Sean Wing › From Third World to First by Lee Kuan Yew

From Third World to First by Lee Kuan Yew

Every great achievement is a dream before it comes reality.

Lee Kuan Yew would not be true to himself were he less than frank about his analysis of the difference between the individualism of the West and the priority for social cohesion in countries such as his and in much of the rest of Asia. He does not ask us to change our patterns, only to refrain from imposing them on societies with different histories and necessities.

We had to make extraordinary efforts to become a tightly knit, rugged, and adaptable people who could do things better and cheaper than our neighbors, because they wanted to bypass us and render obsolete our role as the entrepôt and middleman for the trade of the region. We had to be different.

I needed political strength to maximize what use we could make of our few assets, a natural world-class harbor sited in a strategic location astride one of the busiest sea-lanes of the world.

What counts is the fighting strength of the armed forces, not the size of populations. The war-making potential of a small, vigorous, well-educated and highly motivated population should never be underestimated.

The Israeli practice of mobilizing the maximum number possible in the shortest time possible. We set up national cadet corps and national police cadet corps in all secondary schools so that parents would identify the arm and policy with their sons and daughters. We wanted the people to regard our soldiers as their protectors.

I proposed a small standing army plus the capacity to mobilize the whole civilian population who should be trained and put into reserves.

I did not want money spent on the recurrent costs of a larger army: It was better spent on the infrastructure we needed to raise and train national service battalions. National service would bring political and social benefits.

The best deterrent to any Malaysian plan to regain control over Singapore was their knowledge that even if they could subdue our armed forces, they would have to keep down a whole people well trained in the use of arms and explosives. Most important of all, we had to ensure that the SAF remained subordinate to the political leadership by keeping important functions such as manpower and finance under civilian officers in the defense ministry.

Those who enlisted in the SAF as a full-time career would be guaranteed jobs in the government, statutory boards, or the private sector when they left full-time service to go into the reserves.

To be effective, the SAF has to mobilize and involve the whole society in defense activities. So, school principals, teaches, parents, employers, and community leaders are brought into a supporting network under a concept called “Total Defence.” This keeps morale high.

I was convinced our people must never have an aid-dependent mentality. If we were to succeed we had to depend on ourselves.

… costs, especially wages in labor-intensive industries, determined profits. That was how Hong Kong entrepreneurs were able to build up such a successful textile and garments industry. They had been nimble, changing their product lines, patterns and designs with changing fashion. He dispelled my previous belief that industries changed gradually and seldom moved from an advanced country to a less-developed one. Reliable and cheap air and sea transport made it possible to move industries into new countries, provided their people were disciplined and trained to work the machines, and there was a stable and efficient government to facilitate the process for foreign entrepreneurs.

Singapore had grown from a village of 120 fishermen in 1819 to become a metropolis of 2 million. This was because its philosophy was to provide goods and services “cheaper and better than anyone else, or perish.”

All it had were hard-working people, good basic infrastructure, and a government that was determined to be honest and competent. Our duty was to create a livelihood for 2 million Singaporeans. If MNCs could give our workers employment and teach them technical and engineering skills and management know-how, we should bring in the MNCs.

The second part of my strategy was to create a First World oasis in a Third World region. If Singapore could establish First World standards in public and personal security, health, education, telecommunications, transportation, and services, it would become a base camp for entrepreneurs, engineers, managers, and other professionals who had business to do in the region. This meant we had to train our people and quip them to provide First World standards of service.

We had one simple hiding principle for survival, that Singapore had to be more rugged, better organized, and more efficient than others in the region. We had to make it possible for investors to operate successfully and profitably in Singapore despite our lack of a domestic market and natural resources.

American MNCs laid the foundations for Singapore’s large high-tech electronics industry. Although we did not know it then, the electronics industry was to mop up our unemployment and turn Singapore into a major electronics exporter in the 1980s. From Singapore they were later to expand into Malaysia and Thailand.

Kisting CEOs used to call on me before they made their investment decisions. I thought the best way to convince them was to ensure that the roads from the airport to their hotel and to my office were neat and spruce, lined with shrubs and trees. Without a word being said, they would know that Singaporeans were competent, disciplined, and reliable, a people who would learn the skills they required soon enough.

