(This essay was published in Hong Kong Economic Journal on 15 April 2015.)
Lee Kuan-Yew is widely acclaimed for his accomplishments even if one disagrees with his politics. Critics still resist Lee’s brand of “Asian authoritarian capitalism” as a suitable model of development. But they concede it has been hugely successful in turning Singapore from an impoverished city into one of the world’s most prosperous, equitable, and corruption-free nations.
One concern is that the system Lee erected might not survive him. Singapore society has an ageing population and its young people are demanding change.
Lee’s status was earned in three defining ways. First, after being sworn in as Prime Minister in 1959, he successfully harnessed socialist sentiments to implement a government public housing program that laid the foundations for an equitable society and a market economy. This made it politically acceptable to respect the rule of law and protect private property rights, albeit not as vigorously as Hong Kong.
Second, after Singapore was expelled from the Malaysian Federation in 1965, he successfully dealt with the daunting task of building a nation state in a multi-ethnic society, in a city without a hinterland and surrounded by potentially hostile neighbors that could threaten it from both within and without.
And third, on a visit to Harvard in 1967 – where he responded to the burning campus question of whether President Lyndon Johnson was a war criminal or a psychopath over his conduct of the Vietnam War, with the statement, “You make me sick” – he laid out why the independence and prosperity of his country depended on the fortitude, unity and resolve of the United States. Lee saw the need at that time for US leadership to supplement and create a framework for order in the world.
Lee’s effort in building up the Singapore state attracted the most controversial commentaries. In my view, it is his most important accomplishment despite what some decry as its authoritarian nature.
Lee had few other options but to focus the global picture and harness his city in that direction. Singapore’s domestic economy is very small and needs to stay open to international trade, foreign investment, and migration flows in order to foster prosperity. But keeping the economy maximally open, as in the case of Hong Kong, carries economic risks that inevitably spill over into political risks.
International trade exposes the domestic economy to foreign competition that leads to the loss of jobs in sunset industries. Foreign investment likewise competes with domestic companies and threatens their survival. Growing economies and ageing populations create a continuous demand for labor, leading to the importation of foreign workers or immigrants, which invariably becomes a contentious policy issue with local residents.
Business cycles in foreign lands, meanwhile, impact on the domestic economy, creating inflation and deflation, havoc in financial markets, and uncontrolled property price appreciations and depreciations. Domestic voters everywhere instinctively look to government to protect them from the vicissitudes of foreign business cycles. If government fails, it is blamed.
As a sovereign nation, the Singapore state could not afford to fail on this account. It had to meet the expectations of its citizens. The British colonial governor in Hong Kong could legitimately claim that he was only accountable to the British monarch and if the people of Hong Kong were unhappy with his rule, they always had the Beijing option. (This attitude changed considerably after the 1967 disturbances.)
In deciding how to build up the Singapore state, Lee Kuan Yew had in theory two options. He could have upheld democratic principles in the manner of British constitutional practice by letting the people vote for competing governments, and letting the incoming government blame the outgoing one for anything that had gone wrong. For him, this would have meant a democracy that stuck to the habit of returning myopic political leaders whose eyes are glued only to the ballot box.
Lee also was not at all keen to allow economic protection, rent-seeking behavior and official corruption to become regular items on the election agenda, as is the habit in many democratic polities.
Lee’s wariness of the democratic path and the risks it posed not only for him and his party, but also for the future of Singapore, led him to choose the second option of an authoritarian path instead.
Critics who see in Lee only a politician with huge personal ambitions completely miss the point that Singapore faced very poor odds. In order to prosper, it had to become economically open. But maximal openness conflicts fundamentally with the requirements of a democratic society that allows and encourages politicians and well-organized domestic groups to compete with each other for the votes of citizens in a shortsighted way.
Harvard political economist, Professor Danny Rodrik, calls this the inescapable “trilemma of the world economy”. Global economic integration, national sovereignty and democracy are mutually incompatible choices. For a small city-state like Singapore with a multi-racial local community, these incompatibilities are particularly severe.
Lee was acutely aware of the risks of the authoritarian path and worked very hard to mitigate its negative effects.
In building up a bureaucracy, he sought to make sure its officers would not be corrupted. He reduced the temptation of accepting bribes by paying them well, which also enabled the state to recruit the most talented and ideologically agreeable members into its ranks.
The ruling political party maintains political control through its say over appointments, selective recruitment of members and hierarchical assignment of service and benefit. These arrangements fostered an enduring stake in the perpetuation of the regime among Singapore’s most productive, loyal and opportunistic segments, by offering them incentives to invest politically in the party.
The opposition, meanwhile, was marginalized rather than co-opted. The full force of law was used to prosecute targeted opposition leaders on such things as libel charges, until they were personally bankrupt. This also doubled up as a device to discourage rebellion from among the ranks of insiders.
