These are exciting times. But they are also unsettling. Exciting, because of the vast opportunities that are emerging. Unsettling, because the changes sweeping the world will require major adjustments in our economy and society.

Take for instance the political developments in our neighbourhood.

In Indonesia, the stability under Soeharto has given way to a period of uncertainty. Indonesia faces grave political, economic and social difficulties. How events turn out in Indonesia will affect its neighbours and investor confidence in the region, including Singapore.

In Malaysia, UMNO is facing a stronger challenge from the opposition, Parti Islam or PAS. It also has to meet the expectations of a younger and more vocal generation of Malaysians. Dr Mahathir has said that this is his last term as Prime Minister. The political landscape after Dr Mahathir may be different, though the Barisan Nasional and Malaysia's well-established institutions will provide continuity, and not discontinuity like in Indonesia.

In Taiwan, the election of Chen Shui-bian as President has created a new and complex situation for Beijing. Both sides of the straits are now sizing up each other as they manoeuvre over the one-China issue. How this issue is managed will affect not only China and Taiwan, but the stability of the whole of Asia.

The economic landscape is changing even more rapidly.

Northeast Asia is pulling ahead of Southeast Asia. China will become an even more formidable competitor for markets and investments after her entry into the WTO. Korea has already become much more competitive because of the reforms it undertook following the Asian financial crisis. Japan's economy too, is turning around.

Southeast Asia, on the other hand, has been slow to shake off the effects of the financial crisis. In many countries, structural reforms have been mired in political difficulties. Progress has been moderate at best. There are also doubts about ASEAN's cohesiveness, and its resolve to press on with the integration of its markets.

I fear that the income divide between Northeast and Southeast Asia will widen considerably in the years ahead.

Globalisation is also driving many changes in the economic landscape. Wherever you are, and whatever you do, you now compete in the global arena, for skills, talent, investments and markets.

In addition, huge technological advances have powered knowledge breakthroughs in many fields. Scientists have cloned sheep. They have mapped the human genome. They may not clone human beings, for ethical and religious reasons. But we can expect genetically-enhanced humans. Singaporeans may, in future, hope to live beyond 100. But pause for a moment and think. You may then have to work till you are 80!

These changes are not incremental. They are discontinuous. This makes working out strategies for tomorrow difficult, as we cannot depend on yesterday’s experience.

To succeed in an environment of rapid and abrupt change, we will have to be more versatile, and more ready than ever to adapt.

This is the Japanese dilemma. Its highly successful model of economic development now appears to be a liability in the New Economy. It is finding it difficult to change with the Internet world.

The spirit of change in America, on the other hand, is palpable. America’s corporations are flexible and dynamic. They hire and fire, merge and downsize, and emphasise quarterly bottom-line and shareholder value. Mind you, these same values were criticised as American weaknesses in the Old Economy. But these same values are now in vogue.

Singapore has to embark on its own journey of change, or be left behind. Our current formula for economic development may well become less effective in future.

For example, Changi Airport has established itself as an aviation hub in Southeast Asia. But new technologies may threaten Changi’s position. Existing commercial aircraft cannot fly non-stop from Australia to the UK. They must stop somewhere to refuel, and many choose Singapore. But the new Airbus A340-500 which will come into service by 2002 will be able to fly non-stop from Perth to London. And it won't be long before Boeing or Airbus builds a new aeroplane that can fly Sydney-London non-stop. Then we will need compelling reasons for air traffic between Australia and the UK to stop over and hub in Singapore.

With the world changing radically, it cannot be business as usual for us. We have to reinvent ourselves. We have to go beyond being efficient and productive, to create and attract new enterprises.

This is not simply a matter of promoting new growth areas. For example, we have identified IT and life sciences as two new industries that will help drive our future growth. But so have many other countries. These new growth areas which we want to move into are already crowded with competitors.

So we need to differentiate ourselves. We need to find a fresh approach to doing things that will set us apart from the crowd.

Recently, I met Professor Gary Hamel, a well-known management consultant. He was here to carry out speaking engagements for our public service officers.

Professor Hamel characterised competition between companies as a battle between insurgents and incumbents, that is, between the revolutionaries and the established corporations.

He said and I quote,

"In the new industrial order, the battle lines don’t run between regions and countries. It is no longer Japan versus the United States versus the European Union versus the developing world. Today, it’s the insurgents versus the incumbents, the revolutionaries versus the landed gentry. … First the revolutionaries will take your markets and your customers. … Next they’ll take your best employees. …. Finally, they’ll take your assets."

In the fight between SingTel and Richard Li’s Pacific Cyberworks to take over Hong Kong Tel, SingTel and Hong Kong Tel were incumbents. Pacific Cyberworks was the insurgent, the newcomer to the industry. The insurgent won, helped by the sentiments of the Hong Kong people.

I am glad, though, that SingTel has moved on. It can and will turn itself into an insurgent, to win other battles against future rivals.

We can apply the same concept of insurgents versus incumbents to Singapore as a nation. With success, we are in danger of thinking and acting like an incumbent. This metaphor of insurgents versus incumbents may be oversimplifying the nature of competition, but it is a vivid way to warn against complacency. I believe that there is a real risk that because of our past success, we expect the current formula to continue working for us.

I asked Professor Hamel what would be the best term to describe Singapore’s drive to reinvent itself for the New Economy. Professor Hamel said that his preferred term was "grey-haired revolutionary".

I immediately thought of Senior Minister. He is a grey-haired revolutionary. He pushed Singapore to go regional. He pushed Singapore to go cashless. He encouraged me to pay Ministers and public sector officers a market-based salary.

But I don’t like to think of Singapore as grey-haired. We are still a young country.

The point, however, is that in the next decade, we need to think and act like revolutionaries. We have to innovate, not merely imitate. We will succeed not by following the footsteps of the incumbent, but by introducing new dimensions into play.

