour management by appointing non-unionist PAP politicians onto the Board of the NTUC. Heyzer concludes that the state and its bureaucracy developed a highly authoritarian character that disallowed views that diverged from those of the ruling elites. There is little social space for dissent. Heyzer advocates an economic development model that also incorporates social equality. Her list of inequalities in the Singapore experience is clearly intended to point to the ideal development economic model for Singapore.97

Hafiz Mirza (1986) in his theoretical framework of development economics focuses his study on the nature of the Singapore economy and the role of multinational corporations (MNCs) in economic development. He holds the view that Singapore

97 In Understanding Singapore Society, 1997: 350, 351 the editors commented, ‘Unfortunately, for those of us who are eager to know what “socially appropriate” development models Heyzer has in mind, she disappointed us by not providing the answer.’

41 is a classic example of a growth oriented interventionist capitalist state. Mirza perceives the arrival of multinational corporations in the 1960s a fortuitous market opportunity. Implicitly, the inflow of foreign direct investment was not a direct policy outcome. The opportunity was realised through policies of market liberalisation, infrastructure building, industrial planning, investment in education and training, and an ideological rationale for the acquiescence of the general populace. But Singapore was not an ‘independent nascent capitalist economy’, because the influx of MNCs ‘resulted in one of the few truly internationalized countries in the world’ and ‘foreign companies finance the preponderant share of investment in manufacturing and are responsible for 60 percent of manufacturing output and 70 percent of manufacturing exports’.98 Given the economic relations Singapore had with foreign corporations, it was also a peripheral intermediation in the global redistribution of manufacturing and service industries. Thus, Singaporean manufacturing was characterised by the production of goods and services predominantly using inputs from abroad for the principal purposes of exporting. Importantly, Mirza disputes the notion of Singapore as a corporatist state. He observes that under ‘metropole–periphery’ economic relations ‘the nigh- feudal exchange of rights and obligation inherent in corporatism is notably absent in the case of Singapore, thus at one extreme, the state is beholden to the largesse of multinational companies; and, at the other extreme, the regime has near complete control over the National Trade Union Congress’. He concludes by quoting Stephen Milne: ‘The inference is that while corporatism may be useful in some countries in helping the state preserve its autonomy vis-à-vis powerful groups, this is unnecessary in Singapore; the groups are already under control, without any need to erect a corporatist framework.’99 In other words, Mirza perceives a very strong state and a weak society, a relationship that negates any necessity for the PAP to

98 Hafiz Mirza, 1986: 2. 99 Hafiz Mirza, 1986: 72 & 73.

42 negotiate inside the corporatist framework with the weakened social groups.

The Domination of the PAP State in Singapore’s Domestic Economy

Garry Rodan (1989) examines the role of the PAP state in Singapore’s export oriented industrialisation (EOI) in the context of a new international division of labour (NIDL). At the outset, Rodan rejects as simplistic the dominant understanding of Singapore as a case where ‘correct’ policies have made rapid industrialisation possible. This is because such a conception implies that economic policy is a technical rather than a political process.100 Rodan instead theorises that NIDL is an exogenous economic determinate that required endogenous state directives to capitalise on fortuitous market opportunities. He perceives economic development as a socio-economic process that requires political directives in resource allocation.101 In short, social, political and historical factors also played a significant role in altering the comparative advantage of an economy in the NIDL. And the PAP faced neither challenges from the labour movement, domestic capitalism nor the middle class in positioning Singapore in the NIDL but cultivated a corporatist structure as a way of consolidating its relative autonomy. That is, a corporatist structure increased the PAP’s capacity to define social, political and economic goals.102 Politically impotent domestic capital posed no challenge to a PAP economic policy that discriminated against their interests. The PAP also secured a monopoly over legitimate political action through certain representative

100 Garry Rodan, 1989: 3, 4 ‘it plays down the social, political and historical factors which condition the opportunity and ability of policy-makers to adopt an EOI strategy and measures conducive to the realization of comparative advantages’. 101 Garry Rodan, 1989: 6: ‘comparative advantage is not a neutral, abstract law, but a position in the market, which is determined by a variety of empirical factors, some of which the state is clearly able to define with positive results.’ Hence the different capability of states in the mobilisation of economic resources explains the differences in economic performance in various developing economies. 102 Garry Rodan, 1989: 208. Singapore’s success ‘had much to do with its specific class formations and the existence of a state which enjoyed a high degree of relative political autonomy. In particular, the early structure of the Singapore economy under British rule militated against the establishment of a significant industrial bourgeoisie or any sizeable manufacturing base. The small industrial bourgeoisie which existed in the mid-1960s was also politically impotent and could pose no challenge to the PAP in the pursuit of its EOI strategy.’

43 bodies such as the NTUC. 103 Against these asymmetric class relations, the corporatist structures place the state at the heart of industrial effort. Corporatism in Singapore’s case was not subsequent to incorporation into the NIDL, but a prerequisite for it.104 In other words, the structural relationship already existed but the PAP further exploited it for the EOI strategy by fostering extra-economic conditions in changing comparative advantage. However, state intervention contributed to economic difficulties for some economic activities such as the demise of low-skill, labour-intensive production. In moving up the technology ladder the corresponding political economy became more costly and complex because the need to finance the next phase of development necessitated a reduction in welfare commitments. Hence it raised the political cost. In Rodan’s estimation, the middle class of today could well resist the PAP’s political decisions on economic imperatives. The second phase of the NIDL may be much more difficult to attain and Singapore’s economic success in the future cannot be guaranteed.105

Bello and Rosenfeld (1990) examine the economic development that led to Singapore’s Second Industrial Revolution and the fallout from the PAP’s ambitious economic planning. The study also examines the interrelationship between the PAP, MNCs, local entrepreneurs and the NTUC. In the authors’ view, it was command capitalism, and not free market capitalism that positioned the NICs in the world economy.106 In 1965 the PAP in desperation adopted a new approach in the EOI, and the world became a substitute for Malaysia as the destination for

103 Garry Rodan, 1989: 30. ‘It matters little that the NTUC, for example, is politically ineffective in representing a point of view to government; what matters is that the NTUC is the only legitimate channel through which labor is represented and that the objectives of the NTUC are effectively integrated with those of the PAP.’ 104 Garry Rodan, 1989: 208 ‘has enabled the PAP state to act so decisively in implementing and supporting the EOI strategy. This distance from both labour and capital provided the basis for corporatist structures which place the state at the heart of the industrial effort. Corporatism in Singapore’s case, however, was not subsequent to incorporation into the NIDL, but a prerequisite for it.’ 105 Garry Rodan, 1989: 211. This is because the demand for comparative advantage differs among foreign investors. Implicitly it becomes more difficult in the formulation of universal economic policy. 106 Bello and Rosenfeld, 1990: 7, 8.

44 exports.107 The driving force behind the EOI was not local entrepreneur but an economic alliance between the PAP and foreign capital. By decapitating and thus destroying the independent labour movement, the PAP ensured the availability of low cost labour. Cheap labour, coupled with other financial assistance, guaranteed the profitability of MNCs. 108 But the dominant role of MNCs in the economy resulted in the severe marginalisation of the local entrepreneurial class. In 1985 local manufacturing accounted for less than 30 per cent of gross output, less than 47 per cent of employment, and less than 18 per cent of direct exports. The PAP’s plan for higher domestic content in manufactured products also failed.109 Given that Singaporeans have been traditionally entrepreneurial, the marginalisation was really a policy outcome of the over-emphasis on foreign investment in manufacturing. The Second Industrial Revolution’s technology upgrading called for an increase in wages of 40 per cent over six years, and this was intended to move Singapore out of direct competition with developing countries.110 However, MNCs flatly rejected the PAP’s economic plan. By February 1986 the PAP reversed this policy and froze wages. Workers were asked to work harder over longer hours for reduced benefits. On top of this, the import of cheap foreign labour was stepped up.111 But the high wage strategy had already bankrupted marginalised local enterprises. Since the1960s, to oblige MNCs, the PAP has implemented a labour policy that resulted in an authoritarian corporatist state structure, and the incorporation of poorly paid women workers in the labour force. The PAP domination of labour unions and its destruction of workers’ class solidarity resulted in the world’s most docile working class. The PAP philosophy that economic growth is the key to survival has resulted in a society where ‘economics’… is what the system is really all about.’ 112 The population has been asked to trade off

107 Bello and Rosenfeld, 1990: 291. 108 Bello and Rosenfeld, 1990: 293, ‘as a group, even at the worse economic condition from 1979 to 1984, the average annual rate of return for US investment in Singapore averaged 35.4 percent, compared to 16.9 percent in Hong Kong, 18.4 percent in Taiwan, and 15.2 percent in Korea.’ 109 Bello and Rosenfeld, 1990: 295. MNCs sourced no more than 25 per cent of their inputs from local firms. 110 Bello and Rosenfeld, 1990: 297. 111 Bello and Rosenfeld, 1990: 300, raising the numbers from 100,000 in 1985 to 150,000 in 1988. 112 Bello and Rosenfeld, 1990: 318, quoting John Clammer, 1985: 161.

45 economic gains for political rights under the understanding that western democratic processes are inappropriate for Singapore. The PAP’s public housing policies resulted in technocratic reintegration. The old social norms were abandoned, allowing the PAP to redefine psychological configurations. Public housing had also unwittingly promoted ‘shelter poverty’. PAP’s failures in economic policy created economic hardship and resulted in high rates of emigration among skilled people, the very people who Singapore badly wanted to import from foreign countries.113 Bello and Rosenfeld conclude that Singapore’s economy has reached a stage where mere readjustment of old paradigm is no longer feasible. It will require fundamental changes in economic orientation and politics. One of the remedies is the resurrection of the local business class in increasing Singapore’s ‘indigenous GDP’. 114 To build a more dynamic domestic market through improved social equality, and improvement in incomes of the 30 per cent of the population who are living below the poverty line requires empowering unions to negotiate for a ‘New Deal’. In the face of protectionism from advanced economies, Singapore would be better off seeking a meatier role in the regional division of labour under the framework of ASEAN.115

Werner Vennewald (1994) applies a Strategic Group Concept, a rather abstract theoretical framework to examine the role of technocrats in Singapore’s SOE economy. The ‘Strategic group’ is defined as socio-economic forces in competition for access to economic and political resources. Each group has its own specific resource base such as capital, land, labour, religion, ethnicity, services or information. Hence, each strategic group is differentiated through differences in their strategies to influence state institutions (cabinet, parliament, state enterprises)

113 Bello and Rosenfeld, 1990: 331, 333. 114 Bello and Rosenfeld, 1990: 334, 335 and 293, 294 quoting Lee Tsao Yuan: ‘Reliance on foreign investment has not been without cost, although often the price which has been paid goes unnoticed in the euphoria of success…The foreign share of Singapore’s GDP must be one of the highest in the world… In other words, only about three quarters of Singapore’s is what the official publications call “indigenous GDP”. Unlike other Asian NICs, this is a major price for Singapore to pay for rapid growth.’ 115 Bello and Rosenfeld, 1990: 336.

46 so as to enlarge or protect their economic resource base. 116 For example, professional groups use knowledge, workers use industrial action while military groups use violence to secure strategic resources. The interaction between strategy groups entails politics. The state is thus perceived as a configuration of the strategic groups within society. Vennewald theorises that it is the ‘quality’ of the state that determines social and political development. ‘Quality’ is defined as ideology, organisational and programmable capabilities of the strategic group, their cohesiveness and relation with other groups. 117 Given such a theoretical framework, Singapore’s SOE is the creation of technocrats, a consequence of their political access to strategic resources. Vennewald reckons that by the early 1980s the PAP professional strategy group, with the inclusion of the 15 largest Statutory Boards (SB) whose assets amounted to S$22.3 billion, dominated 38 per cent of all assets controlled by local companies.118 By the end of the 1980s the numbers of government-linked-companies (GLC) increased to 566, with total assets of S$10.6 billion. Together with the 15 largest SBs (S$97.0 billion in assets), the PAP controlled 44.4 per cent of all assets belonging to locally controlled companies.119 Working from a different set of data Vennewald concludes that in 1991 the largest 47 GLCs constituted 69 per cent of locally controlled companies. Also in 1990 the GLCs and the 15 largest SBs collectively accounted for 74.7 per cent of all private sector profits. Total profits amounted to S$5.9 billion, forming 28.6 per cent of state revenue and 10.3 per cent of GDP.120 In the study Vennewald identifies four rings of power that control SOEs.121 Power is highly centralised, with only 13

116 Werner Vennewald, 1994: 6. 117 Werner Vennewald, 1994: 64n2. 118 Werner Vennewald, 1994: 23–25. 119 Werner Vennewald, 1994: 25 In the 1960s there were only 47 GLCs with combined assets of S$220 million, constituting 4.3 per cent of GDP. In 1972 the number of GLCs increased to 183 with combined assets of close to S$1 billion and by 1975 they were contributing 12 per cent of GDP. In 1983 the number of GLCs increased further to 450 with combined assets of S$6 billion and constituting 18 per cent of GDP. 120 Werner Vennewald, 1994: 25. 121 Werner Vennewald, 1994: 30–41: The first ring of power is the Prime Minister and his special committee comprising ministers and top bureaucrats. In 1990 the seven officials were the Prime Minister, the Minister of Finance, the Chairman of the Public Service Commission, Permanent Secretaries from the Prime Minister’s Office, Finance-Revenue, Finance-Budget and the Head of the Civil Service. The second ring of power is the ministries. The Ministry of Finance controls the four

47 officials controlling the second and third rings, a total of only 47 technocrats controlling the 600 state enterprises and statutory boards. 122 Vennewald, after examining the distribution of power and control and related changes in SOEs, concludes that the managerial skill of appointees is important, and the incumbent’s loyalty to Lee Kuan Yew is paramount. The author remarks: ‘Only those technocrats who have served long enough in many senior positions inside the civil services are entrusted with top control positions… The whole system works on a highly personalized basis but without…patronage and clientele networks. A complex rotation system, high salaries and harsh punishments for corruption have so far prevented the kingdoms of control from becoming kingdoms of political influence and power.’123 In view of the potential conflicts, however, the author also notes that ‘In a few years, the personal control system will reach its limits… If no institutional safeguards are established, patronage tendencies could emerge.’ 124 Implicitly, Vennewald has doubts about the viability of the existing system in a post-Lee Kuan Yew era.

Lingle and Wickman (1999) re-examine the role of the PAP in Singapore’s economy from the theoretical framework of the city-state economy. The authors theorise that exogenous economic imperatives inherent in the city-state economy and not the PAP’s economic policy influenced Singapore economic ‘miracle’.125 Lingle and Wickman built their theory of the city-state economy from the foundation of the dual economy where the urban economy was developed through migration from the rural economy. Singapore’s entrepôt economy has attracted

major holding companies including Temasek, Singapore Technologies, MND and the Health Corporation of Singapore. The Ministry-in-charge is responsible for statutory boards under their ministries. In 1990 the four officials included Permanent Secretaries from Finance, the Prime Minister’s Office, Finance-Revenue and the Chairman of the EDB. The third ring of power is made up of the chairmen and directors of the four major holding companies. Temasek’s directors control all the big GLCs and interlock with 20 out of 33 of the first-tier companies. The fourth ring of power comprises directors of the first-tier companies, who are also directors of second- or third-tiers companies. 122 Werner Vennewald, 1994: 42,& 59. 123 Werner Vennewald, 1994: 52. 124 Werner Vennewald, 1994: 52. 125 Lingle and Wickman, 1999: 57 ‘Singapore’s economic success occurred because of the economic imperatives of a city-state in today’s world economy than because of the meddling of the government.’

48 various waves of immigration to Singapore from neighbouring countries. These transition processes have been maintained through wage disparities and this imperative explains the PAP’s policy of social inequality. 126 The influx of immigrants has increased population density and higher skills in the immigrants have allowed social mobility, maintaining higher wages in the urban economy. The vibrant labour market has compensated higher productivity with better wages, thus pre-empting demands for redistribution and eliminating social tensions. Consequently, the emergence of an economic middle class embedded with correct ‘public attitudes’ has ensured economic development. 127 Through the regional international division of labour, the city-state economy draws economic activity from regional markets. The external economy allows the city-state economy to achieve ‘growth without domestic raw material sources’, as occurred in Japan.128 Regional trade is largely achieved through the Chinese business network. Given such external conditions, the PAP’s role has centred on maintaining an open regional economy through various regional economic organisations.129 Historically, after 1965, Singapore emulated Hong Kong’s free market and introduced supply- side economic strategies. Singapore’s intervention in modernising the education system and the provision of infrastructure were non-market distortions. But the inherent openness of the city-state economy necessitated the PAP denial of import substitution and aid programs, and prevented it from constraining the operations of the TNCs.

TNCs offered technology transfer to Singaporeans. 130 In 1970s the advent of ‘petrodollars’ resulted in internationalisation of capital. In June 1978 Singapore again emulated Hong Kong’s legislation by internationalising the economy through a process of economic liberalisation. Clearly, Singapore returned to the ‘natural’

126 Lingle and Wickman, 1999: 58, maintain that higher wages have pre-empted egalitarian distribution. 127 Lingle and Wickman, 1999: 59, the middle class provides social stability, and capital accumulation. 128 Lingle and Wickman, 1999: 60. This is because the advanced economy benefits from the backward economy. 129 Lingle and Wickman, 1999: 60. 130 Lingle and Wickman, 1999: 63.

49 economic policy dictated by its international character as a city-state. Singapore’s economic growth from the 1980s can largely be explained by huge inflows of foreign capital.131 Singapore’s government expenditure has averaged about 20 per cent of GDP since 1985. In addition, GLCs and statutory boards are closely involved in the domestic economy. The SOE economy is free of government intervention but the private domestic economy is characterised by mass government intervention, creating a ‘dualist’ economy. 132 This tight internal control is seen as necessary for social stability, which is a precondition for economic development. ‘Asian Values’ is a PAP-defined social contract to regulate domestic relations.133 The authors identify three key problems facing Singapore’s city-state economy. The first of these is that the emerging middle class challenges PAP hegemony. Government overreaction to domestic opposition and the international media are signs of deeper political conflicts. Demands for economic equality from the private economy are increasing because appeals for domestic restraint in the name of ‘Asian Values’ are not credible.134 The second issue is that the manufacturing structure of Singapore is vulnerable to regional competition and changes in the world economy. The slump in economic performance since 1997 appears to signal a long-term downward trend in Singapore’s economy. For this reason, a failure in the economy resulting from a burst bubble in the stock and property market is potentially a serious crisis. Lingle and Wickman conclude their study by remarking that the current set of economic relationships is only one phase in a dynamic and evolving order. ‘Asian Values’ excludes too many from political decision-making and poses a strategy problem for Singapore’s future development. PAP leaders will either allow more political space to unleash creative, entrepreneurial energy or an economic crisis will herald their fall.135

131 Lingle and Wickman, 1999: 64-66. All restrictions to the free flow of foreign exchange were lifted in June 1978. 132 Lingle and Wickman, 1999: 68. Foreign companies are also free from intervention. 133 Lingle and Wickman, 1999: 68. The five Asian Values form Singapore’s social contract. 134 Lingle and Wickman, 1999: 71, 72. Dualism is problematic because of the demand for business equality. 135 Lingle and Wickman, 1999: 72, 73.

50 An Appraisal of the Singapore Critique

The most prevalent theoretical framework among researchers studying Singapore’s political economy is corporatism. However, the absence of a precise definition coupled with differences in focus of study has resulted in variances in research outcomes. These varied conclusions reflect differences in researchers’ perceptions of the PAP’s political and bargaining power relative to foreign investors. Frederic Deyo (1981) observes an equitable relationship between the PAP and TNCs on the basis of market competition. That is, the PAP benefits by playing off one TNC against the others. Bello and Rosenfeld (1990) perceive TNCs as senior partners to the PAP in their economic alliance. For them, the PAP is passive in its dealings with foreign capital. Heyzer suggests that the vulnerability of Singapore’s economy to external fluctuation has prompted the PAP to exercise absolute internal control. According to this framework, an authoritarian state is necessary to mould society, as demanded by foreign capital. Garry Rodan (1989) concludes that the PAP has only succeeded in subordinating the NTUC and domestic politics but not TNCs. That is, the PAP’s economic role is confined to influencing comparative advantage within the Singapore economy but it has limited influence in determining Singapore’s position in the NIDL. Hafiz Mirza (1986) totally rejects the notion of the Singapore as a corporatist state on the ground that the PAP is already in absolute domination and any need for corporatism in managing structural relation is redundant.

Evidently, the corporatist model presents difficulties in appraising the appropriate role of the state in Singapore. Specifically, the model does not adequately address the relative political power of the state and various interest groups in domestic politics. The concept of corporatism as a political process in which the state plays a central role in negotiating among pressure groups implies that pressure groups have

51 significant independent bargaining power. Importantly, there is also a need for the presence of a mediation mechanism that allows the state to balance and arbitrate between conflicting private interests in the national interest. These imperatives for a corporatist state are apparently absent in the Singapore experience because the PAP commands and does not bargain with lesser entities.

Flowing from the PAP’s disdain for confrontational politics, pressure groups are discouraged in Singapore. While there are selective PAP-sponsored political representatives, they enjoy no bargaining power. The NTUC as the representative of labour is clearly subordinated to PAP’s command. In July 2003 amid economic adjustment in the wake of the SARS episode, the NTUC endorsed a proposal to allow profitable SOEs to lay off workers pre-emptively, a stark reflection of the union’s inability to protect workers’ interests.136 In this instance it was clear that the NTUC was serving the PAP’s interests first, the interests of business second and workers’ interests last. It reaffirms the observations of Deyo (1981) and Bello and Rosenfeld (1990). It is a longstanding element of NTUC culture that workers must make sacrifices for business viability. The logic is that economic viability legitimises PAP domination over the state and the people.

Singapore’s Chinese Chamber of Commerce (SCCC) is also unable to offer an economic view that does not conform to the PAP’s. In July 1998, following the Asian financial crisis, a PAP politician, in response to a meek comment to the effect that the government had done little to stimulate economy, retorted ‘our businessman should know that unwarranted negative reaction to the government’s management of the crisis without offering any serious suggestion to overcome it is

136 ST 16 07 2003: 6, heading, ‘Unions can’t do much to resist pre-emptive layoffs’ The Labour Chief says it is futile for Singapore to go against the trend of pre-emptive layoffs by profitable firms as they need to stay competitive: ‘we have to live with the reality and adjust.’ Today 16 07 2003: 4, ‘citing SingTel as an example, he said ‘…trim its work force substantially when times were still good…’ In contrast, the PSA ‘did the conventional thing’ by keeping ‘excess’ employees.’ ST, 23 07 2003: H5, referring to retrenchment of SIA employees, ‘The retrenchment has upset his union which got the news on the morning the crew were asked to go, giving it little time to prepare counselling for affected members.’ It appears that the NTUC was surprised by the retrenchment. And the union chief on retrenchment benefits advise members, ‘…not to rely on the current form of retrenchment benefits…start saving a little bit when we can…It is not that the retrenchment benefits should be cut down.’

52 like biting one’s own tail. By being critical without sound basis, they confuse the public (and) also affect the psychology of the population and undermine market confidence in the very measures designed to help them weather the crisis.’137 The episode reflects Singapore’s political culture wherein businesspeople are perceived as lesser entities in the political hierarchy and the PAP politicians habitually rubbish any non-PAP view.

In the face of the PAP’s hegemony, a mediation mechanism is superfluous. The conflation of PAP with the state has blurred the differences between the PAP’s interests and the national interest to such a degree that impartial arbitration is rendered practically unattainable. In short, the intended bargaining and negotiation process in corporatism has been replaced by ordering. It is clear that while corporatism has highlighted the structural relationship between the state and members of society, it is inadequate in defining the relative competitive strengths of various economic actors. Evidently, neither corporatism nor the theory of class conflict can fully address the Singapore experience.

The PAP’s hegemony that makes practically any form of bargaining and mediation in Singapore redundant, also inevitably challenges the validity of the Strategic Group Concept in analysing Singapore’s SOE economy. Werner Vennewald’s (1994) places a great emphasis on the collective economic power of individuals or members of strategic groups in gaining economic resources. It is the competition for resources that constitutes politics, and in turn the control of economic resources enhances domination in politics. Given such a perspective, the author identifies 13 strategic individuals who are in firm control of Singapore’s SOE economy. Vennewald’s presumes the existence of a political competition process between strategic groups. Hence individuals attainting strategic positions must also necessarily hold commensurate political authority because one realm reinforces the

137 BT, 15 07 1998.

53 other realm. However, such necessary condition did not materialise in Singapore’s SOE economy. Lee Kuan Yew is the only person who has fought for and won the political contestation, the 13 individuals are but Lee’s agents. Their positions in the SOE economy, as Vennewald himself has noted, are conditional on their loyalty to Lee. Indeed, Lee could dismiss any one of them without incurring political cost. The asymmetric political power between Lee and the technocrats denies the political importance of the 13 agents. Technically, the study’s over-reliance on directorships in SOEs as determinants of strategic resources is problematic as such ex post information obscures the political competition process, if there is indeed any such bargaining process. The ahistorical approach casts doubt on the appropriateness of the model in appreciating the Singapore experience. This does not necessarily deny the usefulness of the model, but merely suggests that Singapore, because of its absence of political competition, is not appropriate for its application. The example inadvertently reflects the importance of incorporating a historical perspective in examining Singapore’s political economy.

The state-centric concept is also commonly applied in the study of Singapore’s political economy. The conventional model of structuralism is implicitly an inward looking approach and it focuses more on internal structural and class relations. As an analytical tool it faces difficulties for an open economy such as Singapore because external forces reign in economy. Structuralism focuses on the role of the state in altering structural relations, implicitly presuming the state to be omnipotent over the economy. That is, the state not only has the knowledge and ability but also the political power to mobilise resources for development. This model is problematic when appraising the relationship between the state and foreign capital because it presumes that the state can take an activist role in bargaining with foreign investors. In other words, not only is a positive role attributed to the state

54 but also it is presumed that it has the required capacity to coordinate foreign capital in the economy. Because of these underlying assumptions, the model is likely to overstate the role of ruling politicians relative to the role of foreign capital in the economy. It risks overlooking the fact that the state may be willing but nonetheless lacking in the capacity to intervene in the economy. The PAP’s failed Second Industrial Revolution is a classic example of such a dilemma. This was an instance of foreign capital simply refusing to cooperate in economic restructuring as proposed by the host country.

In Bello and Rosenfeld (1990), the inherent dependency in core and periphery relations between advanced and developing economies has resulted in a somewhat passive assessment of the future of NIEs, Singapore included. As the fortuitous moment made possible by an influx of foreign capital came to an end, the NIE miracles would vanish. The assessment has inadvertently understated the role of the state in creating competitive advantages in the economy. Importantly, the authors also overlooked path dependency in economic development since the NIE miracle had its origin in postwar economic restructuring and was not an instant economic success that took place in the 1980s. The established economic dynamic is likely to continue but subject to adaptation in reflecting changes in external conditions, as path reversal is difficult and takes time.

Garry Rodan (1989) envisages an activist role for the state in changing comparative advantage and argues that the PAP, having the required capacity, has succeeded in competing for its position in the NIDL. However Rodan is somewhat pessimistic of Singapore’s position in the second phase of NIDL. This is because of difficulty in defining universal economic policy and also the emergence of middle class politics. The reservation may not be warranted. The NTUC’s support for the pre-emptive laying-off of workers in profitable companies testifies not only to the PAP’s

55 intentions but also its ability in retaining Singapore’s position in the NIDL. The eventuality of a nigh-universal economic policy is possible because of the imposition of international trade treaties. The middle class demands for freedom in economic decision will enhance and not hindrance Singapore’s market economy. The application of a state-centric concept runs the risk of inconsistency in research outcomes, either overstating or understating comparative structural relations. In the examination of the role of the state vis-à-vis foreign capital, it imposes a necessary condition on examining the ability of the ruling authority to rein in all the economic actors in the economy.

The political economy approach is also common in studies of the interrelationship between politics and economic development. The methodology goes beyond economic policy and economic statistics into an examination of politics in the economy. Iain Buchanan’s study of the role of the state in the economy in the context of international political economy relegates domestic politicians to a position as agents of foreign principals. Singapore’s economic options are certainly subject to the interests of foreign investors. Given that the agents can only be as strong as the principals allow them to be, domestic politicians can only play out a passive economic role as determined by foreign capital in the context of the world capitalist system. Local initiatives not in the economic script of international capitalism are plainly rejected. Indeed, for an open city-state economy such as Singapore, the role of foreign forces is clearly decisive in economic development. Buchanan’s theorisation about the Singaporean economy predicted the fate of the Second Industrial Revolution in 1979. Singapore’s ambitious moves lacked the sponsorship of foreign capital and destined to failure. Buchanan also envisaged that US hegemony would play a decisive role in Singapore’s political economy. The research implication is that in examining a city-state economy where openness is

56 essential for economic development, the role of foreign forces vis-à-vis domestic politics must be given due consideration. Importantly, economic evaluation must also be taken from the perspective of international politics. Singapore’s policy directions can only be deciphered in the context of Singapore’s relations with the western alliance, especially the United States.138

Lingle and Wickman (1999) offer the city-state economy as a concept for the study of Singapore’s economic development. Their analytical concept is essentially an extension of the analysis of the entrepôt economy. The attribution of Singapore’s economic performance to the openness inherent in a city-state economy over- emphasises the supremacy of the market in the economy and intentionally downplays the contribution of PAP-defined economic policy. In not giving due consideration to the nature and characteristics of domestic economic policy in shaping competitive advantage, the study inevitability understates politics in the economy, a factor which is cited as the main cause for the dismal performance of domestic capital. In fact domestic politics is the key to Singapore’s political economy. And the problems that are envisaged in Singapore’s future economic development have primarily arisen out of domestic politics. Understating PAP involvement in the economy either as policy maker or major economic actor serves to overstate the contribution of the market in Singapore’s economy. Lingle and Wickman identify dualism in Singapore’s economy and define it as the division between sectors of economy that face differential levels of government intervention. Transnational corporations and SOEs face little state intervention but, in strong contrast, the domestic sector is characterised by massive government intervention. The study correctly acknowledges the laissez faire tradition in Singapore’s relations with the world capitalist system but apparently fails to reconcile this with the massive state intervention in the domestic private economy.

138 Singapore’s political stand in the 2003 Iraq war and its active participation in the war against terrorism have to be understood from this perspective.

57 It is a mistaken opinion that the SOE economy is free of government intervention. SOEs are free only within the PAP defines parameters. It is a classic example of Chen Yun’s Bird Cage Economy in the old socialist China.139 The authors have noted the dualism in Singapore’s political economy in terms of the degree of state intervention in the economy. But they fail to recognise that dualism is also present in the coexistence of mainstream and informal economies in Singapore. In other words, there is a dual dualism in the Singapore political economy. The inability to reconcile the conflicting roles of the PAP state in the world capitalist system and in the domestic economy has undermined the ability of their theoretical framework to fully appraise Singapore’s economic development. The theoretical implications of this study of Singapore’s political economy point to the need to reconcile a submissive PAP state in relation to foreign capital with the party’s manhandling of opposition politicians in domestic politics.

1.4.3 An Overview of the Literature on Social Institutions

In the framework of neo-institutionalism, state, market together with social institutions collectively form the institutional environment that regulates development in a society. Hence state governance, ideologies, social control mechanisms, social security and public finance and other institutions shaped the nature of the Singapore polity which in turn impacted upon Singapore’s political economy. The following works offer insight into the various institutional characteristics of the Singapore polity.

Chan Heng Chee (1975) offers the thesis of Singapore as an administrative state. Chan envisages that the state emphasis on economic development over politics has resulted in a process of steady and systematic depoliticization of a once politically active and aggressive citizenry. The intended outcome is to diminish the role of

139 Chen Yen characterises the communist Chinese economy as a Bird Cage economy where within state-prescribed parameters, economic units enjoy limited autonomy in reallocating the allotted resources. It is a ‘fetter market’ within the cage of state planning.

58 politics in the relationship between state and people, that is, the provision of state services is to become determined purely on the basis of administrative efficiency. Implicitly, parliamentarians have also reduced their political role, as they are not any longer involved in the allocation of state resources. Consequently, ‘the meaningful political arena is shifting, or has shifted to the bureaucracy.’140 As a result, competitive political activities in both the general arena as well as those in the party arena have been circumscribed. In the general arena, the absence of opposition politics has resulted in people resorting to newspapers to vent frustrations over state policy, and also engaging in rumour mongering to express political options. In the [PAP] party arena, the non-involvement of parliamentarians in resource allocation has diminished intra-party politics. There is no ideological cleavage, as parliamentarians do not form alliances to support each other on debates, as all of them ‘operate and speak as individuals rather than as members of fractions’ and those ‘pupil’ politicians wishing for higher office must ‘await the teacher’s reorganization and promotion according to merit.’141 In Chan’s analysis, ‘administrators are politicians in their own way’ who wield decision-making power without the mandate. 142 Therefore, in the absence of parliamentary control, the ‘possibilities for the abuse of power and the avenues for corruption are also many.’143 In Chan’s view, the lack of information in the public domain to effect accountability bears the risk of ‘administrators becoming the real rulers of the country.’ 144 Chan’s theorization of Singapore as an administrative state enjoys wide acceptance among scholars in its depiction of the nature of the Singapore polity. The implication of Chan's thesis is that the depoliticization of the citizenry and also of the parliamentarians has the intended policy outcome of monopolizing political power within the hands of the PAP’s inner circle as well as of their chosen agents in the administration. However, given the entrenched patron and client relations between the politicians and their chosen administrators, which is coupled

140 Chan Heng Chee, 1975 reprinted in Understanding Singapore Society 1997: 294. 141 Chan Heng Chee, 1975 reprinted in Understanding Singapore Society 1997: 300, 301. 142 Chan Heng Chee, 1975 reprinted in Understanding Singapore Society1997: 303. 143 Chan Heng Chee, 1975 reprinted in Understanding Singapore Society 1997: 305. 144 Chan Heng Chee, 1975 reprinted in Understanding Singapore Society 1997: 305.

