The challenge of the Asian tigers: why we are looking east for ideas

How has Singapore achieved its dramatic economic success? Among those desperate to know is Tony Blair, who arrives there tomorrow in search of the secret. Stephen Vines reports
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When China started timidly opening its doors to foreign investment and capitalist enterprise, one of the first high-level foreign advisers to be called in was Goh Keng Swee, the former First Deputy Prime Minister of Singapore and right-hand man to Lee Kwan Yew, the island state's strongman leader.

More recently Singapore has become a magnet for model-seeking leaders from the Western countries, including the Labour leader, Tony Blair, ever searching for new economic ideas, who will arrive at its showpiece Changi airport on Saturday.

This year, the 625sq km state, with a population of just under three million, officially joined the developed world with its admission to the Organisation for Economic Co-operation and Development (OECD). It has enjoyed spectacular growth for the better part of two decades, even though it is slowing now, as befits a developed economy whose people enjoy (on paper at least) a higher standard of living than those in far longer established developed nations such as Britain.

How has Singapore achieved this economic success? Is it because of authoritarian government, careful planning and the presence of a population imbued with the Confucian values of community spirit and obedience to a higher authority? Or is it because the spirit of free enterprise flourishes?

It is certainly not any simple and trite version of the latter. The Singapore that Lee Kwan Yew built was founded on state control. In the early days of nation-building, the government commandeered land for development, workers were kept in line by trade unions linked to the ruling party, the government spent what it had on building up the infrastructure, and once people started to have real money in their pockets the government quickly imposed compulsory saving by taking as much as 25 per cent out of wage packets and putting it into a fund that could not be touched until retirement.

The savings were channelled into investments that allowed the state to build an impressive array of state enterprises, including a world-class telecommunications system and a first-class airline. A relatively small amount of this cash was poured into social services, which remain fairly basic.

The government believes in planning - indeed, planning is the core of the ruling People's Action Party ideology. Alongside planning are a raft of controls, sometimes imposed with a heavy hand but often with exquisite subtlety. In a memorable phrase, Mr Lee once described regulating bankers as being similar to "frying fish - it must not be overdone".

The problem for Singapore is that all its plans cannot create initiative: the government itself frequently laments that the country is desperately short of entrepreneurs and risk-takers. This well-regulated society runs efficiently, but on low-octane fuel. It is no coincidence that some of Singapore's more entrepreneurially minded business leaders have based themselves in Hong Kong, where they breath a more bracing air.

The secret of Singapore's success has been its ability to attract ideas, capital and know-how from outside the country. Some of the world's leading companies are based there, and the nation makes them welcome by providing incentives for investors and creating an orderly base from which they can conduct their regional business.

Like a small company securing a niche in the market, Singapore has secured a niche as a service centre for a part of the world economy that needs to be in Asia. By definition, niches are hard to replicate - and that is why it is unlikely that the Singaporean model can be readily transplanted. Few countries are as small and as easy to control as Singapore; few have a population essentially built on well-motivated immigrants and the children of immigrants determined to better themselves; and few have a political leadership quite so determined to focus on economic development, even at the cost of diminishing personal liberty. As Lee Kuan Yew said back in 1966, "I have decided that we shall make and build and never give way."