Discuss about the Economic Policies and Key Government Agencies.
Singapore has often been termed as the twentieth century’s most successful development story. Singapore is a country with little land and absolutely no natural resources and gained its independence in 1965 the former colony is one of the examples of how to do development right by transforming themselves as a major manufacturing and financial hub (Zarolli, 2015). Under Lee Kuan Lew the Singaporean economy gave rise to what might be thought of as Asian Capitalism (“Lee Kuan Yew’s Economic Miracle”, 2015).
Singapore is an advanced economy that is primarily trade oriented and due to that has one of the most open economies in the world. Singapore has the third highest gross domestic product per capita globally when taken in terms of purchasing power parity.
Cautious policy especially in macroeconomic policy and also a stable legal and political environment have been the main driving forces behind the country’s continuing success. One of the main things for the proper flourishing of a developed economy i.e. property rights is taken very seriously here and promotes effective growth in entrepreneurship and productivity growth. There has always been a very low level of tolerance for corruption and that has been shown form in the judicial framework of the country. Singapore’s openness to international trade and investment along with its transparency and the very much efficient regulatory environment in the country encourage a great deal of commercial activity (e.V., 2014). State ownership of factors however is still substantial within the country.
The Gross Domestic Product or GDP of a country is the total value of all the goods and services produced in the geographical limits of the country in a certain time period. The real Gross Domestic Product is the value of these goods and services taken with respect to some base year. Here the base year is taken to be 2010. It is the best indicator of how much is being produced in a country in a single year and helps gauge the economic performance of the county especially in relation to other countries. It also helps identify the health of a country. It is also extremely important to develop fiscal and monetary policies for the governments of that’s country (Investopedia, 2017).
In Fig. 1, the data of the GDP at Market prices have been taken from 2005 to 2014. The data shows a rising trend from 205 in the economy. There has been a slight downturn in the economy corresponding to the Global financial Crisis which also must have severely affected Singapore as it is primarily a global financial sector. However as can be seen the economy has recovered at least in these terms and have risen from pre crisis levels by 2014.
The GDP per capita is the Gross domestic product divided by the total population in the country. The real GDP per capita is the inflation adjusted average income of a person in the economy (Abel et al., 2013) . It is an extremely useful when comparing between countries. It is also used in several for the human development indicators as well as poverty indicators and well as intra country development indicators. It is not very useful to compare between the GDPs of the countries due to the way they are constructed as a country with more population would generally just have more GDP than a more advanced economy with a lower population. It is also useful when framing policy discussions (Pettinger, 2011).
In fig. 2 it can be seen that the GDP per capita has been taken in the constant 2010 US dollars. In this graph also there is generally an increasing trend but there has been a disruption in the form of the global finical crisis and that has begun to impact this economy from the 2007 but has not been able to come out the slump properly will 2009 when the GDP per capita was rising again.
The growth in GDP per capita is the growth in the gross domestic product in a year which is measured by the difference in the GDP of both these years which is then taken as a fraction of the initial year. This is one of the strongest measures of economic performance of a country. This is what measures the business cycle of the country and determines if the country is in boom or in recession (Dornbusch at al., 2014).
As can be seen in fig. 3, the growth rate of GDP started very high at above 8% at the start of the period that is in 2005 but then dropped dramatically in 2007, even falling negative for a bit in 2009. It had recovered since then but fell again in 2011 and has remained at a lower level since.
That Singapore has been able to have this kind of a miraculous journey has been in large part due to their government. The Singaporean government wants the people in the country to have high levels of investment and savings. It is mainly done through policies such as the Central Provident Fund which is a fund that is used to support the citizen’s retirement and healthcare. The savings rate in the country is one of the highest worldwide and has been that way since the 1970s. Most of them companies in Singapore are listed as private limited companies and are a separate legal entity altogether. The government manages wealth through two sovereign wealth funds which are Temasek Holdings and GIC Private Limited, both of which are used to see to the reserves of the country (Binot, 2015).
When people who actively search for a job are unable to find one it is called unemployment. The rate of unemployment is the number of people who are unemployed divided by the total labour force i.e. people who are willing to work among the population, of the economy. Structural, Frictional and cyclical are the three types of unemployment present in a typical economy (Amadeo, 2017). Frictional unemployment occurs when people are in the process of making a job change. Structural unemployment occurs when the skills required by the employer and that possessed by the potential employee does not match. Cyclical unemployment is due to the business cycles and occurs when the economy moves through periods of recession (Blanchard, 2013).
As seen from the fig. 4, the unemployment rate in Singapore had been decreasing till 2007 when it again started rising due to the GFC and has then started decreasing at 2009 and has remained low ever since.
In the Singaporean economy all of the types of unemployment are seen. One of the big causes of unemployment in the country is the demand deficient or cyclical unemployment. This is because the country has a very big external sector and is heavily reliant on the external demand of what it produces to help with its economic growth. Due to the increased globalisation there has been a lot of restructuring the country and its labour markets and thus structural unemployment is really evident in Singapore. During the transformation of the economy from labour to capital intensive there was already a skill mismatch. But now, after globalisation there is a further mismatch in the economy. This type of increased globalisation has also lead to frictional unemployment as with the influx of foreign nationals the job creation for residents in certain sectors have dried off.