Innovation does not only mean making new scientific discoveries or new inventions. It is also about insights into how to use other people’s discoveries, knowledge and inventions to produce new wealth, or how to do things in a radically different but better way. Some innovations ride on technology, many others do not.

Take Creative Technology's Sim Wong Hoo. He has not only pioneered technological innovations, but is also exploring new business concepts.

I had lunch with him recently. He showed me his latest innovation, the Nomad Jukebox. It is a handheld digital audio player that can store up to 2000 songs. It will hit the stores soon.

But Sim Wong Hoo is already working on the next range of Nomad Jukebox which will operate on a totally new business concept. He plans to tie up with a record company to distribute the Jukebox with thousands of songs pre-stored in it. The owner of the Jukebox can listen to any of these songs by paying a few cents each time. If he likes one of the songs, he can simply push a button on the Jukebox to buy it for say, a dollar a song, through a micro-payment device in the Jukebox. Then he can listen to the song as often as he likes. The Jukebox is in effect a virtual music library with a stored value card which can be topped up through the Internet.

We have other innovators, like Ong Peng Tsin of Interwoven, whose product powers renowned e-business web-sites such as Cisco Systems, General Electric and Xerox. There is also Jason Lim who was involved in ThirdVoice, the inventor of "sticky notes" for the Web.

But we do not have enough of them.

Employees in Singapore are not given enough incentives to take risks and be enterprising. If they fail, they may be sacked. But if they succeed, and earn or save their companies millions of dollars, all they may get is a small bonus. So most employees tend to be goalkeepers. Instead of venturing new ideas, they concentrate on not making mistakes. They plod on thinking that their jobs will be safe so long as they stay on the trodden path.

But this will not work in the future. Goalkeepers, important as they are, do not score goals. And unless you score goals, you cannot win against the insurgents out there. If our companies fail to rise above incumbency, we may soon find ourselves with no team left to keep goal for. Employees must therefore be rewarded to think and play like strikers.

We need more Singaporeans who are willing to take a shot at goal. We must go beyond adding value to MNCs' products and services. We must ourselves create new products and services.

As a country, we also have to play like a striker. Encouraging our companies to go regional, for example, has its risks. Some companies have lost money. But on the whole, it has been very positive for our companies and economy.

Focussing on IT seems like a safer bet than, say, life sciences, because it is less capital intensive. In life sciences, you spend millions of dollars on research trying to discover a drug with a killer application, but there is no guarantee you will find it. Or others may beat you to it.

Nevertheless, we have decided to take a risk on life sciences because of its huge potential. Also, if we can gather and concentrate talent here, we will entrench an advantage which others will find difficult to dislodge. It is an area that requires brainpower more than muscle, and brainpower will create much more wealth than brawn this century.

Let me give you an example. Take the Mercedes Benz 200E class. A pound of the car sells for US$19. And there is already much knowledge embodied in the design and production of the car. Guess what a pound of the blue pill - Viagra - sells for? US$12,000! As they say, it is all in the mind.

The basis of success in the New Economy will be people and their mindsets. We need a change in mindset to deal with the new challenges. We need Singaporeans who can lead the way in creating new wealth for our economy.

Our priority in the coming years will therefore be to maximise the innovative and entrepreneurial spirit of our people. We have to change national and individual mindsets and attune them to a very different future. Only then can we succeed against other insurgents and incumbents.

But let me be clear. When I speak of transforming Singapore to join the New Economy, I do not mean embracing only new sectors such as dotcoms and e-commerce. I am referring also to the remodelling of traditional sectors, such as manufacturing and retailing, into entities which can succeed in the New Economy.

Likewise, being an insurgent does not guarantee victory, and being an incumbent does not necessarily mean failure. In fact, the current problems of Amazon.com and the collapse of Boo.com show that the jury is still out on who will inherit the New Economy. Old Economy incumbents who adopt New Economy thinking may often be in a stronger position to win. They may not be as sexy in the stock exchange but they have solid top and bottom lines.

My main point is that we need a mindset change to succeed in the New Economy. We need New Economy thinking, to exploit our Old Economy strengths. We cannot be a complacent incumbent merely keeping goal.

As we transform our economy and forge ahead, some Singaporeans will do better than others.

The Straits Times started a debate on the widening income gap in Singapore when it headlined an article on Singapore’s distribution of income:

"Low-income group hardest hit by recession"

It showed a picture of a cleaner with a quote:

"I survive on $133 a month".

This might have been an eye-catching caption, but it was misleading. It gave a wrong impression that the cleaner earned only $133 a month, and had to survive on that amount. In fact, cleaners earn an average of $850 a month.

$133 was the average income for the bottom 10% of households, because many households in this group had no members working. Some were retirees, living on their CPF savings. Others were unemployed, in between jobs. But nobody works as a cleaner in Singapore for $133 per month, or $5 per day.

Are our lowest-income Singaporeans so poor and desperate as the Straits Times story made them out to be?

Two-thirds of the bottom 10% households are home owners. Many of them own TV sets, washing machines and telephones, the basic consumer items that typical Singaporeans are accustomed to. When we compare their asset profiles to the bottom 10% in developed countries like the US, UK or Australia, ours are no worse off.

The fact is, the bottom 10% in Singapore enjoy a modest but reasonable standard of living. Like other Singaporeans, they have benefited from the country’s progress.

But yes, the income gap in Singapore is widening. This, however, is because of globalisation and the knowledge revolution, which have enhanced the value of talent dramatically, and pressed down the wages of the unskilled.

The market for talent is now totally international. Employers know that their best employees may be headhunted and may even move to another country, taking with them their knowledge, contacts and even colleagues. So pay must take into account the competitors in the market outside, and the premium for talent in the New Economy.

The income gap is widening in other countries too. I looked at 27 countries in Asia, Europe, North and South America. 22 out of the 27 have seen their income gap widen. They include Hong Kong, China, India, UK, US, Canada and Mexico.

