TCS Daily

The Singapore Model and Latin America

By Eneas Biglione - October 24, 2005 12:00 AM

With the exception of Chile and Colombia, most of Latin America finds itself stalled in deep economic and institutional backwardness, and there is little hope of future improvement. Indeed, politicians there appear more concerned with opinion polls than with the substantive policy reforms which must be undertaken. Their solutions are only short-term fixes, damp cloths which relieve the pain but do nothing about the sickness that caused it.

Latin American countries must follow the example of the Asian nations that made significant economic breakthroughs despite comparative disadvantages and the instability which has characterized the region in recent years. Singapore is an excellent example. The city-state was able to overcome its status as a poor, third-world colony and develop into a powerful exporter of high-tech and medicinal products.

Singapore was colonized by the British in 1824, but was attacked by Japan in 1942 and remained under Japanese control for three and a half years. The British retook control of the colony in 1945 and in June of 1959 declared it an independent state in the British Community of Nations. In 1963, Singapore briefly joined the Federation of Malaysia, before breaking away in 1965 when it regained full independence as the Republic of Singapore. Independence brought many challenges to the city-state, as it found itself a small island nation lacking natural resources, populated by a heterogeneous mix of races (predominantly Chinese, Indian, and Malaysian), and surrounded by rebellious neighbors who threatened the region's stability.

Singapore's economic success has allowed the city-state of only 4.5 million inhabitants to overcome several recent obstacles: the Asian crisis of the late 1990s, the bursting of the high-tech bubble barely two years later, and the harsh economic impact of the SARS virus in 2003. Remarking on the effects of the flu-like disease on July 22, 2003, Prime Minister Goh Chok Tong stated, "A crisis makes or breaks a nation. The SARS crisis has made our country stronger. We overcame a tough challenge together. It bonded us." Despite the slump in tourism in the region caused by the earthquake and the tsunami late last year, Singapore's economy grew an impressive 8.1% in 2004.

Singapore's prosperity is largely a result of its commercial openness and institutional strength. The key elements for growth are all in place: a reliable legal system, consistent protection of intellectual property rights, an educated workforce, tax breaks for large corporations, an almost complete lack of corruption (Singapore is ranked the fifth most transparent nation on the Transparency International Corruption Perception Index 2004), a reformed pension system, and a liberalized financial sector. Indeed, the World Bank's Doing Business Report 2006 asserts that, among 155 countries evaluated, Singapore is the second easiest place to do business -- a company can be set up in the city-state within six days. The ranking takes into account factors such as business licensing, taxes, credit, and investor rights and protections.

In this business-friendly environment, Singaporean firms have concentrated on the manufacture of high tech goods, petrochemical products, and medicines for companies like Pfizer and Schering-Plough. Faced with competition from other Asian nations courting the major manufacturers of high-tech goods, Singapore is now seeking to develop its medical product industry and expects earnings of $12 billion by 2010. Indeed, Singapore hopes to become the global center of specialty medical products in areas such as cancer treatment and regenerative medicine. A clear demonstration of Singapore's commitment to this goal is the construction of Biopolis, a man-made island constructed exclusively for the medical products industry. Companies such as Novartis, Eli Lilly, and Paradigm Therapeutics have already opened research centers on the island.

While Singapore is among the freest places to do business, the People's Action Party, headed by the Lee family, governs the nation with a heavy hand, restricting the social and political freedom of its inhabitants and confronting political adversaries head on. Yet, there is no doubt that Singapore is a democratic country where the growing influence of foreign investors has contributed to a gradual westernization of its internal rules.

An interregional comparison demonstrates that eastern Asian nations have devoted much energy to improvement of the educational level of their populations and, thus, have developed a labor force with the advanced skills necessary for the fabrication of highly sophisticated products. Primary goods today constitute only 9% of total exports from China and 22% from India. However, according to the Economic Commission for Latin America and the Caribbean (ECLAC) Statistical Yearbook for Latin America and the Caribbean 2004, in Latin America, primary goods are the predominant export, 73% of all exports from Argentina, 83.9% from Bolivia, 83.8% from Chile, 65.7% from Colombia, 88.6% from Ecuador, 86.3% from Paraguay, 83% from Peru, 66.3% from Uruguay, and 87.3% from Venezuela.

The key to prosperity is open markets with a strong rule of law. Open markets allow for the free flow of human and non-human capital, and the rule of law protects private property. The Latin American countries need to learn that lesson and start to target their efforts and resources to more profitable markets. It is time for a change in strategy to attract foreign investment; there is nothing new -- and nothing shameful -- about the need to learn from the example of those who have succeeded.

Eneas Biglione has written extensively on issues related to Latin America.


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