Singapore has in 2015 introduced new steps to solve their over reliance on foreign talents (Venkat, 2015). Very little new employment was granted with it being 26000 in 2014 as opposed to 80,000 previously. Though the economy could suffer, there are social pressured to be hiring one’s countrymen and there happy ground is somewhere in the middle which the government tries to achieve (Chang, 2015).
Inflation is an increase in the price of things and a fall in the purchasing power of money. However, when represented as a fraction of the initial price level this is known as inflation rate. The two types of inflation are demand pull inflation and cost push inflation. Demand pull inflation is brought about by the excess of aggregate demand relative to aggregate supply. Cost push inflation is the inflation brought about by the increase in the factors of production (Mankiw, 2008).
In fig. 5 it can be seen that the inflation of Singapore was low in 2005 and then increased steeply in the 2007 to 2008 period due to the effects of the GFC and then again fell to low in 2009 before increasing sharply till 2011 and falling off again.
Import price push inflation is one of the main causes of inflation in the country except the the two already mentioned. As Singapore is a small and open economy that has little natural resource it is heavily reliant on import from places such as China, Malaysia etc. So if the rate in those countries is high due to inflation there the cost of those goods is higher here also driving the price level up and thus creating an additional source of inflation.
The main way to combat inflation by the government has been through a combination of fiscal, monetary and supply side policies. The main way to control inflation is through exchange ate policy as the main cause if inflation in Singapore is through exports.
Conclusion:
Singapore is one of the best examples of the positive side of capitalism in the world with its high wages and increasing standards of living being able to affect almost all citizens. It will in most likeness be able to preserve its state as one of the leading financial centres in not only Asia but also the world. Along with this it would continue as one of the sjipping and aviation hubs globally. There is also no way that it would decrease in popularity as the place for the multinational companies to hold their headquarters (Hussain, 2015).. Thus for all these reasons the only way for Singapore is up. In the long run, their economy will only get more advanced and extensive.
Reference List:
Abel, A., Bernanke, B., & Croushore, D. (2013). Macroeconomics (8th ed.). Pearson.
Amadeo, K. (2017). 9 Types of Unemployment: Which Is the Worst?. The Balance. Retrieved 11 March 2017, from https://www.thebalance.com/types-of-unemployment-3305522
Binot, J. (2015). How Will Singapore Fare in A Post-LKY World?. Highbeam.com. Retrieved 1 April 2017, from https://www.highbeam.com/doc/1G1-408989557.html
Blanchard, Olivier and David R Johnson. Macroeconomics. 6th ed., Pearson, 2013,.
Chang, R. (2015). No easy choices on foreign worker, immigrant policies: PM Lee. Strait Times. Retrieved 31 March 2017, from https://www.straitstimes.com/singapore/no-easy-choices-on-foreign-worker-immigrant-policies-pm-lee
Dornbusch, Rudiger et al. Macroeconomics. 12th ed., Mcgraw-Hill, 2014,.
e.V., T. (2014). How corrupt is your country?. Transparency.org. Retrieved 31 March 2017, from https://www.transparency.org/cpi2014/results
Hussain, Z. (2015). How Lee Kuan Yew engineered Singapore’s economic miracle – BBC News. BBC News. Retrieved 31 March 2017, from https://www.bbc.com/news/business-32028693
Investopedia (2017). What is GDP and why is it so important to investors?. Retrieved 31 March 2017, from https://www.investopedia.com/ask/answers/199.asp
Lee Kuan Yew’s Economic Miracle. (2015). Bloomberg View. Retrieved 31 March 2017, from https://www.bloomberg.com/view/articles/2015-03-22/lee-kuan-yew-s-singapore-is-his-legacy
Mankiw, N. Gregory. Macroeconomics. 6th ed., New York, Worth Publishers, 2008,.
Pettinger, T. (2011). GDP per Capita Statistics | Economics Help. Economicshelp.org. Retrieved 31 March 2017, from https://www.economicshelp.org/blog/343/economics/gdp-per-capita-statistics/
Singapore Economy: Population, GDP, Inflation, Business, Trade, FDI, Corruption. Heritage.org. Retrieved 31 March 2017, from https://www.heritage.org/index/country/singapore
Singapore’s Economic Policies and Key Government Agencies – medtech.sg. medtech.sg. Retrieved 31 March 2017, from https://www.medtech.sg/singapores-economic-policies-key-government-agencies/
Venkat, J. (2015). Singapore to Tweak Policies Toward Foreign Workers. WSJ. Retrieved 31 March 2017, from https://www.wsj.com/articles/singapore-to-raise-taxes-of-top-earners-1424697943
Zarolli, J. (2015). How Singapore Became One Of The Richest Places On Earth. NPR.org. Retrieved 31 March 2017, from https://www.npr.org/2015/03/29/395811510/how-singapore-became-one-of-the-richest-places-on-earth
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