The income gap in the US is now reported to be at its widest since data were collected in 1977. The ratio of top executives’ to factory workers’ pay had increased 10-fold, from 42 times in 1980 to 419 times in 1998.

The question is: what can and should the Government do about the widening income gap?

Should we forcibly hold down the wages of those at the top? If we do, we will kill the incentive for enterprising people to innovate, to take risks, to make it big, and in the process create many new jobs and move the whole economy forward. Top talent, Singaporeans and foreigners, will move to other countries where they can get better pay. Singapore will become less competitive. The standard of living of the remaining Singaporeans, who have no choice but to stay here, will be dragged down.

Can we artificially up the wages of those at the bottom? If we try, companies will simply relocate to lower-cost countries.

Already, many Singaporeans are worth more than a hundred million dollars. Several hundred professionals and corporate leaders earn more than a million dollars a year. Would I like every Singaporean to be just as rich? Sure I would. But it is simply not achievable. If we introduce policies to force an equal society, we will end up being equally poor. Other societies have tried and failed. Socialist Europe lags behind the US in economic development, in part, I believe, because of their stronger emphasis on social equality. Societies which try too hard to equalise the incomes of their people invariably reduce the incentives for their people to better themselves. Why should they when the fruits of their labour will be taken away and distributed to others?

President Zedillo of Mexico shares my view. A journalist asked him whether he thought wealth in Mexico should be spread more evenly.

He replied,

"They are confused. You don’t get better income distribution by taking from one and giving to another. You get better income distribution by empowering people to have the capacity to share the benefits of development. … The wealth will be better distributed as long as we are successful and continue to invest heavily in education, health, and programs against extreme poverty."

We must not envy those who have made it rich. Rather, we must provide the opportunities for more to be like them. It means operating on the basis of meritocracy - that you can get ahead in life if you work hard, and regardless of your background. It means providing all our children a sound education and our workers training and re-training, so that they have the means to seize the economic opportunities offered to them.

But we must also recognise that, indeed, there will be some Singaporeans who have genuine difficulties. We have programmes to improve the standard of living of this lower-income group, along with the rest of the population. We also have special programmes to help them, to ensure that they and their children enjoy good housing, proper health care and a sound education.

Indeed, the best way to avoid being trapped in the lower-income group is through education. Education provides the foundation for our children to compete successfully in life. It gives them the basic knowledge to acquire the skills required in the workplace. I believe that it will be the single most important factor determining the success of Singaporeans competing in the New Economy.

We now spend $6 billion a year, or 3.6% of GDP, to provide high-quality education that meets the needs of students of different ability.

I am willing to commit more money to education. I am prepared to increase spending on education from 3.6% to 4.5% of GDP over the next few years, provided the funds are put to good use. This means an extra $1.5 billion every year. What more can we do to improve the quality of education for all Singaporeans?

One area is our primary schools, where the foundation for future learning and citizenship is laid.

MOE has just completed a $2.2 billion programme to make all our secondary schools single-session.

For primary schools, MOE is now upgrading or rebuilding many of the older schools as part of a $4.5 billion programme. Within the next 2-3 years, when this upgrading programme is running smoothly, MOE should look at whether primary schools too should go single-session. Single-session schools give teachers and students more opportunity to interact, and provide students better access to school facilities.

Beyond physical infrastructure, we need quality teachers to be mentors and guides for our young as they embark on an exciting journey of discovery, experimentation, and fulfilment.

We have many dedicated teachers who have helped build the strong education system that we have today. We must continue to ensure that those who teach our children are well qualified to do so, not just academically, but also in commitment, passion, and the care and concern they show for their students. We must make sure that people with such qualities come forward to become teachers, and stay to become school leaders.

The Straits Times reported recently that Britain is coming here to recruit our teachers. Britain’s largest teacher-recruitment agency considers Singapore a "goldmine of high quality teachers".

I am pleased that our teachers are regarded so highly. But this poses a challenge to MOE. MOE has to support and reward our teachers effectively, so that we can retain them in the service, and not lose them to other jobs or to Britain.

I have urged MOE to review the career structure and rewards for our teachers, so that we can recruit and retain more teachers. If we are able to do that, then we can gradually improve our teacher-student ratio, and allow more opportunity for meaningful interaction between teachers and students. MOE should see how we can provide our schools with better administrative support, so that teachers can spend less time on administration and more on teaching.

MOE should also devote more resources to new areas to benefit Singaporeans, both young and old. It can help private providers to strengthen the pre-school sector, to build a firm foundation for our children before they start formal school. It can also increase capacity in post-secondary educational institutions to deliver lifelong learning, so that more adult Singaporeans will have opportunities to upgrade themselves.

The first few years of a child’s life are a period of accelerated physical development. Good pre-school education, or PSE, can help the longer-term cognitive and social development of our children.

MOE is therefore starting a pilot programme to develop a good pre-school curriculum. It aims for a balance between understanding concepts, the learning process, and acquiring desirable attitudes and values. To raise the quality of PSE, we must also improve the training and preparation of pre-school teachers.

In short, we will want PSE institutions to upgrade standards, while retaining the existing framework of private and community provision of such services.

But as we upgrade standards, costs will go up. The Government will therefore consider giving some financial help to non-profit PSE organisations. These PSE providers can then keep fees affordable, in particular for children from lower income families.

In the New Economy, every child needs to learn the basics to enable him to keep learning new skills through his life.

This is why we have been discussing compulsory education in recent months. Dr Aline Wong has released her report on Compulsory Education. It is a good report. The Government has accepted the recommendation to introduce compulsory education in national schools up to Primary Six.

Six years is really not enough. But if we can educate all our children for six years in primary school, this will prepare them for secondary education, and encourage most of them to continue with secondary education.