The new problem was how to improve the quality of the new investments and with it the education and skill levels of our workers.

If I have to choose one word to explain why Singapore succeeded, it is confidence. This was what made foreign investors site their factories and refineries here.

Winesemius immediately went to London where Van Oenen took him to a large globe standing in a boardroom, and said, “Look here, the financial world begins in Zurich. Zurich banks open at 9 o’clock in the morning, later Frankfurt, later London. In the afternoon Zurich closes, then Frankfurt and London. In the meantime, New York is open. So London hands over financial money traffic to New York. IN the afternoon New York closes; they had already handed over to San Francisco. When San Francisco closes in the afternoon, the world is covered with a veil. Nothing happens until next day, 9:00am Swiss time, then the Swiss banks open. If we put Singapore in between, before San Francisco closes, Singapore would have taken over. And when Singapore closes, it would have handed over Zurich. Then, for the first time since creation, we will have a 24-hour round-the-world service in money and banking.”

The history of our financial center is the story of how we built up credibility as a place of integrity, and developed the officers with the knowledge and skills to regulate and supervise the banks, security houses, and other financial institutions so that the risk of systemic failure is minimized.

The foundations for our financial center were the rule of law, an independent judiciary, and a stable, competent, and honest government that pursued sound macroeconomic policies, with budget surpluses almost every year. This lead to a strong and stable Singapore dollar, with exchange rates that dampened imported inflation.

We believed in socialism, in fair shares for all. Later we learned that personal motivation and personal rewards were essential for a productive economy. However, because people are unequal in their abilities, if performance and rewards are determined by the marketplace, there will be a few big winners, many medium winners, and a considerable number of losers. That would make for social tensions because a society’s sense of fairness is offended.

To even out the extreme results of free-market competition, we had to redistribute the national income through subsidies on things that improved the earning power of citizens, such as education. Housing and public health were also obviously desirable. But finding the correct solutions for personal medical care, pensions, or retirement benefits was not easy. We decided each matter in a pragmatic way, always mindful of possible abuse and waste. If we over-re-distributed by higher taxation, the high performers would case to strive. Our difficulty was to strike the right balance.

My primary preoccupation was to give every citizen a stake in the country and its future. I wanted a home-owning society, I had seen the contrast between the blocks of low-cost rental apartments, badly misused and poorly maintained, and those of house-proud owners, and was convinced that if every family owned its home, the country would be more stable.

If the soldier’s family did not own their home, he would soon conclude he would be fighting to protect the properties of the wealthy. I believed this sense of ownership was vital for our new society which had no deep roots in a common historical experience.

The colonial government had started the Central Provident Fund (CPF) as a simple savings scheme for retirement: 5 percent of wages contributed by the employee with a matching 5 percent by the employer, to be withdrawn at age 55. Workers were allowed to use their accumulated CPF savings to pay the 20 percent down payment and service the housing loan for the balance by monthly installments over 20 years.

I raised it in stages from 5 percent to a maximum of 25 percent in 1984, making a total savings rate of 50 percent of wages. This was later reduced to 40 percent.

I made all CPF members set aside 1 percent of their monthly income in a special account that could be used to co-pay medical expenses for themselves and their families. It was gradually increased to 6 percent.

I wanted: good health services, with waste and costs kept in check by requiring co-payments from the user. Subsidies for health care were necessary, but could be extremely wasteful and ruinous for the budget.

Co-payment by patients did prevent waste. A patience in a government hospital pays fees subsidized at rates up to 80 percent, depending on the type of ward he or she chooses. As incomes increased, fewer patients chose the lower-cost wards, which had the highest government subsidies, and opted for wards with more comfort but lower subsidies. We considered but rejected a means test to determine which wards patients were entitled to use; it would have been difficult to implement. Instead encouraged people to upgrade to the ward they could afford by making clear differences in comfort between different types of wards. It was in effect a soft-administered means test. Rising incomes resulting in high Medisave savings made people feel wealthy enough to choose the better-fitted wards.

We allowed the use of Medisave for private hospital fees, subject to price limits for various procedures. This competition put pressure on government hospitals to improve their service quality. But we disallowed the use of Medisave for visits to outpatient clinics or private GPs. We believed more people would see a doctor unnecessarily for minor ailments if they could pay for Medisave than if they had to pay from their monthly budget.

