Singapore Government Press Release

Media Relations Division, Ministry of Information, Communications and the Arts,

MITA Building, 140 Hill Street, 2nd Storey, Singapore 179369

Tel: 6837-9666

After Sept 11, Washington is totally and rightfully focused on global terrorism. In Singapore, we too are deeply concerned. But in recent months, there was also a lot of talk among Singaporeans about "3G". By 3G, I mean "Third Generation" Singaporeans.

In Singapore, at 50, I belong to 2G, Second Generation. 3G Singaporeans were born a decade after our independence. They are now in their twenties. Unlike my generation, they have never experienced life in a third world economy. That makes a huge difference in their outlook.

Asians are always anxious about the Third Generation. Will they squander away our hard-earned wealth? Will they build upon or destroy what we have achieved?

The empirical evidence is not comforting. Over the centuries, very few Asian families were able to keep their wealth beyond 3G. Hence a well-known Chinese proverb that "wealth rarely crosses three generations".

The Asian experience is not unique. I recall a famous study by Royal Dutch/Shell that found that the average life expectancy of Fortune 500 firms was only 40-50 years. Most corporations die prematurely – the vast majority before their 50^th birthday. This is about two generations.

Does the family and the corporate experience extend to nations? If it does, what are the prospects for a tiny and young city-state like Singapore? Will we suffer the same fate or can we prevail?

These are highly pertinent questions because 37 years after Independence, Singapore is at a turning point. This morning, I thought it would be useful to take a look back in time and examine the enormous changes that have taken place, and see how our situation now has become so different from when we were newly independent some 40 years ago. In a way, it is a view from Singapore, of the world at large and what lies ahead.

Let me briefly mention 3 aspects of the changes.

First, Southeast Asia has changed. Before the 1997 crisis, the region was booming. The boom was real and not a mirage; it was based on hard work and sound fundamental underpinnings. Countries maintained high savings and investment rates. Education levels were rising. Economic policies generally became more liberal, outward oriented, and welcoming to foreign investments. We saw real and dramatic improvements in the lives of our people. Southeast Asia was well set to takeoff.

But the 1997 financial crisis swept through ASEAN economies like a tsunami, leaving dislocation and human suffering in its wake. It represented a fundamental discontinuity in the fortunes of the region. Between 1997-99, the combined GDP of the original five ASEAN members shrank by one-fifth, in US$ terms. Unemployment rose, businesses folded, and governments and societies came under stress.

Fortunately for us, the worst passed much sooner than many expected. Throughout the region, exchange rates have stabilised, interest rates have come down, confidence has returned, and growth is resuming.

The severe punishment which the crisis visited upon countries, totally out of proportion to their sins, could easily have caused a backlash against globalisation that would have impoverished the countries and weakened the region. But this has not happened. All the countries continue to seek foreign investments and trade, including Malaysia which rejected the IMF orthodoxy, and continues to express serious doubts about globalisation. They have seen how free trade and investment flows fuelled the Asian miracle, and are loath to give up the upside from being plugged in.

ASEAN, which suffered a dent in its credibility as a regional grouping during the crisis, is also trying to get its act together. We are pressing onwards with deeper economic integration. We are also engaging other countries in Asia, exploring FTAs with China, Japan and even India. To be sure, ASEAN is far from perfect. But despite its weaknesses, it provides a framework for maintaining a semblance of order in Southeast Asia.

The achievements and strengths of countries in the region pre-Crisis and these efforts now to stay the course and pick up the pieces will stand the region in good stead in the long term. But for now, some countries are still working off the trauma of the crisis. In particular, Indonesia is in transition. Until its transition crystallises into a steady state, Southeast Asia will seem uncertain, especially to those outside the region.

Second, Asia has changed. A key cause of this change is the rise of China, which is being felt by everyone in Southeast Asia and other parts of the world. China has become a giant vacuum cleaner for FDIs. The giant sucking sound that Ross Perot talked about, we hear it loud and clear. The hollowing out of manufacturing FDIs is not as visible as the large number of Chinese tourists all over SE Asia, but its impact on jobs and wages is brutal. MNCs are relocating more operations to China, to tap the low costs, abundant talent, industrious workers and professionals, and the prospects of a huge domestic market. Countries in Southeast Asia are feeling the impact in fewer new investments, and even the closure of some existing plants.