59 with the various built-in checks and balances mechanisms in the civil services, the political system has forestalled the administrators becoming the real rulers of the country. The PAP’s intrinsic distrust of its collaborators has ensured the bureaucrats would remain as agents of the ruling politicians.

Chua Beng Huat (1995) offers an in depth study of various ideologies: survival, pragmatism, meritocracy, Confucianism and communitarianism that over a period of time collectively have shaped Singapore’s political economy. Chua indicates outright that ‘in spite of its [the PAP] own insistence that it is unencumbered by ideology’, nonetheless ideologies are being widely deployed ‘in the development of a new social order.’145 In Chua’s view, the absence of politics in Singapore could not be adequately explained by the theory of depoliticization of the citizenry through near-universal provision of collective goods such as public housing. This is because electoral politics is ‘the most superficial and most visible levels of politics’.146 The absence of overt confrontation in electoral politics should not be constructed as depoliticization. ‘From an electoral perspective, politics may have been submerged, but it has far from disappeared as strategies of government.’147 Politics remains at bay and is ready for re-entry to ‘re-politicize’ state policy. Given such a situation, there is a need for the state to manage the perception of the people that state provision is an administrative and not a political issue. This is because such perception is never complete and has to be reinforced from time to time. As all state interventions are political acts, the submersion of politics from state policy is thus merely a ‘depoliticization effect’ and not depoliticization per se. This depoliticization effect is the ideological achievement of the PAP.148 That is, the absence of politics in Singapore is because of success in building an ideological hegemony/consensus. Ideological hegemony is due to the state’s ability to organize a ‘complex conceptual system that develops over time with an ever expanding

145 Chua Beng Huat, 1995: 1. 146 Chua Beng Huat, 1995: 125, quoting Offe (1987: 159). 147 Chua Beng Huat, 1995: 126. 148 Chua Beng Huat, 1995: 127.

60 network of concepts, guided by a few core concepts, as the governing group copes with solutions to problems in the body politic.’149 The state proposed system has to be ‘loosely accepted and reproduced by the governed as part and parcel of the latter’s “natural reality of everyday life”’.150 In this respect, the state must continue the policing of the society to ensure a common effort in the pursing of a ‘social order according to the shared ideological concepts’. 151 When systemic inconsistencies between concepts occur, the state could invoke related concepts as equally reasonable in the rendering of a situation. Such recourse may not shake the legitimacy of the ruling interpretation that is supported by a diffused mass loyalty.152 Chua’s theorization certainly has debunked the PAP’s claim of non- commitment to any political ideology, as he shows that the PAP’s imposed ideologies are pervasive, alive and well in Singapore’s political economy.

Christopher Tremewan (1994) focuses his study of Singapore’s political economy on the embedded social control mechanisms that are present within the institutions of public housing, education, politics and the judiciary. Social control is secured through the coercive functions of an extensive range of elements of the state apparatus, which coupled with the state’s pervasive ownership of resources, has succeed in producing political loyalty and cooperation among the majority of the population.153 The politicization of public housing has resulted in people’s greater not lesser dependency on a state that has in fact increased social control. Given the size of their investment in the public housing stock, which is financed by monthly wages, people do not wish to jeopardize their relation with the state. People are not real owners of the public housing but rather mere tenants; hence the state could through the many rules and regulation control the tenants’ social behaviours. The burden of the long-term debts thus generated, together with the fear of losing the prize investment, has enabled public housing to become an effective social control mechanism. 154 Education is perceived to be a mechanism for the individual’s

149 Chua Beng Huat, 1995: 128. 150 Chua Beng Huat, 1995: 128. 151 Chua Beng Huat, 1995: 128. 152 Chua Beng Huat, 1995: 128. 153 Christopher Tremewan, 1994: 2.

61 submission into accepting a certain social position allotted by the state relative to his or her contribution towards the economy. Meritocracy is the ideology that determines one’s position in export-oriented industrialization; it has maximized the advantages of the wealth and linguistic heritages of the upper class but resulted in the proletarianisation of the lower classes and workers among the minorities.155 Nonetheless the education system has enabled people to advance their own interest while their cooperation has also ensured support for the PAP to advance its economic strategy. 156 The parliament, elections and political parties are state managed for social control, that is, ‘for converting submission into consent’.157 Tremewan applies the ‘“pluralist, elitist, equilibrium model” of liberal democracy’ to examine the Singapore polity. In such model the ‘choosing and authorizing [of government] is done by the practice of voting under the universal franchise.’158 The fundamental difference between Singapore and Western industrial society that precludes the intra-class competition, as required in the political model, has resulted in the underdevelopment of the capitalist class. 159 As a result, the weakened bourgeoisie was disqualified as Singapore’s ruling class. Consequently, it was the alliance of PAP politicians with the foreign capital that has formed the Singapore ruling class. 160 The law, coercion and terror are key instruments to achieve the breakdown of existing social relation and for the reordering of Singapore society in to a form where consent is not forthcoming. That is, ‘Consent is backed up by force’.161 Political pluralism is suppressed, as it is the Societies Act that defines what is legal and illegal politics.162 Executive terror takes the form of detention without trial at the discretion of the minister. It removes from the society people who have refused to conform or have the potential to establish any

154 Christopher Tremewan, 1994: 57. 155 Christopher Tremewan, 1994: 149. 156 Christopher Tremewan, 1994: 151. 157 Christopher Tremewan, 1994: 152. 158 Christopher Tremewan, 1994: 177. 159 Christopher Tremewan, 1994: 177. 160 Christopher Tremewan, 1994: 178. 161 Christopher Tremewan, 1994: 187. 162 Christopher Tremewan, 1994: 195.

62 organization alternative to that of the ruling party.163 Finally, Tremewan concludes that social control has created both new divisions and new forms of unity. The increasing levels of exploitation required by capital have necessitated greater and different regulatory efforts. The highly centralized system of social control is potentially vulnerable as any new crisis could threaten to unravel the entire system of regulation. But decentralization is not an option, as the PAP-state would lose its ability to direct the labour force for economic advancement. 164 Tremewan has offered a valuable insight into the social control mechanism of Singapore’s political economy. However, some of his conceptions of Singapore polity require further refinements. The perception of Singapore as a welfare state is problematical. The nature and extent of subsidy in state provisions is uncertain. Public housing entails no redistribution of wealth as would be implied in a welfare program. Similarly, in education gifted and non-gifted pupils have rather different cost and benefit curves. In the case of a zero-sum game, the fact that the gifted pupils enjoy more resources implies that non-gifted pupils receive less resources. Clearly, within the allotted resources it is the weak pupils who are subsidizing the gifted pupils. Attempts to analysis Singapore politics in the light of a model of liberal democracy that emphasises intra-class politics has resulted in ambiguities in the depiction of the structural role of class. Hence the problem in distinguishing the ‘ruling’ and the ‘governing’ class has led to the view that ‘the PAP-state governs alone but it does not rule alone.’165 The suggestion that foreign capital has a ruling role in Singapore politics is puzzling. Tremewan perhaps has exhibited the difficulties that a foreign researcher is likely to encounter in deciphering Singapore’s political economy. It appears that there is a need of a ‘lah! Factor’, that is, the introduction of some ‘characteristically Singaporean’ experiences to decipher the real substance from the pervasive ‘ersatz-ism’ in Singapore politics.166 In other words, it requires intimate indigenous expertise to navigate the disinformation as the truth is hidden in half-

163 Christopher Tremewan, 1994: 199. 164 Christopher Tremewan, 1994: 233. 165 Christopher Tremewan, 1994: 178. 166 ‘lah’, ‘lor’, ‘meh’ and the likes are ubiquitous Singlish tags use to end a sentence..

63 truths.

Linda Y C Lim (1983) challenges the notion that the Singapore success story of capitalist development is the result of free market development. In the wake of theoretical debates between the school of development economics and neoliberal orthodoxy in explaining the rapid and successful industrialization of the NIEs in the 1980s, Lim revisits the theory of Singapore economic development. The Singapore state dominates infrastructure and social services, engages in direct production in competition and partnership with foreign and local enterprise, holds about 75% of all land, as the major actor in capital market, influences the private allocation of investment funds, as the single largest employer, regulates wages and fringe benefits and controls the labour unions. Given the pervasive state domination in most aspects of the economy, state policies and actions have influenced resource allocation by changing relative prices. Consequently, ‘state interventions have given Singapore a comparative advantage in export manufacturing which it would not have if free market forces alone prevailed.’167 But state intervention is not without its problems as it has distorted the market response to economic changes. Hence Lim questions the wisdom of creating artificial comparative advantage in the manufacturing economy. However, on balance, Lim is of the view that ‘state intervention in the Singapore economy has had a positive impact not only on the profitability of private business, but also on the welfare of the working population’.168 To support her thesis, Lim further examines the possible outcomes of privatization. Privatization is a transformation of state welfare to company welfare under the Japanese model of long-term employment that creates employee’ loyalty. This conception of privatization is welcomed neither by the employer nor the employee because the former does not want to have a long-term social obligation towards the workers, and the latter fears greater insecurity due to the risk

167 Linda Y C Lim, 1983: 757. 168 Linda Y C Lim, 1983: 758.

64 of business viability. The plan to tie workers’ benefits to a particular company will reduce labour mobility, leading to the demise of a free labour market. In Lim’s view, ‘privatization in Singapore will likely also means less, rather than more, laissez-faire.’169 This is because the state retains control in labour legislation and will also be likely to increase social and political control of the population. ‘Thus the long arm of the state in Singapore is unlikely to wither away.’170 Lim concludes that ‘the forms of state intervention in Singapore may changes, their essence remains: the manipulation of polity, society, and economy to build and maintain a peculiar, and peculiarly successful, brand of state-dependent capitalism.’171 Lim’s thesis is in agreement with those of the development economists. Importantly, the concept of Singapore as a user-pays society is already discernable in Lim’s analysis of the Singapore social provisions.

Mukul Asher (1994) offers an analytical study of the CPF in the context of the social security system. Asher tracks the evolution of various CPF schemes, explains their rationale and details their operational mechanisms. Market failure due to adverse selection and asymmetrical information necessitated state intervention in social security provisions. In the case of Singapore, paternalism is necessary as in the absence of compulsion individuals who prefer present consumption would not have saved enough to provide for future retirement. Besides, a centralized decision is economically efficient as a host of individual decisions are unlikely to provide an optimal solution. The scheme is also a measure of income redistribution to ensure adequate consumption at old age.172 The aim is to ensure social adequacy in three areas: poverty alleviation, income maintenance, and healthcare.173 There are three necessary conditions to achieve these objectives, firstly, it needs a near full employment situation and raising real wages to accumulate sufficient funds. Secondly, it requires the skilful management of CPF funds by the state and also by the members through participation in varies investment scheme. The margin of

169 Linda Y C Lim, 1983: 760. 170 Linda Y C Lim, 1983: 761. 171 Linda Y C Lim, 1983: 762. 172 Mukul Asher, 1994: 1-10. 173 Mukul Asher, 1994: 57-59.

65 error is low for members with low balances. Thirdly, it has to have the ability to meet the changing expectations of the people through time as what is considered adequate today may not be so at a future date. Asher is of the view that the CPF scheme enjoys efficiency in administration and compliance and also ‘Singapore is almost alone among the high income countries in adhering to the national provident fund mechanism and an extremely limited and stringent public assistance programme to provides social security. This philosophy of individual or family responsibility and provision for social security is accompanied by a paternalistic form of government.’174 This is because the government ‘regards present welfare state as eroding the work ethic and the saving habit, and moving the attention away from growth towards redistribution, thus stifling what it regards as economic dynamism.’175 Under the current milieu two out of the three necessary conditions to ensure social adequacy are problematical. Given the crisis of unemployed middle-aged Singaporeans and a new flexible wages system that implied lower fixed incomes for workers, the ability to accumulate sufficient funds for social adequacy is now uncertain. Besides, some of the approved investment schemes have had the negative impact of reducing members’ savings thus also reduced consumption at old age.

M Ramesh (1992) focuses his study on the social security needs of the society’s weaker sections in Singapore. The study covers only those state-sponsored measures that seek to maintain income and assist with the costs of healthcare and raising children. Ramesh perceives Singapore’s programs as ‘marked by low public funding, fragmentation, incomplete coverage, and heavy reliance on inequitable policy instruments’ that is, more typical of a Third World model. 176 CPF offers no protection to those earnings little or no income because they will have nothing or little in the CPF for retirement. CPF also excludes about 20% of the work force that

174 Mukul Asher, 1994: 70. 175 Mukul Asher, 1994: 70. 176 M Ramesh, 1992: 1094.

66 are in temporary and low-wage employment. Therefore as an income-maintenance program for the aged, CPF inadequacies are acute. For this group of people their only option is to seek out public assistance programs. However, public assistance ‘is available only to those poor who are also old, disable, chronically ill, or vagrant.’177 The low benefits and stringent criteria are harsh for those in needs of public assistance and it demeans those who cannot work, and have no family to rely on. In the area of healthcare, Singapore’s health system ‘is a privately funded fee- for-service system in which the patient pays more than two-thirds of expenditures.’178 Over the years, the government’s share of heath expense has been fallen from 39% in 1960 to 37.4% in 1985 and then to 27.4% in 1989.179 Medisave was introduced to meet increasing medical costs but is similar to CPF, in that it is of no use to those outside the labour market or earnings low wages. Medishield has a high co-payment requirement that is formidable for the poor and the scheme also excludes many serious illnesses.180 In contrast, the children’s allowance is generous and it favors mothers who are young and educated, and also relatively wealthy. This is because the program is not intended to contribute toward the cost of raising children but to serve as a procreation incentive for those who can already afford a big family. 181 Overall social security as a percentage of total government expenditures has declined from 8.3% in 1972 to 6.8% in 1989.182 This is because the government is expanding the roles of market, family, community and employers in providing social security. The plan to increase reliance on non-state institutions is not practical as they are not equipped for such tasks. And learning from the experiences of United State and Sweden, privatized healthcare is likely to increase and not decrease the costs of healthcare that will further burden the poor.183 Ramesh is critical of the market-oriented approach as it ‘denies the very rationale of social security, which is to mitigate the economic hardships of those

177 M Ramesh, 1992: 1097. 178 M Ramesh, 1992: 1098. 179 M Ramesh, 1992: 1098. 180 M Ramesh, 1992: 1099. 181 M Ramesh, 1992: 1101. 182 M Ramesh, 1992: 1100. 183 M Ramesh, 1992: 1104.

67 who fail to earn sufficiently in the marketplace’. 184 Therefore ‘to cajole the working poor to work hard and save more for financial contingencies displays as much callousness as ignorance of the cause of poverty.’185 It is worthwhile also to note that ‘the Singapore government itself spends huge sums of money on social programs: they just happen to be in the form of tax expenditure (CPF, children’s allowances) and, as such, not available to those who need financial support from the state.’186 This study reveals that the social security policy has little sympathy for the weak, destitute and the poor in the society, hence little assistance is offered to relieve their social sufferings. This appalling situation has remained much the same over the decade as programs aiming to help the poor face the daunting task of catching up with the runaway cost increase in the privatized healthcare services. This study reaffirms the PAP disdain of welfarism and also offers strong evidence to support the notion that Singapore is evolving towards a user-pays society.

Ross Worthington (2003) investigates the structural dynamics of institutional arrangements that leads to good governance in Singapore polity. Specifically, he examines the compositions of the core executives in the context of Singapore as hegemonic state under the premiership of Goh Chok Tong, during the period 1991 to 1998. The study adopts as an analytical tool the concept of core executives under the Westminster conventions. In the British model, the political executive is supreme but not omnipotent. Hence decision-making power is shared between political executives and the others who have acquired their rights of participation through conventions. The terms core executives thus refers to those who are at the heart of the machine that decides government policy. 187 Worthington identifies through an analysis of the transactional relations in policy formulation and its ensuing decision-making processes the core executives in the Singapore government. That is, the key players at the center of government who make policy

184 M Ramesh, 1992: 1108. 185 M Ramesh, 1992: 1105. 186 M Ramesh, 1992: 1107. 187 Ross Worthington, 2003: 15.

68 decisions, and how the configurations of institutional and personal network variables are affecting the bargaining process. His focus is thus the governance of government. Worthington through exclusive interviews with some key decision makers and from the public information, compiled comprehensive listings of the members of the core executives, spreading out into the realms of the political executive, bureaucracy, military, government-linked-companies, statutory boards, unions, judiciary, the ruling party, backbenchers, grassroots organizations, business groupings and civil society. He also analyses their roles in the bargaining process that contributes towards policy decision. 188 The study also probes the legal framework that regulates and mediates social conflicts. Worthington notes that in the absence of the separation of powers the executive has disenfranchised the judiciary, hence the legal profession has little capacity to challenge the political executive.189 The dynamic of core executives in the civil service is well illustrated in the case of a young official prone to ‘pushing the envelope’ who was alleged to have infringed the Official Secrets Act (OSA). What transpired in this case demonstrated how senior bureaucrats from different departments with different functional responsibilities mobilized their respective resources to push for their agendas and also how their interactions with the various political executives derived a mutually acceptable solution in the context of meeting the new requirements of economic development. The case underlines the fact that the dynamics of the relationship between the political and public sector executives are indeed very complex. 190 In the concluding section Worthington offers an interesting observation: following Goh’s ascension to the premiership, the Lee Family Project of power accumulation was sidelined and caused the Lees instead to embark on a wealth accumulation program. That is, the power and influence of the Lees have somewhat attenuated. And Goh, in developing and consolidating the strategy to move political leadership away from the Lee family, has developed four

188 Ross Worthington, 2003: 19-37. 189 Ross Worthington, 2003: 127-134. 190 Ross Worthington, 2003: 155-164.

69 centers of power: Goh’s group; the EDB; MAS, GIC and MTI; and the GLC group. Hence together with the Lees, there were five main political factions in 1998.191 As the study covers the period from 1991 to 1998 when Goh was the prime mover in the government, Worthington’s observations that all political transactions were centered on Goh is correct, as it cannot be otherwise because Goh was responsible for the day-to-day running of the government. But Lee’s having taken a back seat did not imply that he had less political power. There is perhaps another interpretation of the power configuration in that particular period. The political power of the Lees was merely submerged to facilitate an efficient administration under Goh. In avoiding an open conflict of views the PAP has maintained solidarity despite of changes in leadership. Lee, relinquished of the daily routine in governing, redirected his resources into the running of Singapore’s wealth in the GIC and into establishing Singapore’s external economy. Hence the resulting perception of the Lees was moving away from power accumulation to wealth accumulation. On the contrary, Lee’s firmer hold on Singaporeans’ wealth has strengthened not weakened his political influences. Lee remains politically powerful and in the OSA case, it was the public sector executives who were moving towards a solution that was acceptable to Lee, the personal patron of the ISD. 192 Given Lee’s entrenched influence in the ISD, the interrelation between OSA and ISD in the new economy is also a matter that requires his personal consent. This is because, as Worthington has correctly noted, nobody wants to have a confrontation with Lee Kuan Yew.

1.5 Theoretical Foundation of Singapore’s Political Economy

The construction of a new research paradigm in the theorisation of Singapore’s political economy requires the incorporation of certain imperatives given the complexity of the nature and characteristics of the PAP state. From the outset it is

191 Ross Worthington, 2003: 235-238. 192 Ross Worthington, 2003: 163.

70 clear that a historical perspective is essential to account for dynamic changes over time in Singapore’s political economy. Singapore has operated an open economy since colonial days, and international politics has played a critical role in incorporating Singapore into the world capitalist system in the context of the international division of labour. These past experiences of social transition became embedded in the localised culture that regulated social exchanges.193 Without a historical perspective, past events cannot be properly understood, present events cannot be adequately deciphered, and future developments cannot be rationally anticipated. Importantly, over-reliance on ex post transacted outcomes in deciphering motives for policy change runs a high risk of confusing causality in social crises, thus difficulties in identifying policy responses and policy outcomes.

Secondly, international politics must be given due consideration in view of Singapore’s established historical relationship with foreign capital in the entrepôt economy.194 A study that does not take into account international politics obscures Singapore’s role as an agent of the western alliance and runs the risk of overstating the effectiveness of the PAP’s policy in Singapore’s political economy. Importantly, it was international politics that predetermined the structural relationship between the PAP and foreign capital and between the PAP and domestic capital. Evidently, Singapore’s dualist economy is only discernable in the context of international politics, and without an understanding of this dualist economy, researchers’ conclusions about Singapore’s political economy are potentially misleading.

Thirdly, the role of social institutions in the political economy has to be adequately addressed. Social institutions are often not given sufficient weight as independent variables in most research frameworks. And in those research methodologies that incorporate social phenomena, the social variables are often incidental and

193 Douglass North, 1990: 42, 43. Culture matters because it reduces transaction costs. 194 Douglass North, 1990: 93. Economic developments are path dependent.

71 dependent on politico-economic variables. Clearly, ignoring the role of social institutions as independent variables weakens the effectiveness of the theoretical framework of any study of Singapore’s political economy.195 Bearing in mind the pervasive social engineering in moulding a PAP-defined Singapore, it is imperative to incorporate social institutions in any appraisal of Singapore’s economic performance.

Fourthly, social cost is essential to a study of Singapore’s political economy because the harmful effects of the PAP’s policy have long-term implications for Singapore’s future viability.196 But social cost is rarely addressed in the Singapore literature and its omission not only leads to false conclusions about Singapore’s economic performance but also leaves the crisis that is the PAP’s legacy unattended. Importantly, after accounting for social cost, the PAP’s image of presiding over a successful economic model is no longer attainable. It also calls into question the PAP’s economic efficiency in allocating scarce resources.

Fifthly, given the need for a historical perspective in the study of Singapore’s political economy, a static approach in an endogenous model that fails to take into account the institutional environment is inappropriate. An economic analysis model of ceteris paribus that isolates economic variables is unhelpful because of Singapore’s open economy. Indeed, without the buffer of a hinterland economy, Singapore is totally exposed to changes in the world economy. Given such constraints a dynamic approach in an exogenous model that evaluates the institutional environment is essential. That is, the research framework requires an examination of the interaction between foreign and domestic variables within the domestic institutional framework. The approach needs to evaluate the transactional process of political and economic changes over time. It is only through transactional processes that parties in transactions and implicit structural

195 Social institutions such as values and customs play a role in regulating economic transactions. Chinese business networks rely mainly on embedded Chinese values and customs to regulate economic exchanges. 196 Social cost measures the harmful effect of state intervention in the economy. That is, when private interests and social interests deviate, a social cost is incurred.

72 relationships in the political economy can be properly understood and evaluated.197 Further, a transactional perspective prevents ex post extrapolation of social statistics from becoming a functionalist analysis, where the rationale for policy change is inferred from the policy outcome. Clearly, such research outcomes can be problematic because the dynamics of policy changes frequently include unintended consequences that can take on a life of their own.198

Sixthly, the necessity to incorporate transactional analysis of social exchanges invalidates orthodox economics as a theoretical foundation because institutions are redundant in the neoclassical world where perfect information exists.199 In the real world economy information is never perfect. In a situation of imperfect information transactions, as exchanges of bundles of property rights, are never absolute.200 The need to address real world transactions therefore requires the introduction of the concept of property rights in any study of Singapore’s political economy. The economics of property rights is particularly important in the analysis of Singapore given PAP’s proclamation of a Singaporean socialism that works.201 Indeed, the presence of private property in the Singapore economy has confused the issue and deprived research on the nationalisation of private assets. This is because conventional economic analysis lacks the capacity to examine the issue of socialism in a capitalist setting. Property rights economics allows a reappraisal of the relationship between the state and the people in public housing and it questions the conventional wisdom of pervasive home ownership in Singapore. 202 The

197 Transactions take place within specific institutional arrangements. Hence, a transactional approach allows for the examination of institutional arrangements. It identifies parties to an exchange and illuminates the way deals are carried out. 198 Lee Alston, 1996: 25. 199 In neoclassical world given perfect information, parties to transactions have perfect ex ante knowledge of the deal and also perfect measurement of ex port performance, hence institutional arrangement to facilitate transaction is redundant. 200 The neoclassical world presumes that an exchange is a complete and absolute transfer of property rights from seller to buyer. Implicitly, it fails to differentiate the distinction between legal property rights and economic property rights. 201 Goh Keng Swee, 1976 acknowledges the presence of socialist elements in the Singapore economy, that is, state ownership in production assets. 202 Some local researchers are doubtful about the existence of private ownership in public housing, thus the term ‘ownership’ is always expressed in quotes. Tan Seok Yee speaks of (1998:14) ‘ownership’, Linda Lim (1989: 186) of ‘home owners’ and Chua Beng-Huat of (1997:13) ‘owners’.

73 concept of property rights also sheds light on the decline of entrepreneurship in Singapore, a realm that has been poorly understood in conventional economic analysis.

Seventhly, economic analysis in a real world economy entails the study of institutions and institutional change in Singapore’s polity. This is the single most important element in the study of Singapore’s political economy; without it the working mechanism of Singapore state cannot be properly understood. In a liberal democratic society, constitutional law exists to safeguard individuals’ constitutional rights. Constitutional law is the top layer of the formal hierarchy of rules, designed to be most costly to alter.203 That is, in western society formal institutions are paramount in regulating and enabling social and economic exchanges. This important condition however does not exist in the Singapore political economy. Given the PAP’s single-party domination in the parliament, the ruling politician can revoke parts of or all laws, including constitutional law, at whim and in short order, only observing procedural formalities. Singaporeans have no genuine entrenched constitutional protection of individuals’ rights and private property. The vulnerability of formal institutions in Singapore has resulted in the emergence of informal institutions that surrogate the functions of formal rules. In Singapore formal rules are mere formalities and which exist in name only. Consequently, in the context of Singapore’s political economy, informal institutions are paramount in regulating all aspects of domestic social transactions. The prime source of informal rules came from the mental constructs of the PAP’s innermost circle, in particular Lee Kuan Yew, hence the term ‘Lee’s Law’. 204 An understanding of Lee’s Law as the prime governing mechanism is imperative in any study of Singapore’s political economy.

Given such requirements in the study of Singapore’s political economy, neo-

203 Douglass North’s model is conditional on the framework of Anglo–American society. 204 The others were Goh Keng Swee and S. Rajaratnam.

74 institutionalism provides the necessary theoretical framework to embrace all seven imperatives. Three theoretical foundations are indispensable in this study. These are Ronald Coase’s economics of transaction costs, Steven Cheung’s economics of property rights and Douglass North’s theories of institutions and institutional change. Collectively, this new infused theoretical framework offers some new, powerful and penetrating analytical tools that allow this study to go beyond the scale and scope of most research heretofore neglected in the study of Singapore’s political economy. Transaction cost economics offers a new analytical paradigm to an understanding of ‘Coaseian bargain’ in the political economy. Coaseian bargain dispenses with judicial intervention in the harmful effects of economic behaviour by allowing affected parties to negotiate for property rights in transactions. Market mechanisms such as trading property rights ensure economic efficiency in driving resources to their highest valued use. Simply, Coaseian bargain denials state intervention in market economy. Under Steven Cheung’s theorisation, institutional arrangements are really the contractual economics of coalitions of resource owners in the supply of commodity at the least cost. The ability to quantify the effectiveness of resource coordination at comparative cost in resolving social issues offers choices in policy formulation outside the realm of conventional ideology. This study, based on Steven Cheung’s (2002) notion of the economics of property rights conceives a simple analogy in the concept of the ‘stolen vehicle’ to delineate the distribution of economic property rights to test for nationalisation in Singapore.205 In the case of a stolen vehicle, the thief who drives the vehicle is really the economic owner, as economic function is derived from exclusive rights of use, hence legal ownership of the vehicle is inconsequential in the economy. It is under such a conception that the pervasive nationalisation of private assets in Singapore is conceived. Douglass North’s theorisation of institutions provides an essential analytical framework that ensures a systematic and comprehensive

205 The concept is derived from Steven Cheung, 2002, Chapter Two.

75 analysis of Singapore’s political economy. Importantly, a situation whereby informal rules emerge to become the substantive institution governing social and economic exchanges was not envisaged in North’s theorisation of institutions. The experience of the Singapore political economy is therefore either an exception to the Anglo-Saxon elected democracy model as defined in North’s theory of institutions or a caveat to North’s theory of institutions, where in an Asian elected- despot model, informal institutions reign.206

1.6 Structure of the Dissertation

Chapter one provides an overview on the theorisation of the role of the state in the political economy. It also provides an overview of Singapore’s political and economic development as perceived by both the Singapore School and the Singapore Critique. It proposes a new analytical framework in the context of neo- institutionalism for an analysis of the role of the state in Singapore’s political economy. And it identifies the informal rules that playing a critical function in regulating and reshaping PAP-defined Singapore society.

Chapter two studies the emergence of dualism in Singapore. It examines the historical foundation for a dualistic political economy in light of the relationship between the mainstream economy dominated by western capital and the informal Chinese economy. Importantly, it analyses in the context of neo-institutionalism the working mechanism of Chinese informal institutions. It also offers a novel theorisation of economic cooperation in the Chinese business network. It provides case studies of economic coalitions of resource owners in the supply of products and services for the least cost. Collectively, the four case studies offer an overview of changes over time in the forms of economic coalitions of resource owners.

206 The lack of an unfettered formal legal framework differentiates the Asian despot-ruled society from Anglo–American experiences in representative government.

76 Chapter three assesses the independent and interdependent relations between colonialist politics, Malay politics and Chinese politics in the context of Cold War politicking. It examines the political developments leading to Lee Kuan Yew’s becoming the chosen successor to the British colonists. And it examines the collusion between the PAP and UMNO in Singapore’s domestic politics that led to Singapore joining and then departing from Malaysia. It studies the historical foundations of the evolution of PAP policy in the political economy. This is the central chapter that links the historical past to the present stage of development and offers insights into Singapore’s political economy in the future. Indeed, many of the PAP’s current policies, including Singapore’s relations with Malaysia, can only be properly understood in the light of past events.

Chapter four investigates the role of the state in social engineering through the processes of institutional restructuring in reconstitution, resettlement and socialisation. It identifies the PAP’s political objective of supremacy as the prime governing rule in Singaporean politics. The section on reconstitution examines the processes that led to a concentration of political authority within the PAP’s innermost circle. This renders all other politicians practically political impotent, the cardinals of the PAP included. The section on resettlement investigates the changed relations between the state and the people, creating a hostage society where the ruling politician holds the people to political ransom. In the section on socialisation, the focus is on the PAP attempts to brainwash the masses into sharing its worldview and values. It traces the evolution from the propaganda of neo- Confucianism, to Shared Values and advent of Asian Values to justify PAP’s forfeit of private choices in social and economic decisions, and lays the moral foundation for the PAP’s demand for a totally submissive society. It is also a precondition of establishing a user-pays society.

77 Chapter five evaluates the role of the state in the economic activities of nationalisation, industrialisation and privatisation. In considering nationalisation, the study probes the PAP’s foreclosure on economic property rights of private assets through under-pricing the factors of production and creating a rent economy. In its investigation of industrialisation, it examines the PAP’s rejection of the socialisation of risk in economic transformation that displaced the domestic manufacturing economy and resulted in an ersatz capitalism. It also presents case studies of pervasive state intervention in industries that replaced private entrepreneurs with an SOE economy. In regard to privatisation, it studies the corporatisation of public service providers and the commercialisation of public goods and services. This is characterised as an ersatz privatisation because in reality it is not a rolling back of the state in the economy but a rolling back of the state in social responsibility.

Chapter six deciphers the intrinsic nature and characteristics of the PAP state. It identifies nine unique features in Singapore’s political economy. To reconcile the presence of predatory economic behaviour with positive economic development, the chapter introduces the concept of the stationary bandit, as theorised by Mancur Olson (2000). In his study of power and prosperity, Olson sees predatory behaviour as compatible with economic development under certain conditions. Given the PAP’s pervasive predatory behaviour and Singapore’s economic performance, the study concludes that the PAP state satisfies the economic model of the stationary bandit. And given the intrinsic nature and characteristics of the PAP state, it anticipates two likely crises and consequent opportunities in Singapore’s political economy in the future.

The concluding chapter provides a summary of the logic and argument of the study. It also identifies informal institutions, specifically Lee’s Law as the core of

78 Singapore’s working mechanism that regulates all aspects of social exchange in Singapore’s political economy.

1.7 Conclusion

Exclusive conceptions of either the state or the market in resource allocation are problematic because there is no contradiction between the state and the market in the real world economy. Economic history shows that any deficiency in state directives is swiftly compensated for by market efficiency. The advance of the market in the economy thus follows closely the retreat of the state. When state directives fail, the market offers an alternative means of resource allocation. Likewise, when the market fails, it invites state intervention in the economy. Indeed, the history of economics is really a history of the market emerging to address social dysfunction when politics fails. Therefore, the interrelationship between the state and the market is not antagonistic but complementary, with each operating to counter changes in the institutional environment. In a real world environment, an approach to the study of the role of the state in the political economy is therefore a study of the economic coalition of resource owners in offering products and services for least cost.

In the case of the Singapore experience, the PAP political supremacy has forced the retreat of the formal institutions and caused their role to be supplanted by informal institutions as the regulating mechanism in all social exchanges. Formal institutions such as constitutional law therefore exist in name but not in reality as the ruling politicians can easily revoke all formal rules. And given the important role of informal rules in the Singapore political economy, these informal rules together with their resultant social cost must necessarily be the focus of the study. Indeed, most institutional change, including the purging of the non-PAP-sponsored labour

79 movement, the waning of entrepreneurship, the termination of Chinese school education, the closure of Nanyang University, the detention without trial of PAP’s adversaries under the Internal Security Act (ISA), the Marxist Conspiracy, falling birth rates and the purging of SIA’s pilots’ union cannot be properly understood without factoring in the operations of Lee’s Law in Singapore’s political economy.

