Industrialization Policy

The manufacturing sector was a mainstay of Singapore's economic growth despite the absence of natural resources or an agricultural base. By the mid-1970s, the country had undergone a quarter-century of rapid industrial advance based on low-cost labor, low- to middle-level technology, and a rapid increase in exports. At that time, Singapore's planners settled on a policy emphasizing high technology, particularly information technology. In 1988 Singapore's 3,694 manufacturing establishments, employing 352,600 workers, were responsible for 29 percent of the GDP. Industrial production, valued at S$14,509.7 million, was fractionally higher than earnings from financial and business services, double those from commerce, and nearly equal to the total of commerce and transport and communications. This represented a 20-percent increase over 1987. The manufacturing sector's continuing success was largely a function of Singapore's ability to attract foreign investment through a favorable business climate and then provide investors with an educated, trained, and disciplined labor force.

Singapore entered nationhood with a mixed legacy. The industrial sector was small, its productivity low. Manufacturing in 1960 was a mere 11.4 percent of the GDP; commerce, far and away the largest sector, accounted for 32 percent. The industrial policy in 1959 sought to promote industrialization as a way of diversifying from Singapore's traditional role as an entrepôt. Reliance was placed on private enterprises whose basic decisions were determined on the expectation of a common market with the neighboring Federation of Malaya. A system of import quotas was introduced for a limited number of goods, along with controls on how many enterprises could enter a particular field. Circumstances altered strategies. After separation from Malaysia in 1965, quotas were mainly replaced by a low level (for developing countries) of protective import tariffs. A traditional import substitution strategy was implemented.

In 1968, when the British announced their intention to withdraw from their Singapore bases, import substitution was succeeded by a strategy promoting export-oriented, labor-intensive industrialization. At that time, the government began its central role in formulating and implementing the industrialization program through the Economic Development Board.

The new approach became official policy in 1967 with the government's proclamation of the Export Expansion Incentives (Relief from Income Tax) Act and was further enhanced by the 1968 Employment Act. Direct foreign investment was welcomed both to help Singapore penetrate export markets and to bring in advanced technology. As early as 1970, when full employment was attained, there was some thought given to upgrading the industrial structure in order to provide more higher paying jobs. By 1979 efforts to upgrade the overall industrial structure and to accelerate the trend toward skill- and technology-intensive, higher value-added economic activity were intensified. The government implemented the large, three-year wage increases recommended by the National Wages Council, which began the easing out of labor-intensive, low valueadded activities in Singapore.

The machinery industry was increasingly in the forefront of technological innovation as a result of the Economic Development Board's promotion of computer-controlled production, industrial robots, and flexible manufacturing systems. The industry's output increased by 17 percent in 1987 and 20 percent in 1988.

Domestic enterprises played a lesser role in industrialization. The government argued that the emphasis on large industry was a more effective stimulus to increased productivity and long-range economic development. Major promotional efforts sponsored by the government were focused on high-productivity projects, creating industries that officials claimed would not otherwise have been established in Singapore. Although institutional assistance for small-scale local industry, the majority of enterprises, was provided through a subsidiary of the Economic Development Board, the effectiveness of this aid was limited until after the mid-1980s recession, when greater emphasis was placed on encouraging and upgrading small-scale local industry.

Following a decline in the textile industry in the mid-1980s resulting from increased international competition, automation and the upgrading of product lines were encouraged. What had originally been a textile industry and then a mass-market clothing industry was encouraged to target high-fashion markets. A 10 percent growth in the fashion industry in 1987 reflected both the new trend and a strong market among Western trading partners.

Information Technology

After 1979 there was a single-minded emphasis among policy makers on escalating the level of technology in order to implement the succeeding phases of Singapore's industrial revolution. They relied on information technology as the strategy's principal instrument. The Telecommunications Authority of Singapore (Telecoms) was a key to the strategy because of the high caliber of its services and products and because Telecoms and the telecommunications industry had an important role in the progress of every industry in Singapore.

A second key was computers and related electronics, which in the late 1980s constituted Singapore's largest industry, measured both in numbers of jobs and in value added by manufacturing. In 1981 the 65,000 to 70,000 electronics workers comprised about 7 percent of the labor force; gross production of electronics at about S$5.9 billion was about 15 percent of total manufacturing output. By 1987 electronics accounted for 28 percent of manufacturing employment and contributed 31 percent or S$11 billion in output. By 1989, Singapore had become the world's largest producer of disk drives and disk drive parts. Other related products included integrated circuits, data processing equipment, telecommunications equipment, and radio receivers.

The electronics industry began a calculated transition away from labor-intensive products toward higher technological content and worker-skilled products in 1974. Potential investors were encouraged to look elsewhere for low-wage, unskilled labor. Aside from producing high value-added exports, the computer and electronics industries played a vital role in raising manpower productivity in other technology-intensive industries through computerization and computer communications. The National Computer Board was formed in 1981 to establish Singapore as an international center for computer services, to reduce the shortage of trained computer professionals, and to assure standards of international caliber at all levels.

Copyright and "intellectual property" issues served as an impediment to computer and other industrial development in the early 1980s, when Singapore, as well as other Asian countries, was known for producing pirated versions of everything from computers and computer software to designer handbags. Following threats by their major Western trading partners to impose trade sanctions and by international computer and software companies not to do business, Singapore passed its first copyright law in 1986. There was fairly rigorous enforcement in areas in which Western pressure was applied (computer software, films, and cassette tapes), and nearly full compliance in the book trade, which had not been as serious a problem. The Asian "copyright revolution" (Singapore's was one of several such laws enacted in the region) was significant as a realization by those countries that they had joined the international knowledge network as producers as well as consumers.

By the mid-1980s, the small but growing printing and publishing industry had entered the high-technology world with computerized typesetting, color separation, and book binding. Its high-quality printing facilities and sophisticated satellite telecommunications network made Singapore a regional publishing and distribution center in 1989.

Petroleum

Petroleum and petrochemicals were another base of Singapore's industrial and economic life. In the late 1980s, Singapore was the world's third largest oil-trading center and also the third largest center for petroleum refining. It was the second largest builder of drilling rigs, and its facilities for repairing and maintaining rigs and tankers were the most competitive in East Asia.

When oil prices began eroding in 1981 and collapsing toward the end of 1985, Singapore felt both negative and positive consequences. The collapse of oil prices dealt a severe blow to oil exploration. The impact was felt widely and immediately in everything from reduced orders for rig construction to lowered occupancy of luxury apartments as foreign petroleum workers returned home. With both of its immediate neighbors, Indonesia and Malaysia, heavily dependent on oil and gas exports for revenue, Singapore had a resulting loss of trade in both goods and services.

Singapore benefited, however, from the availability of cheaper energy, which in 1986 amounted to a savings of about S$2.5 billion (US$1.12 billion). Furthermore, Singaporean refineries invested in the equipment and technology necessary to enable them to refine a wide variety of crude oils and obtain a greater proportion of highvalued products from the refining process. Petroleum refining alone made up 28 percent of Singapore's manufacturing output in 1985, although by 1988 it had dropped by half as a result of a decline in petroleum production and growth in other industries. Singapore also benefited indirectly when large oil importers such as Japan and the United States obtained higher real incomes from lower oil prices, enabling them to increase their imports from Singapore and other countries.

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Source: U.S. Library of Congress