Tuesday, 28 July 2015

SG100: 'Green' domes and ideas hub

An economist visualises Singapore as a vibrant ideas hub with climate-controlled domes to keep global warming at bay
By Lim Say Boon, Published The Straits Times, 27 Jul 2015

Singapore in 50 years will likely be hotter but less crowded, highly skilled and even more connected to the international centres of capital, technology and learning.

None of the above is based on science. It is an optimist's view of the future, extrapolated from decisions Singaporeans will make over the decades in response to the challenges coming our way. Understanding the journey is more important than any deterministic vision of SG100.

With that optimist's lens in place, let us take a journey into the future.


By 2065, the debates of 50 years earlier over property prices, migrants and social benefits have become irrelevant.

Advanced ageing of the population, intense globalisation, the all-pervasive influence of the worldwide "digital brain", the Great Moderation of growth in China, emergence of new frontiers of economic dynamism in South Asia and Africa, and climate change have made the quarrels of 2015 parochial and petty.

But the journey had not been linear. In the early years of the period 2015-2065, social backlash against Singapore's rapid integration into the global economy of the 50 years from 1965 saw the ascendency of the argument that the city state could not take more foreigners, that the Government should spend more on social benefits and the expectation that domestic consumption could dwarf the importance of external demand.

None of the above was economically sustainable. But democratic politics being "the art of the possible" meant that the Government had to accommodate, at least in part, popular demands.

In a small economy where there was little scale to viably produce consumer goods outside the non-tradable sector, a domestic demand model would have led rapidly to massive current account deficits and economic ruin.

The Government of the time did not entertain such folly. But it eventually halted the intake of foreign workers and migrants as the "Singapore for Singaporeans" movement gathered momentum.

But in the process, the nationalist movement proved that GDP growth was still the sum of labour force and productivity growth. Unfortunately, not enough had been invested in the latter when the former was reined in. Growth slowed to between zero and 1 per cent.

As a result, government revenue growth slowed at a time when expenditure surged as the population aged and healthcare costs rose. The welfare lobby argued for higher taxes. Indeed, non-citizen residents should pay a higher rate of tax, the nationalist lobby demanded.

Then the Great Deflation of 2025 struck. As Singaporeans complained of high prices, deflationary forces had been gathering momentum.

Policymakers around the world who had been stimulating the economy with money they did not have had reached the end of market tolerance for government debt and deficit. They had also been printing money but with no effect on economic activity. Asset prices surged but economies contracted.

Finally, deflation/recession - in the imagery of 19th-century poet Hughes Mearns, the ghostly "man who wasn't there" - could not be denied.

This was no mere cyclical downturn. Economies stopped responding to stimuli because they were struggling under the weight of great trends: declining demographics, low productivity growth, excess manufacturing capacity, high levels of debt, the political inability of governments to allow the brutal business of economic cycles - destruction and renewal - to run its course.

China could no longer bear the weight of subsidising the producers of steel, ships, cement, paper and solar panels. Maintaining jobs for Chinese workers was important but the economy could no longer bear the cost. Meanwhile, the pressures of the international trading system became impossible to ignore.

In the United States, the workforce was shrinking, productivity had stalled, ageing consumers and the debt- laden government were spending less. Debt deflation renewed in Europe, which never worked down the mountain of government debt from the crisis of 2011-2012. Japan's massive government debt collapsed state finances, bursting its second property bubble in less than 80 years.

Singapore - still one of the most open economies in the world - was spared nothing in the ensuing recession. Property vacancies soared as a result of waves of expatriate-worker departures. Property prices plummeted, but nobody was cheering. Unemployment rose. The national Budget went deeply into deficit.

Urgent decisions had to be made. Singapore was lucky the Great Deflation hit earlier than later in its departure from market discipline. The culture of entitlement had yet to grow deep roots.


The politics of prosperity was under threat. But Singaporeans also had history and culture in their favour. Most were descendants of successive waves of migrants, starting from the early 19th century - hardy battlers who took pride in their self-reliance. Not so much time had passed to dim the stories of national struggle, survival and prosperity. "Nobody owes you a living", words half-remembered from a dim past, sitting on grandfather's lap, intruded back into the national consciousness.