80 Chapter Two

Singaporean Dualism and the Political Economy

The dualism in Singapore’s political economy is a unique feature that escapes most researchers’ attention. The omission is a serious mistake that not only obscures analysis of the role of the state in Singapore’s political economy but also leads to erroneous conclusions about the nature and characteristics of the PAP state. This dualism is partly a result of path dependency in economic development but, importantly, it is also the PAP’s intention of maintaining core–periphery relations after independence, an aberration for an ex-colonial country. The PAP retention of statues of Stamford Raffles in the heart of the city to glorify Singapore’s colonial past is to reaffirm Singapore’s submissive relationship with western capital. Against this background, this chapter examines the historical foundations of the dualistic political economy in light of the relationship between western capital in the mainstream economy and the informal Chinese economy. The chapter also in the context of neo-institutionalism views the working mechanisms of informal Chinese institutions as social constraints in regulating economic exchanges. It offers a new attempt to explain the interrelationship between Chinese culture and values, on the one hand, and economic development in the Chinese business network, on the other. This is an area where many researchers have tried and failed to offer an acceptable theory. The chapter provides case studies on the economic coalitions of resource owners in the supply of products and services for the least cost. The four cases collectively also offer an overview of changes over time in the economic coalition of resource owners in Singapore’s economy. Together, Chapters two and three provide the historical background that influenced and constrained the political and economic development in postwar Singapore as set out in the following chapters.

81 2.1 Colonisation and Formation of the Mainstream Economy

2.1.1 Pre-British Malay–Sultanate Singapore

The history before the arrival of the British merchants had little path dependent influence on Singapore Island’s eventual development into a port economy, as the island had only primitive subsistence economy.1 The claim that Tumasik was once a seaport is inconclusive. It was based on Wang Tai-Yuan’s account of a trading port named Long-Ya-Men, but Lin Wo-Ling (1999) offers the view that Long-Ya- Men is not Singapore but a twin-peak mountain on Lingga Island in Riau Archipelago, which is situated to the southwest of Palembang. Palembang was then the main trading port, and was the centre of the kingdom of Srivijayan.2 Wang Gungwu noted that in 1405 the Chinese Emperor received Malaccan envoys, an indication of Malacca’s status as an important commercial centre. 3 Implicitly, Tumasik was not a place of commercial significance, although the island was known and clearly marked on Cheng Ho’s sea route.

Throughout the period from seventh to fourteenth centuries Singapore was on the fringe of maritime trade routes and remained largely an insignificant island. Tumasik, as the island was then named was not unknown to the sailors as a temporary stopover island in emergency.4 The island was not totally uninhabited, as natives settled on the east shore and Malay royal descendents congregated on the south shore, as evidenced by the royal tomb and some structural remains on Fort

1 Douglass North, 1990: 93: economic developments are path dependent. 2 Lin Wo Ling, 1999. Lin based his investigation of the exact location of Long-Ya-Men on the actual sea route of Cheng Ho’s voyages from the South China Sea to the Malacca Straits. He uses the precise Chinese compass readings to retrace the voyage as recorded in the ship’s logbook. Lin’s research is by far the most objective and scientific among the local researchers. For an overview of Long-Ya-Men, see also Arthur Lim, 1991: 3, 4. 3 Wang Gungwu 2001: 11. See also Anthony Reid, 1996: 20, who indicates that Wang Tai-Yuan’s account was written in 1349, thus precluding any likelihood of it being referred to Tumasik, which was established in the mid-14th century. Turnbull, C. M., 1989: 4, states that ‘Temasek as a trading city was probably a myth’. 4 Ta Da Nan Hai Zi written in the Han Dynasty noted various islands near and around Lingga, A later publication, Record of Foreign Nations, also mentioned Singapore. Evidently, Chinese traders had known of the existence of Singapore Island since the Han Dynasty.

82 Canning Hill. Chinese farmers from Riau had gambier plantations on the island.5 Tumasik, or Temasek as it came to be spelled, became known as Singapura, a Malay name likely to have been derived from Singkat Pulau, which in Malay means the Stopover Island.6 The Chinese and Javanese used the name Temasek in the fourteenth century. Singapura came into use about the end of the fourteenth century, and by the fifteenth century the name Singapura was popular among seaman.7 Evidently, the island had became better known only after the fourteenth century. What was not in doubt was the presence of the Malay empire in the region, and this meant that Stamford Raffles had to inaugurate a Sultan of Singapore to legitimise British occupation of the island.

In Peter Preston’s view, the PAP adopted the notion that Singapore only began life after the arrival of Stamford Raffles. 8 The PAP’s stance is construed to intentionally downplay any significant role for the Malay Sultanate in Singapore’s political economy. This denial of the existence of pre-British Malay state-form is intended to obscure the historical sequence of economies and politics identifiable for Singapore. According to Preston, the ideological benefit of this denial is that it allows the PAP to claim novelty, fragility and voluntarism. But in reality the novelty only relates to Singapore’s fifth incarnation in a new PAP state-form, the fragility implies that the territory was beset with change, whereas Singapore was far from fragile, and voluntarism disguises the extent to which Singapore’s success is intimately bound to its role within the wider world capitalism system. Preston thus concludes that the PAP’s version of Singapore history is intended to exaggerate the PAP’s claims on Singapore’s economic development that the island

5 Arthur Lim, 1991: 3–13 offers an account of pre-modern Singapore. Samuel Wee 1992: 91–118 provides a study of pre-Stamford activity in and around Singapore. C. P. Fitzgerald, 1972: 1–18 gives a historical account of early Chinese economic activity from the Han dynasty (140–86 B.C.) in Southeast Asia. 6 Charles Buckley, 1902: 18, recorded the debates on the origin of ‘Singapura’ on the Free Press in November 1844. One of the views is that it was the combination of ‘Singgah’, which means ‘to touch at’ and ‘Pulau’, which means ‘an island’. A second view is that ‘Singha’ is a Sanskrit word, which means ‘a lion’ and ‘pura’ means ‘a city’. 7 Turnbull, C. M., 1989: 3. 8 Peter Preston, 1994: 73–91.

83 evolved from an ‘utterly insignificant fishing village to world city and new nationstate’.9

The pre-British era may have been economically insignificant but it was politically significant in that it offered an explanation for the lack of nationalism in Singapore in the post-colonial era. Without any longstanding inhabitants on the island, unlike Malacca where the Malays had a long presence, the anglicised politicians in Singapore had no historical foundation to emulate the Malays in their legitimate claim to be sons of the soil. Hence the PAP in rejecting the Malay state-form had neither the history nor the indigenous heritage to seek the protection of nationalism. The resurrection of the statues of Stamford Raffles in 1965 manifested the PAP politicians’ lack of nationalistic sentiment and also the role of the party as agents of the western alliance in the context of world capitalist system.

2.1.2 Mercantilist Expansion in Southeast Asia

The East India Company (the Company) was formed in 1599 in London, and secured a royal charter for a trade monopoly in the Far East. As the Charter also granted the Company limited sovereign rights outside the home country, it thus became a Crown Representative in foreign lands. The Company’s private army further solidified its strength.10 The Company was spurred on by the prevalent mercantilist ideology in the seventeenth century that trade and commerce was the source of national wealth and state power. The search for wealth had led Europeans to round the Cape of Good Hope in a quest for economic expansion. And in the Far East the superiority of western sailing ships and cannons had established the Portuguese, Dutch and English as the main trading nations. By 1700 England had succeeded in replacing the Dutch as the most rapidly growing colonialist nation in the world.11

9 Peter Preston, 1994: 87. 10 Hickling, 1992: 3, 5. 11 Douglass North, 1981: 154.

84 The Company moved into Asia through India in 1613. In 1765 after it achieved dominance in India, the expansion of trade with China became a prime policy objective. A port along the China trade route was needed for refitting, protecting merchant ships and securing native produce, especially tin for the China trade.12 It thus sought for a seaport in the Straits of Malacca, the main passage to China and Japan. The Company’s earlier attempts in Southeast Asia had failed but in June 1685, it secured Bencoolen in West Sumatra.13 In 1786, in response to the threat imposed by the Franco–Dutch alliance, the Company acquired Penang, with the objective of establishing a foothold on the Malay peninsular, so ensuring navigation freedom through the Malacca Straits. 14 After the end of war with France, in August 1814 England signed a Convention with the Dutch, binding England to hand over to Holland all the possessions she once held and this called for the return of Batavia and Malacca to the Dutch in 1816 and 1818, respectively.15 This turn of events created urgency for the Company to seek a new settlement at the south of the Malacca Straits within the Riau-Lingga Archipelago.

It was only in 1818, after the British had left Malacca that the hasty search for a new settlement began. Carimon Island was found to be inhospitable, unsuitable and ‘not calculated for a settlement’.16 Singapore was the only remaining option as it was situated at the tip of the Malay Peninsular, and it controlled the southern entrance to the Malacca Straits. But in reality Singapore was neither hospitable nor suitable because of its swampy coast, which was also covered with marsh and thick forest terrain. 17 Compelled by urgency and without a better option, Stamford Raffles ignored the island’s deplorable conditions and decided on Singapore. The choice of Singapore was not a case of farseeing vision as claimed: ‘Sir Stamford

12 N. Ryan, 1976: 92. See also Wong Lin Ken, 1991: 17-31 for an account of the Netherlands and England in competition of commercial expansion in the Straits of Malacca. 13 N. Ryan, 1976: 66, 90. 14 Wong Lin Ken, 1991: 25–27. 15 Demetrius Boulger, 1897: 205. 16 Demetrius Boulger, 1897: 304. 17 Turnbull, C. M., 1989: 45, ‘In the early 1930s much of the town area was still swamp, the main roads were causeways over the marsh, and whole districts were subject to frequent floods.’ Charles Buckley, 1902: Chapter VIII offers an account of the development of Commercial Square.

85 Raffles who first saw the enormous possibility lying in the heart of that little Malay village’ and ‘dreamed of a great port to rival those of the Dutch, of a world-wide trade.’18 In fact it was William Farquhar who established Singapore as a trading seaport. His town planning developed Singapore as a trade centre and his fiscal policy established the social structure that determined the interrelationship between British administrators, international merchants and immigrants. This became the fundamental social order in the early days of Singapore and this inherent social structure remains highly relevant to modern Singapore.

On 29 January 1819, Raffles made an arrangement with the Temenggong to install his son-in-law as the Sultan of Singapore, a creation of Raffles to legitimise the British occupation of the island.19 On 6 February 1819 a treaty was signed which enabled the English East India Company to establish a trading post on the island.20 After installing a Malay ruler in Singapore, the British flag was raised and the troops landed. The strong presence of troops on the island deterred the Dutch from any direct interference in the new settlement. The garrison post laid the foundation for ensuring safe passage from piracy, a prerequisite for attracting merchant ships. The might of the British military made possible the occupation of Singapore. And the ability to offer protection for property was crucial to the development of the new settlement.

The creation of a Sultan of Singapore and securing a new settlement were without clear authority from the Company and challenged Dutch claims on the territory.21 London was distressed about jeopardising its newly established relationships with Europe at the end of 22 years of war with France. 22 London was primarily concerned with the political implications of the Company’s policy in the Far East and less concerned with the Company’s commercial interests. And it was this

18 Darbishire, 1921: 22. Wong Lin Ken, 1991: 29, ‘the choice of Singapore ….was more the outcome of circumstance than of design’. 19 Hickling, 1992: 69. 20 Hickling, 1992: 69. William Farquhar was formerly called the ‘White Raja’ of Malacca. 21 Ernest Chew, 1991: 38. Raffles was given the instruction by Governor Hastings to scout for a new port along the Straits of Malacca but not the authority to establish a settlement. 22 Cross 1921: 52.

86 divergence of interests that complicated the Company’s policy decisions in the Far East. Company policy also did not favour a new settlement in Singapore as it had been decided that no trading station should be established as a rival to Penang.23 But Raffles was in a predicament, having left Java without a position, he had a strong personal motivation to create a new settlement and further his career. Because ‘[in] the contingency of the evacuation of Java, the official status of Raffles became very inferior, and almost uncertain.’24 Singapore was an outcome of private ambition under the pretext of the Company’s interests. From 1819 until 1822 the legality of the British occupation of Singapore was in doubt. The British Foreign Office assured the Dutch that Raffles was only the Company’s commercial representative with no authority to make any political arrangements.25 In 1822, however, England as fait accompli accepted Singapore as a British settlement. And in March 1824 the Dutch also acknowledged British right to the island by Treaty, and the legal foundation for Singapore as a legitimate British port was established.26

This haphazard and unprofessional manner of resolving political issues was common in British colonisation. The organisational deficiency was the lack of a centralised command overseeing foreign affairs. Before 1815 when the Crown Colony system was established, the British had no proper mechanism to manage the colonies. The term Crown Colony came into use only in the second quarter of the nineteenth century.27 British politicians were far removed from the settlements and accorded a low priority to the Far East as political tensions in continental Europe dominated their attention. There were also conflicts of political and economic interests between British politicians in London and the Company’s officials in the Far East. The political outcome was a lack of concern for local commercial interests and a total disregard of the social well-being of local settlers. This nonchalant attitude laid the foundations for the eventual political relationship

23 Cross 1921: 7, 8. 24 Demetrius Boulger, 1897: 201, 202. 25 Turnbull, C. M., 1989: 10. 26 Hickling, 1992: 68. Turnbull, C. M., 1989: 27, 28. 27 Hickling, 1992: 8.

87 between London and Singapore, and also the social and structural relationships within Singapore.

The Treaty of London in 1824 provided political stability in Singapore, a precondition for economic development. Hence the position of the Malay rulers became redundant. In August 1824, barely five months after the Treaty, the Governor coerced the Malay rulers to cede the entire island to Britain forever. The Governor engineered ‘to cut the company free from Malay politics’ and Malay rulers were effectively removed from any control over Singapore’s future.28 The rapid British demolition of the Malay political structure had the unintended outcome of benefiting Singapore’s development, as it pre-empted rent seeking in Singapore’s economy. Rent seeking was pervasive in neighbouring economies where the Malay hierarchy presided. The elimination of the Malay ruling hierarchy allowed Singapore to become the only trading market in the region that enjoyed autonomy from the native authorities. Singapore became the preferred market among neighbouring ports. Singapore being the least predatory settlement, attracted international traders and it marked the beginning of its trading economy.

In Singapore British merchant practices were quickly adopted and the island’s lack of trading history permitted their smooth introduction. British laws and judiciary structure soon followed to regulate the settlement and provide the basic requirements for social and economic development. In 1823 Raffles introduced six regulations to establish land law, economic and social rules and a judiciary system.29 In July 1825, a statute was passed to enable the King to make provision for the administration of justice in Singapore. In 1826 a new court system was implemented. Leading merchants and government officials were appointed Justices of the Peace, and empowered to try civil and criminal cases. In 1820 a small police force was organised. The ability of the British navy to enforce law and order on the high sea reduced piracy. By 1826 the British rule of law was firmly established in

28 Turnbull, C. M., 1989: 28: Crawford ‘tried to make their life uncomfortable and prodded them as far as he could.’ 29 Hickling, 1992: 69.

88 the new settlement.30 The introduction of English law and judiciary system to the settlement differentiated Singapore from other regional markets. The ability to protect private rights encouraged the migration of trading economies from the region into Singapore. And the legal framework laid the necessary conditions for Singapore to siphon off, within a relative short period of time, many trading activities from neighbouring economies. The new settlement soon eclipsed all other established ports, including Malacca. By 1833 there was no longer any appearance of commercial activities in Riau as there were no enterprising merchants left. They were attracted to Singapore because taxes were high and pervasive in the Dutch Indies. 31 Indeed, according to a Captain Mundy in 1843: ‘Singapore owed its prosperity as much to the ill advised measures of the Dutch… in former years the Dutch loaded all the native traders with heavy harbour duties and all sort of exactions’.32

In the early years, opium trading was the lifeline of Singapore’s economy. It was primarily the opium economy that sustained Singapore as a trading port. Opium was a prime commodity, which generated the main source of trading revenue that financed the Company’s expansion in the Far East. In the view of Trocki (1990) taxes on opium farming financed the free port of Singapore. 33 The early international traders of opium were mostly former merchant navy men or agents of Calcutta firms. Country traders licensed by the Company, former employees, free traders and apprentices in existing agency houses complemented the ranks of the western trading community. 34 The first Chinese junk from Xiamen arrived in Singapore in February 1821, followed later in the same year by the first English ship. Arab ships flying Dutch flags came with an assortment of smaller coastal

30 Hickling, 1992. 31 Darbishire, 1921: 24. Boulger, 1897: 117, ‘The internal transport duties sometimes amounted to forty-seven per cent. Independent of the personal taxes imposed on the cultivators, the taxes on the internal trade extended to every article of produce, manufacture, or consumption, passing through the country.’ 32 One Hundred Years of Singapore, (1921, Reprinted 1991) Volume Two: 31, Edited by Walter Makepeace, Gilbert Brooke and Roland Braddell, Singapore: Oxford University Press. 33 Trocki, 1990: 2. 34 N. Ryan, 1976: 124, Turnbull, C. M., 1989: 15.

89 craft. European ‘square-rigged vessels’ also called at the port on their way to and from China.35 Traders from the Celebes and Bugis brought spices, coffee, gold dust and retuned with iron, opium, steel, cotton, gold thread and other articles. Traders from Siam and Cochin China came with sugar and rice, returning with wares from India and the west. Indian traders brought wheat, opium and raw cotton and returned with gold dust, tin, pepper, gambier and treasure.36 The congregation of merchants from the region soon added width and depth to Singapore’s trading economy.

2.1.3 Financing the Free Port Settlement

In 1819 when the Company landed in Singapore it had been in operation for about 220 years, and become a gigantic but a lethargic organisation. Laden with a huge organisational structure that practically precluded effective leadership, the Company was further burdened by its deteriorating financial position. Singapore’s economy therefore started on rather weak ground, as the founding company was itself already adrift, nearing the end of its corporate life. By the early nineteenth century the Company’s operation became increasingly difficult to sustain. In 1820 the oversized Company had an army of well over a quarter of a million men, greater than that of any European power. And by the time of his demise in 1858 it had some three hundred thousand civilian and military dependents.37 In 1814 the Company finally lost its monopoly on the India trade, further weakening its failing financial position. With the Company’s chartered status expiring in 1834, its future viability was in serious doubt. The Company was on the way to total disintegration. Singapore was founded amidst this disturbing background. The Company’s financial adversity had not only affected Singapore’s physical development but also its fiscal policy and social structure.

35 Turnbull, C. M., 1989: 13. 36 Cross 1921: 52. Wong Ling Ken, 1991 42–48, offers an overview of trading activity in early Singapore. A. Latham, 1994: 152, provides details of the commodities traded. 37 Hickling, 1992: 57.

90 Construction and development on the island was a sign to the independent traders that the new port was to be a permanent feature. This creditable commitment was critical in encouraging economic migration from Riau-Lingga. Besides, construction was urgently needed to render the island more accessible and inhabitable. The development entailed reclaiming land from swamps, draining marshes and flood prevention. It was an extensive and expensive exercise where hills were levelled for reclamation. 38 Constrained by the limited financial resources, the development progressed very slowly. In the early 1830s much of the town area was still swampy, the main roads were causeways over the marshes, and the whole commercial district was subject to frequent floods. The extension of the commercial square to adjacent Collyer Quay was only completed in 1864, a reflection of the Company’s weak financial resources.39

Singapore could not expect any funding from India or London, so Farquhar was compelled to gather independent financing for the physical construction of the settlement. As Farquhar believed that the Treaty did not confer sovereign rights and the Company was a mere tenant in Singapore, he could not alienate land by granting permanent titles to settlers in exchange for money.40 Farquhar also ruled out trade dues and tax, as these would deter international traders from coming to Singapore.41 Without the patronage of European merchants Singapore would not be economically viable. Consequently, in 1820 Farquhar implemented a tax farming system for opium and arrack and also licensing for gambling dens.42 Tax-farming revenues enriched the treasury and largely financed the island’s administration and development expenditure. In 1825, the Colonial Office experienced a threefold jump in tax revenues, of which nearly half came from gambling.43 And in Trocki’s

38 Turnbull, C. M., 1989: 20. 39 Turnbull, C. M., 1989: 72. Charles Buckley, 1902 Chapter VIII describes the construction of Battery Road, Boat Quay and Circular Road. ‘Chinese coolie at the rate of one rupee a day, chunkolling and carrying earth, rocks were very many in the hill.’ 40 Hickling, 1992: 73. 41 N. Ryan, 1976: 95-97. In 1801 Penang introduced a 5 per cent tax on imports and exports, which deprived it of its position as a free port and limited its trading opportunities. 42 Turnbull, C. M., 1989: 15. 43 Turnbull, C. M., 1989: 27.

91 view: ‘Raffles’ liberal, capitalist Singapore not only created the opium smoking Chinese coolie; it literally lived on his back. He paid for the free trade.’44 In 1825 Indian convicts were brought in to labour on the construction.45

Raffles’ call for freedom of trade was mere political rhetoric.46 In fact the concept of free trade ran counter to the Company’s monopolistic instinct. It held on to its monopoly in the Far East trade for a lengthy 234 years from 1600 until 1834 when the privilege was finally cancelled. This historical background discredited the settlement as a model of a laissez-faire economy. According to Darbishire, ‘the Company with monopoly bred into their very bones could not tolerate the free and open-handed way in which Singapore invites all to its shores.’47 Evidently, a free port was not the policy outcome but the consequence of international merchants bluntly refusing official attempts to levy port charges. The international traders were politically powerful, with a long record of opposing the collection of port dues. In 1829 they rejected suggestions by Fullerton to impose export duties and stamp dues and to tax aliens’ exported capital. In 1834 a proposal to levy dues on shipping was refused. In 1836 an attempt to tax imports and exports to meet expenses incidental to the suppression of piracy, and a suggestion of a tonnage duty on all square-rigged vessels were both rejected. 48 The British tolerance of international traders’ rejection of official attempts to charge for services inadvertently rendered Singapore into a free market, giving international merchants great leeway to manage their commercial affairs as they would wish. The absence of exaction and rent seeking in the new settlement resulted in Singapore’s

44 Trocki, 1990: 2, & 224 Crawford valued highly the economic worth of Chinese opium smokers, ‘one Chinaman equal in value to the state to two natives of the Coromandel Coast and to four Malays at least’. In terms of tax revenue it was one Chinaman being worth two Indians and four Malays. Turnbull, C. M., 1989: 26, Crawfurd: ‘gambling was endemic among Chinese, Malays and Bugis, and since it could not be eradicated, the state should profit by it.’ 45 Turnbull, C. M., 1989: 46, ‘Coleman began the practice of making extensive use of convict labour in Singapore. The first Indian convicts were transfer from Bencoolen in 1825.’ See also Turnbull, C. M., 1989: 55. 46 Turnbull, C. M., 1989: 22, ‘Originally, Raffles saw free trade as a bait to attract shipping to the new mart until commerce became worth taxing, although in the early days the Company doubted the wisdom of forgoing trade dues in order to attract Asian immigration.’ 47 C. W. Darbishire, 1921: 25. 48 C. W. Darbishire, 1921: 31.

92 economic freedom. Consequently, the political relationship between the governor and traders resulted in Singapore’s becoming a free-of-charge port with no tariffs, no port clearance fees, no stamp duty and free of all tonnage, port, wharfage and anchorage dues.

Given the political process that led to the free port, it is hasty to construe that Singapore’s free port status was an outcome of a free market economy. It was the British inability to impose fees and charges on port use that brought about the free port. And by itself, free port status was not a sufficient condition to bring about economic development in Singapore. To attribute Singapore’s economic success to a laissez-faire policy is to give the misleading impression that this was a policy outcome. 49 Singapore’s free port status was not an ex ante economic contemplation but rather an ex post political outcome. The British inability to exercise control, and their apathy, were misread as a laissez-faire policy. Far from reflecting deliberate policy, Singapore lacked policies to guide the market. Free trade, or trade free of intervention of any form as understood by economic liberals, was never a policy in Singapore. To assume from the outcome of free port status that Singapore was laissez-faire economy is a classic error of the functionalist approach to a study of Singapore’s political economy.

2.1.4 Straits Settlements

By the late 1820s, the Company’s revenue was unable to cover expenditure and became parsimonious towards the settlements ‘because its ledger showed nothing but losses in that direction’. In addition, ‘the finances of the Company were embarrassed by the long and costly wars of Lord Hasting’.50 Faced with serious financial difficulties, a reorganisation of the Malaya Peninsula was necessary to contain operational overheads. In April 1834 the Company’s Charter was renewed but it lost the monopoly on the China trade, which further complicated its already

49 Ow Chin-Hock, 1986: 228 ‘the colonial government adopted a laissez-faire approach.’ 50 Demetrius Boulger, 1897: 367.

93 very difficult financial position. 51 In 1826 grouping Singapore, Penang and Malacca as the Straits Settlements with Penang as the capital and the Penang Governor as the Straits Governor. 52 One obvious political outcome of the new structure was the end of Singapore’s administrative autonomy. It now came under the control of Penang and Bencoolen. An unintended outcome was the institutionalisation of the link between Singapore and the two seaports of Malaya.

In 1830 a second restructure of the Straits Settlement resulted a transfer of administrative authority to Bengal. Control from remote Bengal further weakened the island’s administration. 53 Tension between the India administration and the merchants increased, and this led to British merchant class agitation for Crown colony status for Singapore to be ruled directly by the British establishment. On the other hand, by 1835 concerted official efforts of Britain, China, and the Netherlands, suppressed piracy which was finally eradicated in 1860.54 During this period many British laws were introduced to Singapore. Legislation on wills, arbitration, slavery, merchandise marks, currency, copyrights, criminal law and merchant shipping was aimed at regulating trade and commerce. With improvements in security and the legal environment, the trading environment improved markedly, trade increased more than threefold during the period 1830 to 1867 and the population quadrupled. The demand for a more responsive government became even more pressing.55

From 1825 to 1867 Singapore played a key role in British trade with the East Indies. Following the establishment of Hong Kong in 1843 after the Opium War, the new port took over Singapore’s role in the China trade. After the 1840s Singapore’s trade with Borneo increased.56 From 1843 Singapore become more involved in Southeast Asian trade. However, the most significant economic

51 Turnbull, C. M., 1989: 35. 52 Turnbull, C. M., 1989: 33. 53 Turnbull, C. M., 1989: 33. 54 Turnbull, C. M., 1989: 41, 42. 55 N. Ryan, 1976: 130. The Currency Act of 1855 caused much disturbance to the economy, and resulted in determination to break free from India’s control. 56 N. Ryan, 1976: 124.

94 development in Singapore was the emergence of the tin mining economy in Malaya.57 The advent in 1810 of new technology using sealed tin containers, which was later popularised in 1861–1865 in the American Civil War, resulted in increased demand for tin-plate used in can food manufacture. By about 1860 the tin mines in Cornwall, England, were unable to meet world demand, so tin mining in Malaya became a lucrative business venture. British merchants in Singapore invested in new tin mines in Selangor and Sungei Ujong.58 The British investments, however, had little protection, as Malay rulers owned the land while rivals groups of Chinese secret societies controlled the Chinese miners. Beginning in 1872, the British merchants in Singapore argued for British intervention in the Malaya Peninsula to safeguard their commercial interests. After 1874’s Pangkor Engagement in Perak, British merchants in Singapore became more involved in tin mining in Malaya.59

In 1853 the Company’s Charter was renewed for the last time. In 1858 it finally collapsed and the Straits Settlements came under the rule of the new Indian Governor. The Crown took over direct administration of the territories formerly administered by the Company.60 After years of agitation by the merchant class in London, the Straits Settlements was finally granted a normal colonial constitution in 1867.61 The Crown initially refused to take responsibility for Singapore because of unwillingness to shoulder a greater financial commitment.62 A change of mind came in 1867, in response to the British defence office’s imminent need for a military fortress outside Hong Kong. Reluctantly, Britain accepted responsibility for Singapore as a Crown Colony. 63 Significantly, Singapore was important to

57 N. Ryan, 1976: 125. 58 N. Ryan, 1976. 59 Turnbull, C. M., 1989: 83. N. Ryan, 1976: 153, 154. Demand for tin increased substantially after the 1860s and in 1870 the British changed its policy of non-interference in Malaya’s economy. And it marked the beginning of large-scale British investment in Malaya. 60 Turnbull, C. M., 1989: 67. 61 Turnbull, C. M., 1989: 68. N. Ryan, 1976: 143. 62 Turnbull, C. M., 1989: 71. In 1862 Secretary for the Colonies remarked that the British government would acquire dependencies in future only if they were no burden on the Exchequer. 63 N. Ryan, 1976: 131.

95 England politicians only as a military fortress and not as an international market. It was Singapore’s potential as a naval base that clinched the decision.

2.1.5 Development of an Entrepôt Economy

In 1867 Singapore came directly under the colonial office, and more British law was introduced. In 1868 a new Bill accorded the Governor the supreme authority in legislation and the judiciary, allowing the Governor alone to enact law. In 1870 the Bankruptcy Act was introduced. In 1878, the Civil Law Ordinance brought in the array of English mercantile law and 1859 saw the first admission of a properly qualified lawyer. The Court Ordinance of 1873 was the first attempt to put the Bar on a proper footing and required a similar admission qualification as that in England. In 1861 the first law firm was established.64 With the legal profession properly in place, commercial activity was ensured an environment based on the rule of law, and this development further assured Singapore’s status as a preferential market over neighbouring economies.

After 1867 Singapore moved decisively into the second phase of its social and economic development. Buoyant regional trade activity had more than compensated for the deficiencies of British administration. Singapore’s economy gained momentum and continued to prosper despite interim market fluctuations. Technology was a contributing factor in Singapore’s eventual establishment as an international commercial centre.65 The application of new technology in shipping and communications changed the business structure, and with increased flows of goods and easy information transmission, improved productivity boosted the economy. Before the advent of steamers, trade was largely seasonal and the arrival of junks was mostly dependant upon the favourable monsoon winds.66 In the 1840s steamships replaced sailing ships and brought with them regular, scheduled

64 Braddell, 1921: 195–205. 65 Turnbull, C. M., 1989: 40, offers an account of impact of steamships on the economy. Wong Lin Ken, 1991: 51 & 52, provides an analysis of the opening of the Suez Canal and its impact on the trading economy. 66 Wong Lin Ken, 1991: 43, ‘They [Chinese junks] sailed for Singapore during the North-east Monsoon, and returned home with the onset of the South-west Monsoon’.

96 steamship services to India, Britain and China. Coal depots along the Malacca Straits for steamers ensured preference for that route over the Sunda Straits and strengthened Singapore’s position as the chief port of call.67 An increased supply of cargo capacity allowed Singapore to offer lower freight rates than competitors. The low rate was maintained until 1897 when the Conference rate was introduced. In 1869 the inauguration of the Suez Canal opened eastern trade to steamships, which reduced the shipment days to about 50 days as compared to the Cape route that took 120 days by sailing ship. Port calls increased within ten years from about five hundreds ships to two thousands ships per year.68

In 1870 the European telegraph was extended from India to Singapore en route to Australia and China, and communications improved significantly. 69 Improved communications allowed the easy flow of market information and commodity prices, which enhanced Singapore position in international commodity trade. Benefiting from all these exogenous developments, more trade was transacted in Singapore. On the other hand, most regional ports were disadvantaged by the new technology, and fell further behind Singapore. Despite competition from new ports such as Hong Kong from 1841 and five China treaty ports after the Opium War of 1843, Singapore held its position in Far Eastern trade.70 Singapore took advantage of the new technology and the new skills that went with it ensured Singapore’s long-term economic development. These developments also reinforced the fact that Singapore’s economy was externally driven and dependent largely as a node in the international division of labour.

While Singapore was quietly going on with her role as a regional trading port in the mid-nineteen century, the happenings in East Asian politics were to have some significant impacts on the Singapore political economy later in the early twenty century. In 1850 Japan embarked on modernization, defeated China in 1894-5 and

67 Turnbull, C. M., 1989: 88, the steamship made redundant the role of the Sunda Straits as the major waterway from Europe to the Far East. 68 Turnbull C. M., 1989: 89. 69 Turnbull C. M., 1989: 90, offers an account of impact of telecommunication on the economy. 70 N. Ryan, 1976: 129.

97 then Russia in 1904-5. In 1902 Japan established a naval treaty with Britain, which gave Japan a free hand in the waters off East Asia. The Anglo-Japan Alliance of 1902 marked the beginning of the British ebb from East Asia, an ebb that only became apparent in 1941. The British were withdrawing the East Asian fleet to meet the battle at home with Germany. It began to surrender the power that it had established in the South China Sea during the previous century. During the First World War, Japan seized the pacific island empire of Germany, having acquired Taiwan in 1895 and then Korea in 1910. In 1915 when Indian solders mutinied in Singapore, Japanese naval forces were the first to arrive to help the British. The 1914-8 war derailed European strength and enterprise and marked the end of the expansive period of European territorial imperialism. After the Washington Conference of 1922, Japan consolidated its strength in the Pacific. Hong Kong as a British naval base became vulnerable and a decision was taken to build a base in Singapore. Events in Europe warranted the retention of war ships there, thus Singapore had a navy base but no war ships. But the expenditures of 18 million pounds boosted the Singapore economy. The collapse of Holland and France in the face of Germany invasion encouraged Japan’s ambitions towards South East Asia. The Japanese were eyeing the raw materials in the region to fuel the Japanese war machines. On September 1940 Japan signed a pact with Germany and Italy. In March 1941 Japan moved into South Indo-China. On 7 December 1941, Japan attacked Pearl Harbour. 71 Japan invaded Malaya on 8 December 1941, and by 15 February 1942 had conquered the entire Malay Peninsula and also secured the surrender of British forces in Singapore. The Japanese occupation lasted until early September 1945 after which the British Military Administration was installed. The Japanese occupation of Singapore had stalled economic development. The Japanese’s ‘sook ching’ had killed some 30,000 to 50,000 Chinese in Singapore of which about 9,000 were reported cases. The massacre weakened the manpower resources. $50 million was extorted from the Chinese community in Malaya of which Singapore contributed $10 million. The ‘contributions’ took away a quarter

71 K.G. Tregonning, 1964.

98 of the $200 million currency that was in circulation just before the arrival of the Japanese forces. The depleted resources coupled with the implementation of a planned economy had caused shortages in foods and daily necessities that encouraged black market activity. The resulting hyperinflation had also disrupted development. 72 However, as the Japanese were preoccupied with the ongoing warfare, the informal Chinese economy was able, after the initial set back, to recover and move on but on a smaller scale. Hence the informal Chinese business network was able to survive the war.

