Economist CHOY KEEN MENG identifies continuities over the long span of Singapore’s 700-year history and argues that its economic success can be attributed to both luck and astute decision making. This article draws from his new book, The Economic History of Singapore (NUS Press), co-authored with Ichiro Sugimoto.

A long-standing puzzle in Singapore’s history concerns why it was dormant — a terra nullius — for more than two centuries before Stamford Raffles rediscovered it in 1819. Even while this hiatus remains unexplained, there is yet another paradox: why has nobody written an economic history of Singapore until now, when the raison d’être for the island’s existence has all along been quintessentially economic, or in common parlance “to make money”? This provided the main motivation for me and Ichiro Sugimoto to spend five years on such a project, the result of which has recently been published as The Economic History of Singapore by NUS Press.

Our collaboration actually began much earlier after he reconstructed the national income accounts for Singapore’s colonial era, statistics from which have been included in the book. The British deserved their reputation as meticulous record-keepers, and we were able to consult a wealth of primary sources stored in the colonial archives, newspapers, articles, travelogues and memoirs. Our reconstruction of Temasek’s economy as it existed seven hundred years ago was based primarily on the evidence from archaeological artifacts. In the modern period, of course, the amount of data and secondary sources is copious and one does have to be selective in using them. The upshot of all this is that it allows us to document not just macroeconomic developments but also to describe the operation of labour markets, the creation of physical and social infrastructure, as well as the progression of living standards throughout Singapore’s long history.

Our book covers the evolution of Singapore through the various phases of its economic history, from a regional entrepôt in the fourteenth century to colonial port city and staple port in the nineteenth and early twentieth centuries, a manufacturing and services hub in the late twentieth century, and finally to a global city in the twenty-first century. Reviewing all this here would be a spoiler. This article instead offers potential readers an appetizer by bringing out several recurring themes in the city-state’s history and the reasons for its success. Suffice it to say that Singapore was totally open to free trade and always made itself useful to the region and the world. Reflecting continuity in change, its role has always been to serve as an intermediary in the production and exchange of goods and services between Southeast Asia and the rest of the world. This function required the city to be firmly embedded within the international division of labour that emerged in the nineteenth century, and then in the modern global system of production fragmentation that arose in the late twentieth century.

Producing rubber in the 19th century, manufacturing electronics in the 1970s, and offering services in the present day.

Leitmotifs in the Singapore story

The first recurrent theme is that, due to its small size, Singapore had always depended on one dominant or just a few major commodities to prosper. When it was known as Temasek, it specialised in exporting lakawood, hornbill casques and blackwood, for which it was famous. During the late colonial period, the export of tin initially and then rubber later on made Singapore (and Malaya) one of the richest colonies of the British Empire. In the modern era, the production of electronic goods enabled the city to industrialise quickly and raise incomes. The lesson to be drawn here is that Singapore cannot afford to “do everything” but instead, should specialise in a few niches in which it has a comparative advantage. A second leitmotif in Singapore’s economic history is the perennial need for investment in physical infrastructure and social capital. Such outlays have figured prominently in the colonial period although spending on social services only gradually increased over time. State provision of infrastructure and human capital investment in education and healthcare have been even more crucial in modern times. The nation’s leaders understood that Singapore’s only resource is its people and therefore such expenditures were necessary to give the city-state a competitive edge.

The third but by no means last recurring theme is fiscal conservatism. Right from the start of the colonial era when Singapore was ruled by the East India Company, it had to earn its own keep. Furthermore, it had to do this by means other than trade duties or land taxes, compelling the early government to set up “revenue farms” for opium, arrack and gambling. Despite this, it became self-supporting as early as 1821, thereby enabling the administration to spend more freely on building infrastructure. After Singapore became a Crown Colony in 1867, the British government imposed the philosophy of “living within one’s means” on its fiscal administration, which meant that it could not rely on financial support from London. The colony managed to avoid doing so due to the fortuitous advent of the steamship age and the attendant boom in world trade, which led to a huge increase in population and farm revenues. Insofar as the modern period is concerned, not many Singaporeans today know that when the PAP first came into office in 1959, the government finances were in disarray due to the profligate spending of the previous administration. But within a decade, the country began to run budget surpluses year after year, adding to the reserves. Perhaps unbeknown to the political leaders, this is actually a long-standing feature that harked back to the colonial age: the principle of living within one’s means was not only upheld but became more entrenched in the modern era, notwithstanding the increased activism of the government. In this case, it was fiscal prudence coupled with strong economic growth that were responsible for the outcome.

Flourishing through major disruptions

Singapore has flourished throughout its history regardless of the form of governance and whether or not it existed as an independent polity or as a part of a larger entity. The current level of prosperity is therefore the result of long-run processes and long-standing political and economic characteristics — an illustration of path dependence in history. The city-state inherited usable physical infrastructure, global economic networks and legal-institutional arrangements from the time of Pax Britannica that were to stand it in good stead when independence came. This spatial-temporal dependence will also operate as we move from the present to the future on account of the irreversible investments made in physical and social infrastructures. In this regard, the book explains how Singapore has consistently excelled despite tremendous economic and technological changes over time. Why it succeeded is a more difficult question to answer.

In the course of writing the book, we have had an opportunity to reflect on the possible reasons for Singapore’s economic success. The most immediately obvious hypothesis is that Singapore is the work of great men like Stamford Raffles and Lee Kuan Yew. Although this statement is certainly true, it cannot be the whole story. For it is equally true that the city’s political and business leaders were constantly driven by an overriding instinct for economic survival or even a “crisis consciousness”. Faced with external challenges for most of the time, they had to make decisions in highly constrained environments, which together with the absence of choice given the country’s smallness and vulnerability, led to discipline and pragmatism in economic policymaking. To put it in social Darwinian terms, Singapore got the basics right because it had to get them right or else perish. We therefore believe the city’s economic success can ultimately be attributed to its specific historical circumstances and imperatives. But Singapore is also a lucky country in being located where it is right at the crossroads of international trade, possessed of a natural deep harbour, and had as its coloniser the most advanced and richest country in the world at the time.

What of the future? By learning from history, we not only avoid the mistakes of the past but the past itself may illuminate the nation’s future. The future Singapore will continue to be an evolving and historically contingent entity. Location and distance had always mattered for it and with the current deglobalisation underway, there is reason to think that the city-state may be returning to its roots as the metropolis and economic hub of Southeast Asia. It is well poised to do this as the present trend towards the “servicisation” of manufacturing accelerates. In the twenty-first century, the city-state will specialise in the supply of knowledge-intensive services to support catch-up growth in its Asian hinterland. That brings us to the final motivation for writing the book: to dispel the pessimistic notion that the Singapore economy has reached its apogee and would stagnate hereafter, a prognosis which has been made in the past and been proven wrong. There is good reason to believe that Singapore’s most creative phase still lie ahead as long as it keeps adapting to changing external circumstances and reinventing itself.