Singapore is a tiny country, so tiny you can drive across the island in just an hour. Despite its size and lack of natural resources, Singapore’s 5.6 million people enjoy one of the highest average incomes in the world, ahead of countries like Germany, France, and Japan.
So, how did this little island get so rich?
Singapore doesn’t have resources like coal or oil but it does have something countries can’t buy, location. The island sits in the middle of an important trade route connecting Asia to Europe. That’s a key reason why the British decided, back in 1819, to set up a colony in Singapore. Location isn’t everything though.
There are several countries nearby that could have made use of their whereabouts, but they weren’t quite as successful. That’s because other ingredients go into this crazy rich Singapore recipe.
I’m at the Raffles Hotel, which is one of the most prominent icons of Singapore’s colonial history. Unlike some of its neighbors, which wanted to separate themselves from their colonial histories, Singapore kept close ties with Britain, even after independence in 1965.
That decision announced to the rest of the world that Singapore was open for business. That’s important because we know now that exports help to grow and expand an economy. But back then, it wasn’t conventional wisdom.
Singapore, Hong Kong, Taiwan, and South Korea, became known as the four Asian tigers, which have grown rapidly since the 1960s. Their rise was fueled by exports, industrialization, and more crucially, big doses of government intervention. This was especially true for Singapore.
Labor strikes were common on the island in the 1960s, even with high unemployment. On top of that, there was a housing crisis, with Singapore being home to one of the largest slum settlements in the world.
So how do you build a more disciplined labor force to attract investment?
Well, you give them something to work for, like a house of their own, which is why one of the first Singapore government agencies set up was focused on building affordable public housing. While just nine percent of the population lived in public housing in the 1960s, that figure stands at more than 80 percent today, add in greater employer rights and strikes became extremely rare.
At the same time, the government attracted foreign investment through tax incentives, growing the economy and easing unemployment, which fell from an estimated 14 percent in 1959 to 4.5 percent in the 1970s.
By the 1980s, Singapore was a regional manufacturing hub, and it was the world’s biggest producer of hard disk drives. But today, manufacturing makes up only about 20 percent of Singapore’s GDP.
Take a look at Singapore’s growth in GDP, you can see two big surges, one beginning in the late 80s and another at the start of the new millennium. Ironically, Singapore has a downturn to thank for that. You see, in 1985, Singapore went into its first post-independence recession, prompting the government to introduce new measures. State-owned companies like telecommunications were privatized to make them more competitive.
Then at the turn of the century, service industries like finance and insurance were further liberalized. That openness helped to grow the share of services from just 24 percent of GDP in 1985 to more than 70 percent in 2017.
Multinational companies began to set up regional headquarters in Singapore. That attracted even bigger players, boosting Singapore’s attractiveness to corporates and in turn its GDP.
Now, Singapore is ranked as one of the world’s easiest places to do business. Singapore has been praised for transforming itself from a developing to a developed economy.
But do most Singaporeans feel rich? Well, not exactly.
Two of the most important reasons? The high cost of living and inequality. For five years in a row, Singapore has been named the world’s most expensive city, ahead of New York and London. That’s largely because of taxes on cars, making Singapore the most expensive place in the world to buy and run an automobile. It’s also the third most expensive place on Earth to buy clothes.
But personal care, household goods, and domestic help in Singapore tend to be less expensive than in other major cities.
While Singapore is rich in terms of GDP per capita, the median monthly salary is $3,270. That doesn’t sound too bad, but about 20 percent of that goes into a mandatory savings account. You can use that account to pay for medical bills, housing, and education, but it does restrict the purchasing power of the population.
You’ve probably heard of the movie Crazy Rich Asians, which was set here in Singapore. And it’s no wonder. Because Singapore has about 184,000 millionaires, making it truly the land of the crazy rich. That’s great news.
But Singapore also has a fairly high rate of inequality, compared with other developed countries. Let’s look at the Gini coefficient, which is a scale used to calculate inequality, with zero being the most equal and one being the least.
Singapore’s Gini coefficient, after accounting for taxes and transfers, was 0.356 in 2017. That was worse than countries like the United Kingdom, Japan, Korea, and Germany, although it fared better than some, like the United States.
Is that number that bad? That question had books like this flying off the shelves. A think tank ignited a public debate on the divide in social classes, after it found that on average, Singaporeans who live in public housing have fewer than one friend who lives in private housing. The government has called the issue of inequality a national priority, but it remains to be seen if it is a problem that can be tackled effectively.