For over one hundred years the dynamic market mechanism remained the magnet that attracted a wide variety of international interests to Singapore. Singapore’s economic development was never a rigidly planed process but one dictated by external change. Economic freedom with its embedded flexibility allowed the settlement to quickly adapt to market changes. The trade economy of the early years was very much the result of spontaneous market efforts and it was not the outcome of the wisdom and vision of any individuals. Attributing Singapore’s success to the foresight of individuals grossly underestimates the contribution of externally driven market forces. Domestically, it was the presence of a framework for property rights that motivated the economy. The market determined the institutional environment that resulted in prosperity and economic growth in Singapore. It was the institutions of the market that sustained Singapore’s economic development and growth.

2.1.6 British Dominance in the Economic Coalition

The early trading economy operated in a primitive market without any supporting economic infrastructure, especially trade finance. Given the market constraints of capital liquidity, the agency house emerged as the most common business form.73 Commission agencies owned by the Europeans dominated the trade economy. In the absence of a banking system, agencies offered commensurate hostage

72 Paul Kratoska, 1998. 73 Wong Lin Ken, 1991: 57–62.

99 arrangements that minimised credit risk, and consignment trade on an unsecured basis was enabled through creditable commitment, that is, the trader’s reputation. These trading arrangements naturally precluded most Chinese merchants, as they were unknown to the manufacturers in Europe.

The agency system allowed for the easy flow of physical goods without trade financing, thus minimising the problem of capital liquidity. The free flow of regional native produces and European manufactured goods was a prerequisite for sustaining a vibrant trading economy. Agency houses functioned as trade intermediaries for European manufacturers in the marketing and distribution of manufactured goods, in turn securing raw materials and native produce for export to Europe. Agencies received goods on a consignment basis and earned commission on goods sold and services rendered. Agencies neither carried inventory risk nor bore the cost of inventory holdings. The manufacturer or consignor benefited from not bearing fixed recurring expenses in rent and salaries, since commission was payable only upon completed transactions. The system alleviated the need for monitoring and measurement agency performance, a costly process. This working arrangement minimised the cost of business, and benefited both the manufacturers in Europe as well as the agency houses in Singapore. Without the agency system that linked Singapore with the world capitalist system the development of entrepôt trade would have been hampered.

The entrepôt economy entailed an international division of labour between international traders and regional Chinese traders. British merchants backed with easy access to the capital market in London and equipped with established trade relations with European manufacturers dominated the international trading economy. Alongside European merchants, Chinese merchants were also key players in the regional trade economy. In short, the agency network connected Europeans manufacturers with their European agents in Southeast Asia. And in turn the comprador system connected European agents with native markets in Southeast Asia. The economic alliance between agency and comprador completed the supply

100 chain that enabled the flourishing of Singapore’s trading economy. The British administration had little role in the development of the trading economy. While it offered the rule of law and protection of property in Singapore, it had no influence over the informal markets that were spread throughout Southeast Asia. In the absence of property protection, the informal Chinese business network played a significant role in enabling the regional trade economy.

The economic alliance was critical in resolving the difficulty the British merchants had in trading directly with the geographically dispersed native producers. As well as being costly to trade in small quantities with numerous individual producers, there were also significant costs in ensuring continuing supplies, ensuring quality, and most importantly, arranging pre-production finance. Significantly, the regional trading economy was operating in an informal environment where the rule of law was absent and predatory business practices were pervasive. It was an unfamiliar environment that international traders were ill equipped to handle. The scarcity of information about supply, quality and creditworthiness of the native traders meant they needed to rely on Chinese traders as middlemen. As a result of these inherent market constraints, certain institutional arrangements were devised to facilitate economic transactions. Agencies and compradors were employed as a cooperative mechanism, a typical symbiosis in regional trading economies.

The heterogonous native markets represented an information cost for the agency houses if they traded directly. In response, a comprador system was developed to facilitate the flow of goods between agency houses and the native markets.74 The comprador was a well-respected and wealthy Chinese merchant and as an independent adviser he was primarily a self-employed middleman in the agency organisation. He was provided with an office and supporting staff and all of his out- of-pocket expenses were covered. The comprador provided a credit function in evaluating the credit risk of individual Chinese merchants, set a credit trading limit

74 Wong Lin Ken, 1991: 60. Godley, Michael 1981: 51. Brown, A. Rajeswary 1994: Chapter 3 offers a detailed account of agency house operation in financing, profitability, management and business operation.

101 for each client, and also monitored and collected trade debts. The comprador acted as an intermediary in commercial transactions between the agency house and the Chinese merchant. His earnings thus came from trade commission, and also from underwriting trade debts. The comprador also traded on his or her own account on commodities from the agency house. Hence the comprador was himself a full- fledged merchant acquainted with the market. This market information enhanced the comprador’s contribution to the agency house. The comprador system facilitated credit trading between the European supplier and the local retailer by reducing the default risk, enabling an otherwise ineligible transaction because of the uncertainty of repayment. As compradors retained the contingent liability in the transaction, he offered creditable commitment on financial obligation that in reality was a substitute hostage in the native market. In the case of default, the agency house sought recourse from the comprador. However, in view of the symbiotic relations, it was not the practice for agency houses to bankrupt the comprador in the event of a business crisis.

The role of a comprador as trade facilitator is a key contributing factor to the eventual establishment of the regional commodity trading economy. The regional trade economy was primarily the trade of manufactured goods for native produce. The comprador, in capping the credit risk, enabled the two-way trade of manufactured goods for native produce. Without the comprador system, the development of a commodity economy in the region would have been limited. The agency was reliant on Chinese merchants in reaching out to the Bugis, Siamese, Malay and other suppliers for Strait produce. And the task of collecting many types of native produce from all corners of Southeast Asia was carried out mostly within the informal Chinese commercial network.

Within the informal Chinese business community the first tier firms dealt directly through compradors with the agency house. As wholesalers they dealt only in large quantities. First tier firms, in turn, dealt directly with a few second tier firms, and such transactions moved downwards to third tier and even smaller firms further

102 down the supply chain. 75 In the process, trade relations were established to distribute manufactured goods and to collect native produce. The credit system that enabled the initial transaction eventually extended downstream to all trading parties. Barter trade was the main transaction form in the native produce markets. These barter transactions started with agency houses that sold manufactured goods to Chinese merchants on credit under promissory notes. On maturity, the Chinese merchants paid in kind with staple native produce. The extension of credit terms obviated up-front cash payment for these transactions, a practical solution to an illiquid capital market. While trust remained a key factor for credit consideration between the trading parties, there were additional security arrangements to minimise the risk of default. Promissory notes provided the first line of protection, one that was further enhanced by the reciprocal trade in native produce. The embedded profitability in the two-way barter trade served to impose an opportunity cost that minimised defaulting on trade obligations. The threat of ostracism also served to deter opportunistic trading behaviour.

The same situation prevailed into the downstream activities and reached the native producers. At these levels, trade was strictly on a trust basis with little formality. Native producers obtained advances in kind to enable their economic activity, and repaid them when the produce was harvested. Nonetheless, as the trading system was mutually beneficially to the native producers, there was a strong incentive to encourage the fulfilment of business obligations. Gradually, in stages, the harvested produce moved up in the supply chain, fulfilling agreed trade obligations and completing the trading cycle. The comprador system enabled trade specialisation between the British and the Chinese merchants and also made possible the division of labour within the informal Chinese commercial network throughout Southeast Asia. The trade economy provided the foundation both in terms of capital and in the informal structural network to facilitate the development of the rubber

75 Janet Landa, 1983 offers an account of the role of middlemen in rubber trading. Brown, Coates & Austin, 1987: 113–122 details the operation and financing of rubber agency houses in London and Singapore. A. Rajeswary 1994: 36, 37 provides a brief account of the Chinese network of traders, millers and exporters in the region.

103 economy. It was on the basis of these informal institutions that Chinese rubber merchants collected rubber supplies from small plantations in Netherlands India.

Over time, the successful agency houses that matured financially were able to take on independent market risks. The expansion of the agency houses added depth to the trading economy. On the basis of their accumulated earnings and increased capitalisation, agency houses began to trade on their own account and in time diversified into other services such as financing, shipping, freight and insurance.76 The change in the nature of these businesses reflected the maturing of the trade economy in Singapore. Benefiting from capital accumulation, the scope of commercial activity in Singapore was further widened. Importantly, strengthened capital resources provided the necessary conditions and foundation for economic diversification into rubber plantations.

2.2 Chinese Clanship and the Advent of the Informal Economy

2.2.1 Clan and Kinship in Chinese Society

When the British arrived there were already about twenty Chinese gambier plantations in Singapore.77 The thriving new port soon drew more Chinese from around the region, especially Malacca, and a large Chinese community eventually formed. The racist British policy of divide and rule ensured that new settlers stayed within their demarcated area for ease of social control. The Kapitan system commonly deployed by European colonialists in the Southeast Asia for social ordering was also adopted.78 British interest in Singapore was purely economic. There was no desire to shoulder any social responsibility for non-British settlers. British neglect of local social welfare was recorded in an official report in 1875: ‘the government knows little or nothing of the Chinese …and the immense

76 Turnbull, C. M., 1989: 91–94 offers an account of the expansion of European businesses in Singapore. 77 Straits Settlement Records: Letters from Farquhar to Lt. Hull, dated 23 XII, 1822, Vol. L11, Bukit Selegie. Vol. L 6 recorded the sales of gambier plantation land on 10 May 1822 from Tan Ngua Ha to Captain Pearl. Mt Stamford, which is now Pearl Hill, was formerly a Chinese gambier plantation. 78 Turnbull, C. M., 1989: 12.

104 majority of them know still less of government.’ and ‘We believe that the vast majority of Chinamen who come to work in these Settlements return to their country not knowing clearly whether there is a government in them or not.’79 This mind-your-own-business attitude meant that each ethnic community had to rely on its own efforts to look after welfare issues. As a result, informal Chinese organisations such as clan associations, kinship and dialect groups and guilds were mobilised to provide public goods such as education, religion, healthcare, burial and other social requirements. The secret societies also offered protection to the Chinese community. 80 The marginalised Chinese immigrant society relied on mutual self-help for social needs and property protection.

The Kapitan system was abolished in 1826 when the British co-opted wealthy community members as leaders of the community.81 The system crystallised the structure of the relationship between British rulers, community leaders and the Chinese masses. British endorsement of community leaders added commercial value to their social status. This unintended outcome was beneficial to the development of a clan economy. Firstly, the strengthened social status accorded to community leaders gave them enhanced informal authority in mediating social conflicts, including business disputes. The availability of low cost mediation mechanisms was essential for economic development. Secondly, the presence of leadership encouraged self-discipline in conforming to social norms and codes of behaviour in the community because the incentive of becoming a community leader diminished the likelihood of opportunism. Thirdly, a system of leaders implied an effective system of ostracism to punish non-compliance to social norms. Lastly, the wealthy Chinese merchants as financial sponsors of the Chinese secret societies ensured indirect but effective control of the use of violence to demand compliance. The cooption of community leaders unintentionally formalised informal Chinese institutions and accorded community leaders a productive role in economising on

79 Turnbull, C. M., 1989: 76. 80 Turnbull, C. M., 1989: 52, 53. Mak Lau Fong, 1988: 230–243 discusses secret societies as a means of social mobilisation and control. Mak Lau Fong, 1995: 151–162, offers an account of Singapore Chinese secret societies. 81 Turnbull, C. M., 1989: 49 it was supplanted by the Charter of Justice, 1826.

105 the costs of transactions in an unregulated market. In other words, the informal Chinese institutional framework functioned as a workable substitute for a formal institutional environment, and alleviated the problems associated with the absence of the rule of law.

2.2.2 Social Foundations of the Informal Economy

The economic coalition of agency houses and compradors formed the preconditions for a dualistic structural in Singapore’s colonial economy. The nature of the dualism was exogenously determined because a dual economy was an institutional response to the absence of a formal institutional environment in Southeast Asian native economies. In the context of the international division of labour, international capital in Singapore provided Southeast Asian native economies with external linkages to the world capitalist system. This sphere of the trading economy was structured within the formal institutional environment, where the rule of law operated to measure transactions, and breaches of contract were sanctioned by a third party judiciary system. But international capital was incapacitated in the native market because of a lack of formal institutional arrangements. Instead, it depended on the informal Chinese economy to link the native Southeast Asian economies with the trade economy in Singapore. In reality, it was the Chinese clan economy that linked the regional native economies to the world capitalist system. In native Southeast Asian economies, where formal rules were non-existent, economic transactions took place in a personalised marketplace. 82 While self- enforced contracts were the commercial norm, contract performance was strengthened by ostracism of second parties within the community.83 Clearly, given the unregulated nature of the native market, informal Chinese institutions played a very important role in the trade economy of Southeast Asia. Consequently, two distinctive economic spheres, each distinguished by their underlying institutional environment, characterised the dualistic nature of Singapore’s economy. In short,

82 Douglass North 1990: 34. In the absence of formal market mechanisms, economic exchanges were carried out in personalised markets where trust plays an important role in facilitating transactions. 83Douglass North 1990: 54-60 on enforcement of contractual obligations.

106 the interaction of the world capitalist system and native Southeast Asia economies in Singapore were the preconditions for the coexistence of an expatriate dominated mainstream economy operating alongside a subordinated informal Chinese economy.

In the early days of Singapore, a relatively autarchic Chinese economy developed within the clan environment, as the Chinese were essentially self-sufficient in the community. Amidst the hostile social and political environment the Chinese community had devised its own set of social norms and codes of behaviour for social ordering. And out of this social network a new economic foundation was derived, enabling economic transactions between members of the community. In the process, the Chinese established informal institutions as substitutes for the rule of law and the protection of property in an unregulated market. The resultant informal Chinese institutions laid the necessary conditions for the eventual development of an informal Chinese economy.84

Economically, the Chinese enlisted clan and kinship networks as personalised markets for economic exchange. In due course, an informal Chinese business network evolved within the localised Chinese community and survived at the edge of the mainstream economy. Over time, local groups of clan and kinship links established connections with other similar external groups that eventually became the social and economic foundation for an informal Chinese business network across geographically dispersed Southeast Asia.

The secret societies were important social components that provided protection to insiders against external threats. Chinese secret societies, while clandestine, were not illegal until they were outlawed in 1889.85 In Singapore’s early days, Chinese secret societies played a key role in social ordering within the Chinese community.

84 Jamie Mackie, 2000, reviews the economic behaviour of Chinese entrepreneurs in the context of the institutional features of family, ethnic networks and forms of business. See Yen Ching-Huang 1988: 230–243 for the formation of clan organisation, its social functions in arbitration, mutual help, ancestor worship, education, marriage and protection of the cultural and value system. Also see Yen Ching-Huang 2002: 23–50 for an account of Chinese business networks. 85 Turnbull, C. M., 1989: 87.

107 The secret societies were able to enforce informal rules by a monopoly on violence that ensured the viability of certain commercial activities. It was probable that the early Singapore economy would have failed without Chinese secret societies. The service that the Chinese secret societies rendered to the opium tax farming enabled tax revenue collection. And without an opium tax, a free port was impossible, and without a free port the settlement was unlikely to succeed. To the extent that the opium economy was the main source of revenue in nineteenth century Singapore, Chinese secret societies were key economic actors in the economy.

2.2.3 Informal Chinese Business Networks

Together with the secret societies, the clan network served as the foundation for a personalised business network which offered an informal institutional framework for economic transactions. 86 Clan and kinship associations were socially based organisations and were not originally intended as commercial organisations. But the established personal relationships within the associations and the informal rules that governed such relationship offered an established structural environment that was used for economic purposes. The structure was modified and a new layer of relationships was established for economic transactions. The formation of informal Chinese business networks was motivated by the need for a personalised market for trade; it was not a natural evolution of informal Chinese organisations. The aggregation of these separate communities formed the foundation of a loosely structured informal Chinese business network across Southeast Asia.

This personalised market diminished information costs in an unregulated market. The clan association was itself a nexus of personal structures, linking one person with other members of a community. In this closely-knit environment, repeated dealings dispensed with the need for complete information in economic interactions. In game theory, repeated long-term relationships yield a better pay-off

86 In the society where Chinese interests were largely ignored, Chinese secret societies played key role in social and economic ordering. The strength of the Chinese secret societies both in terms of manpower and finance perhaps offer a partial explanation of why Chinese and not the natives or Indians achieved economic success in Southeast Asia economies.

108 in cooperation strategy than one-off cheating. There is little incentive for members not to fulfil contractual obligation in a close-knit community.87 And within the informal Chinese business network, intimate personal relation also increased the chance of first party self-enforcing codes of conduct being observed in economic exchanges. This is because in the context of familism a family member is morally obligated to maintain the good name of the ancestors. And families help to monitor family members’ social and business behaviour.88

The common cultural tradition helped provide a framework for interaction between members.89 Cultural homogeneity ensured an effective tit-for-tat retaliation in the case of non-cooperation in the community. The elder in the social network who was accorded with coercive power of second party retaliation deterred any violation of tradition in the community. The deterrent power of hierarchical authority ensured social order and enforcement of informal rules which coordinated repeated economic interactions. The presence of enforcement by first and second parties mitigated the problem of the lack of a third party judiciary in an unregulated informal market, and effectively removed the uncertainties in transactions. These inherent control mechanisms asserted compliance, as sanctions against violation diminished opportunism and minimised the costs of monitoring and enforcement. Consequently, the inherent mediation process averted any conflict of interest that would have been detrimental to the survival of the informal Chinese business network.

2.2.4 Economics of Informal Chinese Institutions

In the early years in Singapore, informal Chinese institutions enabled wealth creation and capital accumulation within an otherwise politically deprived and

87 The expectation of tit-for-tat retaliation discourages hostile long-term relations. 88 Family reputation is a valuable property of the family members hence there is an incentive for members to ensure that the family name is not tarnished. For an overview of Chinese culture and Chinese society see also Lucian Pye, 1968, & 1992. 89 Common culture in tradition is a prime source of informal rules, and in an unregulated market informal rules offer the norm for social exchanges. William Ouchi 1980 ‘Common values and beliefs provide the harmony of interest that erase the possibility of opportunistic behavior.’

109 economically impoverished community.90 Informal Chinese institutions played a significant role in the evolution of an informal Chinese economy that broadened the scope and scale of Singapore’s economy. Without the participation of Chinese merchants, commodity economies in Southeast Asia would not have been viable and Singapore’s economic development would have been limited. Informal Chinese institutions that sustained the commodity economy were crucial to the economic development of Southeast Asian economies as a whole.

In the face of imperfect information, informal institutions facilitated personalised transactions, which were crucial in the native market to diminish uncertainty and to enable trade. Without a personalised market, transactions would have been impossible because of uncertainty. In the long distance trade spreading across Southeast Asia, certainty and predictability of economic outcomes were necessary for economic activity. This was because trading parties had to be assured that in the absence of contractual formality and judiciary protection, all ex ante trade obligations would be appropriately fulfilled ex post, as agreed. Informal Chinese institutions played an important role in providing such assurances for commodity trading.

Informal institutions operate as constraints and take the form of informal rules, codes of conduct, conventions, customs and social norms served in regulating the social behaviour of the community. 91 Collectively, informal social constraints provided a framework for social and economic interaction among members of the community. These informally structured relationships ensured a social ordering that reduced the risk of social and economic conflict, and engendered community stability. The solidarity of the community compelled members to conform to established codes of conduct and social norms. It also caused self-interest to be subsumed by community interests. Informal Chinese institutions, backed by the

90 In native society, Chinese wealth derived wholly from Chinese business networks. For an account of rags to riches in Singapore, see Chan Kwok Bun & Claire Chiang, 1994. Lim How Seng, 1995, offers studies of Chinese society and Chinese entrepreneurship. 91 Douglass North, 1990: 36–45 on informal institutions.

110 force of authority, ensured that trade obligations were properly met in the commodity economy.

Informal Chinese institutions also constrained anti-social behaviour of adverse selection and moral hazard resulting from the asymmetric information in the imperfect native market.92 When information was imperfect, the party with the hidden information enjoyed the incentive to cheat ex ante on the transaction. Similarly, the party with the information advantage also enjoyed the incentive to under-perform ex post, when it was too costly to enforce the contract. However, the presence of guanxi and xinyong as mechanisms of inner bondage in the informal Chinese business network helped to minimise the costly problems associated with asymmetric information. The informal Chinese institution of guanxi and xinyong diminished the incentive for adverse selection and moral hazard in the native economy.

In economic terms, in discouraging opportunistic behaviour, these informal Chinese institutions also allowed the preservation of scarce resources for more productive economic activity. The personalised market based on mutual trust alleviated hostage arrangements that could be implicitly costly. 93 Not diverting scarce resources to unproductive activity also increased returns on capital. In those early years when the capital market was non-existent and capital liquidity was restricted, the ability to allocate limited capital to its highest valued use was crucial in maximising wealth creation. The informal Chinese business network permitted maximisation of returns in the deployment of scarce resources. Because they were deprived of access to capital markets, Chinese merchants would have been hampered if they had not had the advantage of maximising the deployment of their limited economic resources in the commodity economy.

92 The Chinese business network places great emphasis on morality and individual’s integrity, and such qualities are quantifiable as the degree of xinyong. Xinyong is the informal credit rating system of individual in the network. 93 Imperfect information results in imperfect contracts, and ex ante arrangements to pre-empt opportunism are necessarily costly because of their inherent uncertainty in the economy.

111 2.2.5 Chinese Culture as an Informal Institution

Informal institutions derive primarily from the culture of a society. And culture is accumulated learning experiences, which are part of the heritage of the society. Culture is socially transmitted through generations within families and also externally through education. Over time it is modified by learning from the exogenous environment. Culture is therefore evolving and also unique to a specific community. Consequently, cultures manifest as attitudes, values, beliefs, taboos and customs which contribute to conditioning human behaviour within a community.94 Culture, in the form of social constraints, influences a community’s economic behaviour. This occurs because culture acts as a filter to process information on the choice of economic action, and it influences economic outcomes and hence the nature of the economy. 95 A culture that encourages honesty is conducive to encouraging self-enforcing contracts and such a culture is thus economically productive in enabling transactions, which would otherwise be impossible in the absence of legal enforcement.

The core value that holds informal Chinese institutions together is the concept of familism in Chinese culture.96 This is because the informal Chinese social network is the collectivity of numerous families. Importantly, familism advocates obedience to social order, and so is group-oriented, the two prime characteristics of a Chinese society. The concept begins with the family unit, which comprises three generations: grandparents, parents and children. The next chain in the network is the extended family, the siblings of the nuclear family. Family is an integral part of collective kinship groupings that constitute a lineage. As each lineage shares a

94 Douglass North, 1990: 37. Michael Porter 2000: 14 defines economic culture as the beliefs, attitudes and values that bear on economic activity. 95 Douglass North, 1990: 107. Culture defines institution, and the embedded incentives in institutions in turn determine learning of new skills, which influence the scale and scope of economic activities, and hence economic performance. 96 Francis Fukuyama, 1995: 77–78, offers a detailed analysis of familism, and focuses on familism in Chinese societies.

112 common ancestor, the kinship group has a common surname.97 Within the family, there is a hierarchy in social ordering. Age determines the primarily ordering, and gender provides the second ordering.98 Hence the grandfather, as the oldest male, is the head of the family, and the next in line is the oldest son who is to be succeeded by the oldest grandson. The siblings of the oldest son form the extended families of this family grouping. This structured social ordering permeates all extended families. A newborn in a family is allotted a specific position in his or her family and within the extended families in the lineage, in accordance with established norms.

In the Chinese family there are clearly defined rules on inheritance of family property in accordance with age and gender. There are also clearly assigned reciprocal duties and obligations among members of the family, extended families and the lineage.99 Among them, maintaining the ‘face’ or reputation of the family and the lineage was paramount. Tainting the reputation of the family and the lineage was seen as an unforgivable sin.100 The family acts as a pressure group to ensure that members do not violate established social norms. Crucially, reciprocal obligation entailed respect for each other’s property and, in the process, property rights in the community were maintained at a low cost. The Chinese cultural definitions of social structure and ordering are reaffirmed in religious rituals during festival celebrations, wedding ceremonies, ancestor worship and burials. Ancestor worship, in particularly, was important in the village economy as a reminder of

97 Jamie Mackie, 2000, offers an overview of Chinese business culture. See also Yen Ching-Huang, 1988: 186–221 and Hsieh, Jiann, 1977. For the social structure of the family, see Redding Gordon, 1993: 53–58, on networks and ethnicity and the rules of relationships. 98 The Chinese put it as: zhang you you xu, nannu you bie (Age takes precedence over youth and a distinction between the sexes is observed). 99 Agricultural economies that require sharing of duties and responsibilities for production have reciprocal duties and obligations among members of the community. The reciprocal duties and obligations form the basis of protection of property rights in the Chinese community. 100 Family members have a common interest in maintaining ‘face’, as reputation can translate to economic goodwill, which carries pecuniary benefits in an illiquid agricultural economy because of the long gestation period for investments. For an analysis of goodwill in the context of Confucianism, that is, ‘the sense of diffuse personal obligations which accrue between individuals engaged in recurring contractual economic exchange’, see Ronald Dore, 1976.

113 kinship ties. 101 Indeed, it was on the foundation of kinship that the informal Chinese economy was developed.

In the realm of lineage, the kinship group elected the wealthiest elderly male as the community leader who exercised authority over all members of the community.102 His prime responsibility was the enforcement of established family rules to maintain social order in the community. Any violation of the established norms was properly dealt with in accordance with precedent. As the community leader, he also had a duty to ensure the provision of public services such as education, protection, religious ritual and ancestor worship. This resulted in a fairly well structured social network in a community. Internally, within each family, a set of informal rules regulated interactions among its members. 103 And externally, in the context of lineage, a similar set of informal rules existed to ensure ordering in members’ interactions. An individual faced two sets of informal rules, one from within the family and the other from within the lineage. Well structured relations, coupled with established social norms, helped diminish uncertainty in social interaction among members.

When a lineage grew to a certain size it became a village. Villagers shared a common surname because of the common ancestor. But when a female from the lineage married an outsider, this formed another lineage in the village. People in a village were mostly related through some form of kinship group. Although people from a village did not necessarily share a common surname, they often shared a dialect. The village as a unit of identification thus emerged as another form of social network. 104 The aggregation of villages in the same vicinity sharing a common dialect eventually came together as a dialect grouping in the context of an

101 Ancestor worship is a key element that reinforced clanship, which in turn strengthened the communal hierarchy in social ordering. For the economic function of the clan and its disciplinary role in the economy, see William Ouchi, 1980. 102 The village headman disciplines individuals whose behaviour deviates from the norm and also offers mediation of social conflicts. 103 These informal rules were inculcated through socialisation within the family (jiajiao) to obey the rules of the family (jiagui). 104 The village is the nexus of the extended families of a lineage, and it operates on a similar set of informal rules that regulate relations between family members.

114 extended social network. But in the extended geographical area where people did not share a common surname or a common dialect the grouping instead could be identified on the basis of province.105 In Southeast Asia, especially Singapore, this was simplified into the Mandarin-speaking northerners and the dialect-speaking southerners.

From the basis of family as a single core unit, the social network gradually extended through the common ground of surname, dialect and locality. Social networks based on surname focused on a shared common ancestor, social networks based on language emphasised a common dialect and social networks based on locality focused on province. In addition to these three major groupings was the guild house. Guild houses allowed people with a common vocation to band together as another social network. 106 While surname, dialect and locality groupings were essentially socially oriented organisations fulfilling certain social obligations for the common good of the community, guild houses were primarily economic organisations protecting common trade interests and providing social welfare benefits to members. In such a neatly structured social network, a newly arrived immigrant Chinese would join some or all of the associations that they were eligible in order to meet their social and economic needs. In far-flung places, in a foreign land, a social network could still adopt a Chinese without any clan connection as a fellow Chinese.

2.2.6 Guanxi and Xinyong as Informal Institutions

Guanxi and xinyong are the two prime informal institutions in the informal Chinese economy. Indeed, without the mechanism of guanxi and xinyong, the efficiency of

105 Dialect groupings are the next level, bringing together villages in the same area. Collectively, they formed a cultural subset with unique local characteristics. Different dialect groupings differ in custom and ways of life, but people from the same province share features that offer common identification. See Mak Lau Fong, 1995: 9–38, for a study of locality groups and dialect groups. 106 Guild houses propagate, maintain and enforce the trade conventions of a vocation. As a network they offer protection to members against outsiders, and mediate dispute between members. In the Chinese economy each vocation worships a designated master craftsman as a deity of the trade, hence through trade ritual, guild houses across Southeast Asia form a separate social and economic network.

115 Chinese business networks would be uncertain. The concepts of guanxi and xinyong offer an insight into the workings of inner-circle relationships within informal Chinese business networks. Informal networks demarcate the realms of insiders and outsiders in a society. Members became insiders, as compared to non- member outsiders. Guanxi and xinyong refer particularly to the working mechanism within the insider grouping. Guanxi in Chinese literally means ‘close connection’ illuminating a hierarchical structural relationship between individual members in a specifically defined community. 107 The nature and quality of guanxi of an individual determines the individual’s position and the interrelationships between that individual and others members in the community. The concept of guanxi or personal relationship is therefore the inner bond that knits informal business networks together.

Guanxi as an informal institution is a quantifiable personal relationship and it defines the uniqueness of a person’s structural position within the specific community.108 The intensity of personal relations determines the nature and quality of the bond. A person with strong guanxi enjoys more privileges associated with the relationship than the person with weak guanxi. Economically, a person blessed with good guanxi enjoys relatively more information advantages than another person who does not share the same intimate personal relations. Information advantage is ultimately translated into financial advantage. Guanxi is therefore tantamount to club good, which unlike public good that is non-exclusive, is strictly exclusive and preserved only for the privileged club member. Given the characteristics of a club good, guanxi is therefore practically a unique sub-group network within a specific community.

107 Jamie Mackie, 1998, 2000. Yen Ching-Huang, 2002: Chapter 2, offers a case study of the Kwok Brothers in using guanxi and xinyong to mobilise ethnic Chinese capital. Guanxi is described as personal connections with shared identification based on kinship, geographical and dialect ties, year of birth and education. 108 Guanxi is a quantifiable personal relationship because it measures the strength and weakness of the connection and that in turn determines the nature and characteristics of working relations between parties in social and economic exchanges.

116 The economic function of guanxi rests in its mechanism as a personalised non-price allocation of resources.109 In an informal market where information is incomplete and price mechanisms do not exist as a means of resource allocation, guanxi is useful in accessing resources. Having guanxi means that a person is privy to exclusive information and so can access covert opportunities that are reserved for closely related club members. This non-public information allows the inner circle within the insider grouping to capitalise on covert economic opportunities. In an imperfect market where the price mechanism does not function, the guanxi network provides access to resources. 110 Club membership is a smaller subset within a larger community, and it enables close monitoring and enforcement, thus containing the risk of adverse selection and moral hazard because of asymmetric information.111 This is particularly important in an environment where the rule of law and enforcement are wanting, where free riding is feasible and rent seeking pervasive. Consequently, guanxi is also economically useful in economising on transaction costs under imperfect market conditions.

Xinyong is economically the single most important element underlies the working of informal Chinese economy. Without it, the functionality of the Chinese business network as an informal market would have been severely hampered. Xinyong facilitates economic coordination and cooperation within the informal network.112 Significantly, xinyong helps reduce the costs of negotiation, contracting, measuring and enforcement in economic exchange. This is because xinyong practically obviates the need for or at least simplifies formality in transactions. Importantly,

109 Guanxi is a non-market allocation mechanism because in the informal Chinese economy, it offers an opportunity to access resources. Having a personal relationship is a precondition to accessing resources. A person without guanxi is mocked as a person ‘men dou meiyou’, or ‘without doors’, someone who can open no doors. 110 Guanxi acts as a surrogate market mechanism in the absence of pricing mechanisms. 111 Club good works on the basis of small numbers in the group pre-empting members from free riding and it accords close supervision of performance. 112 In a market economy, price provides a coordination function, and the contract documents the terms of transactions but in the informal market where price mechanisms and contract protection are non-existent, xinyong acts as a credible commitment mechanism to take the place of the role of the market in the economy.

117 xinyong diminishes ex ante cheating and ex post shirking in transactions. 113 Xinyong in Chinese literally is ‘trust-application’ or trustworthiness. It is a scaled measurement of reliability of compliance to the established market conventions of the informal economy. 114 It is derived from the track record of repeated past transactions and it is assigned exogenously. Xinyong is the quantifiable credible commitment of members within an informal network.115 Xinyong as a measure of credible commitment to commercial obligations provides an assurance of performance in economic exchange. That is, xinyong is a market consensus of trustworthiness and it is externally determined. It cannot be acquired through corruption. Corruption might improve guanxi but it would destroy xinyong. In informal Chinese business networks where guanxi serves as means of personalised non-price allocation of resources, xinyong is a measure that determines the quantum in resource allocation. The better the guanxi and the higher the xinyong, the greater the access to scarce resources.

Xinyong is an important social asset that contributes to wealth creation in the community. 116 In enabling financial leverage, xinyong facilitates economic exchange. A person with high xinyong enjoys good creditworthiness in the community and in an illiquid market it becomes a valuable intangible asset that a person can use as quasi-capital for business. In the trading economy where goods are supplied on consignment, a trader’s xinyong in the community determines the quantum of his trade credit. Thus xinyong functions as goodwill and has an economic value in its substitution for investment capital. This substitution effect was the foundation of economic success in the rags to riches examples in the informal Chinese economy.