In 1990, we added MediShield, an optional insurance against the cost of catastrophic illness. Premiums could be paid out of the Medisave account. In 1993, we set up Medifund with money from government revenue to cover those who had exhausted their Medisave and MediShield and had no immediate family to rely on. They could apply for a total waver of all fees which would then be paid from Medifund. Thus, while no one is deprived of essential medical care, we do not have a massive drain on resources, nor long queues waiting for operations.

We decided that all workers should accumulate their own savings in the CPF for old age.

We liberalized the use of the CPF to allow investment in private, commercial, and industrial properties, trustee shares, unit trusts or mutual funds, and gold. If their investments outperformed the CPF interest rate, they could take the surplus out of the CPF. We had safeguards to prevent members from losing all their savings.

We wanted our people to hold shares in a jar Singapore company and have a tangible stake in the country’s success.

We offered shareholders the right to bonus shares after the first, second, fourth, and sixth years, provided they had not sold the original shares. This resulted in 90 percent of the workforce owning Singapore Telecom shares, probably the highest in the world.

After observing how differently people maintained their own apartments as against rented ones, I believe that a deep sense of property was instinctive in a person. I was strengthen in my resolve to give every family solid assets which I was confident they would protect and defend, especially their home. I was not wrong.

We chose to redistribute wealth by asset enhancement, not by subsidies for consumption. Those who are not winners of top prizes in the free market will still get valuable consolation prizes for competing in the marathon of life. Those who want to spend can sell some of their assets. Significantly, few have consumed their assets. Instead they have invested and increased their assets, spending only the derived income. They want to conserve their capital for a rainy day, and later leave it to their children and grandchildren.

Almost every worker carries his or her own pension fund. At his or her death, the balance of a worker’s CPF savings will be paid according to the worker’s written wishes without the delays and formality of applying to court.

We noted by the 1970s that when governments undertook primary responsibility for the basic duties of the head of a family, the derive in people weakened. Welfare undermined self-reliance. People did not have to work for their families’ well-being. The handout because a way of life. The downward spiral was relentless as motivation and productivity went down. People lost the drive to achieve because they paid too much in taxes. They became dependent on the state for their basic needs.

We thought it best to reinforce the Confucian tradition that a man is responsible for his family—his parents, wife, and children. In the 1960s and 1970s, the failure of the European welfare state was not yet self-evident. It took two generations for the harm to work its way through and be seen in lowered performance of individuals, sluggish growth rates, and growing budget deficits. We needed time to build up substantial CPF savings, and have many own their homes. Only then would people not want their individual savings put into a common pool for everyone to have the same welfare “entitlement,” own the same kind of home, or enjoy the same level of comfort in hospitals. I was certain they would prefer to make that additional effort to pay for the extras they sought, either in the size and quality of their homes or in the level of comfort in hospitals.

The CPF has made for a different society. People who have substantial savings and assets have a different attitude to life. They are more conscious of their strength and take responsibility for themselves and their families. They are not attracted to the “buffet syndrome” where, after paying a health insurance premium, you consume as much in medical investigations and procedures as you or your doctor can think of.

To ensure a member’s savings will be enough for his retirement, either his CPF balance nor his assets bought with CPF money can be levied upon or attracted for any debt or claim. Nor is his HDB apartment bought with CPF money available to his creditors. Only the HDB can execute against an owner for mortgage installments unpaid on the home.

It is fairer and sounder to have each generation pay for itself and each person save for his pwn pension fund.

The CPF and home ownership have ensured political stability, the foundation upon which Singapore grew and developed without interruption for more than 30 years.

To work a social security system like the CPF, an economy needs to have low inflation and interest rates above inflation rates. People must be confident their savings will not melt away through inflation or devaluation against other currencies. In other words, sound fiscal and budget policies are the preconditions for the success of the CPF.

The more yang (male) competitiveness in society, the higher the total performance. If winner takes all, competition will be keen, but group solidarity weak. The more yin (female) solidarity, with rewards evenly redistributed, the greater the group solidarity, but the weaker the total performance because of reduced competition.

Owning assets, instead of subsisting on welfare, has given people the power and the responsibility to decided what they want to spend their money. on.

