The Singapore Economy Reconsidered owes its origins to a growing concern within and outside the Institute for the need of a comprehensive survey of the Singapore economy, particularly over the medium term. The decline of the economy in 1985, for the first time in twenty years, focused these concerns even more sharply, since it brought to light structural difficulties that had been hidden by the general economic growth. At the same time, the findings and recommendations of the Economic Committee, set up in 1985 under the chairmanship of the then Acting Minister for Trade and Industry, Brigadier-General (Res.) Lee Hsien Loong, provided additional data and a bench-mark to launch critical investigations into both the trends and desired future directions of the Singapore economy. It was felt that this objective could perhaps be best achieved if investigations were undertaken by a team of researchers, including those from outside Singapore, who could bring fresh insights and perspectives to the problems involved.

The first step taken to give substance to this idea was to check on the availability of Dr Lawrence B. Krause, and to seek the cooperation of the Brookings Institution where he worked as a Senior Fellow. Dr Krause had participated and helped direct three country studies for the Brookings Institution — on the United Kingdom, Japan, and Australia — and was known to have professional interest in Singapore. He readily endorsed the idea of a study along the lines above, and the Brookings Institution agreed to give him leave to undertake it.

For the Singapore component of the research team, Dr Koh Ai Tee and Dr Lee (Tsao) Yuan of the Department of Economics and Statistics, National University of Singapore, were approached and they too agreed to participate in the study.

Working contacts were also established with the Ministry of Trade and Industry and the Monetary Authority of Singapore, in terms of access to information and any other assistance required.

Historical Background

The geographic characteristics of the Peninsular Malaysia — a long and narrow peninsula with a 1,900-km coastline — give support to the belief that fishing in the inshore waters is as old as settlement in the coastal lowlands of the country. These coastal villages, self-sufficient in food and other necessities, were beginning to engage in some trade as early as the last century BC (Ryan 1962). Dried and salted fish were among the traditional items of trade and by the fifteenth century there was an extensive trade in them throughout the Malay archipelago. Malacca's main domestic product at the end of that century was fish (Meilink-Roelofsz 1962).

With the establishment of British rule and the growth of urban centres in the Malay Peninsula, the demand for fish increased considerably. This in turn attracted fishermen from among the immigrant communities, mainly Chinese and, to a lesser extent, Indians, who in contrast to the Malays took to fishing as a full-time commercial occupation. Entry to the fisheries was unrestricted and required only the payment of a small annual licence fee for nets and fishing stakes. By the second half of the nineteenth century these commercial fishermen had built up a thriving fishing industry along the west coast of the peninsula and the east coast of Johore, serving the markets of Western Malaya (now Peninsular Malaysia) and Singapore. In the 1890s, for example, Penang and Province Wellesley had a multiracial group of fishermen; north Perak, some 1,100 fishermen of whom 90 per cent were Chinese; and Kuala Selangor, over 500 fishermen, mainly Chinese (Dew 1891; Maxwell 1921).

The fishing industry expanded in the early twentieth century as the establishment of a modem road and rail transportation network and the availability of ice allowed for the long-distance haulage of fresh fish to the main towns. By 1920 the annual movement of fresh fish by rail to the urban areas of the Federated Malay States had reached 7,000 tons. In addition, substantial quantities of dried fish were shipped from the East Coast states to the Straits Settlements and the Federated Malay States (Winstedt 1923).

Introduction

For many years, forecasts of the economy of Hong Kong have been made utilizing a macroeconometric model using annual economic data. The annual model forecasts medium-term trends in the economy and makes three- to five-year forecasts for such economic aggregates as the gross domestic product (GDP) and the general price level (Lin and Chou 1985). However, it says very little about the short-term fluctuations in these aggregates.

Thus, to fill this lacuna, a model designed more specifically to explain the short-run changes in output and prices is presented here. The quarterly econometric model of the Hong Kong economy focusses on the determination of GDP and its components as well as on the general price level. It consists of 31 equations, of which 17 are stochastic and the rest are identities. The equations depict behaviors in six sectors of the economy: private consumption, private investment, foreign trade, manufacturing, price level, and money.

The model contains 71 variables, of which 31 are endogenous and 40 are exogenous, and is estimated by using 48 quarterly observations from 1974 Ql to 1985 Q4. The endogenous variables with equation references, and the exogenous variables are listed in appendix A.

Raw data of the variables come from two sources. The unpublished quarterly GDP series were obtained directly from the Census and Statistics Department (CSD) of the Hong Kong government. And with the exception of value added in the manufacturing sector (XM), the employment, price, and money variables were taken from various issues of the Hong Kong Monthly Digest of Statistics. Data for XM are compiled by interpolating related series.

