Notes on the development of Singapore

I recently finished “From Third World to First: The Singapore Story: 1965-2000” by Lee Kuan Yew, the man rightfully known for transforming impoverished, newly independent Singapore from 1965 into the financial, technological, and cultural powerhouse it is today. Yew wrote this book for future Singaporean citizens, offering insight into the struggles and humble beginnings of what had become, by 2025, one of the world’s top five countries in GDP per capita. It serves as a reminder that financial security as a nation is neither easily won nor maintained. The result is a lucid account from a great politician and leader. As Singapore was a former British colony, the book also functions as a history of the outward-facing policies of British, American, European, and Asian countries during the latter half of the 20th century. Below is an outline of chapter notes I found important or entertaining, followed by a brief summary of themes that run throughout the book.

Outline

  • Singaporean Independence
    • Singapore was a British colony until the alarmingly successful Japanese invasion in 1942. While the British Empire had been on the decline since WWI, the loss of Singapore was said by Churchill to be the “largest capitulation” in British military history.
    • After WWII, the British reoccupied Singapore, but under increasing anti-colonial sentiment and under a partial Singaporean government. Singapore and Malaya agreed to the annexation of Singapore into Malaya.
    • Being a “state” of Malaya lasted less than 2 years.Cultural and political differences lead both sides to sign the Independence of Singapore Agreement in 1965.
    • Lee Kuan Yew became Prime Minister of Singapore, as the head of the PAP (People’s Action Party).
    • As the leader of a new country, Lee Kuan Yew had a few immediate priorities: defense, global recognition, and the economy, quite a hefty to-do list.
      • Defense: The British still had air and naval bases in Singapore, and Yew wanted the British to stay as long as possible, since the newly independent Singapore already had rival neighbors. Indonesia was against Singaporean & Malaya independence, since they viewed it as a “neocolonial construct” and started the “Confrontation”, a series of terrorist attacks. Malaya too was a precarious ally. Tunku, the PM of Malaysia did not want more war, but if his political power was usurped, an aggressive Malaya would pose a huge defense issue for Singapore. Thus, Yew went back and forth negotiating with the British to keep them involved militarily. However, given the politics at home, various British leaders estimated they had limited time left in Southeast Asia. The Singaporeans looked elsewhere and decided they must build a military. They hired Israeli military strategists to help build up the army, as Israel was in somewhat of a similar position being a small country with aggressive neighbors. Because of the significant Muslim population in Singapore, these Israelis were called “Mexicans”. The Israeli defense strategy at that point was to have a large reserve army, not necessarily a large standing army which is more costly to implement upfront. Therefore, Singapore required mandatory military service, for men only due to huge backlash at Yew’s suggestion that it should include women. With international defense slowly building, Yew focused government efforts on the police. At this point, Singapore was around 80% ethnically Chinese, 10-15% Malay, and 5-10% Indian. However, the police force was primarily composed of Malayans which caused racial tension and distrust between ethnically Malayan and ethnically Chinese groups. Yew proposed that Gurkhas train for the police force as more neutral group to diffuse racial tensions.
      • UN / Commonwealth Status: Singapore was at once recognized as an independent nation in the UN and attained Commonwealth as a former British colony relatively seamlessly. This helped build trade relations with a block of wealthier countries.
      • Economy: Yew saw China had Hong Kong act as vessel for Capitalist world. He believed the ideas of communism would not work and had seen them repeatedly fail. Thus, he started to implement free trade practices in Singapore. More on this later.
  • Building an Army from Scratch
    • This section dives into more of the complications of building an army. At first, Singaporean army was joke to neighbors, but after they started to invest and build up army over time, the mood shifted. When they bought second hand French military tanks from Israel at discount, Malaysia was surprised since they didn’t have any tanks. Part of the reason building an army proved difficult is because there was a cultural Chinese sentiment against children going in the military, as they saw it as a form of failure. To promote the idea that the military was a noble position, Yew made academies and tied the military to academic achievement. He believed in investing in education and sent the best students of the army to study at top institutions around the world on a full scholarship provided they would come back and bring ideas to Singapore.
