SPEECH BY BG LEE HSIEN LOONG DEPUTY PRIME MINISTER AT THE NANYANG TECHNOLOGICAL UNIVERSITY (NTU) STUDENTS' UNION FORUM ON FRIDAY, 10 FEBRUARY 1995 AT 6.00 PM SINGAPORE'S STARR IN THE 21ST CENTURY AND THE ROLE OF UNDERGRADUATES Introduction I am happy that you have invited me to talk about Singapore's stake in the 21st century, and the role of undergraduates. We are living in an exciting period, and it is useful from time to time to sit back from day to day preoccupations and take stock of longer-term trends which affect us. I propose to review how successful Singapore has been so far, and how strong is the competition we face. To illustrate how we respond to competition, I will give examples of how we maintain Singapore's position as a regional hub, in telecommunications, in sea and air transport. The key lesson from these examples is the absolute imperative of always staying ahead of the competition, fully expecting others to follow in our foot steps and occupy the place we stood not so long ago. Finally, I will discuss three long-term issues which face Singapore: Maintaining social cohesion, maintaining the vigour and vitality of Singapore society, and managing the high expectations of the population. Success and Challenges What will the world be like in the 21st century? We cannot forecast the future, but we can see where present trends are leading. The pace of change, driven by technological 2 progress, will be even faster than today. The global economy will be more tightly integrated and interdependent, as advances in technology and higher standards of living will depend on greater economies of scale and international division of labour. Human resources rather than natural endowments will be the key ingredient of economic success. The premium on skills and knowledge will be even larger. Barring major upheavals, and especially assuming that all goes well in China, the Asia Pacific should be a prosperous, dynamic region, a major centre of the global economy. The progress of the region will either help us to a progress with it, or else leave us behind. Whether we progress or fall behind depends on what we do. We are doing well. The World Bank recently published figures comparing the per capita Gross National Product (GNP) of countries, adjusted for purchasing power parity (PPP), i.e. allowing for differences in the cost of living in different countries. We rank very high - ninth in the world. The only countries ahead of us are Luxembourg, US, Switzerland, Hong Kong, Japan, Germany and some oil states. We are ahead of all the European countries except Germany. In PPP terms, our per capita income (US$20,470) is only 20 per cent lower than the US (US$24,750). This high ranking did not happen by accident. We achieved it by getting our overall policies right - maintaining high savings rates, emphasising education and training, investing in infrastructure, avoiding handouts and state welfare. Foreign investors and the financial markets know this. Recently, financial markets around the world were shaken by the devaluation of the Mexican peso. The currencies of several countries in this region came under speculative pressure, because investors worried that what had happened to Mexico could also happen to them. The Singapore dollar was hardly affected. Unlike the other central banks, the Monetary Authority of Singapore (MAS) did not have to 3 raise interest rates to support the Singapore dollar, In fact, money came into Singapore, to seek refuge during the unsettled conditions. The Asian Wall Street Journal (AWSJ) recently published an article on "Other Mexicos in the Emerging World" by David Roche, president and global strategist of Independent Strategy in London. [AWSJ, 6 Feb]. Roche studied all the "emerging markets" in the developing world. He constructed an index to measure the key social, economic, political and cultural success factors in economic development. On this index, Singapore ranked top among all the countries studied. Hong Kong ranked second after us. We are an emerging market, not a submerging one. Roche described the common features of successful emerging economies: "First, they have homogenous societies that focus on getting rich and have legal systems to match that ambition. Second, they finance over 95 per cent of their development needs out of their own pockets and limit expenditure on external finance to long-term money inflows not exceeding five to six per cent of gross domestic product (GDP). Third, their governments boost domestic national savings rates by running budget surpluses (or at least balanced budgets), and focus resources on education, health and industrialisation. And fourth, their economies are wide open to international trade, and run current account deficits no greater than three to four per cent of GDP." These are precisely the policies that we have followed. 