113 The need to maintain credibility for future and repeated transactions discourages one-off opportunism. 114 Jamie Mackie, 1998: 138–140, offers an analysis of trust and social solidarity. Yen Ching- Huang, 2002: Chapter 2, describes xinyong as a lubricant, sanction and short-cut in financial transactions. 115 Xinyong is an informal credit rating accorded by one’s peers. 116 In an illiquid market, xinyong plays the role of financial capital in the agency and comprador economy.

118 Xinyong is externally determined and subject to change relative to current transactional behaviour. It is a dynamic rather than a static position in the community. A person who consistently refrains from opportunism and lives up to his obligation in the unregulated informal market will gain incrementally in goodwill and reputation. The innate economic benefit serves as a strong incentive in encouraging compliance to informal rules. In informal Chinese business networks, business failure is not necessarily a disaster if there is no dishonesty in the transaction. The possibility of returning to business after failure reinforces credible commitment in business dealings.117

In the absence of a proper legal framework to regulate economic exchange, a high degree of compliance removes economic uncertainty, and this affords a high economic value to xinyong. Xinyong assures reciprocal obligation and mutual protection of property rights. Within the community, xinyong correlates to the degree of assurance in protection of property rights. That is, the higher the degree of xinyong, the higher the level of assurance in protection of property rights. Certainly, xinyong plays a significant role in enabling economic exchanges in the informal Chinese economy. And collectively, the working mechanisms of guanxi and xinyong lower transaction costs and contribute to the economic success of informal Chinese business networks.

2.3 Economic Coalitions of Resource Owners

Economic partnerships between European and Chinese traders were common in Singapore’s early economy. These informal partnerships were coalitions of resource owners in economic endeavour for trade gains. Economic coalitions were a necessity because European merchants had no access to the informal market while the Chinese merchant had neither access to the capital market in London, nor links with European manufactures. Various institutional arrangements were devised

117 Personal integrity plays a key role in the informal economy, and the reward for honesty in business failure not only reinforces the informal network but also offers an incentive for full compliance to the informal institutions.

119 to resolve the market impasse and to ensure economic cooperation among resources owners. The opium economy was viable only because of the participation of the Chinese secret societies. The timber trade required extensive economic cooperation to enable import from the native market and then re-export to the overseas market. The coolie trade also required very extensive resource coordination between merchants, secret societies and governments. Many of these economic activities took place in the informal market where Chinese business networks took the role of an operating market. Without the Chinese business network in creating economies of scale, the rubber economy in Southeast Asia would not have become the world’s prime supplier. The rubber economy is a classic case of international economic coalitions in enabling a close cooperation between the native economy, the informal Chinese economy and the world capitalist system. The rubber economy was the foundation of Singapore’s entrepôt economy.

2.3.1 Opium Economy

The opium economy was the single most important economic activity during Singapore’s formative years. It was the Company’s monopoly of opium and tea that enticed European international traders to Singapore’s shores. Opium trading sustained the new settlement’s viability as a trading port. In the domestic market, opium was sold to Chinese coolies for consumption, and it was also a major source of revenue that financed government expenditure. According to Trocki (1990), farm tax revenue rarely accounted for less than forty per cent and often made up over sixty per cent of tax collection.118 In the period 1820–1821 opium rent was 46.1 per cent of the year’s revenue. In the period 1823–1824 opium rent was 49.1 per cent of the year’s revenue. The other major farm tax was the spirit or arrack farm but it was rarely worth more than one-quarter of the value of opium and was often worth less.119 Opium brought in the most revenue and was critical to the running of the settlement.

118 Carl Trocki, 1990: 2. 119 Carl Trocki, 1990: 96.

120 The monopoly on opium trading was costly to maintain because the effort of economic exclusion required elaborate trade monitoring and law enforcement. The ability to control the opium trade was economically crucial to the new settlement because smuggling undermined the business profits and tax revenue of the Company. In the absence of a strong enforcement unit to monitor the opium trade, the Company instead offered for tender business rights to opium trading and farm operation. Chinese merchants were ideal partners because secret society connections ensured licensees’ rights. In addition, wealthy Chinese merchants offered higher bids for the licences. The Company’s rights in selecting opium farm operators also offered the governor political leverage to manipulate the Chinese community.

The Company controlled the opium trade through the licensing process. Licensees secured exclusive rights to buy raw opium from the Company, process the raw opium and retail the cooked opium.120 Licensing made it illegal to purchase raw opium from outside sources, or to process raw opium in an unauthorised location or for any entity but a licensee to retail cooked opium. But the Company could neither prevent violations of the opium monopoly, nor could it offer an effective means to protect licensees’ rights. Policing became the sole responsibility of the licensee. Chinese secret societies were used to police the opium trade. Members of secret societies acted as runners in managing the tax farms’ distribution of cooked opium. However, the runners’ most important responsibility was to protect territory rights, particularly to prevent smuggling into Singapore of raw and cooked opium by rival groups.

The market exclusion exercise was an intricate process that required a delicate network of intelligence in collecting information and surveillance on rivals. This was demanding because there was a rampant unauthorised trade, and because raw opium was a monopoly only in the primordial supply but there was no restriction

120 Lee, Edwin, 1991 offers a detailed account of opium operations in Singapore. Carl Trocki, 1990, provides an analysis of opium in Singapore’s early economy (50–81), and studies the political economy of opium of colonial Singapore (220–242).

121 on market circulation.121 Ownership of opium itself was not illegal, and this led to the diversion for domestic consumption of opium meant for re-export. With easy access to opium in the open market, unlicensed operators exported raw opium to either Johore or Riau for processing and smuggled it back into Singapore for illegal distribution. Policing was a demanding operation requiring heavy punishment of market violators. Violence was the norm rather than the exception. The use of violence ensured the viability and profitability of opium trading.

Secret societies, with their widely dispersed networks and fighting power, offered a control mechanism that ensured the smooth operation of the opium trade. As a result, Chinese secret societies took an activist economic role and subrogated the British as law enforcer and tax collector in the opium economy. Chinese secret societies inadvertently became an informal civil service for the British. They played such a critical role that it is no exaggeration to say that without their participation the opium economy would not have flourished and the free port would not have been financially viable.

2.3.2 Timber Economy

Timber trading is useful as an example of the economic coalition between resource owners in and outside Singapore and between Chinese and foreign merchants in the entrepôt economy. 122 Tan Tye was sole proprietor of Tan Tye and Company (TTC), a business in the 1860s that engaged primarily in timber trading.123 TTC

121 Opium was a controlled commodity but not an illegal commodity; it was only when opium was traded outside the revenue farms that it became illegal. Chandu (or cooked opium, a Hindu word) had to be processed at prescribed locations. The revenue peons, known as chinteng, who carried out this role, were really private police hired by revenue farms to protect their revenue collection. 122 This information came from Lim How Seng (1995: 129–147). Lim, a local historian, narrated the history of Tan Tye and documented records of his timber trading. Lim showcased Tan as a model of the nineteenth century Chinese merchant. The information is reinterpreted and analysed in the context of the entrepôt economy. 123 Tan Tye a Hokkien was born in 1839, came to Singapore in the early 1860s when he was in his twenties. By 1871 when in his thirties Tan was already a wealthy merchant. Tan Tye died in 1898 but his legacy lived on into the 21st century. On 13 May 1876, Tan Tye, using British American Trustee, wrote a will for his descendents to share his wealth. The will stated that only twenty-one years after his last named descendent was dead could the wealth be distributed. As the last descendent was then a one-year-old granddaughter who lived until 1982, distribution can only take

122 sourced timber from Malaya, Dutch Indies Sumatra and Riau and re-exported to Hong Kong, Shanghai and Fuzhou. The sourcing was through the Chinese merchant network in and outside Singapore, while exports were direct sales to buyers in the overseas market. In the exporting loop TTC relied on European merchants for shipping and insurance services. The international division of labour required nexuses of contracts with multiple parties in the coordination of a transaction cycle.

TTC relied on two main sources of supply: Chinese lighter owners who plied the waters of Malaya and the Dutch Indies and Chinese second-tier timber importers. Economic relations between TTC and the two suppliers were different. TTC initiated the transaction and, as was the norm for traders, provided cash upfront in the form of loans to the lighter owners to enable the direct purchase at source in cash from the native suppliers. The loans were repaid from the proceeds of the sale of timber. When the deals were made, the order listed only indicative pricing, as commodity prices were subject to changes in accordance with market conditions. Prices were not predetermined but the buyer relied on past experience as a guide. Whatever the transacted price, trade practice ensured that TTC was committed to purchase the shipment of timber at the market price. The lighter owner acted more as a business partner in sourcing supply. Lighter owners also took direct responsibility for pricing and quality. This working arrangement enabled the cooperation of two different resource owners working closely to complete a single transaction. The symbiotic relationship constrained opportunistic economic behaviour of one partner against the other. In contrast, there was no such dependent relationship with the second-tier timber merchant. Here, the goods were inspected and a price negotiated before coming to terms.

The business transaction between TTC and the lighter operator was apparent in two documents: an IOU debt instrument that recorded the details of the terms of trade

place on 11 January 2003, or over one century after his death. In 1994 there were forty-four descendents who were entitled to Tan’s inheritance. Tan Tye Lane near Clark Quay lives on in modern Singapore, a reminder of the historical contribution of the Chinese informal economy on the development of Singapore’s economy.

123 and doubled up as a sale contract; and a promissory note, a printed stationary form, acknowledging the debt quantum and the obligation to repay.124 Notwithstanding the presence of a promissory note worded in English, a European commercial practice that was adopted in the business dealing, structurally the transaction conformed to the typical Chinese market practice that allowed the omission of many details on the terms of trade. The product grade and specification, date of delivery and quantity were not specified in writing, so an element of trust was needed. The ability to rely on past experience was essential to ensure an orderly transaction. This system operated in a personalised market, where repetitive deals and self-enforcing contracts reduced the risk of ex post opportunism. No tangible hostage arrangement was needed to exchange for an unsecured clean loan. While the right of foreclosure on the boat was an additional security measure, it was costly to monitor and enforce. To a great extent, trust was still a key factor in the timber trade. Without the informal constraints that regulated the trade, transactions would not have been cost effective. And it is also true to say that trade associations, clans and even secret societies had certain coercive powers to ensure the discipline that greatly reduced uncertainty in transactions.

The two trade documents mentioned above were intended primarily to finance the transaction. In the absence of a capital market, trade financing was achieved in- house. By convention, TTC as a first-tier merchant was responsible for working capital. TTC paid up-front in cash for the intended acquisition to enable the supplier to purchase directly at the source of supply in the native market. TTC as trade financier was important in initiating the transaction because without the initial capital for the cash transaction at the source, the timber trade could not have come into being. TTC was a financial intermediary in the allocation of capital resources to the Chinese business network. As there was still no Chinese bank, TTC obtained

124 The trade documentation reflects a mixture of Chinese trade practices and western trade conventions in business dealings in the Chinese economy. But western commercial practice prevailed in the realm of international trade, such as shipping, insurance and financing. By the 1860s, Singapore had already a successful open economy in the world capitalist system. Chinese merchants were also fairly sophisticated in handling international trade, and well versed in financial instruments such as promissory notes, insurance contracts and trusts.

124 part of its working capital from loan advances provided by private lenders who surrogated the function of banks. From the records it appears that the company pledged the proprietor’s properties to Thomas Irvine Rowel, a European financier of loan advances. This informal capital market was crucial to Chinese business as availability of loanable funds permitted the flow of capital within the Chinese business network, and enabled economic exchanges.

In export, shipping and insurance services were engaged through European firms, and these services complied with international mercantile practice. The shipping arrangement was transacted on a contract basis with clear details about the terms and conditions for the shipment. One 1880s contract clearly specified the company’s rights in any sub-sale of excess capacity to third parties, the chartered tenure, various dates for loading and unloading, and fees and penalty charges. The working arrangement was documented in writing, typical European market practice. The company insured all overseas shipments, mostly through European insurance companies. In 1878 a shipment sank with the sailing ship. One of the insurers refused claims on the basis of over-valuation of cargo and there were allegations of fraud. The dispute was heard in the Singapore Supreme Court in 1879. The company, in its defence, claimed that the cargo was processed log in square and octagon shapes, which commanded a market value of two to three times higher than that of unprocessed logs. The higher cargo valuation was due to the inclusion of processing costs, and the difference between the cost and the insured sum was a 15 per cent profit margin, in line with the norms of the market. As there was neither over-insurance nor fraud, the company eventually won the court case.

The timber trade provided a clear indication of Chinese merchant ability to learn, and adapted effectively to new codes of economic behaviour that were foreign to their traditional commercial practice. That business disputes were satisfactorily settled through a judiciary system testified to an institutionalised market mechanism in Singapore. The rules of the market in turn ensured security of property rights in the private economy, essential to the fast pace of economic

125 development in mid-nineteenth century Singapore.

2.3.3 Coolie Economy

The coolie economy illustrates Singapore’s role as a hub economy, linking East Asia with regional economic activities. It also epitomised the openness of Singapore’s economy as events in international politics strongly affected Singapore’s economy. Chinese politics, the Opium War, Europeans arms aggression in China, the abolition of slavery in North America, and America’s 1880s legislation barring Chinese workers played important roles in shaping the coolie economy in Singapore.125 The Nanking Treaty and Peking Treaty after the Opium War pressured China to open up five coastal ports for international trade. Foreign-imposed free trade bankrupted indigenous Chinese manufacturing. China also suffered from major natural catastrophes and in Hokkien Province, where most of the coolies came from there were famines almost every three years. 126 The bankrupted economy provided the impetus for the advent of Chinese coolie trade in mid-nineteenth century and it intensified in the early twentieth century.

In the early nineteenth century the abolition of slavery in North America diminished the supply of labour. Chinese coolies were imported for the construction of the Pan-America railway, which was completed in 1869, and in 1880 America barred Chinese workers to protect home market.127 But the active economy in Southeast Asia strengthened the demand for workers in a wide range of labour-intensive industries such as mining, plantation and construction. Especially from the 1860s, tin mining in Malaya increased substantially the demand for mining labour. Singapore emerged as a depot for the redistribution of Chinese labour to neighbouring economies.

125 The coolie economy is a classic example of Singapore’s economy being externally driven. Coolie trade was an activity that derived from the opium economy as it was the social outcome of the enforced opium consumption imposed by the British in China. Opium was the prime commodity in Britain’s China trade, and the Opium War was designed to force open China’s opium market. Yen Ching-Huang, 1985: 32–71, analyses the rise of the coolie trade. See also Edwin Lee, 1991. 126 Lim How Seng, 1995. 127 Tsai, Shin-Shin H., 1988: 11–40, offers an account of Chinese immigrants as Coolies in North America.

126 The coolie trade was structurally an intricate operation. It required the close coordination of activities at various levels and from different geographical locations. Close cooperation between different parties in different locations was the key to the trade’s viability. Trust or, failing that, close monitoring and enforcement were essential for the business. The economy required a network of syndicates acting in concert to coordinate recruitment, financing, transport and, lastly, distribution of the human cargo. The transactions involved multiple parties and created a long chain of supply lines spreading out geographically in China, Singapore and Southeast Asian countries. The division of labour among the various operators was well defined by convention. China was the only source of supply and coolies were secured through a network of recruitment agencies in southern China. Singapore functioned as the operation centre and provided logistic support. The British and European merchants supplied steamers to transport the human cargo from China to Singapore. European traders distributed coolies to other European employers outside Singapore.

The successful completion of a transaction was contingent on the full performance of contractual responsibilities from all concerned parties. Within the Chinese realm the secret society was the main organisation that assured performance. It was the enforcer of trade conventions and ensured that all concerned parties completed their contractual obligations. The secret society as the locus of the coolie trade, supervised the headman, recruit agent, supercargo, depot keeper, coolie broker, financier and coolie firm. It ensured that each party performed its specialist service in accordance with a well-defined division of labour. The secret society ensured that coolies would not escape and that during the currency of the contract they would remain in the employ of the contract holder. This arrangement minimised the inherent risk to the employer of coolies’ defaulting. Without such assurances, uncertainty would have invalidated the trade. Secret societies were also vital to prevent the kidnapping of newly arrived coolies by other organised rival groups. They provided protection for the trade territory and property rights of the trading parties in the Chinese realm. Superimposed over these networks were the British

127 and Qing governments competing for the control of coolies. The colonial office was also entrusted with the additional responsibility of protecting British merchants’ interests in the coolie trade.

The coolie trade started when a coolie firm in Singapore chartered a European steamer to ferry coolies from China. Europeans as well as Chinese merchants owned and operated coolie firms. The destination of the chartered steamer, together with a Chinese supercargo, usually a member of a secret society, would be at a southern Chinese port. Upon the steamer’s arrival, information about recruitment was spread through a network of local agents, innkeepers and the steamer office. The coolie headman, the first link in the chain of the trade, also visited villages to seek out interested villagers. Recruitment was rewarded on a commission basis. Recruited coolies then congregated at the departing port for the journey. Depending on the mode of payment for the passage, people were divided into self-paid ticket coolies and credit-ticket coolies.128 Some paid for their passages but most were penniless and pawned themselves to the headman or a financier for a credit-ticket. In 1871, during the early years of the Singapore coolie trade, up to 80 per cent of coolies were credit-ticket passengers, a reflection of the devastated village economy.129

The self-paid coolie was a free person and upon arrival in Singapore was free to seek and negotiate work on his own terms. The credit-ticket coolie was indentured. He was obligated to the financier and had no choice about the place, type and conditions of employment. The British agency houses were the main buyers of credit-ticket coolies. After being chosen as human cargo, they redeemed their passage money plus a fee to the headman. A coolie was sold for between $17 and $20, while the passage from China cost about $14. In Perak a tin mining coolie worked for 360 days for $42 in the first year, from which his passage money would be deducted. He was free to seek new employment after the first year contract was

128 Edwin Lee, 1991. 129 Edwin Lee, 1991: 82.

128 completed.130 In the trade an indentured coolie was merely a tradable commodity. The market norms dictated that the credit-ticket coolie was obliged to serve his employer, whoever had acquired the contractual rights from the passage financier, for at least one year, during which he was housed, fed, clothed and given a tiny allowance. Upon completion of the contact, the credit-ticket coolie was free to seek new employment. In accordance with the practice of the trade, indentured coolies were held on board upon arrival for three to four days for sale. Unwanted coolies were moved to a land lockup in a depot under supervision. Most coolies would eventually be exported and those dying or dead would simply be discarded as waste without even a token funeral. The situation was so deplorable that credit-ticket coolies were called piglets and the trade known as the piglet trade.

British merchants’ involvement in the coolie trade was extensive. The coolie trade was such a lucrative business that two well-established merchant houses built their own depots to house coolies in transit.131 European firms also acted as commission agents in the supply of human cargo and mainly relied on depot keepers, coolie brokers and coolie headmen for supply. There was a specialisation in market distribution as each agency house dominated or monopolised the supply of coolies to a specific market territory.132 The lack of official law enforcement resulted in heavy losses for the European merchants. Kidnapping of newly arrived coolies was rampant and many others absconded. European merchants thus demanded official intervention in the monitoring and enforcement of performance in coolie contracts. In response, in 1877 a new office of the Protector of the Chinese was established but in reality it functioned as ‘Secretary of coolie trade’.133 The new office had two

130 N. Ryan, 1976: 139. 131 The coolie trade was such a lucrative business that two well established merchant houses, Mansfield and Company and Jardine’s steamers, the agent of P & O Shipping, built their own depots to house coolies in transit. Tanjong Pagar Dock Company also had a private depot to keep their imported human cargo. 132 Mansfield captured the coolie market in Sumatra and Borneo. Paterson and Simon specialised in supplying mining coolies to Pahang. Behn Meyer sent coolies to Delhi, while Assahan and Guthrie supplied coolies to the tobacco estates in Sumatra and North Borneo, respectively. 133 This development was in response to the setting up of Chinese Consular Representatives. Lee Lai To, 1988: 64–96, offers an account of the events and the political relations between the Consulate and the British government in Singapore.

129 objectives. First, it aimed to demolish the powerful Chinese secret societies in their control over the coolies. Chinese secret societies were outlawed in 1889. Second, it was to regulate the coolie trade to protect European interests. The new office required compulsory registration of all written contracts between coolies and their employer. Registration thus compelled coolies to officially acknowledge their indenture and obligation to repay the debt in labour. Effectively, it established a legal basis for the right-holder to take legal action for breach of contract against coolies who absconded.134 Registration also made the employment of absconded coolies illegal. The legislation practically prohibited escaped coolies from seeking new employment. With the registration of coolies written into contracts, the agency houses were well protected against kidnapping and the escape of coolies.

Direct British intervention in the informal Chinese economy was intended to weaken the role of secret societies in the economy, especially control over the coolie trade. The new office effectively politicised economic activity by shifting market advantage in favour of the Europeans. British involvement heralded a fundamental change in British policy in the Chinese community from one of nonchalance to paternalism.

2.3.4 Rubber Economy

The rubber economy reaffirmed Singapore’s economy as exogenously driven and demonstrated the implications of technological inventions on Singapore’s development. Shipping and telecommunication were two earlier technological advancements that deepened the scale of Singapore’s economy. It was also a case of Singapore’s entrepôt economy benefiting from the world capitalist system in the context of the international division of labour. Very significantly, the rubber economy enriched the informal Chinese economy in the whole of Southeast Asia, and wealth creation and accumulation in the Chinese community laid the foundation for domestic capital participation in Southeast Asian industrialisation in

134 The improved legal framework ensured profitability of the European companies in the trade.

130 the 1960s and China’s economic modernisation in the 1980s. The rubber economy resurrected impoverished Chinese in Southeast and East Asian economies.

In the late nineteenth century Henry Ford’s assembly line technology enabled mass production of the motorcar and John Dunlop invented pneumatic tyre manufacturing for the motorcar, creating a new rubber economy. The new technology altered the economic structure of Singapore and changed the pace and direction of Singapore’s economic development.135 In 1896 Malacca Chinese Tan Chan Yan began rubber cultivation. It marked the beginning of a rubber plantation economy in Malaya and Netherlands India.

In 1904 strong demand for rubber revitalised the agency houses, and many diversified into the rubber economy. The trading economy with its inherent business infrastructure provided a solid foundation for the development of the rubber economy. British merchants played a critical role in providing investment capital, establishing the rubber market and in providing most of the logistic services for the rubber economy. That is, agency houses provided the prerequisites for the rubber economy.

Rubber plantations required heavy investment capital because the hevea rubber tree requires six years to mature. 136 Securing long-term financing was crucial but commercial banks with their traditional of short-term trade financing were unable to offer loans with long moratoriums on repayment. Banks still lacked the expertise to finance the new economy, which meant that equity financing was the only source of funds. The means to secure long-term capital came to differentiate the economic forms of organising and managing the rubber economy. Two different sets of institutional arrangement evolved alongside the European and Chinese investments. At the outset, the variations in capitalisation of rubber plantation

135 Opium trading was the prime economic activity in the nineteenth century, and rubber trading was the prime economic activity in the twentieth century. More significantly, rubber stimulated the domestic manufacturing economy. The rubber economy afforded wealth creation and accumulation in the immigrant Chinese community in Singapore as well as in Southeast Asia. 136 W. Huff, 1994: 181–188, offers a detailed account of the structure and nature of the Singaporean rubber economy.

131 resulted in two parallel but very different sub-sector economies: estate plantations and smallholding plantations. Europeans dominated the large-scale operations, plantation estates covering over 100 hectares, while locals dominated small-scale operations, owning smallholding estates below 25 hectares.137

The agency house acted as an intermediary, initiating new ventures by floating rubber plantations to raise equity on the London Stock Exchange. When a new rubber estate was inaugurated, the agency house continued to act as the estate managing agent and received management fees and other auxiliary income throughout the contractual period. The agency house also derived income from supplying equipment, fertiliser and other provisions for rubber cultivation. When the rubber trees matured, new sources of income came from the processing, packaging, insurance and shipment of rubber. The multiple revenue streams provided strong incentives for agency houses to diversify into the rubber economy.

The European estates were structured on a contract management basis and outsourced plantation expertise and labour. The managing agent in Singapore appointed a European estate manager on site to manage the plantation in Malaya.138 The delegation of estate management to expatriate managers relieved agency houses from direct involvement in running the plantations. The estate manager in turn subcontracted the supply of estate workers to independent Indian labour contractors who also acted as estate supervisors. Estate workers were mostly imported Indian nationals on a fixed wage contract.139 The hierarchy provided a neat working arrangement with a clear division of labour. Structurally, Indian labour contractors stood between estate managers and estate workers. This meant that neither agency houses nor estate managers had direct contact with estate workers. While it ensured a stable working environment, the fixed wage system

137 Colin Barlow, 1990: 31, 32. 138 The agency houses in Singapore outsourced the technology and know-how to expatriate managers who worked on sites in Malaya. Austin Coates, 1987: 113–122, provides an analysis of the operation and financing of rubber agency houses in London and Singapore. 139 Colin Barlow, 1990: 36. Expatriate-run estates generally employed imported Indian plantation workers because the Tamil Immigration Fund, established in 1908, paid for and arranged the sea passage of all labour from South India.

132 lacked embedded incentives for higher productivity. Also, remote control of rubber estates in Malaya from Singapore was problematic, and the need for quick responses to local estate management problems soon prompted the setting up of branches of managing agents in Malaya.

Chinese merchants deprived of access to capital markets, devised informal institutions as substitutes. As a result, another form of economic coalition of resource owners was designed to resolve the capital shortage. Capital requirements were broken into two tranches of equity and working capital. The equity was for acquisition of land, and rubber seeds. The working capital was for six years’ upkeep of the rubber estate until maturity. The equity capital came mainly from personal savings. But the Chinese economy was barely developed and it was handicapped by the mobilisation of personal savings. Constrained by small initial capital, the Chinese only acquired small lots of secondary land. This led to the development of ubiquitous Chinese smallholding rubber estates of varied size. The ownership structure of smallholding estate also differed according to land size, reflecting differences in capital sources. The smaller Chinese estate was normally a self-financing family business in the form of an owner-planter estate. The bigger Chinese estates took the form of a venture partnership between investors and planters where investors were mostly rubber commodity traders from Singapore.140

For the Chinese estates, working capital was resolved by planting cash crops to generate cash flows for operating expenses.141 Cash crop planting was crucial to the viability of rubber plantations because until rubber trees matured for tapping, it was the only source of working capital. Pineapples were the main cash crop as they could be harvested in a relative short gestation period of eighteen months, after which steady cash flow was available for estate maintenance. Pineapple planting was low cost and without any need of incremental land investment as pineapple seeds were planted in the open space between the rows of rubber trees. Pineapples

140 W. Huff, 1994: 190, ‘Profits from Chinese estates very largely went to Singaporeans.’ 141 Brown, A. Rajeswary, 1994: 113–116, offers an account of Chinese use of pineapple as a cash crop, and sharecropping in Chinese estates.

133 grow easily without much cost or effort. In addition to cash crops, normal farming activities were carried out in the estates, including cultivation of fruit and vegetables, and rearing poultry and cattle. These economic activities helped subsidise the small rubber plantations.

Chinese estates adopted sharecropping and shared wages systems. Sharecropping is an economic model whereby investors supply initial capital and planters offer estate management.142 The embedded incentives effectively reduced supervision costs and ensured economic viability. Partners shared the harvest using a predetermined formula. Generally, the planter was rewarded for a fixed fraction of the output, also sharing part of the revenue from sales. This distribution mechanism evens out the potential risk of price fluctuations inherent in commodity trading. It guarantees that planters receive some income even when the rubber price is low but allows for bigger profits when the rubber price is high. Chinese estates also adopted shared wages, a structured wages payment that provided a variable wage component to supplement workers’ incomes.143 Shared wages was a response to Chinese plantations’ inability to offer high monthly wages. It also institutionalised incentives by ensuring greater labour productivity. Estate workers received low minimum wages but these were supplemented with fixed portion but open-ended proceeds from the cash crops. 144 Thus when the cash crop harvest was good and fruit prices were satisfactory workers received higher incremental income. At the same time, the estate also benefited from higher residual cash flows from sales, improving the working capital situation. When the estate was mature for rubber tapping, the cash crop was cleared, and this labour yielded additional income for workers. The supplementary cash income motivated workers to take proper care of cash crops. Shared wages schemes thus encouraged stable long-term working

142 Sharecropping is a typical example of an economic coalition between resource owners in the informal economy. The risk and profit sharing ensures adequate incentives in the working relationship, pre-empting opportunism. The economic model not only resolves the problem of capital investment but also ensures a low-cost transaction environment that enables the informal Chinese economy to flourish. 143 The shared wages system also offers risk- and profit-sharing and it diminishes the cost of monitoring and measuring performance. 144 W. Huff, 1994: 191, mentions half shares of the proceeds from cash crops.

134 relations between estate owners, planters and estate workers and, in view of the long gestation period, this factor was crucial to good estate management.

The Chinese model was economical efficient. Sharecropping and shared wage systems not only minimised capital investment but also accorded small estates considerable cost advantages over the bigger and better financed Europeans estates. Smallholdings required relatively simple agricultural technology, using hand tools to clear the jungle or scrub burn the cut material, to contour steeper ground, and to plant rubber seedlings after minimal cultivation.145 Simple operations minimised cost, as ‘smallholders needed little non-family labor, used seeds collected without cost from other properties, left ground conditions to natural cover, and used the bare minimum of equipment for harvesting and processing the rubber’. 146 Consequently, ‘it cost roughly $150 per acre to develop a Chinese estate or about a quarter of the investment per acre necessary for European estates’.147 Under the shared wages system, workers collectively usually received a half share of the net revenue from the sale of the cash crop and a fixed payment of $1 per acre per month, as compared to $2.5 per acre per month for workers on a fixed wage system.148 According to Barlow, in 1919 the Sterling companies used an average of over 1,200 man-days per hectare to plant and cultivate rubber trees to maturity, as compared to an estimated use of about 150 man-days per hectare for development under similar conditions on smallholdings. The excess was accounted by differences in ‘clean weeding and impeccable maintenance, contrasting with the more homespun approach of the small farmers’.149

In 1910 total rubber plantations in Malaya covered 541,000 hectares, with Europeans and locals owning 70 and 30 per cent, respectively.150 The expatriate estates, fortified by heavy investments in milling, handling and packaging,

145 Colin Barlow, 1990: 31, 32. 146 John Drabble, 1990: 51. 147 W. Huff, 1994: 190. 148 W. Huff, 1994: 191. 149 Colin Barlow, 1990: 32. 150 John Drabble, 1972: 253.

135 dominated the rubber economy in Malaya. The European monopoly on shipping lines further strengthened their control of rubber exports, especially influencing pricing. The Conference lines through its secret rebates of freight changes disadvantaged Asians in the shipment of goods to Europe.151 British merchants enjoyed well-established international trading networks and had the advantage of the rubber auction market in London, which dominated world rubber trading. The Chinese estates were outside the mainstream rubber economy, and they supply the ‘free floated’ in the market. By 1916 total rubber plantations in Malaya increased to 1,230,000 hectares, Europeans and locals owned 47 and 53 per cent, respectively.152 The upsurge in the rubber price in 1910, coupled with the low entry barrier, resulted in more Chinese investment in the plantation economy. They were helped by the cost advantages of smallholding estates, whose growth rates were much faster than those of the European estates. Smallholding estates proliferated, and increased their total hectare share from a low 30 per cent in 1910 to a high of 53 per cent in 1916, surpassing the landholding of the European estates.153 Chinese traders become a significant alternative source of rubber.

Structural change in the rubber supply altered Singapore’s role in the regional rubber economy. Beginning in 1911, estate-managing responsibility was gradually transferred to Malaya but Singapore continued with its prime responsibilities in marketing, packaging, shipping and financing. These changes allowed the agency houses to refocus their resources on rubber trading. In contrast to Malaya’s booming rubber production, Singapore’s role in exporting rubber was gradually reduced. The introduction of the rubber quality standard in Malaya also diminished Singapore’s role in re-exporting. This was because standardisation lessened the redundant shipment of rubber to Singapore for grading and repacking. And by 1930

151 W. Huff, 1994: 128–131, notes that there was a conspiracy between the ship owners and shippers in the monopoly of homeward cargo. Five agency houses dominated freight charges through secret rebates. Since Asian shippers were not members of the cartel, they were greatly disadvantaged. 152 John Drabble, 1972: 253. 153 John Drabble, 1972: 253.

136 up-country buying resulted in almost all rubber buying taking place in Malayan towns.154

In Singapore, in response to changed market conditions, Chinese traders specialised in scrap and non-standard rubber in Malaya and the Netherlands Indies.155 This market arose to cover goods that British merchants were not interested in or were unable to handle due to lack of economies of scale because of the geographically dispersed supply of small quantities of rubber. As about one-third of Netherlands India’s rubber supply was exported through forty-one ports spread over a wide geographical area, the fragmented markets make it very costly to operate. Singapore’s rubber traders engaged in a two-way barter trade of rubber for rice and other manufactured goods in these out-port areas in Netherlands India. The informal Chinese economy enabled Singaporean merchants to carve out a niche in the trade. This informal market exchange was neither accessible nor feasible for European merchants because of its inherent business risks. Although the Netherlands government invested heavily in four factories at major ports with the intention of dislodging Singapore’s stronghold on the export of out-port rubber, this plan ultimately failed. 156 Rubber of non-standard grade was also brought into Singapore for further processing and grading before consolidation and resale to the British merchant for export. Singapore added valued in the rubber economy.