When I first raised the issue of compulsory education, some members of the Muslim community worried that it might be a ploy to close the madrasahs. This caused an emotional reaction, which clouded rational thinking.

Leaders have a duty to analyse issues logically, whether we are national or community leaders. We must try to understand the broader picture, and look a little further ahead than the public, to anticipate likely problems down the road. I am concerned if even one child is not educated to take care of himself in the New Economy. If significant numbers of Muslims are not equipped to do so, the Muslim community will face a serious problem. This is why I raised the issue for discussion, even though I knew that madrasahs would be a very sensitive matter for the Muslim community.

The Government has accepted Dr Aline Wong's Committee's recommendation to exempt students going to madrasahs from compulsory education in national schools, provided they are being prepared to sit for the PSLE, and provided the madrasahs attain a minimum standard in English, Mathematics and Science at the PSLE. The student intake into madrasahs must also be kept within the present level, which I understand is enough to meet the needs of the community for asatizahs and ulamas.

Now that the Malay community can see that madrasahs are not under threat, I suggest that MUIS lead a team to study the educational practices and the role of religious schools in Islamic countries like Brunei, Oman and Jordan. This will help you to decide how the madrasahs can best fulfil their role of training the future religious leaders of our Muslim community. Madrasah students, like the rest of our students, should be on the right side of the education divide.

Acquiring knowledge and skills for the New Economy cannot be a one-off process. I hope none of you believe that you have completed your education once you leave school.

Formal school education alone is not sufficient to carry you through life. The facts and skills that we learn today will go out of date and lose their relevance within a few years. Unless we systematically upgrade our skills throughout our working life, we will wake up one day to find ourselves out of a job. This applies to everyone, whether you are a 50-year old production operator or a 30-year old computer programmer.

We must therefore bring about a culture of lifelong learning. You are never too old to learn. Even if you speak Singlish, you can learn to improve your English. Look at Phua Chu Kang. He attended BEST classes. He is speaking better English already, although still not as good as Gurmit Singh. Whether Phua Chu Kang wishes to improve his English further is up to him. But if he is wise, he should keep on learning, for example, how to use the computer and e-commerce to expand his business.

To support lifelong learning, the Government will establish a new endowment fund - the Lifelong Learning Fund. We will build up this fund from our budget surpluses. The Lifelong Learning Fund will eventually have $5 billion. This year, we will allocate $500 million to kick off the fund.

The Lifelong Learning Fund will support existing national training programmes, such as the Skills Redevelopment Programme run by the NTUC. In addition, the Fund will support new training initiatives to make Singaporeans more employable. One priority will be in the area of IT. The Government is developing a National IT Literacy Program that will equip Singaporeans with the IT skills needed in the workplace and at home. We want all Singaporeans, young and old, to be comfortable and confident using IT.

We are also working out the framework for Singaporeans to upgrade themselves throughout their working lives, especially ITE and polytechnic diploma holders. This could be upgrading in formal qualifications, say, from an Industrial Technician Certificate to a polytechnic diploma, and from a diploma to a degree. Or we could have shorter courses which refresh and update skills and knowledge, and lead to advanced certification and diplomas.

With the Lifelong Learning Fund, we will have the beginnings of a lifelong education system, from pre-school to retirement.

But these efforts to help Singapore compete in the New Economy will come to nothing if we do not have enough Singaporeans!

In 1987, I announced the New Population Policy, to have 3 children, or more if you can afford it. The total fertility rate (TFR) was then 1.62. In other words, on average, each Singaporean woman was having only 1.62 children, way below the 2.1 required to replace the population. This was because many Singaporeans were not getting married, and those who were marrying were not having enough children to make up for the unmarried people.

We then put in place programmes to help Singaporeans meet potential partners and to help married couples have more children.

At first, the programmes worked. The TFR rose to 1.96 in 1988 (a dragon year) and 1.75 in 1989. But ten years later, the TFR has fallen to 1.48, below the 1987 level of 1.62. Three times as many families are childless (7.3% in 1999, compared to 2.6% in 1989). Twice as many have only one child (15% in 1999, compared to 8.5% in 1989). This year is another dragon year, but all the signs are that there will not be a bumper crop of dragon babies.

Two social trends contributed to this fall in the TFR. First, many more men and women are remaining single, even though more graduates are now getting married.

Second, Singaporeans who are marrying are having fewer children. This is partly because couples are marrying later, and starting their families later. Mothers are now having their children about 2 years later than before, around age 29 for the first child, and 31 for the second.

These are worrying trends for a society.

I have no authority to order you to get married, or to decide how many children you should have.

As a husband, a father and now a grandfather, I can only tell you that a family adds warmth and meaning to our lives. Friends are important, but a family is indispensable. We would be so much lonelier if we did not have a partner with whom to share our achievements and anxieties, our joys and sorrows. The house would be so much emptier without the laughter of children. How miserable we would be if we have no children to look after us when we grow old and weak.

But as PM, I have to be concerned about the impact of low fertility rates on the future of our society.

If our current fertility rate stays at 1.48, without immigration, in 50 years, our resident population will fall from 3.2 million to 2.7 million. The resident labour force will decrease by more than a quarter. How can we sustain economic growth? How can we support our elders? How can we defend ourselves?

If our fertility rate falls further to, say, 1.2, like in Spain and Italy, in 50 years, our resident population would fall to 2.4 million.

You may ask, why not just bring in more foreign workers to ease our labour shortage? And more foreign talent to enlarge our intellectual pool? My answer is simple: we will bring in foreigners and new immigrants. They will complement our needs, but they cannot replace us.

We have to do something, even while recognising that getting married and having children are personal decisions.

Developed countries have used financial and tax incentives to tackle declining fertility trends. Such interventions seem to have worked to some extent, but experts caution us not to rely only on material incentives. Financial incentives must be coupled with programmes that address the issues of finding a balance between family and work responsibilities.

