3. Industrial Policies in Singapore 27 1. Singapore Economy at a Glance
3.3. Characteristics of Industrial Policies in Singapore
3.3.7. Competition policy and promotion
Economic dualism that is observable in many economies took a different shape in Singapore. On the one side, there are large, capital-intensive foreign MNCs with superior technologies mainly producing for export markets and on the other side there are domestic enterprises comprising of state-owned enterprises (SOEs) and small indigenous enterprises.28 Unlike the SOEs, only a few of local private firms are large. Indigenous firms are dominantly small in size (SMEs) and they operate as subcontractors to MNCs and SOEs.
From the beginning, the government stressed the need for foreign capital in industrial development. One hundred percent foreign ownership is allowed in almost all industries and few restrictions exist for the recruitment of foreign personnel. SOEs and the companies linked to them operate mainly in “strategic” industries such as shipbuilding and ship-repair.29
After the 1985 recession, the government recognized the need to stim- ulate private entrepreneurship to leverage high dependence on MNCs in manufacturing. This required the government’s exit in certain areas where private entrepreneurship was deemed capable of taking on production activ- ities. However, this was not an easy task since most public firms, including statutory boards, were efficiently run and profitable. In 1985, the gov- ernment announced a privatization program. The Report of the Economic Committee in 1986 documented that the economy had sufficiently matured for the private sector to become the primary engine. Upon the Economic Committee’s report, the newly established the Public Sector Divestment Committee (PSDC) was appointed by the government in 1986. This new committee submitted its report in the same year. In its final report, PSDC identified four different types of privatization: partial privatization (transfer
28The government names the majority government-owned firms as government-linked com- panies (GLCs) and avoids using the term “state-owned companies” in its official publica- tions. GLCs operate commercially and therefore they are different from SOEs in many other countries where SOEs suffer from managerial problems, inadequacy, and inefficiency in production. In this book, the term “SOEs” is used for Singapore to mean the entire body of majority and wholly government-owned companies together.
29These SOEs and their subsidiary companies were organized under holding companies owned entirely by the government ministries (e.g., Temasek Holdings, MND Holdings, and Sheng-Li Holding). Their services are diverse ranging from shipbuilding and port services to steel and even retail sales. Unfortunately, the data on their production, investment, and profits are not disclosed.
of the shares of a wholly-owned company to the public), further priva- tization (transfer of the shares of a partially-owned company), effective privatization (passing the dominance, i.e., control, to the private sector), and total privatization (complete sales of the shares a company) (PSDC, 1987, p. 10). The report studied the possibility of privatization in some areas where the government participated in production activities and rec- ommended the sale of shares in 41 public companies out of more than 600, and seven statutory boards, including the telecommunications company (Singapore Telecom), Public Utilities Board (electricity and gas), Civil Aviation Authority (running Changi Airport), Singapore Broadcasting Corporation, Jurong Town Corporation, and Commercial and Industrial Security Corporation, as part of a 10-year divestment plan (PSDC, 1987, pp. 43–49). The public divestment program was instituted under this com- mittee. Some of the companies studied by the PSDC were not recommended for privatization (PSDC, 1987, pp. 87–92). These companies were the ones recommended to be wound up (mainly dormant and storage companies), the ones with foreign government participation (fertilizer, cement, and mining companies), the ones that are single-purpose or those serve-in-house needs (e.g., hotel, real estates, investment holding, engineering, etc.), the ones that have a social mission (e.g., university hospital, bird park, and social facilities), the ones that may not be attractive to investors (mostly petro- chemicals manufacturing, real estate companies), and the ones that have a promotional role (e.g., development of mass storage devices and robot leasing).
The report of the PSDC was welcomed by the government and its rec- ommendations were put into effect. The privatization efforts in education, health, public transportation, and public housing have been under way since the mid-1980s. From 1992 on, public offerings of some major statutory boards (Singapore Telecom, Port of Singapore Authority, Public Utilities Board, Civil Aviation Authority, National Computer Board, and Singapore Broadcasting Corporation) were made (SILS, 1995). There were also big moves in the privatization of GLCs in shipbuilding, food, aviation, and prop- erties sectors. Since then, the government undertook privatization of some large public firms operating in the areas of shipbuilding, food, and aviation as well as in education, health, public transportation, and housing (PSDC, 1987, pp. 43–49; SILS, 1995).
It is important to note that the privatization effort in Singapore was initiated by the government and did not aim at any revenue creation for the budget or bailing out or rationalization of any loss-making or ineffi- cient SOEs, two major factors experienced by many developing countries (Krause, 1987; Limet al., 1988, pp. 68–69). In fact, there has not been any big failure of SOEs in Singapore and it is often argued that they are run efficiently and are evaluated on a commercial basis by the state. In other words, various studies on SOEs lead to a success story hard found in any developing country. The primary driving force for the government for pri- vatization was to stimulate private sector development. The report of the PSDC implicitly emphasized the need to free the government officials from commercial responsibilities and obligations of running government-owned corporations and devote their effort to remaining tasks. The report declared the objectives of the privatization of SOEs as (i) withdrawing from com- mercial activities which no longer need to be undertaken by the public sector, (ii) adding breadth and depth to the Singapore stock market by the flotation of GLCs and through secondary distribution of government-owned shares, and (iii) avoiding or reducing competition with the private sector (PSDC, 1987, p. 12).
The government did not expect to raise funds from public divestment.