By 1916 the Chinese estates dominated Malaya’s rubber supply while Singapore traders also controlled a sizeable amount of Netherlands India’s supply. Nevertheless British traders remained dominant and continued to dictate the terms of the rubber export market in Malaya because the pre-eminent position of Europeans in shipping and logistic support ensured their control of rubber exports and the London market continued to dominate world rubber trading. British traders strongly resisted the emergence of Singapore as a new rubber auction centre. But the outbreak of World War One in 1914 paralysed the London rubber market and

154 W. Huff, 1994: 201, 155 W. Huff, 1994: 203–207. 156 W. Huff, 1994: 204.

137 necessitated a new auction market. 157 The American and Japanese traders who intended to deal directly with suppliers in Malaya supported the plan for a Singapore rubber market. Market demand led eventually to the establishment of an active rubber auction market in Singapore. In 1916 over half of the rubber exported from Singapore port passed through local auctions, and in 1918 the 51,200 tons that were traded through local auctions amounted to nearly one-quarter of world exports. 158 The structure of the rubber economy was changing. Gradually, Singapore became the trading centre and Malaya the production centre, reaffirming the traditional economic coalition of resource owners in Singapore and Malaya. The Chinese merchants in Malaya and Singapore laid the critical foundation for the eventual economic development in independent Malaya.

The rubber economy was a case of the informal Chinese economy piggybacking on the formal mainstream economy. That is, Chinese rubber merchants benefited from the international division of labour. The participation of Chinese merchants in turn broadened economies of scale in the rubber economy. Chinese merchants established a regional rubber collection network, a critical task that was out of reach for British merchants. The international and Chinese merchants in economic coalition enabled the networking of the rubber economy. The world recession in the 1930 depressed rubber prices and the resulting shakeout in the industry bankrupted many Chinese rubber merchants and seriously impaired Singapore’s domestic economy. The 1930s episode showed how close the links were between Singapore’s rubber economy and the world capitalist system. The rubber industry added a new dimension to Singapore’s economy and provided Chinese merchants with a great opportunity for wealth creation and capital accumulation. It was the golden age when many immigrant Chinese experienced prosperity, and there were many cases of rags to riches. Increased economic activity, brought about by the economic multiplier effect, further expanded Singapore’s economy. Importantly, the rubber economy effectively changed the social structure of Singapore with

157 W. Huff, 1994: 195, 206. See also Austin Coates, 1987: 169–196. 158 W. Huff, 1994: 195, 206. See also Austin Coates, 1987: 169–196.

138 strong spillover effects in the socio-political arena. The wealthy rubber merchant class emerged to share and later replace the influential position of the Straits Chinese in the community.

2.4 Conclusion

Singapore’s dual economy was the outcome of an economic coalition of resource owners, a coalition between international and Chinese traders in the context of the international division of labour. The dualist foundation rested on the agency houses and the comprador system in the trading economy. The dualistic nature was an unintended political outcome of the inequitable interrelationships between native Malay, dominant British, European and Chinese merchants. And it was this discriminatory political relation against the Chinese that formed the basis of Singapore’s political economy.

The absence of a native political authority inadvertently removed the inherent predatory aggression that was pervasive in Southeast Asian economies. Singapore, being the least predatory settlement, evolved as the preferred market in Far East trade. Politicians in London were not concerned about the new settlement, as their priority was European politics. Neither was the well-being of the locals important to them. Given the Company’s dependence on British and European merchants for revenue, the international traders enjoyed political influence and were able to successfully reject port charges, thus ensuring a free port. European merchants with their market connections and access to the capital market in London played a major role in Singapore’s development. The Chinese were a pariah class deprived of political influence and access to capital markets, yet they were able to rely on clan and kinship associations for mutual help in resource mobilisation and the protection of property rights. The informal Chinese economy played a secondary but nonetheless critical role in the development of the commodity economy.

The European agency houses ensured a two-way trade that linked the manufacturing economy in Europe with the native produce economy in Southeast

139 Asia. Chinese merchants acting as middlemen or compradors played an important role connecting agency houses with the native economy. The geographically dispersed native market was characterised by the absence of the rule of law and pervasive predatory aggression, an unfamiliar market that European merchants were ill-prepared to handle. In these unregulated markets Chinese merchants relied on informal Chinese business networks as personalised self-regulating market mechanisms. The Chinese network subrogated market functions and enabled exchange. It was in the native economies of Southeast Asia that the informal Chinese economy emerged.

In the absence of formal protection, Chinese clan and kinship ties operated as informal institutions subrogating the role of the formal rule of law in regulating social ordering and facilitating economic exchange. The informal institutions were based on familism in Chinese culture; guanxi, and xinyong provided a workable exchange network throughout Southeast Asia that emerged to become an informal Chinese business network. Within the network, first party self-regulation and second-party ostracism existed to order economic exchanges among members. In addition, secret societies with a monopoly on violence also ensured compliance to established norms and practices within the community. Importantly, the reciprocal duties and responsibilities among members guaranteed mutual respect for property rights. The consequent ability to maintain property rights at a low cost was crucial in an unregulated native market. Informal Chinese institutions offered a low transaction cost environment which enabled the emergence of an informal Chinese economy across Southeast Asia. The buoyant informal Chinese economy in turn contributed to Singapore’s emergence as a successful entrepôt economy.

140 Chapter 3, 4 and 5 Permanently Restricted Chapter Six

A Predatory PAP State: Present and Future

This chapter examines the role of the institutions of the Singapore state in the process of economic development. The investigation rests on the foundation of North’s theorisation of institutions and institutional changes.1 North acknowledges at the outset that the ‘existence of a state is essential for economic growth, the state, however, is the source of man-made economic decline’. 2 This is because institutions cannot be assumed to be efficient as their character is decided by vested interests, thus the ‘predatory state would specify a set of property rights that maximized the revenue of the group in power, regardless of its impact on the wealth of the society as a whole’. 3 In North’s theorization, the state defines and enforces property rights to diminish the transaction costs in the economy, thus the standardization of units of measure simplifies economic exchanges and reduces costs in measuring. In other words, the embedded incentives in the institutions changed relative prices that alter the learning of a society, and eventually the quality of human stock influences the dynamics of economic development. Therefore the inner working mechanisms of a state as designed by the vested interests determine the nature and characteristic of institutions in the society and their embedded incentives or disincentives in turn impact on economic changes. Simply, the type of politics of a nation state influences economic development. In North’s view it is politics that lead to changes in the economy though the causality runs both ways. 4

Adhering to such theorization, this chapter analyses the inner working mechanisms of the Singapore polity to identify the intrinsic nature and characteristics of the core institutions. This is to determine how the changed human behaviours in Singapore society have in turn had an impact upon political and economic development, thus

1 Douglass North, 1991. 2 Douglass North, 1981: 20. 3 Douglass North, 1981: 22. 4 Douglass North, 1991: 48.

364 conditioning Singapore’s future. This objective is achieved through re-examining the policy outcomes of reconstitution, resettlement and socialisation that all have altered the relationship between the state and people where a submissive society has perpetuated the PAP’s absolutism in Singapore. It also re-examines the policy consequences of nationalisation, industrialisation and privatisation that have ensured the PAP’s domination of Singapore’s domestic economy. Together, nine unique core institutions are identified in Singapore’s political economy. The institutions of electoral and judicial systems have been modified to ensure state control over the meditation of social conflicts. These institutional changes have cemented the asymmetrical structural relationship between the ruling class and the ruled class. The presence of asymmetrical information in the society has ensured the rational ignorance and procedural rationality of the citizenry that, coupled with the institutionalisation of PAP as a national movement, have socialized people into accepting most state policies. The state policy that redefined property rights has foreclose property rights in the public domain, together with the pervasive state imposed forced consumption that has resulted in the transfer of private wealth to the state. The emerging of a user-pays society offers evidence of the success in depoliticization, or otherwise the submersion of confrontational politics in the relationship between the state and people. Lee’s Laws backed with the monopoly of violence have succeeded in defining what are and what are not acceptable political and economic behaviours in Singapore. Collectively, these institutional changes have guaranteed the power and wealth accumulations of the ruling politicians.

These institutional features qualify the PAP state as fundamentally a predatory state. Peter Evans identifies the basic characteristics of a predatory state as one that extracts at the expense of society, and one that undercuts development. Ties to society are ties to individual incumbents, not connections between constituencies and the state as an organization. 5 However, Singapore's achievement of positive economic performance has also qualified the PAP state as a developmental state. Given the inherent contradiction on the nature of Singapore economy there is a

5 Peter Evans, 1995: 12.

365 need to reconcile the abnormality of a predatory state which is apparently also capable of having a positive role in economic development; a unique Singaporean experience not shared by socialist economies and most third world countries where despots reign. This chapter therefore employs Mancur Olson’s (2000) conception of a stationary bandit which reconciles the existence of incentives in what is nevertheless an involuntary economic transaction.

In the analysis of the inner working mechanisms of the Singapore polity, emphasis is placed on the nature and extent of socialist elements in Singapore's political economy. There are two primary objectives; first, the PAP proclaimed in 1976 that socialism worked in the Singapore economy; as a niche that is under researched, this is worthwhile of some emphasis. Second, Singapore in the context of the experience of the NIEs shared lesser commonality with the Taiwan, Korean and Hong Kong economies. However, in the context of market socialism the activist role of the Singapore state in the economy found more common ground with the Chinese economy. Singapore's nationalization of scare resources, dominance of the SOE economy and a one-party domination political system shared similarities with the socialist China economy. Collectively, Singapore’s experiences considered together with China’s experiences of a market economy with a socialist flavour could perhaps offer yet a new Asian economic model of fettered market economy that reconciles the market mechanism with an activist state role in the economy.

The economic model of a stationary bandit ensures monopolization of violence and maximization of the theft tax revenues thus guaranteeing power and wealth accumulations on the part of the vested interests. However, the institutional environment under such an economic model is politically stressful and economically devastating and is thus potentially detrimental to the long-term viability of a nation state. Hence this chapter against such embedded destructive forces, identifies two major crises as manifested in the emerging of distributional coalitions and the presence of institutional sclerosis. Olson’s (1982) theory of distributional coalitions is here, applied to the study of the emergence of special

366 interest groups within the vested interest which aim at earning incremental incomes, thus posing the potential risk of the long-term decline of a nation. North’s (1991) theory of continuous and discontinuous changes in institutions, is applied to understanding the causes of institutional sclerosis and in evaluating its potential damages.

This chapter therefore, in the context of remaking Singapore, examines some viable propositions that could possibly defuse these crises. Consequently, the chapter proposes in the realm of politics, firstly, the reinstallation of a low transaction cost mediation mechanism to enable continuous institutional changes to diminish the risk of revolution against the ruling authority. Secondly, the easy flow of credible information in the public domain would serve as a low cost form of checks and balances in the deployment of scarce resource and in the management of the nation’s wealth. Specifically, in the political arena the new mechanisms would allow recontracting of wealth in a market setting. That is through Coaseian bargains, with the rights to resources becoming tradeable commodities that can be transacted in the market and not through judicial or political interventions. The changed mechanisms would also allow for the recontracting of power in a participatory environment. That is, the rights of violence would be allotted to a party who enjoys the supports of a majority of the population. In the realm of the economy, first, there is a need to re-examine the role of the state in the economy. The state could through the divestment of the SOE economy revitalise the private manufacturing sector. Decentralisation of an economy not only reduces information costs but also diminishes the social costs of government failures. Secondly, the disbursement of development funds through a personalized market could possibly serve as an effective means in rectifying the persistent market failure in credit allotments to small business entities. Thirdly, the revitalization of non-state institutions in the regional business network would re-establish the informal economy that once offered the means for wealth creation and accumulation. Collectively, the engineering of a low transaction costs environment could possibly

367 revitalize the dormant private manufacturing economy.

6.1 Nature and Characteristics of the PAP State

James Cotton’s (2002) The Singapore Identity: Domestic and Global Influences noted from a survey of recent literature on Singapore that while state-centred discourse is the basis for much social scientific work on Singapore, where the state is ineluctably part of the analysis there is insufficient attempt to disaggregate or investigate the state itself. As a result, the meaning of the state often remains problematic. Evidently, defining and delimiting the core of the Singapore state is difficult. Cotton also observes that Singapore’s identity revolves around the state as an active and shaping influence, but the mechanisms of that influence are particularly obscure. Thus, the Singapore state’s character and dynamics also remain obscure.6 In short, while Singapore as a polity has been well researched, understanding of the nature and characteristics of the PAP state and its inherent working mechanisms remains woolly.

Given the difficulties in defining and delimiting the core of the Singapore state from conventional theoretical foundations, it is essential to re-examine the transactional process that leads to the specific policy outcome rather than study policy per se. Although state policy regulates social behaviour, it is how social exchange in politics and the economy are carried out in Singapore that defines the intrinsic nature and characteristics of the state. It is neither state policy nor policy outcomes but rather the transactional process in social exchanges that depicts the inner working mechanism of a polity.

6.1.1 The Some-Men-No-Vote Election System

The litmus test of a democratic society is free and fair elections. The PAP’s legitimacy to rule Singapore, and in particular Lee Kuan Yew’s rejection of the notion of a dictatorship rests on the claim that Lee has won all the elections since

6 James Cotton, 2002: 80.

368 1959. 7 Holding regular elections gives the impression that Singapore is a democratic society. However, such a perception is based on superficial evidence and is thus potentially misleading if made without some understanding of the emergence of PAP domination in Singapore politics. While the electoral outcome determines the ruling politicians, election politics determines the nature of the society. It is the means that determine the end and not the end per se that counts in the evaluation of democracy. Many third world countries hold regular elections but the society does not allow individuals that free choice that is essential to a democratic society. It is worth re-examining Singapore’s election politics and the emergence of the PAP.

First and foremost, in the context of the Cold War, the western alliance chose the PAP to replace the withdrawing colonialists. The relentless purging of anti- establishment elements by Britain’s Special Branch paved the way for an eventual Lee Kuan Yew victory over the party’s adversaries. Operation Cold Store, prior to the merger with Malaysia, practically dismantled the anti-PAP movement in Singapore. The PAP’s adversaries were devoid of leadership as leaders were either deported or detained in Changi prison. There was no alternative political platform, since anti-PAP unions were deregistered and their bank accounts frozen. The repression of the opposition laid the foundation for PAP supremacy, and the election outcomes merely reaffirmed PAP policy outcomes.8

The referendum on the merger with Malaysia is a classic case of PAP manipulation of public participation in political issues in Singapore.9 First, joining Malaysia was a foregone conclusion, as an option to reject the merger was not offered. The ruling politicians and not the people had taken the decision to join Malaysia. The PAP was then fighting for survival as a political party and the party’s private interests

7 New York Times, 15 02 1999: William Safire ‘The dictator speaks – A chat with Lee Kuan Yew.’ W. G. Huff, 2000: 100, quoting Milton Freedman (1991:12–13), ‘Lee Kuan Yew was a ‘benevolent dictator’, ‘it is possible to combine a free private economic system with a dictatorial political system’. 8 For an analysis of the PAP’s repressive measures on opposition politicians, see Chapter Three: 3.3, 3.4 and 3.5. 9 For an analysis of the merger referendum, see Chapter Three: 3.6.

369 became the prime consideration in the merger proposition. Secondly, the options for the merger were purposely structured so that the PAP-preferred decision was guaranteed. Of the three options, two were either infeasible or impossible and so the obvious choice was the PAP-preferred choice. The PAP fully exploited voters’ rational ignorance. 10 The referendum outcome was therefore not an informed decision, as voters were unaware that Singapore would became a lesser state in Malaysia and that a majority of China-born Singaporeans would become second- class citizens in the new nation. Besides, the propagated common market was mere wishful thinking on the part of the PAP as Malay politicians saw the plan as a threat to Malay economic ambitions. Singaporeans were not educated about the reality of the political outcomes in joining Malaysia. This is a case of a political process taking place but without due diligence. Without an informed decision, there is no rational political decision. The merger referendum was the worse case of the party’s interests diverging from the national interest. The PAP traded off the people’s benefits for the party’s benefits.

After 1981 and 1984 when the PAP’s political monopoly was broken, the electoral system underwent a systematic revision through various schemes including NCMPs, NMPs, Town Councils and GRCs intended either to strengthen the PAP’s defences against declining electoral support or to prevent opposition politicians from gaining more political support in the general election.11 The outcome was the advent of the walkover phenomenon on nomination day, a unique Singaporean political feature. That is, the PAP won the election on the nomination day prior to the polling day. A walkover occurs when the opposition party fails to offer a candidate to contest the seat. This political outcome makes a mockery of Singapore democracy. In general elections, only minorities in society vote for the ruling party, because the bulk of the population has by default been disfranchised. It is debatable whether the PAP secured the mandate to rule from a majority or merely from the

10 Mancur Olson, 2000: 92–94, rational ignorance occurs when individual citizen does not have an incentive to devote much time to fact finding and to thinking about what would be the best for the country. And rational ignorance in electorates means that majorities often fail to see their interests. 11 These are measures taken to subtly modify the one-man-one-vote system, see Chapter Four: 4.2.

370 minorities. If silence does not mean consent, then the PAP’s rule of Singapore is without majority support.

The 2001 general election was a classic case of walkover politics in Singapore. The election was to contest 84 parliamentary seats.12 There were 14 GRCs, in which, nine were five-member GRCs, and five were six-member GRCs, meaning that 74 seats were under GRCs with only nine single-constituency seats remaining. Two significant changes were that the Cheng San GRC was removed after a PAP near miss in the 1997 election. And the election deposit for each candidate was increased to $13,000, a raise of 62.5 per cent, that is a six-member GRC would require a hefty deposit by a contesting party of $78,000. The PAP secured 55 seats or 65 per cent of the total parliamentary seats on nomination day as only 29 seats were contested.13 The 29 seats were made up of nine single-constituency seats and four of five-member GRCs. On polling day, out of a total of 2,036,923 eligible voters, the PAP polled 470,765 votes, the opposition polled 154,502 votes, and 1,411,656 voters were by default disfranchised. This translated to 23.1 per cent for the PAP, 7.6 per cent against the PAP and 69.3 per cent of non-participatory voters. In other words, the PAP rules Singapore with the expressed mandate of only 23.1 per cent of eligible voters. It creates the abnormality whereby the PAP has only minority electoral support but has secured an absolute 97.6 per cent victory, that is, the PAP won 82 out of the 84 parliamentary seats.

This systemic flaw could be easily fixed, however, if the law were amended to require compulsory polling even if in a seat is a non-contested constituency. A walkover deprives voters of expressing their political aspirations. It is the political outcome of changing the one-man-one-vote election system to a some-man-no-vote election system. Mandatory polling would restore the constitutionally embedded political rights of eligible voters. Given the altered political system, the Westminster parliamentary system exists only as a polished grand facade, as in reality its substance is no longer relevant. The PAP-defined parliamentary system

12 Peebles and Wilson, 2002: 276–278, offer a detailed study of the 2001 general election. 13 For election statistics, see www.elections.gov.sg.

371 no longer entails political contestation. The PAP wins the election by default, through the absence of opposition politics and not by wining the votes of the majority. Clearly, elections in Singapore are ersatz elections.

6.1.2 Technical and Dependent Judiciary

The mediation process evident in the judicial system also has significant implications for the nature and characteristics of the PAP state. Since the 1960s the British tradition in the administration of the rule of law has been substantially modified. The jury system was abolished, appeal to the Privy Council was cancelled, junior judges became civil servants, and the salary of senior judge was decided at the discretion of minister.14 In other words, the measures taken have destroyed the protection of the judiciary from the intrusion of politicians in the mediation of disputes. As a result, the British convention of the separation of the judiciary from the executive function no longer exists in Singapore.

An assessment of Singapore’s judiciary is uncertain. Singapore scored high on an international agency rating of judicial efficiency. 15 The World Bank has also recommended Singapore’s subordinate courts as a model for developing countries. 16 However, some researchers hold contrasting views. Christopher Lingle’s essay on an unnamed Asian regime ‘relying on a compliant judiciary to bankrupt politicians’ resulted in a lawsuit alleging contempt of court. Lingle was fined for implying the presence of a compliant judiciary in Singapore. 17 Chris Lydgate (2003) offers a detailed account of the lawsuits against an opposition politician. ‘Jeyaretnam was crushed by defamation, then bankrupted and expelled from parliament, and denied the right to practice law.’18 Francis Seow (1999), an opposition politician in exile, sees Singapore’s judiciary as professional, honest and

14 Ross Worthington, 2003: Chapter Three, Francis Seow, 1999: 107–124. 15 Ho Khai Leong, 2003, Peebles & Wilson, 2002: 142, the ‘Singapore judicial system is regularly rated very highly by foreign surveys but these surveys are more concerned with the commercial and economic aspects of the legal system where speed, efficiency, low cost and fairness are important criteria’. 16 Mauzy and Milne, 2002: 133. 17 Michael Haas, 1999: 32. 18 Chris Lydgate, 2003 see the book’s back cover.

372 reliable, but only in such situations ‘where the government or its ministers are not concerned or interested in disputes’.19 Mauzy and Milne (2002) offer a similar view, ‘There is virtually no criticism of Singapore’s judicial handling of commercial or business law, or civil law other than for the law of defamation cases involving political opponents.’20

Ross Worthington (2003) notes the existence of ‘technical judges’, that is, those who accepted judicial appointment on the understanding that they would not be involved in political trials. There is a separate group of ‘dependable judges’ who, implicitly participate in political trials.21 The PAP offers no clear rationale for having two types of judge to resolve disputes that involve or do not involve politics. But the ‘White Horse theory’ in the army may shed light on the rationale of ‘dependable judges’ in the judiciary. White Horse is an army code that identifies the sons of influential people undergoing national service. Officially, the singling out of White Horses is to ensure that the sons of influential people will not be given special treatment in the army.22 But the reality in the army is that White Horses are not ‘tekan-able’ or punishable for fear of reprisals from their influential families, and non-White Horses are ‘tekan-able’ because of their lack of influence. Applying the same notion, the presence of ‘dependable judges’ is implicitly to ensure that the parents of the White Horses will also not be given special treatment in court proceedings. Learning from the army experience the divisions also result in ‘non- tekan-able’ and ‘tekan-able’ litigators.23 This inference is probable in light of the views of Francis Seow (1999) and Mauzy and Milne (2002).

19 Francis Seow, 1999: 121. 20 Mauzy and Milne, 2002: 133. 21 Ross Worthington, 2003: 127. 22 If nobody gets any privileged treatment in national service it is not necessary to mark out white horses in the army. Clearly, there must be a rule specific to NS men with white horse status. 23 ‘Tekan’ is a Malay term means to deal with but there is this negative connotation that implies finding fault and punishing a chosen victim.

373 6.1.3 The PAP as a National Movement

The PAP single party absolute domination of parliament offers the necessary condition for the party to be a national movement. The movement reflects the PAP’s intention of legitimising and also institutionalising the party’s conflation with the Singapore state. 24 The party as a national movement is a unique Singaporean feature, a feature that is communist in nature and out of synch with Singapore’s capitalist setting. The political outcome is a fusion of the PAP with the state that has profound implications. At the outset, the survival of the PAP as a political party is transposed as the survival of Singapore.25 This creates the fallacy that Singapore’s survival is contingent on the survival of the PAP. It instantly creates another misconception that politically challenging the PAP is an act that endangers Singapore’s stability. The PAP-designed mental template thus renders non-PAP politics as anti-establishment, and regards opposition politics as wasteful and ensuring bad government. This strategy is not dissimilar to the British colonialists’ labelling of Chinese-educated Chinese as communists and anti- establishment to legitimise the arrest and detention without trial of anti-British activists. The party as nation offers the PAP legitimacy in mobilising the state apparatus for party politics. And the People’s Association is the classic case of the state apparatus organising PAP grassroots politics at district levels. Significantly, the party as a national movement offers the political foundation for the party’s domination over ownership as well as allocation of national resources. It also legitimises the PAP’s nationalisation of privately owned assets. The party as a national movement not only legitimises but also motivates the emergence of the SOE economy. Indeed, the conflation of party with state, the nationalisation of scarce resources, the absence of opposition politics, and the ubiquitousness of SOEs in the economy reaffirm the communist attributes in the PAP state.

24 The movement was to elevate the PAP as a state institution, see Chapter Four: 4.2.5. 25 By equating the PAP as a state institution, it intentionally ties Singapore’s future with that of the PAP. Challenging the PAP is interpreted as a harmful act that would unsettle Singapore’s stability. See Chapter Four: 4.4.1.

374 The national movement that fused party and state has intentionally blurred the distinction between private interests and national interests. It offers the probability that state interests will be subordinated to the private interests of politicians, another key attribute of the communist state.

6.1.4 Lee’s Law as the Supreme Informal Institution

In Singapore, informal institutions are pervasive as coordination devices. That is, unofficial rules regulate social exchanges in politics and the economy. North (1990) identifies three sources of informal rules. First, there are extensions, elaborations and modifications of formal rules. Second, there are socially sanctioned norms of behaviour, and lastly, internally enforced standards of conduct. 26 In the Singapore context, the prime source of informal rules comes mostly from ruling politicians, that is, PAP politicians determine the dos and don’ts of social exchanges. Given that informal institutions are not subject to constitutional control and judicial review, they inadvertently become the supreme rule of law in Singapore’s political economy. Informal institutions are observed in repeated social transactions and non-compliance attracts severe punishment, which PAP adversaries describe as very cruel.27 The ‘monkey-see, monkey-do’ syndrome in the civil service has led to the proliferation of many ‘little Lee Kuan Yews’ to perpetuate the informal rules.28

26 Douglass North, 1990:40. 27 Melanie Chew, (1996: 119) Lim Chin Siong: ‘You are detained for years until such a time that you are willing to humiliate your own integrity. Until you are humiliated publicly. So much so, when you come out, you cannot put your head up, you cannot see your friends … It is worse than in the Japanese time, when with a knife, they just slaughter you … But this humiliation will carry on for life. It is very cruel.’ 28 ST 21 11 2003: 3, the issue of arrogance was raised when Chen Baoliu, former Chinese ambassador to Singapore, commented on Singaporean businessmen ‘I hope my Singaporean friends can drop their arrogance…’ Streats 09 02 2004, it was the view of ex-PAP MP that ‘perceived attitude of Old Guild may have rubbed off on Singaporeans.’ ST 28 09 2003 covers an interview with a former top bureaucrat, who has perceived the phenomenon of ‘little Lee Kuan Yews’ in the civil service. Streats, 24 07 2003: 3, ‘Malaysia envoy gripes about ‘cocky’ Singapore official.’ In retaliation, ‘Ministry of Foreign Affairs says remarks …are unbecoming of a diplomat.’ ST 19 12 2003: A30 covers the story of an ‘Explosive AGM that was the talk of the town,’ the said AGM was chaired by a former top bureaucrat, who told minority shareholders, ‘The biggest sin is to bore me to death!’ ‘Stop haranguing me. Listen, you must understand that I don’t like people who waste my

375 Informal institutions are discernible as they evolve from past experiences that became case precedents. The SIA pilot wages saga is a vivid example of the inner working of Lee’s Law in regulating political economy transactions. The PAP stipulates that politics is exclusively for politicians and only Singaporeans can participate in domestic politics. A non-politician involved in politics is deemed to have entered the arena of politics and is dealt with accordingly. And what constitutes politics is defined at the whim of the PAP. The acts of the pilots were deemed to be political, even through the sacking of the union committee was an internal affair that was legitimate and within the pilot union’s constitution. It was deemed political because the action implicitly challenged the PAP’s undisputed prerogative in the determination of collective agreements in Singapore. Indeed, the PAP’s political motive was to remove the non-NTUC affiliated pilots’ union’s ability to bargain and demand that pilots follow NTUC guidelines on retrenchment benefits. Falling into line with NTUC guidelines made the existence of an independent pilots’ union redundant.29 Besides, the PAP’s informal rule dictates that any challenges to PAP’s supremacy must be terminated. There are two anticipated consequences, firstly, there are ‘No plans to merge SIA unions….for now’ in accordance with the NTUC.30 But bearing in mind another of Lee’s Laws, that of gradualism, clearly the end of an independent pilot union had been scripted and it was only a matter of timing. A precedent for this could be found in the PAP’s closure of Nanyang University, which was perceived by the PAP as anti- establishment. Secondly, the Singapore government informed the Malaysian pilot who was fingered as the instigator that he was an undesirable immigrant and would lose his permanent residency status granted in 1981.31 The SIA Captain who had

time’ ‘When I give you an answer, that is my answer, and you’re not so stupid that you don’t understand my answer.’ And ‘You will be disciplined. If you do not behave yourself, I will ask the bailiff to remove you from this room, shareholders or no shareholders.’ 29 ST, 29 02 2004: 14, ‘all NWC recommendations must be accepted …Wages would have to be as variable as possible…Retrenchment [benefits] must be capped at 25 years…’ 30 ST, 08, 03, 2004:H3. If the pilots’ union yielded to the NTUC and fell into line with the NTUC guidelines then a submissive Alpa-S would become irrelevant and the pilots’ union might survive in its present union form. Otherwise, under the logic of Lee’s Law, it would have to be terminated. 31 ST 07. 03, 2004:3, ST 27 02 2004:H5, ‘Capt Goh was “The Instigator” and the press dutifully reported the statement of Lee Kuan Yew.

376 been with the company for 26 years was deemed to be entering the political arena and dealt with like any PAP adversary. His loyalty to Singapore and integrity were challenged and his personal privacy became public information for scrutiny. Likewise, a precedent can be found in the PAP’s handling of Ong Eng Guan, a PAP dissident who challenged Lee’s leadership. These outcomes are no surprise in Singapore politics where such retaliation flows from the logic of Lee’s Law.

The SIA pilot union episode was initially an industrial dispute that could have been resolved through the established official mechanisms but it was politicised because the independent pilots’ union was setting a dangerous precedent which, if not checked, would threaten PAP political supremacy in Singapore. This is another PAP informal rule of nipping in the bud. Given that these informal rules come from case precedents, the SIA episode creates a new Lee’s Law that says a permanent resident is a foreigner and should not become involved in union activity, a logic reaffirming that politics is only for Singaporean politicians. The principle of ‘Think Singaporean First’, which Lee’s Law rejected in the labour market, is applied in union activity. But given the PAP’s pragmatism there is no inconsistency because it was deemed necessary under the circumstances. Above all, the PAP’s interests are paramount because Lee’s Law has it that Singapore will not survive without the PAP. The handling of the SIA pilots’ union illustrates the regulatory power of informal institutions in Singapore. This is yet another case of political intervention in a market economy.

Lee’s Law is the single most important characteristic of the PAP state. Indeed, many contemporary political economy issues such as the waning of private entrepreneurship, the over-dominance of the SOE economy, falling birth rates and the influx of foreign manpower could not be properly understood without an understanding of the inner working mechanisms of Singapore’s informal institutions.

377 6.1.5 Rational Ignorance of the Citizenry

Asymmetric information prevails as the PAP controls critical information and dispenses it on a need to know basis.32 Information as a political means of social control is another aspect of the PAP state. The information haves and have-nots distinguish political insiders and outsiders. The classic case is that even Singapore’s first elected president did not enjoy free access to state information. This is because Lee’s Law dictates that Singapore can have only one political centre and it rests within the PAP’s inner circle. The president’s request for a listing of Singapore’s state assets in foreign countries that he was constitutionally entrusted to protect took four years to supply. The delay was because it needed ‘52 man-years’ to compile such information. And when information is in the public domain, it is of such questionable quality that it leads to potentially ‘inaccurate, irresponsible, unprofessional and sensational’ research conclusions. Official remarks that if you could go from the numbers in the public domain to discern the economy you ‘can get a Nobel prize’ is an insight into the insider view on the quality of published statistics.33

Information is a privileged commodity in Singapore that entails a high search cost. This high information cost discourages the electorate from fact finding about policy and policy outcomes. The PAP’s intention is clearly to create rational ignorance in the citizenry, who often have no opinion on PAP policy and its policy outcomes. A classic case is the fall in birth rates being attributed to unromantic Singaporeans rather than fallout from the failed PAP population policy that discouraged procreation and encouraged abortion and sterilisation.34 It was the ‘Boy or Girl,

32 Garry Rodan, 2000: 222, ‘the political culture within the ruling party and the bureaucracy is unsympathetic to citizenship claims about the right to information and to the scrutiny of state activities. Much information is available either on a need to know basis decided by state bureaucrats or simply unavailable.’ 33 For issues relating to availability of information, see Chapter One: 1.4.1.3. 34 Singaporean birth rates have been in decline since the 1980s but the cause of the decline has been attributed to social and economic factors and not policy failure. The PAP has singled out the social custom of male preference for a spouse to be equally but not better qualified and women’s unwillingness to marry someone with lesser qualification as the cause of many unmarried singles in Singapore.

378 Two Is Enough’ family planning campaign and the dismantling of the extended family in public housing that caused the fall in Singapore’s birth rate. 35 The information asymmetry has deprived people of the ability to measure the performance of PAP politicians. The absence of small collective groups because of the free rider problem also diminishes individuals’ incentive to monitor and measure the performance of PAP politicians and to develop mechanisms for that purpose.

The information asymmetry facilitates moral hazard, that is, the PAP can behave opportunistically after the election in failing to deliver ‘More Good Years’ as promised in the election manifesto or renege on restoring CPF contributions that have been cut, a political undertaking that was made when workers were coerced into accepting a wage cut. 36 Hence the institutional framework that ensures information asymmetry provides an incentive for the PAP to shirk its political responsibility with impunity. Similarly, adverse selection also exists when information is withheld ex ante in political transactions. The classic case was the referendum about the merger with Malaysia, when Singaporeans were not informed about the political outcomes of the merger, and that the plan for a common market, which lured voters, was more illusory than real.37 A more recent experience is the case of the elected president. The people were not properly informed about the implications of a changed institutional framework in Singapore’s political economy, especially the possibility of the PAP preventing the emergence of a non- PAP government.38

35 Saw Swee Hock, 1991: 238. 36 ST 03 09 2003: H1, ‘…the opposition MP had charged that the PAP betrayed the trust of the people by reneging on its promises to restore the CPF rates to 40 per cent and to create jobs.’ ‘Rebutting, PM Goh challenged him to “stand up and tell the people that 40 per cent is right for Singapore now”. Mr. Low’s rejoinder: “It is for the Prime Minister, the PAP who has made the promise, to stay with the promise. I didn’t make the promise.” 37 The fact that Singapore was to become a subordinated state in Malaysia was not clearly explained, so was not understood by voters, see Chapter Three: 3.6. 38 The issues surrounding the elected presidency focus on the need to safeguard the national reserves from rogue government and the fact that the PAP is preventing the emerging of a non-PAP government is not well understood by Singaporeans, see Chapter 5.3.2.