We must therefore create a total environment conducive to raising a family. Our policy is still to have 3 children, or more if you can afford it. The Government will help reduce the obstacles to your doing so. Finance seems to be a constraint among many Singaporeans to having children. Childcare arrangements are another concern. We have two initiatives which I hope will help address these concerns.

First, we will introduce a Children Development Co-Savings Scheme, or Baby Bonus for short. Under this scheme, when a couple has a second or third child, the Government will open a Children Development Account for the family. The Government will put a certain sum of money into the account each year, until the child is six years old.

For the second child, each year the Government will contribute $500 into the account, plus up to another $1,000 to match contributions from the parents dollar for dollar.

For the third child, the amounts will be doubled: an annual contribution of $1,000, plus up to $2,000 in matching contributions.

This matching contribution is an important feature of the scheme. It recognises that the primary responsibility for providing for the child lies with the parents. If the parents are prepared to save more for the child’s needs, the Government will match them, dollar for dollar.

The family can use the Baby Bonus to pay for the development and education of all their children, not just the second or third child. Allowed uses will include items like childcare, nursery and kindergarten fees. MCDS is working out the details.

Second, the Employment Act provides for paid maternity leave only for the first two children. Many Singaporeans have said that the lack of paid maternity leave for the third child was an obstacle to their having a third child.

We will therefore provide 8 weeks paid maternity leave for the third child as well. This will give mothers time to bond with their new baby without suffering a loss in wages. But we do not want this to become a burden for employers. So instead of having the employers bear the expense, the Government will pay the wage cost of the maternity leave for the third child, subject to a cap of $20,000.

With this third child maternity leave grant, the Government will cap the Further Tax Rebate for working mothers, which is based on 15% of a woman's annual income, and is currently given in lieu of paid maternity leave for the third and fourth child. The cap will be $20,000 for the third child and $40,000 for the fourth child.

These incentives will take effect for babies born from 1 April next year. It should really be nine months from tonight. But we will start from the new financial year, to be generous to the early babies.

The cost to the Government will be $260 million a year, or more if more babies are born. This is not a small sum. But if it helps more couples to have a second and then a third child, the money will be well spent.

There are other measures which we will announce later. These include implementing more family-friendly work arrangements in the civil service and making childcare centres more available and affordable. These measures are important too as no single measure will be sufficient to address the reluctance of parents to have more children. We must create a total environment conducive to raising a family.

I intend also to set up a Ministerial Committee under the Prime Minister's Office to oversee this problem of declining fertility. Lim Boon Heng, who is a Minister in my office, will head the Committee.

I must admit that I am not at all certain that we will succeed in reversing the trends of declining marriage and children. These trends are a reflection of urbanisation, higher education and the changing norms of our society. But we must at least try to arrest the problem. Not to try is to give up on Singapore.

We will review the situation after 5 years to see if these measures have been effective. If not, then we will have to pursue new ideas. But I hope these measures will, to some extent, help couples to enjoy the joys of family and parenthood.

Even if our new pro-family policies succeed, on our own, we will not produce enough of the best players to compete against the top teams in the world. Countries all over the world now recognise this, and are rushing for talent.

Germany has introduced a ‘green card’ system to recruit 20,000 IT workers, mainly from India. So far, fewer than 200 Indians have expressed interest in going to Germany. Most Indians would rather go to the US.

The US already has a large reservoir of talent. Yet it continues to recruit more talent from overseas. The US Congress is considering three bills to increase the existing number of visas for skilled foreigners. American universities and corporations systematically seek out the best students and graduates to join them, regardless of nationality. Foreign students who do well in their first and second year are spotted and signed on immediately, even before they graduate.

China too, big as it is, wants more talent. Each year, it plans to lure back 10,000 of its own nationals studying abroad with preferential policies such as higher wages and high-quality housing.

London is such a vibrant city and financial centre because it is a magnet for professionals from all over the world, especially Europe. Even then, the British Government is pushing through laws to open the gates even wider for British companies to recruit foreign talent.

A spokesman for a British recruitment agency said,

"Singapore is an ideal place for us to look. …… We know that the IT people there are of the highest calibre and are highly proficient in English. ……We would certainly consider Singapore a much more fertile ground than Japan and even, for instance, France."

Our teachers and nurses too are being targeted. You have read how Leeds National Health Trust, Britain’s largest group of hospitals, recently came to Singapore to recruit 100 nurses. Fortunately for us, they failed to recruit a single Singapore-born nurse.

Its spokesman said,

"Loyalty to their country and to their hospitals was a major reason for the Singaporeans deciding not to come to Britain."

A nurse in her mid-20s at the Singapore General Hospital confirmed this. She said,

"We were all excited and planned to go to Britain. But as time went on, we all grew cooler to the idea. We knew we would be letting down our colleagues – they would have to work harder because there are already staff shortages."

Good for her. Bravo. I wanted to ask Lim Hng Kiang to compliment her, but she did not give her name. She did not want her boss to know she had considered leaving.

These examples underline what we have said repeatedly, that talent and skills are mobile and that we have to take into account international wages. If we do not, some of our talent will move elsewhere, to where they will be better paid. We need to develop our reputation as employers of choice. Our management of talent has to be up to global standards.

We also have to change our mindset towards foreign talent, or global talent, as I prefer to call them. We have to welcome them, offer them PR, and absorb them as Singapore citizens, wherever possible. Many of them are eager and happy to become Singaporeans. MPs tell me that quite a number of new citizens and PRs take part in our National Day dinners and observance ceremonies. Many of their sons are doing National Service. And this year, for the first time, we have an SAF Scholar who came with his parents from Hong Kong and became a Singapore citizen.

Singaporeans generally accept foreigners coming in to start or work in their own companies. It is when Singapore-owned companies bring in foreign senior executives, or when we open up our professions to foreigners, that resentment surfaces.