  • British Departure
    • It was a question of not if, but when the British were leaving. The American’s Vietnam war was hugely unpopular in the British eyes and key figures from political parties wanted to withdraw from Southeast Asia. Moreover, the British economy was weakening, and the government spending money abroad was politically untenable. Indeed the British devalued the pound sterling in 1967, meaning that Singapore lost a lot of reserve that they had in pounds. Yew negotiated with the British to purchase military equipment to soften the blow of Britain’s inevitable departure. When the British started to withdraw military expenditure from 1968-1971, there was a great blow to the Singaporean economy, which comprised of around 20% of the GDP (Singaporeans worked on British bases, provided services for them, etc…these jobs were subsequently lost). While the British offered aid, Yew was determined that Singapore should not be a country that survived on the aid of others. He had seen the failure of other former British colonies relying on aid packages. Instead, they looked to create jobs. Therefore, a bureau for tourism was started which created the “Merlion”, now a recognizable image of Singapore. The Changi airbase was repurposed for an Airport due to Singapore’s strategic location.
  • Creating a Financial Institution
    • Economic advisor realized Singapore was in key location for international banking. When the U.S. and European banks were closed, Singapore and Tokyo could help take over to provide 24 hour service.
    • Singapore brought over MNCs (Multi National Corporations) because at the beginning, Singapore did not yet have the entrepreneurial base to start businesses. These MNCs created many jobs and were a key to the economic development of Singapore. Eventually, higher tech MNCs were brought in.
    • The Monetary Authority Singapore (MAS) was created which was different than a central bank. The MAS does not have the authority to issue currency, but can only issued Singapore dollars when backed by equivalent value in foreign exchange. This theoretically means that every citizen can trade in a Singapore dollar for the equivalent of a foreign asset (for example it’s equivalent in USD). These were mixed foreign assets so that the currency was not “pegged” to any one foreign currency.
    • The Asian Dollar Market recognized the need for foreign investment in SE Asia and thus served as a bank network that took foreign currencies and lent this money out to different local banks. This was attractive to investors because there was no interest tax and banks did not need to have statutory liquidity and reserve requirements for foreign investment, meaning there was no need to have liquid assets to back foreign investors which made this process more efficient (and also more dangerous).
    • As Singapore’s financial reserves grew, the money supply was not being invested efficiently – so the PAP created a bureau to invest the reserve holdings better with higher returns. The goal was to preserve the reserve and increase at steady rate. Initially, the PAP was very cautious and made conservative investments that grew at predictable rates.
    • In late 20th century, after Yew stepped down he began to reexamine Singaporean financial systems and concluded that they were over-protectionist and over cautious. After meeting with executive bank leaders in the US, he decided to open up more to International banks.
    • Singapore Telecom opened shares for Singaporeans and incentivized not immediately trading out by having bonus shares after certain amount of time. This also gave people a vested interest into the prosperity of this company.
    • Taxing: Singapore Government moved from taxing income to taxing consumption. Singapore has no capital gains tax. Ironically, at first they had a large real estate duty tax. Many tax lawyers were able to escape this tax, but when they lowered it, there was not longer the incentive to evade the tax and they made more in revenue.
  • Winning over Unions
    • Lee Kuan Yew was sympathetic to unions, himself having been a strong advocate of unions. However when the unions called strike, he arrested leaders and gave everybody who had quit a period of 24 hours to get back their job. It worked and proved to the public that the government stood strong against union protests.
  • A Fair, not Welfare Society
    • Because Singapore is ethnically diverse, PAP recognized that hardship should be distributed evenly amongst ethnic groups, otherwise economic rifts between groups would be perceived as systematic discrimination. After reviewing the results from national examinations, Yew noticed Malayans were consistently performing worse. He posited this was probably due to the different nature of Chinese schools and communities, which emphasised a great importance on academic achievement. Yew knew it was controversial for the government to intervene, so instead involved influential community members and religious leaders to incentivize academic progress. Soon the achievement gap began to close.
    • Yew believed that to maintain peace, there could not simply be less poverty but also a strong sense of fairness and justice in a society. He thought while free market competition enriched a society, the results were extreme in terms of “big winners”. In order to even out these extreme results, the PAP invested in things that would increase earning potential, like free education and housing, but were not fond of handouts.