We have arranged help but in such a way that only those who have no other choice will seek it. This is the opposite of attitudes in the West, where liberals actively encourage people to demand their entitlements with no sense of shame, causing an explosion of welfare costs.

On top fo their high CPF compulsory savings of 40 percent of their wages, many have additional voluntary savings in the Post Office Savings Bank, later called POSBank. All these helped the government to pay for infrastructure: roads, bridges, airports, container ports, power stations, reservoirs, and a mass rapid transit system. By avoiding wasteful expenditures, we kept inflation low and did not need to borrow foreign funds. Government expenditures has averaged 20 percent of GDP, compared to an average of 33 percent in the G7 economies. On the other hand, our development expenditures has consistently been much higher than that of the G7 countries.

We moved from taxing income to taxing consumption. The top marginal income tax rate for individuals was reduced from 55 percent in 1965 to 28 percent in 1996. The corporate tax rate of 40 percent was reduced to 26 percent in the same period. Singapore has no capital gains tax. Our GST (goods and services tax, the equivalent of VAT) is 3 percent. Our import tariff is about 0.4 percent.

We have non tax revenue from a wide range of user charges. Our aim is to have partial or total cost recovery for goods and services provided by the state. This checks overconsumption of subsidized public services and reduces distortions in the allocation of resources.

Sustained growth ensures stability, which encourages investments that create wealth. Private savings rate will decline, and health care costs will rise sharply with more old people, just when taxpayers as a percentage of the populations will decrease. We can partly meet this problem by taking steps early to ensure the old will have larger Medisave savings; the better answer is to attract educated and skilled immigrants to enlarge our talent pool and increase both GDP and revenue.

I had better rapport with my audience when I expressed my thoughts as they formed and flowed in my mind, whereas if I had a script, I could not get my message across with the same conviction and passion.

The spoken word on television made a far greater impact than the written script in newspapers. My dominance of the public platform was my strength throughout my political life.

Western liberal critics argue that my reputation is so unassailable that nobody will believe the outrageous things that are said about me, so I should ignore them magnanimously instead of suing vindictively. But outrageous statements are disbelieved only because they are vigorously refuted. If I failed to sue, that would be cited as proof that there was something in it.

Since the 1950s we have established a political climate under which politicians have to defend any allegation of misconduct or wrongdoing.

Voters have come to expect any allegation of impropriety or dishonesty to be challenged in the courts. Those who allege that my libel actions were designed to silence the opposition do not understand how readily an allegation of dishonesty or corruption would be believed in a region where corruption, cronyism, and nepotism are still a plague.

Will the political system that my colleagues and I developed work more or less unchanged for another generation? I doubt it. Technology and globalization are changing the way people work and live. Singaporeans will have new work styles and lifestyles. As an international hub of a knowledge-based economy in the information technology age, we will be ever more exposed to external influences.

Talent is a country’s most precious asset. For a small resource-poor country like Singapore, with 2 million people at independence in 1965, it is the defining factor.

We should have foreseen that the better-educated would have two or fewer children, and the less-educated four or more.

Singaporeans now accept that the better-educated and more able the parents, the more likely are the children to achieve similar levels.

We all wore white shirts and white slacks to symbolize purity and honesty in our personal behavior and our public life.

On the other hand Singapore has shown that a system of clean, no-money elections helps to preserve a honest government. But Singapore will remain clean and honest only if honest and able men are willing to fight elections and assume office. They must be paid a wage commensurate with what men of their ability and integrity are earning for managing a big corporation or a successful legal or other professional practice.

If we underpay men of quality as ministers, we cannot expect them to stay long in office earning a fraction of what they could outside. With high economic growth and higher earnings in the private sector, ministers’ salaries have to match their counterparts’ in the private sector. Underpaid ministers and public officials have ruined many governments in Asia. Adequate remuneration is vital for high standards of probity in political leaders and high officials.

My official residence belonged to the government. I had no perks no cars with chauffeurs thrown in, or ministerial quarters with gardeners, cooks, and other servants in attendance. My practice was to have all benefits expressed in a lump sum and let the prime minister and ministers themselves decide what they wanted to spend it on.