I met Flemming Jacobs, the Danish CEO of NOL, soon after he arrived. He confided that there was some unhappiness amongst the local staff over his appointment and his intention to bring in a few more non-Singaporeans. He said that the joke was going around that NOL did not stand for Neptune Orient Lines anymore. It stood for "No Orientals Left".

NOL is now more than a national shipping line. It is a global shipping line. It has merged with American President Line. It is the world’s sixth largest container fleet operator, competing against other global players.

Naturally, we would like a Singaporean to be the CEO if a suitable man can be found. If not, NOL must hire the best man internationally. The job is too big to be reserved only for Singaporeans. If NOL does not have a CEO who can turn in the profits, the joke will not be "No Orientals Left". It will be "No One Left".

Companies need people of the highest calibre at the helm. A good Chairman or CEO makes the difference between profitability and bankruptcy. His performance determines whether there will still be jobs for the staff tomorrow.

Why should it be any different when it comes to running the country? Why should we accept less than the best people to run Singapore? Why should the quality of the Cabinet be lower than the quality of a company’s board, and the Ministers be inferior to CEOs? In fact, I would say that nowhere is talent more critical than in the Cabinet. Ministers are not just concerned with economic growth, profitability and share prices. They are concerned with security, racial and religious harmony, social cohesion and your development. Their decisions and actions affect every aspect of your life. Surely this is more complex and critical than running a company? When a major company goes bankrupt, a few thousand people lose their jobs. If Singapore goes under, 3.2 million Singaporeans will suffer immeasurably. That is why we must have the best people to run Singapore, not just honest, well-meaning people, but committed, outstanding people.

Singaporeans do not disagree with this. But they assume that elections will always throw up a good and competent team to run Singapore, and that the best men will volunteer to be paid less in order to do public service. They cannot be more wrong.

There are many examples of democratic elections producing flawed leaders. Let me give you just one example.

In 1989, Brazil held its first popular presidential election since 1960. Fernando Collor de Mello, a young man of 40, ran for President. He campaigned against inefficient and corrupt public servants. With his energetic confidence and youthful style, he came from behind to win the election.

Three years later, he was forced to resign following allegations of corruption within his government. Collor de Mello and his wife were reported to have reaped enormous profits of as much as US$200 million from collaborators who had dispensed government favours.

Singapore too, has had some flawed characters standing for elections. If not for the PAP, they might be running your lives, or should I say, ruining your lives.

It is my responsibility as Prime Minister to ensure that there will be a good, honest and competent team of Ministers to take over from me and my older colleagues.

To make it easier to do so, Senior Minister encouraged me to work out a formula for Ministers’ salaries. Initially, I had some misgivings. I knew that the public would be unhappy. They would resent Ministers being paid a high salary, even though the objective was to ensure that we had a good successor team.

I pondered over this issue for some time before proceeding with a market-based formula for Ministers’ pay. I felt it my duty to recruit good people into the Cabinet. If I failed to do so because I did not dare to pay them well, I would have failed Singapore. The virtuous cycle of good government and strong economic growth would be broken, probably forever.

After 10 years as Prime Minister, I am even more convinced that our method of recruiting good people for government and paying them properly is crucial for Singapore’s long term survival.

Our starting point for the recruitment of Ministers is not pay. It is the quality of people we want as Ministers. We want the best people for the job.

Let’s say I am looking for a successor to Richard Hu. He is 73 now, but in good health despite his recent hip operation. I would like him to contest again to retain his experience. Nevertheless, I should plan for his successor. Where do I find such a person? A logical place to start is among the bankers and accountants.

Do I look for his successor among the top 8 bankers and the top 8 accountants, or do I just accept any mediocre banker or accountant willing to serve? Who would serve your interests better? A Finance Minister from amongst the top 8 bankers and accountants, or a mediocre executive who is nowhere near the top of his profession?

Suppose we find a suitable man from among the best. How do we pay him? The top 8 bankers earned between $2.2 million and $4.5 million each in 1998. This excludes foreign bankers and owners of banks. The top 8 accountants earned between $2.0 million and $2.3 million. A Minister at Staff Grade I, however, is paid about $1 million, less than half what the 8^th highest paid banker and accountant earned. Moreover, while the Minister pays taxes like the bankers and accountants, he does not have a corporate car and a chauffeur. He also pays his own medical bills and hospital fees.

Even with the salary revision, there is still a gap between what we pay our Ministers and what most of them could command in the private sector.

Mr Chiam See Tong, however, believes that we should pay a Minister even less. He reckoned that $50,000 a month would do. If we add two months’ bonus, a Minister will be paid $700,000 a year. I am surprised that Mr Chiam is prepared to pay a Singapore Minister more than President Clinton!

Who would apply for the job of Finance Minister at $700,000 per year? The top 8 bankers and accountants are not likely to. In fact, any young man who can make it to the top of his profession is not likely to apply. Should we then settle for people of lesser calibre?

I am not asking hypothetical questions. I am speaking from real, practical experience. Several high fliers in the private sector I have approached pleaded young family as a reason for not coming into politics, or a lack of interest in being a Minister. They never say it is because they can earn more outside, but I can tell clearly that pay is a consideration.

The same approach applies to the selection and appointment of the other Ministers. We recognise, however, that not all jobs are equal and not all the Ministers are the same in ability. This is why we put the Ministers on different pay grades, and made a large part of their pay dependent on performance. But every Minister’s job is a man-sized job, and we need all of them to form a strong, rounded team.

Appointing good people to government and paying them well is an ancient Confucianist concept. I asked Ow Chin Hock to get me a few quotes from Confucius, his disciples, and other ancient Chinese philosophers. He gave me more than a dozen. I shall just use one.

Xun Zi, a philosopher who was born 300 years before Christ, said:

"It is impossible to have good people to come forward to serve without proper rewards; it is impossible to deter bad people from committing crimes without proper punishment."