My previous portfolio was in economic development, in which I spent 7 years. When I started my term in that portfolio, Southeast Asia would typically get 2/3 of all FDIs coming into Asia. When I left the portfolio 7 years later, the figure was flipped, with 2/3 of FDIs going to Northeast Asia, essentially China, leaving Southeast Asia with less than 1/3.

Of course, the Chinese economy faces daunting structural problems. Non-performing loans (NPLs) in Chinese banks are huge – probably larger than NPLs in all the ASEAN countries put together. The state-owned enterprises urgently need reform, which will displace millions of workers and cause prickly social problems.

China’s growth, therefore, is unlikely to be a straight, upward-sloping line. But while there may be bumps along the way, we must take China’s growth as a given. The policies of liberalisation will continue. These market reforms have benefited wide segments of the Chinese population. Standards of living in China have risen five-fold over the last 20 years. The reforms are far too entrenched to be reversed. There is also a tremendous dynamism among the Chinese people. Every Chinese wants a strong and rich China, as prosperous, advanced and technologically competent as America, Europe and Japan. This re-awakened sense of destiny is an overpowering force that will drive China’s economic development and modernisation.

A more prosperous China will mean a bigger market, more investment opportunities, and a bigger trading partner for all of us in the long term. In the short term, however, China’s emergence will mean dislocation, as industries restructure and relocate, and patterns of trade change. Some workers will lose jobs, while other industries will need workers, but with different skills. Singapore, and indeed, the rest of the region, will not be spared these effects.

Third, the world has changed. The Cold War is over, but terrorism has now replaced communism on the global centre-stage. The Taliban may have been routed in Afghanistan, but that is not the end of the global war on terrorism. The virus has already spread. Terrorism, especially by extremists invoking the name of Islam is a long-term problem.

We in Southeast Asia are also grappling with this problem. In countries with large Muslim populations, there are small minorities at the fringes who are inclined toward extremist views and terrorist methods. Globalisation and easy foreign travel enabled them to come into contact with the extremist teachings of militants abroad, and to become part of an international terrorist network. Some attended religious schools in Afghanistan and Pakistan, and went on to fight the Russians in Afghanistan. When they returned to South East Asia, they brought the virus with them. They organised cells, made contact with neighbouring countries, spawned new groups, and so expanded the international network.

Terrorism, therefore, is not indigenous to South East Asia. It is a problem imported from abroad. But the danger is that it may become endemic to the region.

I should emphasise that the extremists form a very small minority, and the vast majority of Muslims in South East Asia are moderate, peaceful, and condemn terrorism. These Muslim populations have experienced a strong revival of Islam in recent decades. This Islamic revival is part of a worldwide trend, dating back to the 1970s. It is not the cause of the problem of terrorism, but it makes it harder for governments to deal firmly with terrorists who invoke Islam to justify their crimes.

In short, tougher competition coupled with the global war against terrorism is producing a future fraught with uncertainties. Can a small city-state like Singapore succeed in this backdrop? What will Singapore be like beyond 3G?

In the midst of these uncertainties, the only certainty is that Singapore must change to meet these radically different international and regional conditions. Singapore is too small to influence these larger equations. But we can keep ourselves trim and nimble and be ready to adapt to external events as they develop.

We face major challenges. Let me just highlight 3 of them.

First, globalisation and rapid technological advances are driving long-term, fundamental changes in commerce, industry and our daily lives. These developments are opening up promising opportunities for us. But they also mean more intense competition as world-class competitors now compete with us right inside our own backyard.

For the bulk of the past 40 years, we were largely fighting regional competitors. It was like competing in the Southeast Asian Games, or Asian Games. But the entry of global players into our neighbourhood means that we are now competing directly in World Cup or the Olympics. It is like having Tiger Woods joining the Southeast Asian circuit. This raises the standard of competition, making it a very different ball game. Imagine how it feels for tiny Singapore to take on the Tigers !

