After spending time in Singapore, I am more convinced than ever that what has given this island the world’s second– or third-highest per capita gross domestic product (in purchasing power parity) is not its “state-managed,” “politically engineered” socioeconomic model nor its authoritarian politics, but its economic freedom.
However, its social cohesion, multi-ethnic peace, and well-being, which are significantly linked to government interventionism, continue to challenge us classical liberals, who would like freedom to be the founding principle not just of prosperity but also of other desirable social outcomes.
When the Malaysian federation expelled tiny Singapore in the 1960s, no one expected this small slum-packed island, which lacked natural resources and farmland and had a mix of Chinese, Malay, and Indian communities, to become several times richer than Malaysia a few decades later. And, no, the success was not due to the Strait of Malacca or any other natural factor. Rather, it was due to its small government, which offers ample economic freedom, including low taxes, open trade, an extremely business-friendly environment, an efficient enforcement of property rights, and a strong, stable currency. Without these fundamentals, the high degree of political authoritarianism and dirigism aimed at obtaining social outcomes would not have worked.
Take, for instance, Singapore’s mandatory savings scheme, the Central Provident Fund, for housing, medical insurance, and retirement. Yes, the government runs and guarantees it, but the scheme depends on the wealth that economic freedom delivers and on the small government’s sound management of its own finances.
The same goes for public housing, which most of the population acquires through subsidized prices and subsidized loans. Unlike the Scandinavian socialist system, which eventually went bankrupt and had to be replaced with more market-friendly approaches, the Singaporean model is not founded on high degrees of wealth redistribution through expropriatory taxation.
Yes, the government holds big stakes in several industries, including transport, telecommunications, and finance, through its sovereign wealth funds GIC Private Limited and Temasek Holdings. But these industries are run like private enterprises and not as government bureaucracies. So they are competitive, providing high returns to the treasury through the Net Investment Returns Contribution. This allows the government, in part, to subsidize certain social services without running high deficits or destroying the currency.
None of this is necessary for a high level of social well-being—equally satisfactory goals could be met without the government’s current economic role. But, again, Singapore’s success flows from the economically free environment that makes high fiscal revenues possible with very low taxation.
Would Singapore’s near absence of social conflict, even with its ethnic, cultural, and religious diversity, have been possible without some degree of government interventionism—such as capping the percentage of ethnic groups represented in various neighborhoods and parts of the city, as well as the severe restrictions on speech about politics, religion, and ethnicity? I don’t know, just as I am not 100 percent sure that a much more liberal political system, one in which Singapore’s People’s Action Party had not monopolized the government for decades, would have kept the economic system free.
However, we do know that Singapore is one of the least corrupt countries in the world. That cannot be the result of its one-party system (the main opposition is mostly symbolic), its unfree press, or its control of public speech and social events, such as those organized by the LGBT community, which are limited to the Speakers’ Corner unless one obtains a public entertainment license. Most authoritarian countries are profoundly corrupt and inept. In that respect, Singapore’s success probably owes as much to social customs and traditions as to its authoritarian politics.
Some of this, I grant you, is speculative. What I do know is that Singapore is one of the most fascinating success stories of modern times and that it poses a major moral and doctrinarian challenge to those of us who value personal and political freedoms as much as economic ones.
Alvaro Vargas Llosa is a senior fellow of the Independent Institute in Oakland, California. His latest book is “Global Crossings: Immigration, Civilization and America.”