    • Yew wanted to be an “owner nation” and was against the idea of the majority of people renting. He through homeowners had a greater sense of pride in maintaining a house and space. He also thought giving the people land ownership would make them feel more invested in the future of Singapore, and especially wanted those whose sons had to do mandatory military service to own a house. A lot of housing was built with varying landscapes and modern infrastructure.
    • The CFP (Central Provident Fund) was created which is a mandatory individual savings fund. You pay a percentage of wages which the employee matches. Individuals can invest this and withdraw to pay the down payment on housing. For health care, there was percentage of CFP set aside in a “Medisave account”. Therefore, an individual has stake in healthcare since they must pay at least in part from their own Medisave account. Furthermore, Medisave accounts can be used for family, reinforcing Confucian values of importance of family. Individuals are allowed to use Medisave on private or government hospitals to encourage hospital competition. In government hospitals, there are different “ranks” of rooms. People are able to pay less for a traditional, less comfortable hospital bed or can upgrade for fancier rooms. The level of treatment is the same. The pension scheme in Singapore is also somewhat unique. The CFP also works as a pension scheme, and a percentage of CFP money is reserved for retirement. This can be invested (subject to some rules) and money made over a current amount can be liquidated and withdrawn.
    • Low inflation & other certain economic conditions necessary for CFP scheme
    • Because of location as port city, prostitution was legalized but kept to certain areas and the women were given health checks.
  • The Communists Self Destruct
    • Communism in SE Asia had large effect on public. Many thought it was to be a permanent new system and were worried they would be persecuted if they did not become a communist. Because of the deep networks of communists, leaders proved tough to persecute in a trial, since many would be too afraid to speak against them.
  • Straddling the Middle Ground & Managing Media
    • The PAP party maintained power for decades. How did they do this? First, Yew was an incredibly strong leader who built up trust with his people. Every time a false claim was published about him, he sued and donated the money to a charitable cause. Thus his reputation remained untarnished by newspapers. The PAP party also allowed other political perspectives to be taken into account by changing constitution to allow for non-elected MPs to reflect views contrary to theirs. They set up a feedback unit to constantly try to improve the party. Finally, the economy was growing and people’s lives were improving, so they were happy to have party take on long-term strategy for development of Singapore.
    • Yew does not believe newspapers have the right to print misinformation
    • When newspaper spread false information, they would write to point out mistakes but Singapore’s rule was that they shoul publish Singapore’s reply. If they refused, they would cut down selling of that newspaper and restrict it’s printing.
    • Americans reprimanded Singapore
  • Nurturing and Attracting Talent
    • Yew thinks that talent is the most important resource of a country. He made a controversial speech that it was “bad for graduate men to choose less intelligent wives” after seeing that women graduates were not marrying. There was a cultural sigma against men marrying women with higher education that Yew wanted to fight, however this lost him many votes.
    • Singapore sent best pupils to top universities abroad on full scholarships to bring in different perspectives and keep talent pool. Because English was the official language, it made it easier for Singaporeans to move abroad, threatening to “brain drain”. Thus Singapore created large incentives for talent to come back.
  • Many tongues, one language
    • Yew decided to make English the official language of Singapore. He recognized English facilitated trade relations with wealthy countries and was an international language that would make it easier for Singaporeans to do business in. This was unpopular in many Chinese communities, who placed a great importance on learning dialects of Chinese. Schools had to slowly adopt English while still maintaining and recognizing the importance of Chinese, Malay, and Tamil.
    • China, he noted later, was still struggling with the idea of a national language. The dialects were so pronounced in different provinces that it made country-wide communication difficult.
  • Greening Singapore
    • Yew wanted to make Singapore look beautiful and be a pleasant place to visit. Therefore, he started a series of campaigns: anti-spitting, anti-littering, anti-smoking, anti-noise, and anti-rudeness. These campaigns were successful for the most part, although campaigns like “anti-chewing gum” and “anti-male long hair” were mocked by the Western world as being paternalistic.
