Building more world-class S’pore firms

By Ngiam Tong Dow

Source: The Straits Times  June 6, 2009

THE year 1959 was a fateful one for Singapore. It was granted self-government by the British after 140 years of colonial rule. Other than foreign affairs and defence, the new Singapore Government led by Mr Lee Kuan Yew was free to pursue its own social and economic policies.

Mr Lee chose Dr Goh Keng Swee, the only economist in his team, to be our first finance minister. The Ministry of Finance (MOF) was housed in Fullerton Building. The General Post Office occupied the ground floor; MOF occupied the second to fifth floors.

As MOF alumni, we can be proud of belonging to the pioneering team, led by the inspiring Dr Goh, our minister, and by the late Mr Hon Sui Sen, our permanent secretary. We worked our guts out to pull the economy out of stagnation.

The Finance Ministry that Dr Goh established was not your traditional Treasury. Together with Mr Hon, he created the Economic Development Division to spearhead our economic development. The Economic Development Board (EDB) was set up as the operating arm of this division, tasked with finding jobs for the thousands of young students pouring out of our schools each year.

The EDB was given a grant of $100 million to get going. In return for the freedom to operate, its performance was continuously assessed. It was rated on outcomes more than outputs. The EDB chairman had to report annually the dollar value of the foreign direct investments committed to Singapore. He still does.

MOF’s fiscal policy has always been to stimulate growth through investment. As Permanent Secretary (Budget), I accorded higher priority to the development over the recurrent budget. The development budget invests for the future. In the early stages, the development budget was spent mainly on building infrastructure.

Over the last 50 years, we have seen Singapore’s budget priorities move from physical infrastructure to defence capability and now, education and training.

Though we are not totally free of ‘white elephant’ boo-boos, MOF’s track record in allocating scarce capital is good. Our current revenue was enough to pay for both operating as well as development expenditure. If the Government were a private corporation, we would have been able to finance all our capital expenditure without a cent of debt.

Was Singapore’s MOF more virtuous than our counterparts elsewhere? The fact of the matter is that we did what we did because we had no alternative. Without oil or other natural resources, budget surpluses and CPF savings were our only sources for accumulating reserves. Except in extremis, reserves are not intended to be spent on rainy days of the business cycle. The fundamental role of reserves is to serve as backing for our currency. A stable and convertible Singapore dollar is our lifeline to international trade on which our very survival depends.

In spite of the immense pressures exerted by the rest of Government on the MOF, I would be wary of dipping into our reserves to tide us over the troughs of business cycles. I remember the first global oil crisis of 1972. Mr Hon, by then Minister for Finance, refused to subsidise consumption. He thought it better for Singapore to swallow the medicine of inflation in one gulp. The cost of living index stabilised within 18 months.

MOF’s mission as guardian of the national budget will be more challenging in the future. For instance, before we can decide on how to allocate the research budget, we need to have some idea of the knowledge domains that Singapore has a more than even chance to compete in. Is it biotechnology, nano-engineering, solar energy or something else?

Spending on R&D in my view is too narrow a focus as a growth strategy. In any case, we do not have the breadth and depth of talent to compete successfully with the Americans, Europeans, Japanese, Russians, and in the near future, the Chinese and Indians.

We may be able to hire a few superstars to head our research institutions. But a Nobel laureate cannot work in isolation. He or she needs teams of young researchers to do the basic experiments. Young PhDs in China work for a fraction of the wages we pay our young dons at our two research universities. Ms Oliver Lum of Hyflux told me that the core membrane research work of her company was done at Hyflux laboratories in China. Rather than pursuing high science whatever the cost, we may have to adopt a less lofty approach. We should ask ourselves: What are the knowledge domains we can excel in?

Singapore has a fair track record in building townships, industrial parks, container ports, submersible oil rigs, vocational and technical education and water treatment installations like Hyflux. As the example of Singapore Airlines shows, it is possible to build up a world-scale Singapore company on our own. SIA’s founding board had no foreign director or CEO.

The way forward for us is to have the guts to build another 25 world-scale ‘SIAs’ in the knowledge domains where we have a competitive advantage.

I learnt many lessons in economic policymaking from Dr Albert Winsemius, Singapore’s first Economic Adviser. The most valuable lesson he taught me was that you have to do the things that matter yourself. After pulling ourselves up by our own bootstraps in the pioneering years, we now outsource the CEO jobs to foreign talent. The irony is that when trouble looms, the foreign CEO just dusts off the seat of his pants and walks away with his sign-off bonus negotiated when he first signed on.

The pyramids of Egypt were built by the Pharoahs’ Hebrew slaves. The Egyptian Pharoenic race is now lost in antiquity. The Jewish Hebrew nation continues to thrive.

Quo Vadis Singapore?

The above is an excerpt of a speech Mr Ngiam, a former senior civil servant, delivered yesterday to mark the 50th anniversary of the Ministry of Finance.

Building more world-class s'pore firms-Ngiam Tong Dow

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