Friday, May 19, 2017

Understanding the UK’s strange Singapore envy

Justin Fox

April 12, 2017

A pro-Brexit argument that always makes me giggle a little is that leaving the European Union will allow the United Kingdom to become the new Singapore. That’s right — the land of hope and glory, home to the world’s fifth-largest economy, wants to emulate its steamy little former colony, population 5.4 million.

When you look at the per-capita income data, though, you can kind of understand it. Once-poor Singapore passed the UK in 2006, and the income gap has grown to almost US$3,000 (S$4,214) a year since then.

When you adjust for what a person can actually buy with that money, Singapore looks even better: Singapore was the world’s fifth-most-affluent “country” (there are two special administrative regions of China included on the list) on a purchasing-power-parity (PPP) basis in 2015.

The US was 11th, at US$57,540 a year. The UK? It came in at 26th place among the countries (and parts of countries) for which the World Bank has data, at just US$40,900. Even the long-suffering euro area did better than that, with a PPP-adjusted income of US$41,179 in 2015.

So yes, a bit of Singapore envy is in order. Still, it is worth asking which part of Singapore’s recipe for success the UK would need to follow. Is it the math-focused educational system? The spectacularly high salaries for public officials? The highly interventionist economic policy? The one-party rule and limits on free speech? The location in the region that has become the world’s most important economic growth engine? The continuing hostility toward chewing gum?

The New Singapore idea seems to be mainly that leaving the EU will allow the UK to cut taxes and roll back regulations, positioning itself as a free-market oasis just off the coast of Europe.

Now, the UK already has a lower tax burden and a less-regulated labour market than most of the countries across the Channel, and London has been playing a role in Europe similar to that of Singapore in Asia for decades now.

Global corporations, especially financial ones, have chosen as operations bases Singapore and London, where the language is more familiar and the rules more amenable than in other countries in those regions.

So far, most of the attention has been focused on the risk that Brexit, by restricting access to European markets, will harm London’s status as a financial hub.

But there is enough uncertainty about this that I guess it is impossible to dismiss the opposite argument entirely.

Mr Peter Hargreaves, the UK billionaire who bankrolled the Brexit campaign and seems to have been the first to popularise the Britain-as-Singapore analogy, has couched the argument mainly in terms of giving the UK the freedom to make the same kind of smart choices that Mr Lee Kuan Yew, the father of modern Singapore, made.

As Mr Hargreaves told the Guardian last year: “When he took power, Singapore was a mosquito-infested swamp with no natural resources, but he turned it into the best economy in the world. It’s a bit of a clinical place, but it shows what a small country with limited resources can do. And we are much bigger and have more resources. Britain will be far better off as an independent nation.”

But can a big(gish), diverse, resource-rich, democratic nation such as Britain really follow in the path of a tiny, semi-autocratic city-state? I have been a fan for a while of the writings of Mr David Skilling, a New Zealander based in Singapore who advises small countries and the corporations doing business in them on how to succeed in this big, scary world.

One of his main arguments is that the success of Singapore — and other small economies such as Denmark, Ireland and Switzerland — has less to do with specific policy choices than with some core national attributes.

Those small states succeed, as I paraphrased Mr Skilling a few years ago, because they are cohesive, and thus able to make policy decisions quickly and stick with them.

[While being small allows one to be cohesive and respond quickly, being small does not automatically mean that one is cohesive and WILL respond quickly. Being small is a necessary but insufficient condition.]

They tend to make good policy decisions, in part because they are very aware of the world around them and what it takes to compete in it.

[As a counter-example to "small and cohesive and make good decisions": Malaysia.]

Or, as Mr Skilling put it in an email today: For a small economy, being very sensitive to the external environment — and responding proactively — is central.

Being small generally means having less autonomy. You cannot shape the world; you have to adapt to it. But if you are really good at adapting, you can sometimes run rings around big, lumbering rivals.

Cutting loose from the EU could give the UK more room to manoeuvre.

But the UK is a relatively large country that would be hard-pressed to manoeuvre like a Singapore — and it may be shooting itself in the foot by walling itself off from its neighbours.

There is a part of the UK, though, that Mr Skilling thinks shows promise.

An independent Scotland, he wrote in his weekly note on Sunday, might just be small and cohesive and agile enough to make a go of it as a cold, windy Singapore on the moors.



Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”

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