What Makes An Asian Tiger? Singapore"s Unlikely Economic Success Lies In Its ...

By Vinnie Lauria, Golden Gate Ventures

When Dutch economist Dr. Albert Winsemius arrived in Singapore in 1960, tasked by the United Nations with salvaging the struggling island economy, he gloomily remarked upon “this poor little market in a dark corner of Asia.” Over five decades later, Singapore’s market is neither poor nor little—the country sports the world’s seventh largest GDP per capita and more than one in six households have $1 million in cash savings. In the past decade alone, the number of Singaporeans running their own business has doubled, giving the city-state the world’s second most entrepreneurs-per-capita, behind only the U.S.

Yet when I arrived in Singapore in 2010, I didn’t understand how the city-state could be an entrepreneurial hub. My first night on the island, I attended a talk at a local university led by Danny Tan, CEO of HipVan. Danny asked the crowd of business students, “How many of you would like to start your own business?”—and none raised their hand. One young man said he needed to wait until he had “more experience first.” This was counterintuitive to what I’d experienced in Silicon Valley where everyday countless entrepreneurs (many not even college graduates—like Aaron Levie of Box.com) pursue their dreams.

In the four years since my first visit, there’s now a thriving entrepreneurial ecosystem in Singapore supported by government financing and grants, community events, and lively coworking spaces, such as The Hub. When I moved here, I wondered: What permitted this island nation to so rapidly become the leading Asian hub for innovation, technology and entrepreneurship? How could my work here change the minds of young business students like those listening to Danny’s talk that evening years ago?

From Open Port to Entrepreneurial Hub

Singapore’s business-friendly government is often credited with the island’s success, but the origins of the country’s economic achievements lie much deeper. The city-state’s history as a port city began in 1819, when the British East India Company turned the strategically located, sparsely inhabited island into a Southeast Asian trading perch.

In 1823, Sir Thomas Stamford Raffles, described as the “Father of Singapore,” officially declared Singapore a free and open port, forever cementing the nation’s status, and, one could argue, its future. In a report to the Bengal government, collected in his letters, he wrote, “First, I have declared that the port of Singapore is a free port, and the trade thereof open to ships and vessels of every nation, free of duty, equally and alike to all.” This concept was novel—to open a port free of duty—and later, in a letter to merchants of Singapore, he further asserted “that Singapore will long and always remain a free Port, and that no taxes on trade or industry will be established to check its future rise and prosperity, I can have no doubt.”

Like all great port cities––London, New York, Shanghai––Singapore linked resource-rich mainlands with global shipping routes. Situated at the narrow southern entrance to the Straits of Malacca and protected by the power and prestige of the Royal Navy, Singapore made its first bid as a global port city amidst the burgeoning trade schedules of Pax Britannica.

Before Block 71: Singapore’s Earliest Entrepreneurs

Even as Singapore profited from the Suez development, its business class did not settle for the wealth brought by foreign trade. Rather, Singapore’s turn of the 20^th century entrepreneurs took advantage of the island’s proximity to resource-rich Malayan hinterlands, investing in the lucrative production of rubber and petroleum. This rare combination of proximity to valuable natural resources and global shipping lanes not only made Singapore rich, but also laid the foundations for its sui generis political system.

Because Singapore’s trading class pioneered hinterland production, the island suffered little conflict between an agricultural class committed to protectionist trade policy and a free-trading industrial class. Instead, Singapore’s business leaders were united in their commitment to free trade and to government action, maximizing business opportunity. The raison d’etre of the state was economic growth; in Singapore’s unusual geography lies the first hints of the aggressive ‘developmental state’ that would later become its trademark.

The economic success Singapore enjoyed as a global port city with an industrial backyard was halted only by Japanese invasion in 1942. Japanese rule was brutal—replete with severe food shortages, hyperinflation, slave labor, and mass executions. When the British returned in 1945, it was to a war-ravaged, resource-depleted island. Intent on re-establishing influence in an uncertain Asia, the British set about building upon Singapore’s pre-war economic development. With British investment, Singapore gradually ascended to a regional focal point for airlines, telecommunications, and mail distribution, in a bid to regain its renown as a pivotal port between Europe and Asia.

While Singapore made marked progress in the first decade after the Second World War, new political developments threatened its ascent. When Britain granted independence in 1959, foreign investors fled the island, unsure whether the newly elected People’s Action Party (PAP)––led by a thirty-five year old Lee Kuan Yew––could maintain the stability essential to prosperity under British rule. It was this uncertainty into which Dr. Winsemius walked in 1960, when labor strikes, capital flight, and political conflict led him to declare the once prosperous port city as merely the  “poor little market in a dark corner of Asia.”

Less visible in Singapore’s moment of crisis was the insatiable drive of PAP to restore the stability that permitted prosperity under British rule. Because Singapore never developed a culture of political rights under British imperialism, the newly elected PAP sought to legitimize itself not by protecting rights––the basis for the state in western thought––but rather by overseeing robust economic growth. As economic historian W.G. Huff writes in The Economic Growth of Singapore, the PAP coordinated with Dr. Winsemius’ U.N. Technical Assistance team to embrace an aggressive development strategy, pairing a hands-off approach to regulation with a hands-on approach to recruiting foreign corporations. “The Singaporean model,” Huff writes, “carries the lesson that an extensive role for the government can be combined with free trade.”

Rather than shun foreign capital, Singapore welcomed it with tax concessions and temporary import tariffs. The plan was simple: foreign firms would bring capital, technology and skills, and Singaporeans would learn. Eventually, they would be able to replicate the business practices brought to Singapore by foreign companies.

Patience… and Profit

What Makes An Asian Tiger? Singapore"s Unlikely Economic Success Lies In Its ...