4 Roche goes on to cite Singapore as an example of how successful economies manage capital inflows by letting their exchange rates appreciate: "A rising currency gives a market signal to domestic producers: Move your product upmarket and boost productivity, or else lose competitiveness in domestic and export markets. Singapore has been producing ever-more sophisticated goods for years, while letting the currency appreciate. The rest of Southeast Asia will have to follow." We are therefore well prepared to compete and to benefit from the dynamism of the region. But our high income level also means that we are now up against formidable competition. The competition is not so much our immediate neighbours Malaysia and Indonesia. We are also competing against the other emerging economies who are getting their fundamentals right e.g. Hong Kong, Thailand, South Korea, and in the longer term, China. In fact, to some extent even the developed countries are our competitors. Our PPP-adjusted per capita GNP may be higher than many European countries. But our economy does not yet have the depth, breadth and maturity of theirs, whether in terms of educated manpower, technological know-how, or well-established MNCs. More than once, the Economic Development Board (EDB) has competed for an investment project, where the alternative to Singapore has been not another developing country, but a European country or a state in the US. so to sustain real income levels comparable to the developed countries, Singapore needs to equal the performance of the developed countries, if not across the board, then in specific key niches. This formidable competition means that it is entirely possible for us to fall behind, and lose our edge over others. We have become so used to 25 years of apparently effortless success that we may find it difficult to imagine that this can 5 happen. But in fact it can easily happen. External factors totally beyond our control may overwhelm us, despite all that we do. A global economic crisis may cause the world trading system to break down into protectionist blocs, and deprive us of export markets, without which our industries cannot survive. Or serious difficulties in some countries in the region may undermine regional stability and order, and prevent the other countries from prospering peacefully as we have done thus far. Alternatively, something may go wrong within Singapore. We may become complacent, or elect an incompetent government, or pursue wrong policies which bankrupt us e.g. welfare. Then we will suddenly find ourselves off the virtuous circle of high growth, budget surpluses and rising incomes, and in a vicious spiral of a stagnant economy, budget deficits and poverty. Preserving Our Hub Status An important strategy for economic success has been to make ourselves a regional hub for all kinds of business activity. This is how we have become a telecommunications hub, a sea hub and an air hub. This hub position is not the inevitable result of any natural geographical advantage or monopoly position. It is the result of deliberate effort and long-term planning, to build up our capabilities and facilities, and make it worthwhile for people and companies all over the region to do business or travel through Singapore. Maintaining this hub position requires continual effort. Whether in providing telecommunications, operating a container port, or running Changi Airport, we face challenges ahead. Telecoms We have made ourselves a telecommunications hub by systematic long-term planning. Singapore Telecom, and before that Telecommunication Authority of Singapore (TAS), has for many years invested heavily in new systems and technologies. Many submarine communication cables from this region to Europe, Japan 6 and US originate in Singapore. The telecom services available in Singapore are the best in the region and equal to any developed country. But the situation is dynamic. Worldwide, the trend in the telecommunications industry is away from the traditional government-owned monopolies towards greater competition. New technologies and services are rapidly being developed and marketed: Mini-satellite dishes, satellite handphones, mobile data services, Internet, call-back international telephone services. They provide alternative means of communicating which are much cheaper and more convenient than traditional telephone and long-distance calls. Users will be able to link up more directly to the party they want to talk to, and bypass the network of traditional (PTT) operators. There is no geographical or operational reason why a satellite uplink should be in Singapore, rather than Thailand, Malaysia or Indonesia. Indeed, companies can have their own satellite uplinks, instead of depending on a central satellite dish owned by a government monopoly. These trends will make it harder for Singapore to maintain its hub position in telecommunications. We must adjust quickly to them, keep our telecommunications charges competitive, and stay abreast of new services and technologies. Provided we do this, we will remain an important telecommunications node in the region, even though we may not be the dominant hub for tele- communications.