The Singapore narrative changed from a triumphalist one about "managing success" to the existential one of making a living.

A dollar spent, once again, had to be a dollar earned. Self-reliance and competitiveness returned as foundation values. The Budget was brought back into balance, albeit with great social discomfort.

Politically, Singapore by then resembled Japan of 2000-2020 - a competitive democracy with a dominant party credibly challenged by a coalition of opposition parties. But in the end, harsh market realities, the absence of the buffers that larger economies enjoyed, and culture determined the national consensus, notwithstanding political squabbles on the fringes of policy.

Fortunately, there were still sufficient reserves in the national coffers to be invested in people and productivity against a backdrop of a long global recession at a time when the cost of capital goods had plummeted. This was money that would build productive capacity, laying the foundation for a surge in productivity years later.

As economies rebuilt off the Great Deflation, Singapore threw its doors wide open again, as it did in the half century after its independence. "Foreigners, go home" became "foreigners, come back".

But, by then, China was starting to experience its own demographic decline. With a fertility rate that went from 1.5 in 2014 to 1.2 a decade later, China was struggling with the decline of its own working population. And as wages in the great cities of China became competitive with Singapore's in purchasing-power terms, it became a lot harder to attract talent. Fortunately, by then almost all Singaporeans had university degrees, compared with less than 5 per cent in 1990.

Nevertheless, Singapore continued looking further afield - to the Indian sub-continent, Central Asia, parts of the Middle East and Africa, where working-age populations were still surplus to their own needs.

But the new focus was on high-value skills. The numbers needed were far fewer than when foreign workers were cleaning plates at hawker centres, digging up roads and putting up buildings. As the global population aged, new technologies and applications emerged - automating everything from construction to banking to transport. Mass manufacturing declined in its contribution to the Singapore economy under the pressure of lower-cost labour in emerging economies and robotisation in mature economies. And as service companies went digital, the need for large workforces declined further.

Business growth became a matter of servers, rather than buildings and people. And the pressure on real estate eased as buildings which used to house banks, insurance companies, and supermarkets were freed up as social spaces for Singaporeans to eat, drink and interact.


Just as Singapore plugged itself into the 24-hour cycle of global financial markets 90 years before, Singapore 2065 plugged itself into the sleepless worldwide "digital brain".

And the attraction of Singapore as a hub reprised the logic of an earlier era - that of an exceptional centre of excellence in South-east Asia with language and cultural skills useful in tapping regional business.

China's growth had slowed. But the sheer size of its population and economy continued to offer an abundance of business opportunities. Meanwhile, demographics were boosting economic expansion in the Philippines, Indonesia and the Indian sub-continent.

Singapore resumed its role as a regional hub. But it was no longer just a trading hub for physical commodities. It became an ideas hub. And as the global population aged, biosciences - the business of giving and maintaining life - became much more important. Singapore would lead regionally in this area by bringing together the best brains in the world.

At the time of SG50, some feared China's economic dominance would turn Singapore into a Chinese satellite, with putonghua (Mandarin) its main language. Ironically, by furthering its internationalisation, Singapore kept its cultural and business uniqueness. And the mainly English-speaking economy evolved into a polyglot centre, with business conducted comfortably in multiple languages.

Notwithstanding the declining fertility rates, global population growth continued, albeit at a slower pace, peaking at around nine billion people by 2065. Consumption growth driven by emerging markets continued to pressure the environment. Singapore turned adversity into opportunity, developing environmental solutions.

Global warming continued, reflecting the damage inflicted in past decades. Singapore responded as it did at the time of its founding. It dominated its physical environment. It built dykes and enormous solar-powered, environmental domes covering vast areas of Singapore, allowing Singaporeans to work and live comfortably as temperatures and sea levels rose.

Beyond 2065, the global population will start declining, raising new economic and social challenges for Singapore. But they will be challenges for yet another generation of Singaporeans.

The writer was a financial journalist in Australia and Singapore , including with The Straits Times, before entering the banking sector. He is now chief investment officer at DBS' Consumer Banking Group & Wealth Management.

No comments:

Post a Comment