You may have heard of the intense port competition between the Singapore Port and a new port in South Malaysia just across the Straits. The new port is partly owned and run by Maersk of Denmark, the world’s largest Shipping Line, and a world class player in port management. So our Port is not really competing against Malaysia. If it were so, then it would not be a new situation as we have always been competing with each other. What is new is that we are now really up against a major league player within our own backyard.

And it is not just Malaysia. Hong Kong’s Hutchison, another major league player in port operation, is now running a port in Jakarta and another port in Malaysia. Similar observation can be made in the civil aviation sector, where we see world-class air port operators from Europe running air ports in Thailand, HK and Korea, competing head-on with our Singapore Airport to be the regional air hub.

Second, fighting communists brought ASEAN close together. We stayed united and successfully held the communists off. It was a period when ASEAN was solid, fighting a common enemy.

Now the common enemy is terrorism, which is not a country, but a small group of very determined and secretive terrorists who are prepared to kill themselves and others for their cause. And because they leverage on Islam to push their cause, it is causing a new divide between militant Islam and non-militant modernist Islam. With the rise of Political Islam in our region, this can potentially split ASEAN, instead of uniting it, as communism did.

Singapore, located in the middle of South East Asia, and with a significant Muslim minority, is not immune from this trend. Indeed, last year, we uncovered and detained a terrorist group, called the Jemaah Islamiyah (JI), which had developed plans to bomb US assets in Singapore, including the embassy and US warships.

The group had links with Al Qaeda. Several of its members had trained in Afghanistan. A videotape made by the Singapore group was recovered in Afghanistan, in the rubble of the house of an Al Qaeda leader. It was a detailed reconnaissance of a proposed target – a mass transit station used by US servicemen in Singapore. A group member had gone to Afghanistan to brief Mohamed Atef, the Al Qaeda leader, on the plan.

Two weeks ago, we further arrested 21 JI members. We also uncovered a plot to bomb Singaporean installations, including our Ministry of Defence, our water pipes and the airport as an act of revenge against the earlier arrests of JI members.

Had the JI group succeeded in setting off bombs in Singapore, it would have caused damage beyond injury to life and limb. More importantly, it would have seriously damaged our racial and religious harmony and destabilised our society. Luckily, our security agencies discovered the plot before harm could be done.

Fortunately also, the Muslim community in Singapore came out promptly to condemn the plotters and repudiate what they did. This denied the extremists legitimacy and tacit support, and reassured other Singaporeans that Singapore Muslims are moderate, rational and peaceful, and that the crazy actions of a handful of extremists should not affect relations between Muslims and others.

But we must stay vigilant. We are taking steps to strengthen confidence between different communities, so that should any mishap happen we can act quickly to contain the damage. We have a vested interest in not allowing the war against terrorism from becoming a generalised conflict with Islam. If ever there is a clash of civilisations between the Islam and the West, the front lines will run right through Singapore society, and will split it apart.

Third, countries are now competing furiously for world-class talent. In a globalised economy, talent has become the key resource everywhere. Indeed, the strength of America is its magnetic attraction for global talent.

To sustain our economy in this environment, and to maintain the standards which we have achieved as a country, we need top notch people. There are many talented Singaporeans, but not enough. We are therefore seeking all the talent we can from around the world.

Immigration is a sensitive issue in any society, even an immigrant society like Singapore. There are naturally contrary voices, especially when the economy turns down as it did during the crisis, and retrenchments and unemployment rose. The emotions are understandable, but the logic is irrefutable: keeping out talent will not create more jobs for Singaporeans, while sending away foreigners who are already working in Singapore will only cause the economy to spiral down further.

But inflow of talent is only one side of the coin. We also have to grapple with talent outflow. In my generation, parents were too poor to send their children to study overseas. But more Singaporeans can now afford an overseas education. Many can be found here. I am told that in recent years, the school which admits the largest number of students to Stanford University is not Palo Alto High School, but Raffles Junior College of Singapore! This is not a trivial observation.