    • The PAP did not differentiate planting and greening practices between the upper and lower class, unlike the British whose slums were dirty and upper class neighborhoods had immaculate gardens. In to figure out how to let plants flourish, Yew brought in a gardening expert who explained since the top soil washed off in the wet season, depleting nutrients, fertilizer was needed every year. When they started to fertilize the soil, the plants grew much better.
    • The PAP started “National Tree Planting Day” at start of November which is best time for tree growth.
    • Appearance matters – when American MNCs were visiting, they specially paid attention to the roads they would drive on to ensure they were neat and orderly.
    • In order to fight traffic congestion, Singapore created limits for the number of cars on the roads. In order to own a car, you had to “bid” for a right to own one. This became exponentially expensive and was unpopular, although it did limit traffic congestion. They also implemented a digital toll for driving.
  • Malaysia & Indonesia
    • Malaysia had communist faction but was broadly anti communist. It has a predominantly Muslim population and whilst Tunku was leader, was not aggressive to Singapore, although leaders from other parties called for its re-annexation.
    • Sukarno was first president of Indonesia after their move from independence from Japanese occupation, who took over from Indonesia as a former Dutch colony. Indonesia is also a predominately Muslim country.
    • The PKI was Indonesia’s communist party, who were alleged to have attempted a coup against Sukarno in 1965 killing around 6 of his top generals. This resulted in Suhartro, the Major General, mobilizing a huge anti-communist purge. The documentary “The Act of Killing” is about the atrocities committed in this anti-communist purge.
    • In 1973 Lee went to Indonesia and scattered flowers of those murdered in 1965 coup in order to bridge relations with Indonesia. Lee and Suhartro both viewed communism as a threat and were against the Northern Vietnamese. They had meetings called “four eyes” which were isolated, unrecorded meetings to discuss ideas and opinions.
    • Suhartro kept children in power, and descended from an Indonesian hero to a villain who put Indonesia into a state of financial ruin.
  • Thailand, the Phillipines, and Brunei
    • Thailand is only SE Asian country that has never been colonized.
    • The Sultan of Brunei was a frugal and strong leader that Yew got along with.
  • Vietnam, Myanmar, Cambodia
    • Vietnam reunified in 1975, and had a bad relationship with China. When Vietnam invaded Cambodia, China attacked the north of Vietnam, resulting in a big loss of lives for the Chinese. This was to “teach China a lesson” and indeed weakened the Vietnamese position in Cambodia.
    • Cambodia originally had an Imperial regime, which was destroyed by the Khmer Rouge Communist government. The Khmer Rouge was a highly totalitarian government. The nationalization of land led to mass starvation and there was a horrific genocide under Pol Pot. When the Vietnamese invaded, the Khmer government formed an uneasy alliance with the previous Imperial government to fight the Vietnamese from setting up puppet Heng Samrin government. Most other Southeast countries were against Vietnamese occupation, and Vietnam had to ask USSR for resources. The Vietnamese plan to take Cambodia failed.
    • British had drawn lines badly and so lots of different people with different cultures lived in Myanmar, this did not make for a peaceful situation.
  • The East Asia Financial Crisis of 1997-1998
    • In early 1997, the Thai Baht was in danger. Thailand had pegged currency to USD, overborrowed in USD with the expectation that the Baht would have a similar exchange rate. The monetary policy of “pegging” the Baht on the USD had worked when the USD was weaker and exports were cheaper from Thailand. However, when the USD strengthened, exports became more expensive and they were unable to export as much. The Thailand government had large current account deficits and not enough currency to meet debt repayments. When investors realized this, they began selling Bahts. To try to keep the Baht pegged, the Thai central bank had to buy Baht with USD, however after spending around $20 billion to buy Bahts, they ran out of USD and had to devalue the Baht leading to a financial crisis for not only Thailand, but the rest of SE Asia. Singapore was less affected by the Baht devaluation since it had it’s reserves in a basket of different currencies.
    • Yew argues that liberalization was too quick in SE Asia, leading to a momentary economic boom that was not stable. For example, a lot of capital was used to finance buildings which themselves were used as collateral for more borrowing. This was too much borrowing without the same pace of repayments that lead to the collapse.