Many Western leaders have told me in private that they envied our system of Ministers’ pay. But they also said that if they tried to implement it in their own countries, they would be booted out.

Some Singaporeans argue that giving a market-based wage would attract the wrong people into government, people who are motivated by the money and not by the desire to serve the country.

The short answer is this: if we pay ministers’ poorly, and somebody steps forward to serve, can you be sure that he is doing it out of a sense of public service, and not because he intends to use the minister’s post to enrich himself?

I cannot guarantee that if we pay Ministers properly, no one with the wrong motives will slip through the net. But at least we will not put off good people who may not be prepared to give up what they can earn in the private sector. And even if someone with character defects slips through, he will be weeded out once we discover his flaws. We will not tolerate people with unsound values in our team. Nor should Singaporeans.

Let us get away from the idea that Ministers should be paid only a modest wage because they should do public service. This conventional wisdom is flawed. Such thinking will not permit us to put in place a self-sustaining system which will produce good men and women to run the country. Instead, think constructively about how we can perpetuate the virtuous cycle of good government and good economic growth.

We need sound and imaginative policies to transform ourselves in this challenging new world. But this alone will not guarantee success. Most importantly, we must be able to pull together as a nation. The social glue that has helped us through the tumultuous early years of nationhood and two recessions will be even more critical for the future.

As a principle, we should not have measures that artificially raise the earnings of the lower-income Singaporeans. This will reduce the incentive for them to take the responsibility of improving their lot and that of their children. It will also turn away successful Singaporeans who are penalised for their achievements.

That said, we cannot succeed as a nation if we operate strictly on the basis of every-man-for-himself. There would be no social cohesion if the lower-income perceive that society is not willing to give them a helping hand to improve their lives. Or they fall so far down that they cannot afford even basic amenities.

We tread a fine balance between the two objectives. Our policies have generally benefited both the able and the weak. The able have accumulated considerable wealth through their ability and a favourable political, social and business environment. We have, however, consciously helped the weaker ones to increase the value of their assets, and to raise their standard of living as the rest of the population prospers.

This will ensure that they have adequate opportunities to climb up the social ladder, and improve their lives and that of their next generation.

One special group that needs help is the elderly.

Today, the elderly aged 65 years and above constitute only 7% of the population. By 2030, they will nearly treble to 19% of the population.

We have to anticipate the increase in their needs.

We have already set up the Eldercare Fund. This is an endowment fund to subsidise nursing home care for the elderly run by Voluntary Welfare Organisations. The original target was for this endowment fund to reach $1 billion by 2010.

We will now extend the Eldercare Fund to provide subsidies for the entire range of elderly and continuing care. In addition to nursing homes, it will cover community hospitals, hospices, day rehabilitation, home medical and home nursing care. The capital sum will be increased from $1 billion to $2.5 billion. We will top up the fund whenever we have budget surpluses, to reach $2.5 billion by 2010. This year, we will inject $300 million into the Eldercare Fund, bringing it to a total of $500 million. I hope most of us remain healthy and do not have to use these services when we grow older. But it is a comfort to know that help is available should we need it.

In addition, I want to encourage more Singaporeans to join Medishield. The Medishield insurance scheme will go a long way in helping Singaporeans, especially the elderly, pay for medical expenses during major and prolonged illnesses.

Currently, however, only half of elderly Singaporeans aged 61 and above are covered by MediShield or similar catastrophic insurance schemes. To encourage more to sign up, the Government has decided to pay the basic MediShield premiums for all Singaporeans aged 61 and above, for two years. You will have to apply. Those with medical conditions may need a medical report or undergo a medical examination. The Government will subsidise most of the cost of the medical examination and report. You will only have to make a small co-payment.

If you are accepted onto MediShield, then in effect you get two years of coverage for free. If you are not accepted, the Government will top up your Medisave account with the equivalent amount of the premium.

Those who are already on MediShield or similar catastrophic insurance schemes will receive the same 2-year basic MediShield premium rebate.

If you are 70 and above, you will not be eligible to apply for MediShield. For this group, we will top-up your Medisave account with the equivalent amount of MediShield premium.

The cost to Government will be $110 million.

This year, I have decided to pay for the Medishield premium for the elderly Singaporeans rather than top up their Medisave account. This is because the same amount of money invested in Medishield will go a longer way in providing for their medical needs if they are hospitalised, than if given out as a Medisave top-up.

I am paying special attention to the elderly not just because they are frail compared with younger Singaporeans. I also want to recognise their contribution as the first generation of independent Singapore. They laid the foundation for today’s Singapore.

There is a special group within the first generation whom I want to acknowledge especially. These are the retired MPs, office-holders and pensioners. Without their hard work and sacrifice, we would not be enjoying the present state of peace and plenty. We owe them a huge debt.

To show our gratitude, we should share some of our current fruits with them. The Government paid an ex-gratia payment of $16.6 million to the first generation of retired MPs, office-holders and pensioners in 1996. This year, the Government will make a similar ex-gratia payment to the same group of Singaporeans.

Helping the Lower Income Own Homes

Our public housing programme has given lower income households a share in the prosperity of the nation.

We will do more to assist the lower income households to own their first subsidised HDB flats, and to help those who already own 2-room flats to upgrade to 3-room or bigger flats when they can afford to do so.

The HDB will introduce a Special Housing Assistance Programme, to bring together the various home ownership schemes for the lower income households. HDB will relax some of its terms and conditions to facilitate ownership of flats amongst the lower income households. It will also refine the policies on upgrading, so that 2-room flat owners can look forward to a faster and more affordable move to a second and larger HDB flat. HDB will announce the details in due course.

Lastly, Singaporeans have pulled together in a time of crisis. We have overcome the challenges together and emerged relatively unscathed. All of us contributed to this happy outcome.