In the following section, the economic-theoretical content of the model is presented. Then three historical simulations and ex-post forecasts are performed to help evaluate the model. Finally, the paper ends with a multiplier analysis.

The Structure of the Model

There are 31 equations in the model, of which 17 are stochastic and 14 are identities. All identities of the model define one variable in terms of the others. A more detailed explanation of these identities is given in appendix A. This section provides a theoretical discussion of the 17 stochastic equations. One of the most difficult problems that was encountered in the process of constructing the model was the specification of appropriate lag structures.

The development of resource-based industries has featured importantly in the industrialization strategies of both Malaysia and Thailand. Agriculture had been the leading economic sector in the two countries until very recently. Since 1987 manufacturing has overtaken agriculture and is continuing to expand rapidly. Both governments are giving prominence to industrial development in their economic development strategies (Ng, Hirono and Siy 1986). Given that the two nations are noted to be resource-rich countries, it is only natural that resource based industrialization should become a cornerstone of their industrial policies.

Resource-based industries (RBIs), defined simply, are generally taken to mean those industries that are involved with the downstream processing and manufacturing of the country's agro and mineral products, usually termed “primary industries”. The discussions here will focus on the manufacturing industries that make use of the products of the primary industries and convert them into higher value-added finished and semi-finished goods.

In a survey of resource-based industrialization in the developing countries (DCs), Roamer (1979) has attempted to shed light on the potential contribution of industrialization based on resource processing to efficient growth, employment creation, greater equity and economic independence. Two industrial strategies that are primarily based on the utilization of natural resources have been receiving emphasis in the developing countries. One is that of the more complete processing of raw materials for export; the other is the utilization of domestic resources mainly for domestic consumption. Generally, a major portion of resource commodities is exported in unprocessed form. There is, therefore, considerable scope for further processing or fabricating these products for export or for home use.

However, since it is not obvious that resource-based industrialization is better suited to achieve national development goals than other potential strategies, the Roamer paper surveys the development literature to throw light on related issues of economic development. The highlights of his survey are as follows.

With the exceptions of wood products, processing tends to have a high capital-labour ratio.

Introduction

Since 1982, numerous capital and money markets around the world have encountered distressing scenarios to a growing extent and with increasing frequency. The interplay between poor performances of debt-ridden developing countries and rather headstrong creditors, amidst thrilling atmospheres of intermittent economic growth and protectionism in industrial countries, seems to foreshadow a vicious circle. There are widespread fears in international financial arenas that the present cross-country credit system could collapse. Oppressively beset by a colossal volume of debt service to be remitted to creditors abroad, several debtor countries have already found it necessary to adopt austere economic measures in order to spare scarce and valuable foreign exchange. The fates of these countries are further stymied by the fact that exact amounts of debt obligations vary wildly due to the recent and greater volatility in interest and exchange rates and that stringent but necessary economic measures stir up intimidating political tension. These plights are severely painful, and all arise from servicing previously committed debts. Therefore, from the debtors' viewpoint, renouncing debt obligations may not be immediately out of the question.

On the other hand, should a string of large debtor countries decide to collude with each other and repudiate their existing debt obligations, it is quite conceivable that privately-owned multinational financial intermediaries, in order to safeguard themselves, will try their best to limit additional commitments overseas. Such limitation will, in turn, further endanger debtor countries with regard to their debt-servicing capacity or capability in managing and refinancing their portfolios. In other words, the establishment of any debtors' cartel would certainly cloud the outlook of debtor countries in general with respect to their future reliance on foreign capital and potential economic growth. Whether debtors will renege on or abide by previous commitments depends very much upon how debtors value different courses of action and their consequences.

The above-mentioned conflict of interest clearly displays the delicacy involved in the administration of national indebtedness. Should one trace this problem back to the beginning, one will certainly discover that there are a good number of intricate dilemmas underlying the course of external debt management. Otherwise, debt predicaments attacking numerous developing countries would not have been as prevalent and severe as they actually were during the period 1982-87.

By most standards of modernization, the Japanese industry and economy have reached the same level of development as that of advanced countries and Japan is clearly a serious contender for the top position among the world's post-industrial nations today. Yet, the everyday experiences of the Japanese are permeated with cultural traditions that give meaning and direction to their lives. One of the aspects of the Japanese way of life that portrays most clearly this combination of tradition and modernity is in the realm of health and illness.

Indeed, Japan offers a very interesting case of the coexistence of traditional and modern medical systems and this chapter will review its main current features. The presentation is organized into three sections. The first section deals with the supply of services in the modern medical system. The second section describes the traditional medical services. And the third section presents some significant trends in the utilization of both medical systems. This final section is based on survey data collected by Japanese researchers who studied various subsamples of the population in Japan.