  • Ties with Australia and New Zealand
    • Trade unions in Australia were over-protectionist and prevented Australian opening up trade with SE Asia, since they feared Asian labor would take away jobs from Australians.
    • Australian media had portrayed SE Asia as a backward culture.
    • In late 1970s Australia started to trade more. The government realized that while the US was a great military partner, they were competition in agriculture and Australia needed to start competing.
    • East Timor complicated relationships between Australia and Indonesia.
    • NZ was, in Yew’s eyes, more British in manners. They had not industrialized fast enough and the “no-nuclular” political party had adverse effects.
  • The Soviet Union, an Empire Implodes
    • On a flight, Yew’s plane got “redirected” to Moscow, in order for the Soviet Union Government to meet him. The visit to Moscow was strange. There was grandiose gestures of power and blatant bugging in the hotels.
    • Yew later met with Gorbachev, who was introducing the ideas of “Glastnos” and “Perestroika”. Glastnos was the idea of “openness” so that the Soviet Union began to develop a more global policy and begin to open trade with other nations. Perestroika meant “restructuring” and was meant to increase free market practices and private business. However, USSR first implemented Glastnos and then Perestroika. Yew saw this as the incorrect order of operations. He saw China had done the opposite with better success.
  • Japan
    • Native Singaporeans harbored anguished memories of the Japanese occupation of Singapore during WWII. Therefore, there was a lot of distrust between the two countries at the onset. However, given Japan’s rapid development and changes, Yew began to meet with Japanese PMs and establish business relationships.
    • Japan was way more reluctant to apologize for WWII atrocities than West Germany. For example,CVs from West Germans included the activities they had been involved in during the years of WWII while Japanese resumes simply left those years blank.
    • The Japanese culture and work structure was unique. They had an “employment for life” idea which intertwined the life of an employee with a job. For example, employers would pay for children’s education, recreation facilities, meals, etc. Therefore, job hopping was uncommon since the loyalty to the company was so strong. Yew was impressed with the way Japanese workers are constantly retrained on the job and must work their way up the career ladder.
    • Two former PMs were sentence to a lifetime in jail for corruption. This was pardoned by a subsequent PM, but Yew saw this tarnish the respect people had for the Prime Minister and thought sentencing a PM to jail was hurtful for national morale.
  • Hong Kong
    • Hong Kong didn’t have strong government because China would not allow for it. Therefore, it developed into a free market society with limited to no government interventions.
    • The British had conquered Hong Kong after the Opium Wars. Later, there was a planned handover to China. However, at this point Hong Kong’s culture was quite separate from it’s neighbor.
    • Patten, the last British governor of Hong Kong tried to introduce democracy right before handing to China and threatened to not hand over. This ended up being a failure.
  • Taiwan
    • Chiang Kai-Shek’s Son Chiang Chin-kuo was leader of Taiwan. Taiwan and China have a long history of dispute about Taiwanese independence. Singapore took the “One China” side so as not to aggravate China and said it was up to China and Taiwanese leaders although Yew was friends with Chiang Chin-kuo.
    • Taiwan had minimal welfare until popular elections began in 1990s. This lead to large budget deficits.
  • China
    • Yew visited China first when Maoism was still in full swing. He was surprised to be greeted by children who were out of school and singing propaganda. Everywhere, people seemed to be brainwashed or too scared to speak their minds. He met Mao, who was ageing and could not communicate clearly anymore. During his visit, he heard mentions of the “capitalist offroader” who ended up being Deng Xiaoping.
    • The PRC attempted to secure the loyalty of overseas ethnic Chinese population to Beijing by playing radio shows. Singapore asked for this to stop and Deng Xiaoping listened.
    • The USSR and China were enemies because of land conflicts and different ideas of how to implement Communism.
    • When Deng gained power, he started to turn things around. He began to open up markets again and prepare China for a more globalized society. He was very against the Vietnamese invasion of Cambodia and compared Vietnam to “the Cuba of the East” implying that they were both Soviet vessels.