The use of nominally democratic institutions, such as the legislature, opposition parties, elections, and open recruitment of certain officials, also served authoritarian ends by providing avenues for opposition views to emerge and provide feedback on the performance of the ruling party. They also helped the authoritarian ruler resolve power sharing and monitor problems among the ruling elites by committing to institutional arrangements that were formal and open.
In political elections, Lee introduced a system designed to give the ruling party a structural advantage. Voting is mandatory for all eligible citizens thus ensuring median voters represent the majority opinion. In local elections he adopted a first past the post rule that favors the dominant incumbent party.
In the 2011 parliamentary elections, the ruling party won a total of 60% of the popular vote, but was able to secure 90% of the seats in the legislature. Such an arrangement ensures the ruling party can hold onto power effectively and have ample time to improve its performance before the next election.
Lee developed many political institutions that are absent in China. A softer version of the authoritarian state once existed in Hong Kong, but political developments in the past 2-3 decades have led to growing fragmentation and polarization, something Lee would not have counseled.
Lee of course realized these political and bureaucratic institutional arrangements could only buy time. Ultimately, the authoritarian state still had to deliver on three fronts: economic prosperity, social equity, and justice.
First, he acted to promote economic prosperity by protecting private property rights and introducing simple tax regimes, minimal regulation, and free market competition. The currency has functioned effectively like Hong Kong’s currency board, but with the rate pegged to an unannounced basket of currencies. This allows the monetary authority to adjust the currency to soften the impact of foreign business cycles.
International capital flows were made relatively free subject to some controls for domestic market stabilization purposes. Foreign investment was actively encouraged and given preferential treatment. While Singapore is not exactly a bastion of the free market like Hong Kong, it is close enough and pro-business. Labor shortages are met by importing foreign labor. Non-residents make up 1.59 million of the total population of 5.47 million (or 29%).
Singapore’s free competitive private enterprise market economy is also something that China does not have. A well-functioning private market economy serves as an important feedback loop on the appropriateness of government policy. The Singapore government has avoided committing policy disasters that are found in so many authoritarian countries because it has heeded the signals of market forces.
The second front of social equity is a necessary condition for building a community of citizens. The foundations were laid even before 1965 with the government housing program, which afforded all Singaporean families the opportunity to own a housing unit at an affordable price. Over 80% of eligible Singaporean households now live in such units, which they are also allowed to sell on the open market to any resident.
This arrangement has allowed the bulk of the population to have an equal stake in the rising prosperity of the nation. It has functioned also to foster a common identity and build integrated communities by allocating proportionate numbers of different ethnic groups into each housing block.
This is in sharp contrast to Hong Kong where 47% of the households live in government-subsidized housing, of which some 31% are renters and only 16% are owner occupants. Even then, these owners can only sell their units if they pay a hefty land premium that has typically been unaffordable.
Another measure that has promoted social equity in Singapore is the Central Provident Fund, which has been praised by many commentators for offering a farsighted solution for retirement and ageing. This is not its most important attribute, though, because it also effectively tied the fate of each individual to that of the state. Its initial design also eschewed income redistribution to avoid political divisiveness and encourage self-reliance – a very wise political decision.
The third and final front, justice, has been implemented through a rigorous upholding of the rule of law. The law is a powerful institution for dealing with disputes between individuals and businesses, and between private citizens and public authorities. For the ordinary citizen, this assures them of day-to-day justice, even though there are areas that are off limits where politics is concerned.
Lee also acted as global statesmen in quest of world order and responsible leadership. He would return again and again to his 1967 theme on the need to build a framework for order in the world, and he would contribute to this process whenever it was possible. He did not believe the stability, security, and prosperity of any individual nation could be isolated from events and developments elsewhere in the world.
Singapore’s plight as a city-state may have propelled Lee to push for a new world order, but his message is important precisely because leaders everywhere, regardless of the size of their nation, are often too obsessed with inward-looking local concerns and ignore the concerns of near and distant neighbors. Lee’s effort and contributions are exemplary and uncontroversial.
Asian authoritarian capitalism is a narrative to justify and explain modern Singapore and its success. There are good lessons to be drawn on how authoritarian rule can enhance survival odds by preserving a capitalist market economy for accumulating wealth, promoting social equity through shared housing wealth, adopting selective political institutions found in democratic nations to enhance stability, and implementing the rule of law so that citizens can experience justice in their lives.
Lee’s greatest challenge and also his greatest accomplishment was to create a state that kept its people together as a nation. This was his fundamental axiom – his categorical imperative. His heirs will have to guard it.
Singapore after Lee Kuan Yew will have to tread the fine line between what its founder built up with all his wisdom and dedication, and the rising aspirations of an educated and prosperous citizenry eager for individual and collective expression. The rich and talented can choose to exit. But for a nation-state to thrive, it must keep its people together. Keeping 1.3 billion people together is not China’s challenge because its huge population cannot be accommodated anywhere else, nor can they easily leave, but state building is. It is also not Hong Kong’s challenge because the city is not a nation-state, but a capitalist territory according to the law.
