Singapore’s new PM faces some economic headwinds

By Daniel Moss

Singapore is undergoing a rare transition in leadership, the third since independence in 1965. More frequent have been the accolades directed at its economy to the point where they have entered the folklore of modern capitalism: poverty to prosperity narrative, stability in a region prone to upheaval, the lure as a hub for transport and finance. Laudable as the attributes are, they didn’t just happen magically — and they are wrapped with significant caveats.

Pragmatism, a powerful state that can back winners, and being in the right place at the right time have been vital ingredients in the city-state’s success. Being considered exceptional gets more difficult as the decades pass. Lawrence Wong, who becomes premier on Wednesday, will do well to bear this in mind.

There is no dispute that Singapore has achieved much. Gross domestic product per person is among the highest in the world, home ownership is widespread, and billions are being plowed into upgrades of its airport and docks. And from the department of soft power, a sense of cool has been added to the repertoire. The hype surrounding Taylor Swift's recent gigs reached epic proportions, as if she had never sold out a stadium before.

The food scene is lavished with praise. This doesn't sound like the place that banned the sale of chewing gum, tried to eradicate jay walking and, during peak Covid, outlawed music at bars and restaurants. But circumstances change and needs evolve.

A complete picture of the economy that Wong inherits is less giddy. The pace of growth is not what it once was, the island has become the most expensive location on earth to live, and a rapidly greying society will test fiscal policy for generations. Through it all, you can count on a mighty public sector. Despite Singapore’s historic reputation as an entrepot, the government and its agencies play a vast role in business and social life.

While respectable and coming from a strong base, the years of head-turning economic expansion are probably behind Singapore. The heady clip of the 1980s and ’90s that saw incomes jump, corporations climb over themselves to set up shop, and led founding prime minister Lee Kuan Yew to emphasize what he saw as the primacy of Asian values had given way to a steadier — and slower — pace. Rates of growth resemble a good year in the US or the euro zone. Like many economies, Singapore enjoyed a nice bounce coming out of the pandemic, but things will get tougher. Were it not for Swift, the economy may not have grown at all in the first quarter. (A furor erupted when neighboring countries blasted the incentives that Singapore provided for her to perform; the government defended the subsidies.)

How much of the storied boom that began during the Lee era was due to something unique about Singapore? In a 1994 essay in Foreign Affairs that still resonates, Paul Krugman noted that the so-called Tiger economies of East Asia were benefiting from a rare surge in workforce and investment, which would eventually dissipate. In Singapore, per-capita income roughly doubled every decade between 1966 and 1990, and GDP rose 8.5% a year, according to Krugman. “Growth has been based largely on one-time changes in behavior that cannot be repeated,” the Nobel laureate wrote. Singapore was a major beneficiary of the demographic dividend.

It will be up to Wong, finance minister since 2021, to navigate a different kind of environment; officials urge Singaporeans to prepare for the advent of the “super-aging” society. By 2030, the government projects that almost a quarter of the population will be 65 or over. This has huge implications for taxation, healthcare and housing. Singapore's total fertility rate, a key measure of the population's ability to reproduce itself, fell below the critical level of one child per woman last year. The country has been clear about what this requires: immigration to top up and provide workers for the jobs that locals don’t want or can’t provide. That must be done in an electoral environment that Wong says will become more contested.

Singapore's relationship with the rest of the world has always been key to its fortunes. The nation's enviable climb in living standards was , in important respects, a tremendous bet on globalization. They occurred when corporations began developing global supply chains. Relaxations on the flow of goods, talent and capital boosted it greatly. The city-state became adept at straddling the interests of Washington and Beijing. Wong will need to astutely manage the increasingly delicate task of navigating their rivalry.

Singapore is now inching toward a more complex relationship with the rest of the world. No longer appealing just as a corporate “base camp,” in Lee's words, it is selling a less austere version of itself. Few things have done as much to foster this image of desirability as the book and movie Crazy Rich Asians, which depicts the romance between an American woman of Chinese descent and the scion of a wealthy Singaporean family. Rachel marvels at Changi Airport, compared with New York area counterparts that offer “salmonella and despair.” The skyscrapers are shiny and modern, the avenues top-notch and uncluttered. Negative remarks about America are tossed around casually. “The context of the couple's desire for each other, in other words, is one where the West's position has weakened,” wrote Cheryl Narumi Naruse in her 2023 book Becoming Global Asia: Contemporary Genres of Postcolonial Capitalism in Singapore.

The film has been a staple of Singapore Airlines Ltd.'s offerings almost since its release in 2018. I watched it — for the third time — on a business trip last week. The images it displays come very close to the hubris that leaders profess to disdain. Look closely, however, and things aren't what they seem. The gleaming skyline, for example, when viewed from the top of Marina Bay Sands resort and casino, features familiar brands of Western capitalism: JPMorgan Chase & Co., Citigroup Inc. and UBS Group AG. Singapore covets its place as a center for currency trading, but ranks well behind London and New York, and the FX market is dominated by the greenback. US firms are the biggest foreign investors.

Wong will be Singapore’s fourth prime minister. The first three knew the keys to success lay in covering bets and that every sweeping measure is a mix of daring and gradualism. There’s no small amount of trial and error. If the free flow of capital and talent truly runs into trouble, you will see it in Singapore. Those with a stake in robust world commerce should wish Wong well, asterisks and all.