    • The Tiananamen Square massacre took place in 1989, during the Deng-Gorbechev summit. The students denounced government, urging for more democratic institutions. Sensing instability, the PLA shot at students. This was a bad moment for Deng and one of the reasons he has not gone down as an absolute hero from a Western perspective. The Americans were aghast at what had happened.
  • Passing the Baton
    • To find suitable successors for positions in Government, the PAP actively scouted for the nations top talent. Government positions were paid well to attract talent and deter corruption. After seeing the impressive personalities involved in the Apollo mission, Yew hired psychologists to test future candidates abilities and adopted practices to scout talent that multinational corporations like Shell practiced. Originally, Yew thought people would present themselves as political leaders, but found he had to actively seek talent.

Key Ideas

In order to bias my memory from it’s usual retention of just the most amusing anecdotes, of which Yew has many, here are some of the more serious key takeaways from my reading.

  1. Democracy is not a prerequisite for development, nor does development imply there will be a democracy.
    1. Right off to a controversial start, the debate of “economy first” or “democracy first” played a large part in shaping the post colonial world. After the end of the Empire period, there were a lot of former colonies that had not, or had never had a sovereign government. This meant that there were different opinions on how to get these new nations “quick-started”. I first want to approach this statement from being able to get a better grasp on what a “democracy” means. This is already a difficult starting point because what Americans consider democracy is a vastly different system than what another country might call a democracy. It is something that is built over time into a culture and society. Mike Munger summarizes this complication very well here: https://www.econlib.org/library/Columns/y2005/Mungerdemocracy.html. But to simplify, let’s use the exact structure of the so called American “liberal democracy”. Yew argues that this structure would not necessarily faire well in every society and is crucially not imperative for economic development. A democratic government with a well educated electorate would function differently from an electorate with an uneducated electorate (Idiocracy, for example being a theoretical, and ridiculous, example of this – note the play on the word Democracy). In Tocqueville’s “Democracy in America”, he notes in amazement the “homogeny” of American thought and postulates that is why American democracy works so well.
  2. Societal peace rests on the people’s perception of the fairness around them, not necessarily the freeness of the market
    1. While Yew is a proponent of free markets. A totally free market scheme will result in few extreme winners, many winners, and many “losers”. While people will still be on the whole wealthier, the distribution will look too skewed. This is why redistribution is important. But the means by which this redistribution is implemented is maybe even more important than the redistribution itself. Yew advocated for reinvesting in earning potential and avoided handouts when possible.
  3. Government can have an efficient, successfully run branch, given that it is subject to competition.
    1. Singapore airlines, Singaporean hospitals, etc. are efficiently, highly regarded government run organizations. Part of the reason for this is they all have to compete to maintain higher standards than their competition.
  4. Confucianism emphasizes the importance of family and community
    1. While nuclear families are close in Western culture, extended families and communities are sometimes left out in the pursuit of individualism. This is a large cultural divide.
  5. 20th-century communist movements embraced different ideologies that often put them in fierce opposition to one another
  6. Chinese Communism failed but the CCP Succeeded
    1. Despite the failures of “Maoism” including land reforms, the Cultural Revolution, etc. the CCP united and liberated China from foreign aggressors and a stale monarchy. To this day the CCP is still in power, though it’s practices do not conform to Maoism.
  7. Bad leaders in the best government structure will lead to suffering. Great leaders in bad government structures will help.
  8. Build on systems that have demonstrated success, while accounting for cultural and societal variations.
    1. Yew was constantly on the lookout for systems in other countries that seemed to be working well and trying to transfer those ideas to Singapore.
  9. Earning respect from citizens is important in a stable government and democracy.
  10. Sometimes it really helps to have the same people stay in power for a long time.
    1. The PAP lead Singapore for decades and was able to make long term plans for it’s development. The changing of policies too fast can result in inaction.
  11. The Government should keep pace technologically with industry
    1. Singapore’s government was quick to hop on the digital revolution. This facilitated easier communication between citizens and these entities. As technology streamlines most daily interactions, citizens become increasingly frustrated when government processes remain inefficient by comparison. This disparity erodes public respect for government institutions.
  12. Continual meetings and building interpersonal relationships between political leaders are important.