379 6.1.6 Procedural Rationality in Standardisation of Social Behaviour

Brainwashing through ideology is a common communist social control mechanism used to tame the citizenry. In the Singapore experience, socialisation resembles aspects of the communist model. The selective dispensation of information and the propagation of PAP-chosen ideology allow the party to instigate procedural rationality in individuals’ mental construct when they decipher information and make decisions. In the context of orthodox economics, information is assumed to be perfect and individuals to possess perfect knowledge in deriving optimum decisions. But in the real world, information is never perfect and individuals have only bounded rationality. This offers politicians the opportunity to subrogate individuals’ freedom of choice with procedural rationality where general behavioural rules are established as routine. In other words, ruling politicians can instigate prefabricated mental templates as the logical mechanism for the decision- making processes of the citizenry. Such socialisation is pervasive in Singapore. The ideology of survival rationalises the PAP’s absolutism and creates a submissive society. The ideology of pragmatism rationalises the PAP policy flip-flops and creates the fallacy that the PAP is incapable of making mistakes. And the ideology of meritocracy rationalises social inequality and creates the illusion of a socially mobile society. The propagation of Confucianism sanctifies the PAP rule as a mandate from heaven, and alludes to a subservient attitude that if the emperor wants death, the mandarin must die.39 The policy of Asian Values rekindles the responsibility of family for family members and society. And Shared Values reinstates the social hierarchy and the redistribution of social responsibility from the state to the community and the society. Socialisation in Singapore is comprehensive and covers all strata of society.40

39 Jun Yao Chen Si, Chen Bu Da Bu Si. 40 The focus has been on the need for the people to be subordinate to the rulers but never on the duties and responsibility of the rulers to the ruled. While the ruled are morally obliged to follow the orders of the social elite, there is no such reciprocal obligation for the elite to take care of ordinary people. See Chapter Four: 4.4.

380 The political outcome is near total subrogation of the individual’s freedom of choice over PAP-defined procedural rationality. As a result, Singaporeans have a more or less unified mental construct when responding to exogenous social change. Chua (1991) in exploring the ideological hegemony/consensus, adopted Greetz’s (1964) view and wrote: ‘Individual members of the governed take up the ruling group’s ideas as the rational conceptual template with which to organise the everyday world into a loosely coherent and meaningful entity within which one acts and responds to others and events.’ 41 People have been educated to parrot whatever the PAP propagates, so terms like survival, pragmatic, meritocracy, transparency and win-win are in common use in the Singaporean lexicons, although they may not fully understand their political implications. The standardisation of social behaviour in Singapore is not dissimilar to that in communist China. Given the rational ignorance and procedural rationality, Singaporeans’ immersion in PAP ideology is not dissimilar to communist Chinese immersion in Mao’s Red Book, though different in form and extent. In political transaction a common mental template exists in a typical Singaporean and is a unique characteristic of the PAP state. 42

6.1.7 Forfeit of Common Property Rights

Common property rights prevail in capitalist economies but are attenuated in communist countries because the state owns all the assets. Common property rights exist because positive transaction costs deter the full delineation of property rights in private assets. Undesignated property rights therefore remain in the public domain as common property for public use. In the Singapore experience, there are few undelineated property rights in the public domain because all property rights are state owned unless expressly delineated.43 That is, all economic property rights

41 Chua Beng Huat, 1991: 310. 42 In the words of then DPM Lee, ‘These catch phrases have passed into our general vocabulary, and made a lasting impact on the way Singaporeans see their role in society.’ Source: MITA posted on 01/13/04 @ WWW.channelnewsasia.com 43 In Singapore, household capturing of rainwater for private consumption, without state prior approval, is a punishable offence because such action is a violation of revenue law on waterborne

381 are PAP private assets unless expressly given away. The classic case is the PAP- amended Land Law that allows the state compulsory acquisition of private land at below market valuation. It also clearly stipulates that land compensation should not include capital appreciation derived from benefits of PAP-initiated infrastructure construction.44 In other words, compensation is essentially the historical cost of the land as capital appreciations from positive externalities are forfeited. The embedded value of common property rights such as clean air from public parks, and easy traffic access from the highway cannot be accounted for in the valuation of private land under state acquisition. The PAP forfeit of capital appreciation from asset improvements is in reality the forfeit of property rights in the public domain. Indeed the PAP amended Land Law is an outright violation of those private property rights that are normally embedded in the capitalist free market economy.

In Singapore, only social and economic behaviour expressly approved by the PAP is considered permissible, thus any acts that have yet to be approved are deemed illegal. Hence any economic behaviour that is beyond the PAP’s wisdom and comprehension is also deemed to be illegal in Singapore. As a consequence, the decision on bar-top dancing is not a commercial but a political decision; the property rights to use assets rest with the PAP and not the resource owners. This is a forfeiture of property rights, including common property rights that have yet to be delineated. The PAP forfeiture of property rights in the public domain results in the fact that only those economic choices that the PAP have expressly approved are legitimate economic decisions. Choices not officially approved are deemed illegal and subject to harsh punishment. Deprivation of freedom in economic decision- making is contradictory to a free market economy in a capitalist society but is the classic case of communist state planning. An economy without common property rights is atypical of capitalist societies.

fee and water conservation tax. It did not occur to PAP that un-captured rainwater is really a waste of scarce resources, which Singapore paid a high political cost to import from Malaysia. 44 Property valuation includes not only the intrinsic value of the property but also the value of common property rights that the resource owners could enjoy such as better amenities, clean air, easy traffic access hence by excluding such incidental values PAP has intentionally forfeited the value embed in the common property, see Chapter Five: 5.1.1.

382 6.1.8 Forced Consumption in Personal Finance

The PAP, through manipulation of the provision of essential goods and services, has practically impounded the financial resources of individuals and households. People deprived of economic choices are forced into PAP-preferred consumption behaviour, a situation not dissimilar to the structured decision in the merger referendum where people were coerced into the PAP-preferred political decision. The political objective of forced consumption is the creation of a hostage society that is subject to PAP political ransom. It was achieved through a ‘stakeholder economy’, that is, the PAP state has a stake in the private assets of the people. A classic case of forced consumption and the ‘stakeholder economy’ is the forced acquisition by the people of a 99-year tenure lease on public housing.45 It is forced housing consumption because the PAP has a monopoly on the supply of public housing, and there is no substitution good in the housing economy. Apart from the wealthy, the bulk of Singaporeans have only one economic choice in housing and it is PAP public housing. Given the attenuated economic property rights in the sector, the PAP remains the prime stakeholder in the public housing economy.

The involuntary investment in public housing is a household’s single largest indebtedness to the PAP state and this offers the PAP an opportunity to dictate the personal finances of individuals and households.46 The social control mechanism starts with the NWC, where the PAP determines wage levels and hence the income of individuals. The forced savings reduced income cash flows and housing loan repayment further reduced individuals’ disposable income. The bulk of workers’ incomes have by this stage been returned to the PAP state. As most essential services including education, healthcare, transport, news and telecommunication are either state or SOE provisions; the PAP state has practically determined the

45 It is a forced consumption because there is no substitution market, as the PAP has pre-empted the emergence of a low-cost private housing market. That is, for most Singaporeans staying in public housing is the only option, and given that the PAP is the covert co-owner of public housing, it has a ‘free’ stake in the privately acquired public housing. See Chapter Four: 4.3. 46 Janet Salaff, 1988, offers an analysis of social service provision and family social behaviour. Given that SOEs are the major service providers, household monthly expenses are predetermined, and what individuals can afford is then subject to their income level. See Chapter Four: 4.3.1.

383 recurrently monthly expenses of individuals and households. The PAP can, through changes to any one such expenditure, alter the personal finances of individuals and households. Further, there is little choice of substitution services in the private economy. For example, despite the presence of three telecommunication providers they are all ultimately dominated by the PAP state. 47 Forced consumption has resulted in a fettered market economy. In Singapore, freedom of economic choice is a rarity. Funeral services is one area that the NTUC considered but did not engage in, and it remains entirely in the private economy, so it seems that only an expired Singaporean is given economic choices in an unfettered market economy.48 Forced consumption is extensive in Singapore. It resembles a communist economy where economic choice is limited, and freedom of economic decision-making is almost non-existent.

6.1.9 User-Pays Society

The PAP greatly disdains welfarism because it is a drain on public finance.49 In line with pragmatism and meritocracy, any PAP payout must generate some forms of measurable return, that is, the cash inflow must be greater than cash outflow. Investments that yield no measurable return are never favoured in PAP policy. Social welfare for the sick and the destitute, and special education for handicapped

47 The market liberation is more cosmetic than real as the major shareholders of SingTel, StartHub and Mobile-One(M-1) are Temasek, Singapore Technologies and Keppel, respectively, and they are all ultimately controlled by the PAP state. Today, 10 03 2004: 10, ‘(M-1) 45 per cent pre-tax margin also showed mobile phone charges haven’t fallen by “the desired amount” in spite of competition. Since M1 started seven years ago, the average cost of a mobile call – about 20 cents a minute – is the same as it was when SingTel had a monopoly.’ It is a cartel economy. 48 Freedom of choice is limited because only PAP approved choices are legitimate, as even entertainment like watching a movie is subject to PAP’s guidance. ST, 07 03 2004: 4. Royston Tan, a Singaporean filmmaker produced a short film ‘Cut’ and penned new lyrics to the tune of ‘We Are Singapore’ in depicting the PAP art culture. ‘This one is PG, That one is G, This one is R(A), You cannot see, You’re only old enough, After army, This is Singapore, Censorship is free.’ 49 Linda Lim, 1983: 761. ‘The PAP maintains that excessive government involvement in social welfare undermines individual motivation to work and excel, saps human dignity and drains public finances.’ According to PAP politicians third world countries obtain their supply of illiterates for free. In other words, PAP pragmatism dictates it is a waste of resources to educate the brainless. See Chapter Five: 5.1.2.

384 children, are largely funded by public donations.50 The PAP offers no freebies and people must pay for social provision. Indeed, Goods and Services taxes guarantee that poor, sick and unemployed Singaporeans also pay for civil service provisions. Where state subsidies exist, they are more in form than in substance, for example the subsidy for medical study is in fact a study loan repayable through rent derived from the non-market pricing of doctors’ salaries. This PAP mentality lays the ideological foundations for the advent of a user-pays society. The policy outcome of privatisation reaffirms the PAP conviction that there is no such thing as a free lunch, that is, people do not receive something for nothing from the PAP state. The PAP entertains no free riding on state resources. The commercialisation of social provision ensures that the PAP state recovers the maximum cost of service provisions. The fact that most government agencies and SOEs yield satisfactory profits testifies to the presence of a user-pays society in Singapore. Town Councils enjoy huge cash flow surpluses from monthly conservancy fees, which include a sinking fund for upkeep, yet public housing residents are asked to pay for upkeep, which is disguised as upgrading. It was reported that Town Councils run by the PAP are sitting on sinking funds of nearly $1.5 billion that is about $100 million each. The so-called upgrading payment is actually a tenant subsidy to the PAP landlord in the upkeep of public housing estates, because most of the upgrading is for work done outside the dwelling unit, that is, common areas that belong to the state.51

The ultimate political objective of the commercialisation of government services is to ensure a self-financing society, that is, the individual pays for all essential services. The economic outcome is the total liberation of the PAP from financing the civil service and infrastructure construction. It also ensures that the SOE

50 Variety shows that seek public donations to fund charity organisations have become common social events in Singapore. The PAP state financed the $600 million Esplanade-Singapore Art Centre to showcase Singapore’s arrival as a first world country but (Today, 17 03 2004: 3) ‘Instead of the government taking the lead and building it, we believe that the Sport Hub should be driven with private-sector involvement.’ 51 The PAP State as landlord is duty bound to maintain the estates. And Town Councils as estates managers also collect a monthly sinking fund for estate upkeep. ST 26 01 2004: 4 on sinking funds.

385 economy remains profitable, as greater SOE profits mean more tax revenues. This policy objective explains why bus fares were increased in 2002 although the bus company was enjoying good profits, and the people were facing the highest ever rate of unemployment. Again, in November 2003, the people were forced to bear full cost of the Ez-link card, another forced consumption, when the ministry suffered project cost overruns due to incompetence.52 The new requirement for a $5 non-refundable deposit was announced on the 6.30 pm news and implemented the next morning. The PAP shut the window of opportunity for acquiring cards that came with a refundable $5 deposit. These are classic cases of user pays, even when it is involuntary and imposed.

The new institutions in public financing have resulted in a self-financing society that allows the PAP to fully retain and capitalise on taxation and revenue, and thus segregates revenue reserves from the domestic economy to the GIC, which is chaired by a PAP politician.53 Under the zero sum theory the more individuals pay for essential services the less the financial burden on the PAP state, and therefore the higher the revenue reserves for transfer to the GIC. The political objective in boosting the financial strength of the GIC and SOEs yields benefits in fortifying the PAP’s political role in regional and international politics.54 The fusion of PAP private political ambitions with the state apparatus is another unique characteristic of the PAP state.

52 The public bus discourages cash payment as it costs more to process cash fares, so Ez link is the only means of fare payment. The electronic payment system eliminates under-payments of fare and dispenses with the bus inspectors. Instead, commuters complained of over-charging in the automatic deduction of fares. Today, 11 11 2003: 6 ‘The vision of having Ez-link becoming the key to Singapore’s cashless society is ‘ambitious’…but is now ‘stuck in limbo’. ‘Yet the commuters had to be the ones to pay for its mistakes.’ ST, 19 11 2003: H4, LTA the parent company of Ez-link suffered a loss of $18 million from a $17 million surplus but ‘despite the current deficit, it has accumulated a surplus of $420.8 million. This is a PAP win–win policy, that is, the profit is mine, and the deficit is yours. 53 The GIC is responsible for the management of Singapore’s direct foreign investment. As the investment capital in the GIC is out-going, once the funds are invested outside Singapore, they are segregated from the domestic economy. 54 Given the size of Singapore’s investment fund, PAP politicians play a significant role in the international financial market. ST, 08 03 2004: A15, reported that Berkshire Hathaway, the investment holdings company controlled by Warren Buffett, has a net worth of US$42.9 billion, smaller than the GIC’s S$160 billion.

386 6.2 The PAP State as Stationary Bandit

The rentier nature of the PAP state has probably not escaped researchers’ attention but most of them might have rejected such a conclusion because of positive economic developments in Singapore. The relationship between dictatorships and economic development has puzzled researchers who were constrained by the inherent antagonism between the state and the market in the economy. Conventionally, a dictator plunders and has a reputation for devastating rather than promoting the economy. It thus breeds the mistaken perception that a dictatorship is irreconcilable with economic development. Peter Evans, in associating different kinds of state with different economic outcomes, contrasts two state structures and state-society relations in predatory and developmental states, citing two archetypes, in Zaire and Japan.55 But there need not be any inconsistency in a dictator’s self- interest and economic development. A rational dictator has an incentive to ensure good economic development. This is because the better is the economy the greater is the loot. In just the same way, there is strong incentive to motivate the cattle farmer to ensure that his cattle are well fed and in good health because the heavier the cattle, the better the market price and the higher the profits.

Given the conventional theorisation between extraction and economic development, Christopher Lingle appears ambivalent on the nature and characteristics of the PAP state. Lingle (1996) characterises Singapore as ‘authoritarian capitalism’, because Singapore combines political centralisation with economic decentralisation. In other words, the PAP monopoly of political power has resulted in an authoritarian state, but a free rein in the foreign-owned economy has ensured that capitalism works. Christopher Lingle and Kurt Wickman (1999) also offer a theory of the city-state economy to explain Singapore’s economic ‘miracle’. The authors, in analysing the city-state economy, have downplayed the role of the PAP state as ‘more passive than active, [given] that more of Singapore’s economic success occurred because of the economic imperatives of a city-state in

55 Peter Evans, 1995, Chapter Three: 43–73.

387 today’s world economy than because of the meddling of the government’.56 In this instance the authors seem to have negated the role of the PAP in the economy as a necessary condition. This incongruous theorisation points to the need for a new theory that reconciles the PAP’s predatory behaviour with positive economic development in Singapore.

Mancur Olson (2000) offers a theory of the stationary bandit that reconciles predatory behaviour and economic development.57 Unpacking the theory reveals three imperatives, monopoly on the use of violence, a long-term time horizon, and theft-tax maximisation. He theorises that a bandit monopolising violence has absolute power to extract full compliance in receiving everything for nothing. A roving bandit will loot absolutely, and totally destroy the victim’s economy. As a result there will be nothing left in the community for looting later on. This is a shortsighted, one-off, involuntary transaction. On the other hand, a rational bandit who has a long-term time horizon and who aims to maximise theft revenue has the incentive to provide protection against violence from other bandits and also to facilitate economic development in the community. The rational bandit would be motivated to secure territory in order to become a stationary bandit for long-term, repeated looting. With this embedded incentive, a stationary bandit is zealous in promoting the economy and exercises self-constraint in looting. The intention is neither benevolent nor altruistic but purely based on self-interest. Self-constraint in looting is to ensure enough incentive is retained in the society to motivate economic activity. This is because a growing economy offers more private wealth for looting. The theory of the stationary bandit highlights the interrelationship between the dictator, predatory behaviour and economic development. And it theorises that a predatory state is capable of economic growth. It dispels the notion that economic development is only attainable in a democratic setting. Olson acknowledges that democratic societies have played a disproportionate role in

56 Christopher Lingle and Kurt Wickman, 1999: 57. 57 Mancur Olson, 2000: 6–14.

388 economic progress even though most remarkable economic developments have been achieved under representative government.58

The theory of the stationary bandit aptly describes the PAP state in Singapore’s economy. The PAP state possesses all three imperatives of a stationary bandit. The party as a national movement transposes the PAP’s survival as national survival, and accords PAP politician absolute authority in the use of violence in defence of the PAP’s survival. The technical and dependent judiciary system ensures that anti- PAP forces are duly punished. The some-men-no-vote election system affords the PAP political supremacy. Indeed, the PAP not only has a long-term view but a perpetual time horizon for its rule in Singapore. The forfeit of common property rights and forced consumption are aspects of PAP manipulation to maximise theft tax revenue. The PAP’s introduction of user-pays mechanisms in public finance is aimed at optimality at the margin in retaining adequate incentives in the economy to ensure economic development for long-term and repetitive looting of Singaporeans. In short, the PAP as a stationary bandit has nationalized Singaporeans’ assets and receiving everything for nothing.

6.3 Remaking Singapore: Crisis and Opportunity

The predatory instinct of a stationary bandit state has ensured the wealth accumulation of the ruling party. The predatory instinct of the state is gradually but surely permeating into the institutional arrangements between the state and the executives. A practice now extends towards the SOE economy and also into the private economy where PAP politicians are involved. Singapore ministers enjoy the highest salaries in the world. The senior executives in the SOE are drawing compatible world-class salary packages. The serving and former PAP parliamentarians are also securing lucrative second careers in the private economy that offer commendable financial benefits. Besides, scholars-bureaucrats on the ground of meritocracy are drawing salaries matching or even better than their counterparts in the private economy. Indeed the remunerations in the civil service

58 Mancur Olson, 2000: 12, 206 n12.

389 are compatible to those in the private economy and are even better than those in the small manufacturing economy. As the state is the largest employer in the economy, the rent distribution is significant. The distributional policy is justified on the basis of good government and also as a measure to pre-empt corruption. In Singapore the distributional coalition is parasite on a user-pays society, an institutional arrangement that is laden with social tensions. It creates polarisation of society where interclass transfer of resources is resulting in the concentration of wealth within the vested interest and the ruling class. The prolonged economic doldrums in the post-1997 Asian financial crisis, when many middle-aged mid-level professionals were displaced, created a class of new poor in society that has further exaggerated the social discord. The social tensions are further intensified when user-pays society drives up the costs of living, oblivious to the sufferings of the poor and unemployed. A classic case is found in the public transport operator: SMRT Corp a subsidiary of Temasek Holdings, on the back of a 42% increase in net profit to S$127 million for FY 2004, applies to the authority for a fare increase. It is worth noting that the company has a high dividend payout ratio of 61 percent of the group net profits. 59 Clearly, the internal transfer of wealth is high. The influx of ‘foreign talents’ into the Singapore labour market purportedly ‘to create employment opportunity for Singaporeans’ generates further social tensions. The state failures in checking the persistence of wealth accumulation among the elites class and in resolving wealth diminishing among the new poor and working class are pressurising the social structure. This covert social instability is problematical for Singapore’s future viability.

The inner working mechanisms of the PAP state that facilitate the power accumulation of the ruing politicians have guaranteed PAP political supremacy. The institutions of ISA, electoral system, elected presidency and some others have practically precluded the emergence of alternate political platforms in a non-PAP government. The depoliticization and or the submersion of confrontational politics have also denied the bargaining process between the state and people. The PAP is

59 ST 30 04 2005: S31 and ST 02 05 2005: 3

390 thus omnipotent in all aspects of social exchanges, and without either alternative views or the bargaining process to offer incremental changes to the governance structure, the prolonged social and political stability have generated resultant structural rigidity thus institutional sclerosis. Institutional sclerosis brings about systemic deficiency and is the common cause that leads to national decline in the long-term. It is Olson’s (1982) view that institutional sclerosis is the root of the economic and social rigidities that held back the transformation of the United Kingdom's productive system. Specifically, in the case of Singapore’s experience, the PAP’s omnipotence is particularly devastating because in the absence of Hirschman’s (1970) ‘voice’ option in the society, independent minded middle-class Singaporeans are exercising the ‘exit’ option thus dwindling the society’s valuable human resources. The absence of both ‘voice’ and ‘exit’ options among the better- educated working class are building up social resentments against the vested interests and their political patrons. In North’s theorization such social discord posses the possibility of revolutionary change to the Singapore political system. The existence of potential political risk is not conducive for long-term economic development.

The institutional arrangements that lead separately to the presence of a distributional coalition and institutional sclerosis are inherently destructive in society. In the case of Singapore there are two likely scenarios. Firstly, when transactions within the existing institutional environment are impossible, the distributional coalitions would seek to change the rules of the game. That is, they would seek to replace the existing ruling authority. Secondly, when they are contented as transactions within the current legal framework are possible then the vested interests would endeavour to ensure a status quo that forestalls changes in society thus further enhancing institutional sclerosis. But the prevention of changes in relative prices in the economy is discouraging the learning of new skills in the

391 society that will in turn stall progress and bring about the decline of the nation state.60

6.3.1 The Crisis of Distribution

Mancur Olson (1982) highlights the social costs of special interest groups in an economy that could lead to the eventual decline of a nation state. The presence of a distributional coalition is harmful to the economy because the social benefits secured by the interest groups also engender social costs to the society at large but as the group’s share of the social costs is lesser then their exclusive gains in social benefit there is incentive for them to maximize their collective benefits. It is common for special interest group to ask for rises in price and wages or to lower taxation that would benefits their members, but such measures would reduce the efficiency and output of the society. It can also extract gains from cartelisation because less is sold for a higher price thus reducing social output. Besides, the monopoly that raises barriers to entry creates even higher social costs. While the social losses from monopoly and other forms of economic distortion are relatively small in relation to the national income, collectively these losses could be colossal. Hence special interest groups are imposing very large costs to the society as a whole. 61 Olson is of the view that ‘the great majority of special interest organizations redistribute income rather than create it, and in ways that reduce social efficiency and output.’62 The political implication is also significant as it creates social tensions because members’ gains are secured at the disadvantages of the other non-members. Therefore when special-interest groups become more important and distributional issues accordingly more significant, political life tends to be more divisive, and it encourages intransitive or irrational and cyclical political

60 Olson (1982) and North (1981) derive such conclusion from their investigations of the economic history and performance of the European economies. 61 Mancur Olson, 1982: 43-46. 62 Mancur Olson, 1982: 47.

392 choice. The eventually is that when the state is less likely to make relatively lasting or stable political choices then the society is less likely to be governable.63

Olson (1982) attributes the emergence of such a distributional coalition in an unchallenged political environment as the cause of national decline. In Olson’s view an encompassing special-interest organisation without a rival is, in the long- term, potentially devastating. The longer the society enjoys political stability, the more likely it is for members to develop powerful coalitions. On balance, such a coalition reduces efficiency and aggregate income in the society in which it operates. This is because it slows decision making due to crowed agendas and bargaining, thus diminishing economic growth.64

The PAP is an encompassing special-interest organisation or a cartel with an encompassing interest within a community. Such a claim is not controversial given the party’s absolute control over the GIC and the SOE economy. This state-form faces the inherent problem of demand for distribution. Given the small numbers in the group in Singapore, free riding can be contained and collective action is possible. Incremental income is the selective incentive that motivates concerted effort in demand for even higher payout. The containment of demand for distribution brings about the issue of the quality of PAP leadership. This is the case as only a rational leadership ‘will care about the excess burden arising from distributional policies favorable to its members and will out of sheer self-interest strive to make the excess burden as small as possible’.65 In short, the quality of PAP leadership is essential to avoid over-taxing Singaporeans.

The quality of party leadership in resisting higher and across-the-party distribution is crucial in keeping in check the advent of a crony economy. Four reported transactions that involved PAP politicians point to the possibility of such development within the PAP cartel. In the SOE economy, a former PAP junior

63 Mancur Olson, 1982: 47. 64 Mancur Olson, 1982: 36–74. 65 Mancur Olson, 1982: 48.

393 minister was paid over S$1.43 million as a year-end performance bonus.66 The magnitude of distribution is significant, in this case being about the combined annual incomes of 60 taxi drivers.67 This case is a distribution within members of a special-interest organisation that yields economic inefficiency in the economy. This is because Pigou’s classical theorisation would favour distribution to taxi drivers as incremental money distributed to the lower income group engenders the highest economic satisfaction. In the private economy, a listed company paid a PAP politician S$270,000 as consultancy fee and brokerage for his services in the acquisition of an SOE company. 68 The divestment of SOEs through PAP politicians opens the door to rent-seeking and redistribution within the cartel. Cartelistic economic behaviour inadvertently provides the necessary condition for a crony economy.

The divestment of NatSteel was also controversial. The plan to divest the company was originally scripted as a management buyout at S$1.84 per share. 69 The rival counter biddings improved the offer price to S$2.06 per share. After the takeover the share price was further boosted to a high of $3.20 per share.70 The risk of asset stripping through management buyout is thus real and not imaginary. In 2002, the state without the usual public tender practice sold a development site directly to the Singapore Labour Foundation (SLF). Private developers and retailers were upset because the deal gave unfair advantages to two commercial units in the NTUC. The land is reportedly priced at a ‘fair market value’ and the privilege was bestowed as ‘the government has decided to make these facilities available to the unions in recognition of the many contributions made by union members to the nation.’71 The public impression of one investor being preferred over another in the

66 The transparency of the payment is a non-issue, as it was disclosed in the published financial record but the journalist who publicised the information was barred from future company briefings. 67 It was calculated on the assumption of an annual income of $24,000. 68 ST, 06 12 2003: A45. 69 The low offer price attracted counter-bids from two rival groups. Temasek was a partner in one of the bidding group despite the fact that the disposal of NatSteel was a divestment of an SOE. 70 Ooi Hong Leong failed in the takeover battle but as a major shareholder proposed huge cash dividends out of the company cash hoard. It was an outside force that drove the value of NatSteel to its highest value, and Ooi as a private investor played a meaningful role in the market economy. 71 Streats, 09, 03 2004: 1, 3.

394 divestment of SOEs is potentially divisive, and it encourages the emergence of a privileged class of ‘White Horse’ entrepreneurs in Singapore’s domestic economy. This is not a distribution of spoils but rather a redistribution of assets in the domestic economy. But state intervention in divestment of SOEs through PAP politicians and to only PAP-approved investors facilitates the crony economy. If the economy is corrupted, political leadership must also eventually be corrupted.

Learning from Olson’s empirical study, the PAP’s intention to continue its unchallenged and perpetual rule of Singapore is not conducive to Singapore’s long- term viability. Ironically, under such theorisation the longer and firmer the PAP holds on to absolute power, the more likely it is that Singapore’s prosperity will decline in the long term. Clearly, this is a case of divergent interests: what is beneficial for the PAP is damaging for Singapore. Importantly, this is a crisis engendered from the inherent flaws of the PAP’s internal organisation that is mainly shaped by the party’s informal rules. The potential crisis thus calls for the easy flow of creditable information in the public domain to facilitate the emergence of civil groups to counter the distributional coalitions. The asymmetric information in the society has to be addressed to enable independent evaluation of policy efficiency in resources allocation. In the light of the Olson’s theory only a competitive political market can order effective checks and balances, and stall the growth of a distributional coalition that could erode Singapore’s long-term viability.

6.3.2 The Crisis of Institutional Sclerosis

Olson (1982) identifies institutional sclerosis as a further cause of national decline but did not offer a theory of how institution revolves into the stage of sclerosis. Instead North (1990) offers an explanation of how rigidity in institutions can evolve into institutional sclerosis. North emphasises the need for incremental institutional change in a society. 72 That is, incremental institutional change is imperative for sustained economic growth. This is because social stability is a

72 Douglass North 1990: 89.

395 necessary condition for complex human interaction but not a sufficient condition for efficiency.73 In other words, a society with prolonged stability without political rivalry creates institutional rigidity that is likely to retard economic development. A change in barging power is essential for marginal changes in the institutional environment; implicitly an asymmetrical political structure is not conducive for individuals to become agents of change.74 North theorises that until the institutional equilibrium is reached, political and economic actors would continue to recontract for better returns. In the process they would seek to recontract within the existing rules or would seek a more fundamental changes in the rules that governing contracting. Consequently, there are two forms of institutional change: continuous and discontinuous. The former is incremental changes over time through private negotiation between players, and the latter is a radical change in formal rules as a result of wars, revolution, conquest and disasters 75 Discontinuous institutional change is therefore implicitly destructive and achieved through some forms of violent means.

In the economy, incremental change is essential for parties to exchange recontract in order to capture potential gains from trade. This is because in the context of orthodox economics, division of labour and specialisation in trade increase productivity, so the extent of recontract in the economy influences economic efficiency in a society. And the existence of recontracting mechanisms, that is, platforms to bargain, negotiate and mediate from, enables the resolving of a gridlock crisis and facilitates recontract.76 If such an institutional framework has not evolved, the parties to an exchange have no mechanism to settle disputes, and potential gains from economic recontract are thus foregone. The absence of a mediation mechanism may lead players to form coalitions to break out of the deadlock by violence and other means. That is, it induces discontinuous institutional change. Implicitly, the process leading to recontract could produce

73 Douglass North 1990: 83. 74 Douglass North 1990: 84. 75 Douglass North 1990: 89. 76 Douglass North 1990: 90.

396 social tension when the pace of institutional changes could not meet up with the expectations of the political and economic actors. 77

The PAP penchant for absolute control in all aspects of social exchanges and its disdain for negotiating with lesser beings have practically destroyed the mediation mechanism in resolving social conflicts. The PAP’s monopoly of violence in suppressing dissident views also has made the mediation process in society redundant.78 A society without functioning mediation mechanisms is potentially rebellious and its absence is a source of social discord. Without persistent review and changes to institutions, the result is institutional sclerosis, which has two detrimental consequences: it distorts long-term economic development, and it invites revolution in changing political leadership either from within or outside the party. The hastened political tensions threaten Singapore’s long-term viability as a nation.

In the Singapore’s experience the lack of mediation mechanisms has constrained the nature and extent of incremental change in the economy. The submissive society has surrendered to the PAP the basic business instinct for seeking new bargains to capture potential gains from trade. The embedded institutional rigidity has restricted the options of recontract. 79 The foreclosure of common property rights in the public domain has further constrained the scope for exchanging recontract. In other words, PAP-defined institutional arrangements, which decommissioned the mediation process for resolving disputes, have truncated continuous institutional change. The consequence is a lack of freedom in new bargaining and compromises between the players. An economy without new bargaining and compromise is not conducive to economic activity. Therefore even

77 Douglass North 1990: 91. 78 In Singapore mediation can only channel through official avenues, meditation through non-state sponsored avenues is prohibited and attracts punishment. 79 The authority rejected an application for a dog-café licence on the basic that they had never issued such a licence. ST, 20 03 2004. in the case of food-van licence, out of the more than 30 licences issued, after six months only eleven were still in operation. It failed because the licence came with conditions of what is tradable, when to trade, and where to trade: at place that is out of the way. An armchair planner had sealed the fate of a business venture in the real world.

397 new technology has reduced transformation costs, since production frontiers will not expand outwardly as there are no recontract mechanisms. Institutional sclerosis has forestalled a new market for innovative trade. The resultant missing market is harmful to Singapore’s long-term economic development.

The absence of continuous institutional change at the margin carries high social costs because it invites discontinuous institutional change at the source. When motivated enterprise players, both political and economic, are genuinely aiming to make gains but cannot seek change within the existing regulation to enhance their chances of winning, they have strong incentives to revolt against the ruling authority. Therefore a society that denies entrepreneurs their legitimate role as agents of change in political and economic institutions creates animosity and is potentially destructive.

The threat to PAP removal, and thus Singapore’s viability given the conflation of party and state, need not come from opposition politicians, as they have been either crushed or otherwise demobilised. Indeed, the inherent system has practically denied a political change to a non-PAP government. Therefore any changes of ruling authority are more likely to be from within the party. Given the huge prize in capturing the GIC and the SOE economy, the incentive to remove the PAP is extremely strong. Without a political system that encourages changes at the margin, the threat of discontinuous institutional change through violence that could destroy Singapore totally is to a great extent real and not illusory. Facing such a serious threat, it is imperative for the PAP to restore a functioning mediation mechanism to enable continuous institutional change through incremental change at the margin.