This would automatically entitle them to an increase as incomes in the private sector increased. This change to a formula, pegged at two-thirds of the earnings of their private sector equivalents as disclosed in their income tax returns, caused an enormous stir, especially with the professionals who felt that it was completely out of proportions to what ministers were paid in advanced countries. People had for so long been accustomed to having public servants paid modest salaries that the idea that ministers not only exercised power but were also paid in accordance with the importance of the job upset their sense of propriety. I believed this high-minded approach was unrealistic and the surest way to make ministers serve only briefly, whereas continuity in office and the experience thus gained have been a great advantage and strength in the Singapore government.

Pirate taxi drivers were banished from the roads only after we had reorganized bus services and could provide them with alternative employment.

I did not want a foreigner not rooted in Singapore to decide our political agenda.

I stated my position on the role of the media in a new and young country like Singapore. I needed the media “to reinforce, not to undermine, the cultural values and social attitudes being inculcated in our schools and universities. The mad media can create a mood in which people become keen to acquire the knowledge, skills and discipline of advanced countries. Without these, we can never hope to raise the standards of living of our people.”

A few years later, in 1977, we passed laws to prohibit any person or his or her nominee from holding more than 3 percent of the ordinary shares of a newspaper, and created a special category of shares called management shares. The minister had the authority to decide which shareholders would have management shares. He gave management shares to Singapore’s four major local banks. They would remain politically neutral and protect stability and growth because of their business interests. I do not subscribe to the Western practice that allows a wealthy press baron to decide what voters should read day after day.

We decided in 1986 to enact a law to restrict the sale or distribution of foreign publications that had engaged in the domestic politics of Singapore. One of our tests for “engaging in the politics of Singapore” was whether, after they had misreported or slanted stories on Singapore, they refused to public our reply. We did not ban them, only restricted the number of copies they sold. Those who could not buy copies could get them photocopied or faxed. This would reduce their advertising revenue but did not stop their reports from circulating. They could not accuse us of being afraid to have their reports read.

If we do not stand up to and answer our critics from the foreign. media, Singaporeans, especially journalists and academics, will believe the their leaders are afraid of or unequal to the argument, and will lose respect for us.

The spoken word on television made a far greater impact than the written script in newspapers. My dominance of the public platform was my strength throughout my political life.

Western liberal critics argue that my reputation is so unassailable that nobody will believe the outrageous things that are said about me, so I should ignore them magnanimously instead of suing vindictively. But outrageous statements are disbelieved only because they are vigorously refused. If I failed to sue, that would be cited as proof that there was something in it.

Since the 1950s we have established a political climate under which politicians have to defend any allegations of misconduct or wrongdoing.

Votes have come to expect any allegations of impropriety or dishonesty to be challenged in the courts. Those who allege that my libel actions were designed to silence the opposition do not understand how readily an allegation of dishonesty or corruption would be believed in a region where corruption, cronyism, and nepotism are still a plague.

Talent is a country’s most precious asset. For a small resource-poor country like Singapore, with 2 million people at independence in 1965, it is the defining factor.

We should have foreseen that the better-education would have two or fewer children, and the less-educated four or more.

Singaporeans now accept that the better-educated and more able the parents, the more likely are the children to achieve similar levels.

We all wore white shirts and white slacks to symbolize purity and honesty in our personal behavior and our public life.

On the other hand Singapore has shown that a system of clean, no-money elections helps to preserve an honest government. But Singapore will remain clean and honest only if honest and able men are willing to fight elections and assume office. They must be paid a wage commensurate with what men of their ability and integrity are earning for managing a big corporation or a successful legal or other professional practice.

My official residence belonged to the government. I had no perks, no cars with chauffeurs thrown in, or ministerial quarters with gardeners, cooks, and other servants in attendance. My practice was to have all benefits expressed in a lump sum and let the prime minister and ministers themselves decide what they wanted to spend it on.

This would automatically entitle them to an increase as incomes in the private sector increased. This change to a formula, pegged at two-thirds of the earnings of their private sector equivalents as disclosed in their income tax returns, caused an enormous stir, especially with the professionals who felt that it was completely out of proportion to what ministers were paid in advanced countries. People had for so long been accustomed to having public servants paid modest salaries that the idea that ministers not only exercised power but were also paid in accordance with the importance of the job upset their sense of propriety. I believed this high-minded approach was unrealistic and the surest way to make ministers serve only briefly, whereas continuity in office and the experience thus gained have been a great advantage and strength in the Singapore government.