The able 3G Singaporeans are globally mobile and popular. They have a good education, are bilingual with a strong command of English. They are familiar with the East and the West and can succeed anywhere. With globalisation of talent flow, we cannot avoid losing a part of our own talent, but we must retain a hard core of dedicated Singaporeans as the main pillar of our society. Then we can afford some attrition of our talent, to which we top up with foreign talent.

We are addressing these challenges in a determined and systematic way. We are consulting a wide range of experts and industry players, Singaporeans and foreigners.

It is work in progress but the rough shape of our responses is already discernable. Let me briefly mention four key thrusts.

First, we must stay plugged into the global economy, by being relevant to it. We do so by being cosmopolitan with Asian roots. There are 6,000 MNCs operating in Singapore. This is a major strength for us. We will build upon this and further enhance our global connectivity.

That is why we are busily negotiating Free Trade Agreements (FTAs) with all the major economies. We have concluded one with Japan, New Zealand, Switzerland and its EFTA partners. We will soon conclude FTAs with Australia and Canada. Our bilateral FTA negotiation with the US is also in an advanced stage.

At one stage, we were accused of being promiscuous. But in trade, being promiscuous is perhaps a virtue. Through these FTAs, we can consolidate our economic relations with our partners. It is an advantage for Singapore, but we believe we also bring value to the table for our FTA partners by becoming their node in SE Asia.

The US-Singapore FTA is particularly important. Its significance goes beyond the direct economic benefits to our two countries. By demonstrating the benefits of stronger trade relations, the US-Singapore FTA could lead to more FTAs between the US and other Southeast Asian countries. It will thus enhance and anchor US interests in the region through win-win relationships, and help to ensure a stable and peaceful environment.

Second, to remain relevant to the global economy, we see an urgent need for major tax changes to enhance the macro competitiveness of our economy. Among other things, we will cut corporate and personal income tax rates from 26% to 20% in 3 years.

Third, at the micro level, we are working with the industry to work out strategies to help them seize the many opportunities in the new economy. We have a globally competitive manufacturing industry. We will make sure that it remains competitive by continuing to enhance our capabilities. At the same time, we will further strengthen our service industry. Like its manufacturing counterpart, the service industry has to be world-class if it is to succeed in the new century.

Fourth, we have to expand private enterprise and grow many more private entrepreneurs, because economic dynamism depends not only on technical skills, but on entrepreneurship.

In the last 40 years, our economy has been largely powered by MNCs and Government-linked companies. As a result, many of our best graduates would go for a job in MNC or government rather than go into business. With the American culture, it has been the opposite.

Why is our culture different? As a young nation, we had to first build public institutions. So we inducted many of those who were most likely to succeed into politics, the bureaucracy and the armed forces. Hence too few are in business on their own, and even fewer are entrepreneurs.

So when we had to industrialise to solve our high unemployment problem, the government was compelled to get government ministers and top civil servants to undertake the task of starting new ventures. This was how Government Linked Companies or GLCs came about. We did it out of necessity and did not consider it unusual that public officers could act as entrepreneurs and run companies. But one important principle we insist on for GLCs is that they are subject to the full discipline of the market. They enjoy no subsidy, hidden or otherwise, and they must make healthy returns for the shareholders, or else they vanish.

Government linked companies in Singapore are criticised for many shortcomings, which sometimes amount almost to the original sin of being owned by the government. But on an objective view, we have to acknowledge that GLCs have grown to become successful commercial enterprises in their own right, facing up to competition both at home and abroad.

Going forward, however, we need many more private entrepreneurs in our midst. We need a more supportive and conducive environment that will encourage enterprise. This requires a change of culture, of values and mindset.

On top of remaking the Singapore economy, we are working to remake Singapore as a nation. Globalisation will put our social cohesion under stress. Rapid change is unsettling. The premium on talent will stretch our income distribution, as some Singaporeans succeed far more than others. The mobility of talent risks weakening the ties and commitment of Singaporeans.