The Modern Medical System

By international standards, the Japanese enjoy today a large and growing modern medical system. The most reliable statistics on the size and characteristics of the modern medical system are provided by Japan's Ministry of Health and Welfare (MHW). Comparing the MHW's national figures on modern medical personnel from 1972 to 1984 (Table 3.1), it is clear that the pattern of growth is found in all categories of personnel from medical doctors to assistant nurses. The only exception to this trend are midwives; their number declined from 30,246 in 1972 to 25,887 in 1984. However, the increase in personnel has not been even. The most rapid growth has been that of the number of nurses. There were 334,146 nurses (including assistant nurses) in Japan in 1972; this figure represented 331.3 nurses per 100,000 population. In 1984 the number of nurses had increased to 625,773 or 520.5 per 100,000 population. The increase in medical doctors has been higher than that of dentists, pharmacists, and public health nurses, but much lower than that of nurses.

In the account of his travels through Southeast Asia during the second quarter of the seventeenth century, the Augustinian Father Sebastien Manrique describes

Eckford Luard, Manrique's translator and editor, writing in 1927 says,

He ends this note with an identification of the peoples mentioned as practitioners of this particular ritual:

Fray Manrique's account, whether pirated or not, is a suitable text to introduce this volume.

Introduction

In the past, and for a variety of reasons, participation by developing countries in the General Agreement on Tariffs and Trade (GATT) has been minimal. However, as a result of changes in the international trading environment and the slowdown in world output and trade growth, the developing countries have generally taken a greater and more active interest in the Uruguay Round that was launched in September 1986. But the developing countries have not reached an overall consensus on the level of involvement and the positions they will take on the issues being discussed in the GATT negotiations. This is not surprising given the wide range of topics on the Uruguay agenda and the diversity within the developing countries.

Nonetheless, it is imperative that the developing countries continue their participation in the negotiations. If the developing countries hesitate to take part in the latest GATT round, or if they enter only with a defensive stance with respect to their old rights, little will be gained. There is an even greater danger in that the industrialized countries may agree amongst themselves and leave the developing countries out in the cold.

The trend towards regionalism, especially by the United States and the European countries, is particularly alarming and will likely have a significant impact on the Uruguay Round and the position of the developing countries in the global market. The impending consolidation of the European countries in 1992 and the recent increase in U.S. bilateral arrangements, in particular the U.S.-Canada Free Trade Area pact, raises questions as to the commitment of these countries to the multilateral framework and the chances of success in strengthening the GATT system. Moreover, the trend towards regional blocs implies a closing of markets for developing country exports.

Developing Countries' Passive Participation in Past GATT Rounds

Although GATT is a post-World War II organization that is related to the United Nations, many developing countries that became independent after the war did not become GATT members until much later. For example, while Indonesia became a member of GATT early in its independence in 1949, the Philippines did not join until the end of the Tokyo Round in 1979. Thailand's membership was even later in 1982. Big oil countries such as Saudi Arabia and Venezuela are not members at all. Mexico has only just acceded to the GATT, and China will participate in the latest round as an observer.

Can theory help explain the role of the government in the economy of Singapore? In the early literature of economic development, economists viewed the state as a benevolent and unitary actor, behaving solely in the societal interest. The government was seen as able to obtain needed information, and then equipped with that knowledge and the available policy instruments, could intervene in an optimal way to correct any market failure and promote rapid development.

That view was dissipated by the reality of governmental interventions (both in developed and developing countries) that often did more harm than good. Indeed, government failures proved more damaging than market failures. Government bureaucrats were often forced to make business decisions with even less information than was available to the private sector. Politicians and bureaucrats turned out to be motivated by personal ambition and desires that did not necessarily lead to the improvement of the public good. And government power was manipulated by private agents to benefit particular groups, often at the expense of the general welfare.

In response to this reality, economists using traditional neoclassical tools developed theories of government in the economy, but none of them provide much insight into the essential nature and far-reaching role of the government in the Singapore economy. However, some insight can be obtained from the work of economic historians such as Douglas C. North (North 1981). These economic historians define the optimal or neutral state as one that takes actions that would emerge with perfect markets, which if accomplished by the private sector, would require intense competition.

Since Singapore is a small country, the law of large numbers cannot operate. Therefore, perfect competition in private markets is precluded, and the role of the government must necessarily be relatively large in order to counter market failures. While international trade allows individual factories to reach economies of scale, trade does not relieve the constraint of size limiting the total number of factories and their product and industry diversification.