Pirate taxi drivers were banished from the roads only after we had reorganized bus services and could provide them with alternative employment.

I did not want a foreigner not rooted in Singapore to decide our political agenda.

I stated my position on the role of the media in a new and young country like Singapore. I needed the media “to reinforce, not to undermine, the cultural values and social attitudes being inculcated in our schools and universities. The mass media can create a mood in which people become keen to acquire the knowledge, skills and disciplines of advanced countries. Without these, we can never hope to raised the standards of living of our people.”

If we do not stand up to and answer our critics from the foreign media, Singaporeans, especially journalists, and academics, will believe that their leaders are afraid of or unequal to the arguments, and will oboe respect for us.

In 1998, we introduced electronic road pricing (ERP). Every vehicle now has a “smart card” at its windshield, and the correct toll is automatically deducted every time it passes under gantries sited at strategic points in the city. The toll amount varies with the stretch of road that is used and the time of day. Technology has made it possible to fine-tune the ALS system and extend it to all roads that have become congested. Since the amount people pay the government now depends upon how much they use the roads, the optimum number of cards can be owned with the minimum of congestion.

Confucian societies believe that the individual exists in the context of the family, extended family, friends, and wider society, and that the government cannot and should not take over the role of the family. Many in the West believe that the government is capable of fulfilling the obligations of the family when it fails, as with single mothers. East Asians shy away from this approach. Singapore depends on the strength and influence of the family to keep society orderly and maintains a culture of thrift, hard work, filial piety, and respect for elders and for scholarship and learning. These values make for a productive people and help economic growth.

In Eastern societies, the main objective is to have a well-ordered society so that everyone can enjoy freedom to the maximum. Parts of contemporary American society were totally unacceptable to Asians because they represented a breakdown of civil society with guns, drugs, violent crime, vagrancy, and vulgar public behavior. America should not foist its system indiscriminately on other societies where it would not work.

Man needs a moral sense of right and wrong. There is such a thing as evil, and men are not evil just because they are victims of society. Many of the social problems in the United States were the result of the erosion of the moral underpinnings of society and the diminution of personal responsibility. Some American liberal intellectuals had developed the theory that their society had advanced to a stage where everyone would be better off it they were allowed to do their own thing. This encouraged Americans to abandon a moral or ethical basis for society.

A people steeped in Chinese values had more discipline, and were more courteous and respectful to elders. The result was a more orderly society. When these values were diluted by an English education, the result was less vigor and disciplined and more casual behavior. Worse, the English-educated generally lacked self-confidence because they were not speaking their own native language. The dramatic confrontations between the communist-led Chinese middle school students and my own government brought home these substantial differences in culture and ideals, represented by two different value systems.

History teaches us that liberal democracy needs economic development, literacy, a growing middle class, and political institutions that support free speech and human rights. It needs a civic society resting on shared values that make people with different and conflicting views willing to cooperate with each other.

Democracy works where the people have that culture of accommodation and tolerance which makes a minority accept the majority’s right to have its way until the next election, and wait patiently and peacefully for its turn to become the government by persuading more voters to support its views.

American friends keep reminding me that their foreign policy is often driven not by considerations of strategic national interest, but by their media.

The key to a modern economy, he said, was through training, not grants and soft loans.

Present Japanese attitudes are an indication of their future conduct. If they are ashamed of their past, they are less likely to repeat it. If the Japanese feel threatened, deprived of their means of livelihood as a nation of being cut off rom oil or other critical resources, or shut out from their export markets. I believe they will again fight ferociously as they did from 1942 to 1945.

Japanese executives and engineers start work on the factory floor.

People knew I did not lie and was sincere in advancing their interests. Ordinary people could not follow the intricacies of an economic or a political problem, so they learned whom to trust. To win such trust, I never said anything which I did not believe in, and people slowly recognized that I was honest and sincere. This was my most powerful asset. It was also U.S. President Reagan’s strength. He had good speechwriters. He worked on their drafts, using their ideas, but putting them into his own words. He did not allow himself to be “voiced over” by his speechwriters, so when he delivered a speech, he came across as a man of sincerity and conviction.