We therefore have to ensure that less successful Singaporeans are not left out from the glittering opportunities of the new economy. Without them forming a stable base of society, there would be no Singapore. We have to look after them. The solution is not handouts and subsidies, which create dependence and sap the will to achieve. It is to educate them and their children, to create job opportunities for them by bringing in investments, to enhance their assets and enable them to share the wealth they have helped to create.

At the same time, we are seeking to engage younger generations in the national debate. Government policies must accommodate their views. They must be encouraged to voice their aspirations and throw up their own leaders.

Politics will evolve, because their backgrounds and formative experiences will be different from their parents’. But the verities of Singapore’s existence do not change quite so quickly. We are still a little red dot on the map, a small and vulnerable country. We still have to make a living for ourselves, ensure the security of our homes and families, and build a better future for our children in an uncertain world. Reconciling the changing aspirations of the citizens with the unchanging strategic realities of the country will be crucial to the stability and governance of Singapore.

Of course, Singapore’s, and indeed the region’s future depends as much on external factors as it does on our efforts to ensure continued economic growth and development. In this regard, the US plays a key role. The fate of Southeast Asian countries depends not only on themselves, but also on the strategic backdrop of the whole region, and in particular on the actions and policies of the US.

Historically, the US has played a major role in helping Asia to develop and to integrate into the world economy. This stretches back to the 19^th century, with the Open Door Policy in China and the opening of Japan, through the Second World War and post war period, to the Vietnam War that gave the non-communist countries in Asia a precious decade to consolidate and put their houses in order.

Today, the continued presence of the US in the region remains fundamental in ensuring a stable, peaceful strategic environment in which Southeast Asia can continue to grow. By remaining engaged in the region, both strategically and in economic and cultural fields, the US will be well-placed to influence events and developments, as well as opinions and attitudes, over the long term.

Economically, the US plays an important role in ensuring the soundness of the international financial and trading systems, and strengthening the framework of the international economy. In international trade, for example, the US should strive to strengthen the multilateral framework of free trade under the WTO. The US has a special responsibility to drive the Doha Development Agenda forward. It has one of the most liberal trade policies and open markets among the major economies. The US must lead the way, to show the world its unwavering support for free and open trade. America should not allow protectionist sentiments to side-track its long standing commitment to free trade. The market opening resulting from Doha will lay the foundations for future world growth, just as trade liberalisation in the last half century through GATT and the WTO contributed to unprecedented global prosperity and development.

From the security angle, developments in Southeast Asia will have ramifications beyond the region. After the defeat of the Taliban in Afghanistan, terrorist groups are looking to establish beachheads in new locations. Southeast Asia offers plausible possibilities. Terrorist groups must not be allowed to take root here.

The US presence will contribute significantly to regional stability. This is critical because without stability, there can be no economic development. And without economic development, there would be political chaos and abject poverty, the ideal conditions for extremism.

It is thus important that the US continues to be focused in the region, developing new areas of shared interests which link all parties together towards long-term peace and stability.

The world has changed, and we have to change with it. The old Singapore model can probably take us through another 10 years. But it is no longer adequate to see us through beyond 2010. We know that and we are fixing it now even while it is still not broken.

3G Singaporeans can build on what we have achieved: a cohesive society, a productive workforce, harmonious industrial relations and an obsession with excellence. But we can do with more enterprise and innovation.

Earlier I mentioned the Royal Dutch/Shell study on the life of expectancy of companies. While the observation is depressing, the upside is that it does find companies that are able to defy the odds and stay alive for a long time. Their secret of success: be alive to the changes around them and be able to constantly re-invent themselves to stay relevant.

It is this spirit of being alive to the external changes and constant re-invention which has brought about the transformation of Singapore from third-world to first-world within two generations. It will be the same spirit that will sustain us beyond 3G.

We take heart that we are not going it alone. I believe that the US remains committed to maintaining its presence in the region. By staying constructively engaged, it will not only help region’s long term progress, but also protect and further its own interests. The financial crisis marked the end of a bubble, but not of Southeast Asia. As countries rebuild and put things right, the recovery will strengthen. Major challenges still lie ahead, but the fundamentals which supported two decades of high growth in the region have not disappeared. In time, they will enable the region to grow and progress again.