In the Budget this year, Richard Hu announced a Special CPF Top-up of $250 per citizen. Since then, the economy has done even better than we expected. We are therefore in a good position to do another but larger CPF Top-up, to redistribute some of the wealth back to Singaporeans.

However, this time, instead of giving every adult Singaporean the same amount, we will give the lower income group more. It is one way of building social cohesion and helping the less well off.

The CPF Top-up will be given to all adult Singaporeans who have contributed $100 or more to their CPF accounts between 1 January 1998 and 31 December this year. Those who have not added at least $100 to their CPF accounts in these 3 years can still make voluntary contributions before 31 December so as to qualify for the CPF Top-up.

The Top-up for those earning more than $2000 per month will be $500. For those earning between $1,200 and $2,000 per month, it will be $1,000. And for those earning less than $1,200 per month, it will be $1,500.

NSmen will get extra. NSmen make a vital contribution to the security and well-being of all Singaporeans. Active NSmen will be given $200 extra, while inactive NSmen will receive $100 extra.

For the self-employed and those without regular employment, and whose income levels cannot be easily assessed from CPF records, we will use their housing type as a proxy. Those who live in 1 to 3 room HDB flats will get $1,500. Those who live in 4 room HDB flats will get $1,000. The rest will get $500. I know there are some self-employed hawkers who live in 3 room HDB flats and drive Mercedes cars, but they are lucky this time.

The CPF Top-up will be given out in 2 equal instalments. The first instalment will be in January. The second instalment will follow within 12 months. The total Top-up will come to $2 billion.

Building social cohesion, however, is not the task of the Government alone. Everyone must play his part. As individuals, we must be able to see beyond personal wants and wishes, and support policies for the overall good of the country.

Also, those Singaporeans who have made it big must make a special effort to help lift the lives of less privileged Singaporeans. This compassion goes hand-in-hand with our philosophy of "from each his best, to each his worth". Remember that the opportunities you have had to do well came from a cohesive society that nurtured you. You need to give back something. Together, rich and poor, we are building a nation that has allowed many Singaporeans to prosper.

Let us show that we are a caring nation. And that there is a Singapore Heartbeat.

This year's National Day Parade was my 24^th as a Member of Parliament. I could feel the Singapore Heartbeat.

City Hall, the backdrop of the Parade, had not changed. It's been spruced up, but it's the same stately building which has seen many defining moments in Singapore's history. I felt the same sense of pride and belonging as when I first sang the national anthem and watched the parade as a young MP.

The skyline from where I sat, however, is nothing like what it was 24 years ago. Tall buildings have sprung up where there were none before. The military column which trundled past City Hall inspired quiet confidence that Singaporeans will stand up for their country.

But as I looked around at the Singaporeans who were there to celebrate National Day, I could not help but feel some nagging anxieties about our future. Twenty or thirty years down the road, would we still be celebrating 9 August with the same joy? We have made great strides in building a nation where there was none before. But our achievements can easily be undone if we take a wrong turn.

I say this because in some ways, social cohesion is going to be a lot harder to achieve this decade than it was in the early days of our independence. Back then, the threats to our survival were immediate, grave and obvious. We were poor, had no natural resources, and only 600 square kilometres of land. We were vulnerable. Singaporeans instinctively understood that unless they stood together, there would be no country for them tomorrow. They rallied behind the Government and its policies, even when these were painful.

Today, however, there is food on the table, a roof over our heads, cars on the road and jobs for everyone. No issues threaten our immediate survival. Our worries are longer-term in nature. They concern ways to strengthen our social cohesion, and to build institutions that will perpetuate our prosperity. In such circumstances, it is more difficult to rally Singaporeans behind the Government's policies. The policies are important, but their impact will be felt by the next generation, not this one. The long-term seems too far away for most Singaporeans to worry about.

Take for example the issues of madrasahs and the pay revision for civil servants and Ministers. These are policies with little immediate impact. Whichever way the decision goes, you will not feel the difference. My team of Ministers is not going to pack up and quit if they do not get the pay revision. The Malay community will not feel the impact overnight because their children are not learning enough English, Mathematics and Science in the madrasahs.

But decades later, if things have gone wrong with the country, when our children analyse the causes, they will point an accusing finger at our generation for lack of political courage and vision.

So do not be blind to the long-term requirements of the country. Singapore may be better off today, but our basic vulnerabilities remain. The policies that my Government is now pursuing are to build institutions and perpetuate virtuous cycles. They are to secure our stability and prosperity, so that our children will have a future in Singapore.

Cheong Yip Seng, an Editor-in-Chief of Singapore Press Holdings, felt the same as I did when he watched the National Day Parade. He told me he could sense that Singaporeans were bonding. But he said the bonding was slow. He said that we needed a major crisis to really bond as a people and nation.

I replied that our job as a government was to prevent such a crisis, and if one threatened us, to deal with it as quickly as possible, like we did with the regional financial crisis. So I am afraid that if we succeed in what we do, we must accept that bonding between people and government, bonding between the different races, and bonding between Singaporeans and their country, will take place only bit by bit.

But there is reason for optimism.

I was interviewed last month by America's Public Broadcasting Service. The interviewer, Mr Dennis Wholey, was doing a documentary on Singapore. He interviewed a cross-section of people – Ministers, Opposition MPs, journalists, academics, taxi drivers and ordinary Singaporeans. He was very impressed by Singapore, and the great deal of trust in the government. A taxi driver told him, "We trust the Government."

It is this trust that makes Singapore an exceptional country. This Government will never betray the trust of the people. We have been honest with our people. We are committed to looking after you. We are working hard to improve your lives.

Singapore's success springs from this trust in the Government, and from our ability to forge a national consensus on issues. We have always set clear goals. We have always given Singaporeans a strong sense of national purpose. Let’s now strike out to build an even better and more vibrant Singapore.

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