As pointed out in the report of PSDC, statutory boards and SOEs make large profits. Therefore, the privatization move cannot be taken as a radical change in government policies. Low (1988) agreeably argues that privatization in Singapore itself reflects government’s eclectic and pragmatic approach to economic development.
Privatization in Singapore has some interesting features. The gov- ernment announced that funds raised from divestment would be reinvested into new activities where the government considers its existence is nec- essary, such as in biotechnology area (Low, 1988). Asher (1989) indicates that as the government divests its share in well-established industries, the proceeds of divestment are invested in newer areas or activities in the domestic economy as well as abroad. In some cases, divested SOEs are bought by other SOEs. To put differently, public divestment in Singapore does not directly lead to a reduction in the government’s stake in the domestic economy. It arguably leads to an expansion and diversification of government’s activities. The government justifies its behavior on the ground
that it acts as a counterbalance against the heavy dominance of MNCs in the domestic economy. In addition, SILS (1995) reports that during the course of privatization, industrial relations were not given any type of damage and any changes affecting workers or trade unions were resolved and they were in the long-term interests of all parties.
It is also worth noting the government’s policy of reviving the local SMEs.30The dominance of manufacturing activities by MNCs and public firms led to marginalization of SMEs31 in product and labor markets (Lee, 1997). Superior production technologies of SOEs and MNCs on the one hand, and the attraction of high skilled labor and best graduates on the other, did not leave much room for SMEs to develop themselves. Local enterprises accounted for only one-fourth of manufacturing output and investment after the late 1980s (see Table 3.9).The privatization efforts of the government partially address the revival of SMEs. The government extended the assis- tance schemes listed in Table 3.8 to a larger number of SMEs after the 1985 recession (see Table 3.11). It also initiated a planned action to nurture local firms.32In the case of Public Sector Divestment Program, Wonget al.(1998) argue that, different from the usual practice in other developing countries, privatization in Singapore rather allowed the government to withdraw part
30An SME is defined as a business establishment with fixed assets less than 15 million Singapore dollars in the manufacturing sector and with fixed assets less than 15 million Singapore dollars and total employees less than 200 in the services sector.
31There are some conditions for SMEs in an economy to be the driving force of economic growth (Kwong, 2001). The first condition is the existence of a sufficiently large domestic economy that can be exploited by domestic entrepreneurs. Singapore obviously lacks such a large domestic market. The second condition is the existence of superior distribution and supplier links and networks for information. In the case of Singapore, the government and MNCs dominate these networks. The third condition is the availability of industrial capital for the development of SMEs. In Singapore, financial institutions have long neglected extending their financial facilities to SMEs and it is recently through government’s encour- agement of the financial sector that they extend loans to SMEs. The government’s assistance for SMEs also became an important source for their development despite complaints from SMEs for insufficiency.
32This plan envisaged nurturing of SMEs in four stages (ESCAP, 1995): In the “start-up”
and “growth” stages, the plan foresaw provision of tax incentives, business development, and technical upgrading; and in the “expansion” and “going overseas” stages the provision of advanced technical assistance schemes such as computerization, brand development type of business development, and, when the local firm reaches a certain level of development, overseas expansion of production activities.
Table 3.11. Distribution of Financial Assistance to SMEs (1976–1992).
Unit: Million Singapore
Dollars 1976–1986 1987 1988 1989 1990 1991 1992
Investment 4.9 24.1 38.0 31.1 78.7 118.6 66.1
allowance
Double tax 13.9 9.5 13.2 14.5 11.8 12.0 16.6
deductions
LEFS loans 752.0 289.2 254.1 271.2 321.5 355.9 338.7
LETAS loans 2.6 3.0 3.8 5.5 8.2 10.3 22.1
BDS 0.1 0.1 0.1 0.2 0.1 0.1 0.2
PDAS 4.2 0.8 1.8 1.9 1.8 1.6 1.4
MIDAS 2.1 1.5 2.5 3.3 3.3 2.4 4.1
RDAS 1.3 0.5 NA 0.6 7.5 4.4 17.9
SDAS 0.1 0.4 0.3 0.6 1.1 0.4 2.1
SDF 29.3 9.4 9.9 14.2 13.4 12.4 13.7
ALS NA NA NA 31.3 38.0 22.0 9.9
Notes: LEFS: Local Enterprise Finance Scheme; LETAS: Local Enterprise Technical Assis- tance Scheme; BDS: Business Development Scheme; PDAS: Product Development Assis- tance Scheme; MIDAS: Market and Investment Development Assistance Scheme; RDAS:
Research and Development Assistance Scheme; SDAS: Software Development Assistance Scheme; SDF: Skills Development Fund; ALS: Automation Leasing Scheme; NA: Not applicable.
Source: ESCAP (1995).
of its equity from well-established and mature industries without losing control over them and invest in other areas of economic activities. As Low (1988) puts it, the privatization program demonstrates how pragmatic the Singapore government is in responding to changes in domestic and inter- national environment.
The role of SOEs, MNCs, and local SMEs in industrial policies in the post-1985 era can be summarized as follows. The government relied mostly on MNCs in output, exports, and technology development. SMEs were deemed necessary as subcontractors and therefore their role as major supporters of MNCs was strengthened by the government by reinforcing the links between SMEs and MNCs. One way to do this was to accelerate technology transfer from MNCs to SMEs in specified industries (see the
discussion on Local Industry Upgrading Program in the next chapter). In those industries where private entrepreneurship lacked, the government took the initiative and engaged directly in production through SOEs.