6.3.3 Reformation and Opportunity

Political Reforms The phenomena of a distributional coalition and institutional sclerosis are interrelated. The former is the politics of economic resources while the latter is the economics of political resources. The source of these crises came from politics

398 because it was the ruling politicians who determined the problematical institutional environment. Therefore reformation starts with remaking Singapore politics. The PAP should relinquish its monopoly over politics, or if otherwise must allow for non-PAP sponsored mediation and recontracting to enable incremental changes in society. Remaking calls for changes to the mental construct of the PAP itself, and not mere cosmetic changes to the decision-making processes in the name of consultative politics. Feedback alone is incapable of revoking the inner working mechanisms of the state, as network externalities are likely to prevent meaningful changes at the margin. This is in Ngiam Tong Dow’s view of the ‘little Lee Kuan Yews’ network, a vested interest group that would prefer the status quo in society. Indeed Lee’s Law itself forbids any form of challenge to the core of the PAP’s political power. But new opportunities can only emerge through a new institutional environment. In Singapore, informal rules shape the institutional environment, so there is a need to re-examining the merit of Lee’s Law in regulating politics. The changes that are necessary are more than simply removal of the walkover politics and the restoration of the one-man-one-vote system, but also cleansing of the PAP’s metal constructs such as ‘we decide, never mind what others say’. It also requires the removal of the PAP’s sense of superiority and the recognition of alternative wisdom outside the PAP’s domain. The exclusion of non-PAP views is a tremendous waste of valuable human resources given the Singapore's finite population size. The more entrapped creative energies in the public domain are released, the greater the new opportunities from reformation.

Changes in the Singapore political institutions are inevitable, given the ageing of PAP veterans. Internally, the reinstallation of a separation of power in the executive, judiciary and legislature is the most preferred political reformation. This approach is however not in the interest of the ruling politicians. The dynamic of change is therefore likely to be externally driven because of Singapore’s open economy in the world capitalist system. In the face of globalisation, the imperative for economic efficiency will dictate the nature and extent of recontracting in the political economy. In turn, the imperative for political retreat in the economy could

399 lay the foundation for power sharing between rival PAP factions. That would amount to the re-emergence of intra-party politics to compete for the rights to manage Singapore’s scarce resources. Political competition need not be wasteful, even in the context of limited manpower and other resources. A proportional representation system would allow the PAP, its splinter groups and opposition parties to share power in a coalition government.

A participatory political system that offers a ‘voice’ option in politics is essential if there is to be a pause in the exodus of disgruntled Singaporeans many of them prized human resources, the type of talent that Singapore is keen to attract from overseas. A participatory system that entails a decentralized decision-making process is also likely to lower the information costs in coordinating economic activities. The growth in the size of SOE economy increases the information costs in coordination, although an effective management system could to a certain extent defray such costs. Decentralization would also limit the social costs entailed in government failures, which are not uncommon in the realm of Singapore’s industrialization program such as the failed Second Industrial Revolution in 1979. But most important of all, participatory politics diminishes social tensions that destabilize society. The availability of incremental institutional change reduces political risk and also encourages long-term economic development.

The outlook for Singapore political reform is positive. In a twenty-first century Singapore the option of using violence in political conflict is no longer viable. Members of an affluent society are least likely to condone acts of violence against fellow citizens. The awareness of basic human rights in a better-educated society also raises the expectations of decency in the government handling of social conflicts. The availability of Internet forums where the public can express private views are effective constraints in keeping in check the highhanded manner of resolving political conflict. In other words, the hidden political costs would moderate the use of offensive means in politics. In this changed political environment Lee Hsien Loong as the third Singapore Prime Minister is likely to

400 rely on mediation and not violence to gain firm political control. The ‘Remaking Singapore’, a major political program under the new leadership, is an attempt at offering some roles to selective individuals and groups as the agents of institutional changes.

Creditable Information in Public Domain In Singapore critical information is politically a controlled scarce commodity. In Singapore politics, the information haves and have-nots determine the political insiders and outsiders. Even the first elected president had no easy access to information on the state’s assets as he was a political outsider. The control in dispensation of information has a depoliticization effect on economic policy. It is unclear, for example, as to whether it is Singapore that has created jobs for foreign workers or that the foreign talents have indeed created job opportunities for Singaporeans; such uncertainty diminished political costs in the high-unemployed economy. The absence of credible information has obscured independent monitoring and measuring of the performance of the PAP’s economic policy. Similarly, the level of efficiency in state management of Singaporean’s wealth is also uncertain. While the positive performance of the state’s investments is not unknown, the adverse impacts of the bust in the technology bubble in late 1990s and the damages to regional investments post-1997 as a result of the financial crisis are little known. Hence in the context of rational ignorance people have neither the incentive nor the means if they are interested, to investigate the state of affairs of the nation’s wealth. And under the prevailing procedural rationality most of the people would assume in the context of meritocracy that the PAP is very capable in managing the nation’s wealth. Such false complacency is potentially devastating. Without the easy flow of credible information it is almost impossible to institutionalise citizen organizations as public trustees to take stakeholder ownership in supervising the well being of the common assets of the people. When it was least expected, Baring Brothers lost their bearings to a rogue money trader. Until the installation of independent supervisory institutions, credible information in the public domain is the first line of defence against rogue politicians that could

401 impoverish Singaporeans.

The Role of State in Economy In the theoretical debates on the NIE’s economic ‘miracle’, neoliberal theorists advocate the supremacy of the market and perceive that state intervention did not distort market mechanism. Developmental economists envisage an activist role for the state in changing relative prices and locate economic development in chosen industries. In the case of Singapore, even neoliberal economists acknowledge that the Singapore government ‘intervenes when necessary’ in the market economy, and that the government is a major actor in both ownership and management of the economy. In the face of an activist state, the effectiveness of Singapore’s industry policy in a market economy is doubtful, as private indigenous manufacturing remains peripheral to the economy. Domestic contents in exported goods remain insignificant. Evidently, in the realm of private domestic participation in industrialization, Singapore’s economic achievement is limited. The state’s failure to socialize risk in economic transformation, coupled with persistent market failure in credit facility has crippled the private indigenous economy. There are hardly any examples of new wealth creation and accumulation in the private economy under the PAP regime. Other than the failure in industry policy, the forfeiture of private land at below market valuation also weakened the financial capacity of private sector’s participation in economy. Given these pervasive government failures in the economy there is urgency in the need to reform the industry policy. From the perspective of neo-institutionalism, a reformation is required to refocus the role of state as an alliance of the institutions of the market in lowering transaction cost environment. In other words, it is not either state or market but a new paradigm in state and market in the economy.

Singapore has missed the golden opportunities accorded in the 1980s and 1990s in promoting indigenous manufacturing economy, as tariff and non-tariff measures in the context of international trade treaties are no longer legitimate protections for domestic infancy industry. Besides, Singapore cleared of backyard cottage industries are unlikely to enjoy benefits from production know-how and capital

402 accumulation, the two building blocks of the manufacturing economy. The revival of private-led manufacturing economy while it is difficult is not impossible. The most productive means would be through the state divestment of the SOE either directly as management buyout or via public tender to effect the rolling back of the role of state in the economy. The decentralization could broaden the scope of the economic participation of Singaporeans in the forms of equity ownership, employment and business opportunities. The proliferation of smaller economic entities would in turn engender business opportunities for a wide range of services industries, such as accounting, auditing, legal services and others. In the 1990s, it was the consolidation in the corporate economy that resulted in the displacement of the smaller service providers who lacked the capacity to service the big corporations. Decentralization in the economy could also offer a second chance to many of the displaced middle-aged Singaporeans many of whom are well educated and experienced in their respective fields. Such re-employment would not only resolve unemployment problems but would also redeploy valuable human resources. The reformation in economic policy that would allows optimum collaboration of resource owners could ensure a real stakeholders economy in Singapore.

The Development Funds The persistent market failure in credit facility has been the bottleneck that derailed the development of the small and medium manufacturing economy. While the banking industry is now investing more resources into addressing the needs of smaller business entities, such attempts will have little impact on small manufacturers if the issue of adequate security remains unresolved. The state should therefore offer an alternate avenue in meeting the funding requirements of the smaller economic entities. The past practice of state lending through financial institutions thus sharing credit risk has not been successful, as the allotment mechanism is fundamentally flawed. The mechanism was not cost effective to the financial institutions, thus there was no incentive but a disincentive in promoting and offering such risk sharing loans to the small manufacturers. The evaluation of

403 credit risk hence the issue of adequate security could be resolved if the credit allotment is transacted in a personalized market. In a personalized market, business obligation is effected through a self-enforced contract which is further sanctioned by trade ostracism. In this economic model the development funds could be delineated as club funds exclusively for members of a particular industry. Given the small numbers in the grouping, free riding problems could be minimized to lower monitoring costs. The possibility of opportunism in negating obligations of loan repayment could also be contained through group pressure and trade ostracism. As credit is allotted through members with similar industrial experience, business risk could be minimized. The self-regulating mechanism in the personalized market is efficient and cost effective as experienced in the informal Chinese economy. The state could mobilize trade associations such as The Chinese Chamber of Commerce and Manufacturers Association to organize such industrial clubs for credit allotments as well as for other economic activities. In this business model the state and the market are in economic alliance in resolving market failure.

The Chinese Business Network The state could roll back its roles of economic leadership and conflict arbitrator in the economy through delegation. The revival of the roles of the Chinese Chamber of Commerce and that of the Chinese business network in the economy is a viable proposition. The informal Chinese economy was once a productive economic avenue that enabled wealth creation and accumulation, and allowed for rags to riches in an impoverished environment. But the regional Chinese business network has been in a state of disarray, partly due to the impacts of nationalization and partly because of the diminishing imperative in economic cooperation in a manufacturing economy. The changed political and economic landscapes in Southeast Asia in the face of the emerging China economy may again offer an opportunity to modernize the old economic model. While the informal Chinese economy is in abeyance the structure of the business network is almost intact. The Chinese Chamber of Commerce as commerce organizations are still ubiquitous in Southeast Asia such as in Brunei, East and West Malaysia, Indonesia, Thailand,

404 Singapore and other economies. However, the informal institutions that used to order economic exchanges in an unregulated market are either no longer exist or substantial weakened. Nevertheless such shortfalls are more than compensated for by the presence of formal constraints. Besides, the advent of new technology that enables free flow of information on an instant basis is effective in conditioning socially acceptable codes of business behaviour thus offering a low transaction costs environment. The revival of the informal Chinese economy in the context of ASEAN economic cooperation would broaden the scale and scope of economies in the region. Singapore’s traditional role as financial and trading hub for the regional economies could be reinstated to deepen the regional divisions of labour and specialization in the international economy. The regional common market concept that was once rejected could now be beneficial to the small manufacturers in an enlarged hinterland economy. This is a niche where bigger manufacturers may not find it economically viable but could be a fertile ground to grow the indigenous manufacturing economy. Specialization that enjoys absolute comparative advantage such as the Nyonya cuisine and fashion is a worthy proposition. In regional economic cooperation, non-state institutions could also be more cost effective in offering economic leadership and resolving business conflicts. The Chinese Chamber of Commerce has been sidelined for years in economic decision-making; it is now worthwhile to re-examining the likely contribution that non-state institutions could offer in revitalizing the dormant private sector economy.

6.4 Conclusion

The changed institutional environment has consequently altered the nature and characteristics of the Singaporean state. Of the nine discernable traits of the PAP state, Lee’s Law is the single most important informal institution. The other eight traits are either outcomes of Lee’s Law or inherent systematic mechanisms to ensure the central role of Lee’s Law in Singapore’s political economy. The dual function of Singapore as both a predatory and a developmental state could be reconciled employing Olson’s (2000) conception of a stationary bandit where

405 economic incentives exist to ensure wealth creation for future theft taxation.

The PAP’s stationary bandit model carries high social costs. The crises inherent in the emergence of a distributional coalition and institutional sclerosis are potentially devastating for Singapore’s long-term viability. Reformation of the present institutional environment is therefore essential in revitalising Singapore’s dynamism in economic development. The reinstatement of mediation for recontract in the market mechanism would restore economic efficiency. The return to an unfettered market economy is therefore essential in Singapore’s next phase of nation building.

406 Chapter Seven

Conclusions

Lee’s Law in Singapore’s Political Economy

The major theme of this study has been the role of state in political economy. Singapore offers an attractive case for scholarly research because its elusive attributes have puzzled researchers. Singapore as a polity is well researched but views on the nature and characteristics of the Singapore state are inconclusive, as it has been perceived very differently in a continuum of free market economy under economic liberalism to activist state planning economy under an interventionist government. The contradictory conclusions reflect flaws in the conventional theoretical framework which, in the context of market-centricism or state- centricism, have unnecessarily confined the study of Singapore’s political economy within narrowly defined parameters. These inherent constraints have undermined the study of a complex polity such as Singapore because of its open economy within the world capitalist system. The incorporation of international politics is essential in any study of Singapore’s political economy, and any theory that fails to address Singapore’s position in the international division of labour is unable to analyse the nature and characteristics of the Singaporean state.80

Moreover, the conventional theoretical framework works on the foundation of neoclassical economics, which presumes that perfect information neutralises the harmful effects of economic exchanges. Hence social cost is non-existent and is not an imperative in economic analysis. The Coase Theorem specifies that neoclassical equilibrium exists only when transaction costs are zero but in the real world economy, imperfect information ensures that transaction costs are greater than zero. And failure to consider social costs in an analysis of Singapore’s political economy

80 The Singapore School is in nature apolitical and ahistorical and ignores the institutional environment. Likewise, the Singapore Critique, while it incorporates politics as an imperative in the study, also overlooks the evaluation of the inner working mechanisms of Singapore’s political economy. That is, how and on what principles the Singapore economic black box works has yet to be adequately understood.

407 is problematic as it overstates economic efficiency.81 It is unrealistic and misguided to ignore harmful effects in a study of Singapore’s political economy because of extensive state social engineering in the relations between the state and the people, and pervasive state intervention in resource allocation. Inevitably, a theory that ignores the social costs of policy is also inappropriate as an analytical tool to study Singapore’s political economy. The perception that Singapore has ascended to first world status from a third world economy is an overstatement as it fails to factor in the social costs in the economy. Deficiencies in the conventional theoretical framework have undermined a comprehensive appreciation of the intrinsic nature and characteristics of the Singaporean state. Given the state’s pre-eminent role in regulating all social interactions in politics and the economy, the failure to explicate the inner working mechanisms of the state of Singapore is critical. This is because the nature of these inner working mechanisms predetermines the characteristics of the PAP state. Despite fairly extensive research on Singapore’s polity, understanding of the intrinsic nature and characteristics of the Singaporean state and its inner working mechanisms remains woolly.

Amid such theoretical deficiencies and the disarray of research outcomes, this study sought to put forward a theory of Singapore’s political economy on the foundations of neo-institutionalism. Three theoretical foundations are indispensable in the conceptualisation of this new research model. These are Ronald Coase’s economics of transaction costs, Steven Cheung’s economics of property rights and Douglass North’s theories of institutions and institutional change. Collectively, the new infused theoretical framework offered some new, powerful and penetrating analytical tools that allowed this study to go beyond the scale and scope of most research into Singapore’s political economy. 82 This analytical model also incorporated the seven imperatives that are critical to this study and which were identified in the literature review on Singapore’s political economy. These include

81 Social cost reflects the harmful effects of policy and policy outcomes. 82 Neoinstitutional economics envisages economics in a real world situation where transaction costs are greater than zero, hence culture, customs, and other social institutions play a role in economy. In short, through the examination of the institutional matrix of a society, the methodology enables a more penetrating analysis of economic development.

408 historical perspective, international politics, social institutions, social cost, the institutional environment, the economics of property rights, and the theory of institutions and institutional changes. Given the primacy of transaction costs in exchanges, transactional analysis of social exchange was fundamental. Technically, a process analysis pre-empted error of the functionalist approach in economic analysis.83

Equipped with the newly devised analytical framework, this study re-examined colonial history to identify the key institutions of the era, since path dependency in economic development entails the need to appraise present events in light of the past. This led to the identification of a dualist political economy, a feature unnoticed in conventional economical analysis. Given the importance of the Chinese informal economy in Singapore’s political economy, this study also offers a new theorisation of the workings of Chinese business networks, an area where numerous efforts have been attempted but meaningful theorisation has yet to be made.84 This study re-examined the postwar political transition, as many of the major political transactions have had a profound impact on the present political environment. Because the logic of present day politics flows from the historical past, historical baggage plays a role in Singapore’s domestic politics and Singapore’s political relationship with Malaysia. Notably, most informal rules that emerged to rule social exchanges in Singapore were the outcomes of political contestation in the 1950s and early 1960s.

Importantly, this study investigated social transformation in six realms of Singapore political economy that have hitherto not been analysed because of

83 A functionalist approach that emphasises the study of policy outcomes is potentially misleading because unexpected policy outcomes are pervasive due to imperfect policy. The research conclusions are erroneous because the subject matter of the study is mistaken. 84 The culturalist approach merely identifies cultural variables as imperative in economic development but does not analyse the working mechanism of how Chinese values impact on the economy. But a transactional approach not only explains how and why certain Chinese values is affecting economic development but also able to quantify the extent of such influence over economic performance.

409 deficiencies in conventional analytical tools.85 This study explicitly incorporated social cost in the evaluation of policy and its intended and unintended policy outcomes. It offers insights into the rationale for and consequences of reconstitution, resettlement, socialisation, nationalisation, industrialisation and privatisation. These factors have practically altered in totality the Singapore institutional environment into a PAP-defined society. Information on reconstitution is not lacking but the political implications of reconstitution remain under- researched. 86 Much has been written on Singapore’s public housing but the changed in relationship between the state and the people to that of creditor and debtors and the creation of a hostage society has yet to be properly understood. Research on Singapore’s ideology, national agenda, Asian Values and Shared Values are numerous but the political economy implications of the creation of a user-pays society have escaped scholarly attention. Nationalisation is a research area that scholars have missed completely, despite the PAP’s claim that socialism works in Singapore. The presence of private property in the economy has obscured the pervasiveness of nationalisation.87 This study thus devised the concept of the stolen vehicle in the context of property rights to test for nationalisation in Singapore’s economy. Industrialisation is an area that has been well researched, but the role of politics in the economy has not been adequately investigated and this has resulted in many fallacies in research conclusions.88 This study identified such misconceptions and offered a new dimension to the understanding of structural change in industrialisation, especially the relations between the state, the SOEs and the private economy. Privatisation is a research area that has yielded the most erroneous conclusions, since there was never any rolling back of the state in the

85 This study identified reconstitution, resettlement, socialisation, nationalisation, industrialisation and privatisation as six major social transformations. 86 The official interpretation of information conveniently ignores the real agenda of the policy and policy changes. The Singapore School as norm only analyses policy along official lines and does not stray beyond the PAP’s parameters. 87 In the context of neoclassical economics, the presence of private property in economy hides the fact of nationalisation. Without the concept of economic property rights, it is technically difficult to discern the pervasive forfeit of private economic property rights in Singapore’s economy. 88 The functionalist approach is one of the prime causes of myths in the study of Singapore’s industrialisation. Without factoring in the external environment, the effectiveness of the PAP’s economic policy is exaggerated.

410 economy. This study offers a new interpretation of the privatisation of the SOE economy and concludes that the process as an ersatz privatisation.

Starting from the six major social transformations, this study identified nine unique characteristics of the PAP state. These are the some-men-no-vote election system, the technical and dependent judiciary, the PAP as a national movement, Lee’s Law as the supreme informal institution, rational ignorance of the citizenry, procedural rationality in standardisation of social behaviour, the forfeit of common property tights, forced consumption in personal finance, and the user-pays society. Of these nine attributes, Lee’s Law as the supreme informal institution is the core attribute and the others are peripheral, operating in support of Lee’s Law’s pre-eminent position. It also identified the salient feature of information as a resource for political control since the information haves and have-nots determine the insiders and outsiders of Singapore politics.89 Collectively, these attributes offer Singapore as a predatory state with positive economic development, an abnormality in the context of developmental economics. And to reconcile the disparity between predatory behaviour and development, this study adopts Mancur Olson’s theory of the stationary bandit to rationalise economic development in Singapore. The stationary bandit with a predatory instinct is potentially devastating in the longer term and detrimental to Singapore’s future. This study focuses on the present nature of the state in Singapore but envisages Singapore’s likely future. Accordingly, this study identified distributional coalition and institutional sclerosis as two crises that need to be addressed in the Remaking Singapore movement.90

89 Information cost is a key element in any determination of transaction costs in Singapore’s economy. Given that state economic planning is not public information but dispensed on a need to know basis, economic players have a different information cost curve depending on their ease of accessing the required information. Implicitly, SOEs have an information edge over the private economy. 90 PAP inner circle is not unaware of the risk of distributional coalition and have recently updated the rules in accepting directorship in private and SOE economy. The issue is not updating the rules but the ability to monitor and enforce the rules. Likewise the remaking Singapore movement is also intended to rid of policy that is hindrance to economic development. However, not until the Lee’s Law is reviewed the problem of institutional scleroses is likely to remain in Singapore political economy.

411 In a real world political economy the issue is neither the debate on the merits of the market or the state in regulating resource allocation nor the search for the rights or wrongs of allocation policy but the investigation of least cost institutional arrangements that offer optimal economic coalitions of resource owners in economic endeavour. Explicitly, the market and the state are no longer antagonistic institutions but rather act in concert with the social institutions of culture, language, custom and religion to form the core institutions that regulate all aspects of social exchanges. Implicitly, the market and the state are two major institutions of society.

Under the framework of Douglass North’s theorisation, when transaction costs are greater than zero, institutions matter. They matter because institutions as humanly devised rules and regulations facilitate exchanges and reduce transaction costs. One formal institution is the law, established through systematic procedures, and the most fundamental law, constitutional law, is the most difficult for politicians to amend.91 In North’s model, which is based on Anglo-Saxon culture, constitutional law is designed to be entrenched in society and unable to be altered in response to political whim. Under the Anglo-Saxon model, formal institutions prevail as the rules of society, and informal institutions play a lesser and secondary role, complementing the operation of the formal rule of law. This critical condition, however, is absent in Singapore. This is because Singapore’s ruling party enjoys an absolute majority in parliament and all laws, including constitutional law, can be repealed in parts or in whole at the whim of the ruling politicians, so there is no constitutional protection of human rights and private property. The Singapore experience is therefore an exception to North’s model. This is because of differences in culture in particularly the Asian Values market model has been superimposed over the Anglo-Saxon capitalist model whereby the elected despot

91 In the Anglo-Saxon model, formal rules are well protected from political manipulation. Constitutional law offers basic protection of human rights.

412 rules and informal institutions prevail.92 This is a unique feature in Singapore’s political economy.

In Singapore the governing forces of informal institutions form the inner working mechanism of the Singapore state. Informal rules are pre-eminent in regulating social exchanges in politics and resource allocation. Singapore’s informal rules or Lee’s Law, as it comes chiefly from Lee Kuan Yew and his close associates. Lee’s Law was a product of 1950s politics but it prevails in twenty-first century Singapore because the PAP’s survival instinct has precluded any modification. Prime Minister Goh worked within the ambit of Lee’s Law. In fact the operations of Lee’s Law prohibited the emergence of Goh’s Law as a replacement. Given the operation of Lee’s Law, Lee Kuan Yew remains at the pinnacle of the political hierarchy despite his less senior protocol position in Singapore’s political system. Lee’s Law plays such a key role in Singapore that without a comprehensive understanding of it, many events in Singapore cannot be correctly deciphered. The amended Land Law, forced consumption in public housing, the Third China theory, the closure of Chinese schools and Nanyang University, the merger with Malaysia, the Peh Yew Kok affair, the Marxist Conspiracy, Shared Values, privatisation, and the SIA pilot union saga can only be properly understood in the light of Lee’s Law. Since informal institutions are neither subject to constitutional control nor judiciary review, Lee’s Law is the supreme institution in Singapore. The socialisation of Asian Values has elevated Lee’s Law to celestial law, in line with imperial rulers who were perceived to have received the mandate of heaven. It therefore demands absolute compliance, and non-compliance is severely punished because Lee’s law ensures that political adversaries crawl on bended knee and beg for mercy. But the PAP is not known to have mercy on its opponents. The informal rules are strictly enforced through the formal institutions of the police and the judiciary. Lee’s Law is also promoted and enforced in the bureaucracy as part of the ‘monkey-see,

92 Under the Asian model, cultural differences are used to deny the relevance of the Anglo-Saxon model to Asian society, and without the entrenched constitutional protection of individual human rights, the citizenry is subjected to informal rules defined at the whim of elected despot. The term elected despot is used because the election outcome is merely a confirmation of the intended policy outcome, and not a reflection of voters’ political aspirations.

413 monkey-do’ syndrome. This syndrome has resulted in the proliferation of many ‘little Lee Kuan Yews’ in the elite civil service who behave as if they have a mandate from the emperor.93

Informal institutions have a long tradition in Singapore and they played an essential role in ordering the Chinese community and regulating informal Chinese business networks in Southeast Asia economies. Although the Chinese business network has attracted much scholarly attention, other than the identification of Chinese clan, culture, guanxi and xinyong as imperatives in composition of the network, most theoretical frameworks have been unable to decode their economic functions.94 While guanxi and xinyong have been well researched, the working mechanism of informal rules in the Chinese community remains obscure. Given the importance of the role of the informal Chinese economy in Singapore economic development this study offers a novel attempt in the theorisation of informal institutions in the Chinese economy. It puts forward a theory on the economic function of Chinese culture in changing transaction costs in an unregulated market economy.

The Chinese were historically a pariah class to both colonialist and native authorities and given British neglect, the Chinese relied on clanship for mutual help in social exchanges. This social response to a hostile environment laid the foundation for the emergence of informal Chinese business networks. Guanxi and xinyong are two major informal institutions that hold together and propel the Chinese informal economy. Guanxi is a club good that entails club member have privileged information, since information is essential in the absence of a formal institutional environment and protection of private property is non-existent. Guanxi reduces information costs and also accords reciprocity in respecting each other’s

93 The monkey syndrome that resulted in the proliferation of many ‘little Lee Kuan Yews’ is the outcome of socialisation in the civil service. It is part of Lee’s Law that the grandfather prefers ‘similar’ grandchildren. This is reflected in the absence of ‘non-conforming’ bureaucrats in the civil service. See also note 26 in Chapter Six. 94 Guanxi and xinyong are two key Chinese institutions that have shaped Chinese economies in Southeast Asian and in today’s Greater China. The ways in which guanxi and xinyong have reduced transaction costs in social exchanges is fundamental to an understanding of the workings of Chinese economies.

414 property rights. Guanxi entails a lower transaction cost environment that facilitates trading within the network. Xinyong mobilised scarce resources in an illiquid capital market, using tontine as an informal credit syndicate. In the trading economy, xinyong as a substitute for financial capital also facilitated the free flow of goods on consignment. The comprador system, an economic coalition of resource owners, works mainly on the basis of guanxi and xinyong. Chinese secret societies as the third-party enforcer of rules are the third key informal institution that played an economic role in the monitoring and enforcement of contractual obligations in the informal economy. Without enforcement of informal rules, the informal Chinese economy would not have flourished. Collectively, guanxi, xinyong, and secret societies enabled lower costs of negotiation, contracting, monitoring, measuring and enforcement in the network.

The informal Chinese economy survived alongside the mainstream economy dominated by international capitalists, and path dependency conditioned the foundation of a dualist political economy in Singapore. Dualism was the unintended outcome of economic alliance of European agency houses and Chinese compradors in the context of the international division of labour. Singapore’s open economy predetermined Singapore’s submissive relations with the world capitalist system. But Singapore’s subordinate position was also partly a PAP-deliberated decision as PAP rejected the path reversal of anti-colonialism. The PAP decision to forego economic nationalism was against the spirit of anti-colonialism, an unusual and abnormal choice for an ex-colonial country. The PAP traded off economic nationalism for pragmatic benefits in the case of economic development.

After the war, as the anti-colonialist transfer of political power to the locals became imminent, the British Special Branch used arrest, detention without trial and deportation to purge leftist politicians and pave the way for the PAP ascendancy in Singaporean politics. That is, international politics in the context of the Cold War chose the PAP as the heirs to the British in Singapore. When the PAP was defeated in two successive by-elections in 1961, this alarmed the British and the plan for

415 Singapore’s merger with Malaysia was mooted. As a precondition for the merger, Operation Cold Store was launched in 1963, followed by the closure of leftist unions. As a result, most anti-PAP elements were uprooted. This purge laid the foundation for the PAP as the single dominant party in Singapore’s parliament. The inherent conflict of interest between the UMNO and the PAP brought about the eventual separation of Singapore from Malaysia. The UMNO only ever wanted a subordinated Singapore in Malaysia, but the PAP had very ambitious political objectives in Malaysian politics. However, the PAP was unable to deliver the promised common market in Malaysia, and this afforded the MCA the opportunity to undermine the PAP in Singapore. The racial riot that was incited in 1964 made Singapore’s position in Malaysia untenable, and Singapore was offered the choice of a change in political leadership or withdrawal from Malaysia. Although Singapore’s independence was seen as a political joke, the PAP opted for independence. This had social costs when the party’s interests diverged from the national interest. In these cases, the PAP’s private interest was given priority.

After independence, social engineering began in earnest. Reconstitution dismantled the Westminster political system in Singapore, and paved the way for Lee’s Law as the supreme informal institution to rule at will and with impunity. Resettlement demolished anti-PAP organisations and re-housed over 80 per cent of Singapore’s population under the terms and conditions of the ruling politicians. Forced consumption of public housing is the PAP’s unilaterally defined social contract to exchange public goods for political support. Public housing resulted in a relationship of creditor and debtor between the state and the people and created a hostage position that subjected the people to political ransom. The landlord–tenant relationship also allowed the PAP to condition social behaviour through tenancy contracts that are amendable at will and with retrospective effect. Socialisation is a brainwashing mechanism that inculcates the PAP’s worldview and value system so as to standardise people’s means of deciphering information for social decisions. Through persistent propaganda, people are conditioned to parrot PAP catch phrases such as pragmatism, meritocracy, survival, win–win policy, and nipping in the bud.

416 The alignment of views ensures the perception of PAP policy as fair and equitable and such perception encourages compliance. The promotion of Asian Values repositions the family as the basic unit of society had has laid the foundation for the commercialisation of public goods. The family as a unit is thus responsible for paying and caring for sick and aged family members and also the costs of educating children.

Pervasive state intervention through nationalisation ensured PAP’s near absolute control of the factors of production in land, labour, capital and information. Deprived of entrenched constitutional protection, there is nothing in Singapore that is safe from PAP confiscation, including personal freedom as in the case of conscripted forced labour for national defence. All land not yet acquired by PAP is technically on a ‘call option’, a situation that accords the PAP the freedom to exercise the call at whatever strike price it wants. Labour and land, together with forced savings in the CPF, are all private resources subject to state manipulation. The pervasive non-market pricing of the factors of production has yielded a rent economy that prevents assets from reaching their highest valued use in the economy. PAP intervention is therefore detrimental to economic efficiency in the market economy. This state of affairs casts doubt on the conventional wisdom that Singapore’s economy is efficiency and a model for developing and even advanced countries to emulate.

Singapore’s economic policy is intrinsically predatory. Given Singapore’s economic performance, however, conventional theorisation that predatory behaviour precludes economic development challenges the notion of Singapore as a predatory state. But the nature of predatory behaviour in Singapore differs from that of other economies. In the Singaporean experience, state policy is predatory, but ruling politicians are not personally corrupt. Indeed, Singapore prides itself on being a corruption-free economy. 95 Predatory behaviour and economic development can be reconciled under Mancur Olson’s theory of the stationary

95 For an overview of corruption in the economic development of developing countries, see Buscaglia and Ratliff, 2000, which has a high regard for Singapore’s anti-corruption measures.

417 bandit. Given the empirical evidence, this study concludes that PAP Singapore fits the definition of the economic model of the stationary bandit in a market economy. In Singapore, while state predatory behaviour is pervasive in the economy, nonetheless a ‘fettered’ market mechanism exists to enable transactions across the market.

PAP political supremacy and absolutism in resource allocation is not without social cost. This study identified the two major crises – distributional coalition and institutional sclerosis – from the inner working mechanism of the PAP state. Distributional coalition derives from the fact that Lee’s Law has pre-empted any form of political contestation in either intra- or inter-party politics. The prolonged hold on power without contestation has created cartelism and special groups have emerged to seek incremental distribution. The potential prize of the GIC and the SOE economy offers a great incentive to form distributional coalitions for financial gain. And institutional sclerosis is created because Lee’s Law’s distaste for opposition politics has forestalled incremental institutional change within the present polity. The absence of incremental change through peaceful means of bargaining and mediation in society encourages discontinuous institutional changes through means of violence and revolution. The absence of mediation mechanisms also prevents recontract for gain, and this is detrimental to economic efficiency.

Since December 2001 Singapore has embarked on a Remaking Singapore movement, and it offers Singapore an opportunity to release the entrapped human resources and creative energy in society. Given institutional sclerosis, a political transformation is essential for Singapore’s next phase of nation building. The Remaking Singapore movement entails review, modification, and remaking of the inner working mechanisms of the state of Singapore. Merely ‘rethinking’ existing policy is insufficient to eradicate the embedded rigidity. Lee’s Law is the outcome of 1950s politics, an era that is now history. Its usefulness and relevance to regulate social exchanges in a changed new world has diminished. A paradigm shift that rolls back the PAP in Singapore and involves looking forward into Singapore’s

418 future is critical. It is not a question of more political control over personal choice but rather restoration of personal choices in the market economy and the functioning of an unfettered free market economy. Historically, Singapore has survived many challenges, and there is no reason why Singapore cannot continue to prosper. Indeed, any perception that Singapore could fail is a political joke.

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