Towards a digitally geared Singapore economy

The structure and orientation of the Singapore economy has been beneficial in meeting the material aspirations of many Singaporeans ever since industrialization in the 1960s. Much of Singapore’s growth since then has been predicated on remaining relevant to changes in the global economic structure, identifying areas where Singapore’s competitive advantages can add the most value to both process and product of the various businesses. Yet, as we continue to see advances both in the capacity of regional competitors and technology, it is apparent that Singapore has to move beyond its traditional reliance on certain strategic industries to maintain our high levels of economic growth. In this essay, I will argue that successful economic modernization must be driven by a fundamental realignment of the economy. This realignment must privilege the digital technology sector, for much of the value of the future depends on growth in this parallel but visibly important virtual world. Principally, I will advance the idea that Singapore will benefit greatly from cultivating a strong technological core of entrepreneurs and engineers to revitalize the economy. Singapore of the future is unlikely to be very much that of the present, let alone the past. Only a rethink of economic strategy can ensure our survival in the increasingly competitive region.

 

Why is the present untenable?

 

Changing global economic conditions have acted to erode Singapore’s comparative advantages over the past few decades, significantly affecting the country’s ability to capture more economic value than before. Economic policies have privileged industries tied to Singapore’s geographical location on the world map. Historically being an important node connecting the Indian and the Pacific Oceans, Singapore could achieve growth by diverting resources towards the creation of a vibrant, dynamic and free trading port. In tandem, industries such as shipping, oil and gas and associated sectors have become developed – over-developed, perhaps – until much reliance has been placed on these industries for the country’s economic position. Ipso facto, these are not liabilities to the country – they provide employment and add much value to the economy. Yet, because of reliance on these sectors as well, the country has been encountering problems in the present due to changes in specific industrial conditions and more indirect but global realities. In shipping, for example, cargo volume has declined partly as a result of more efficient technologies, but also because of the growth in the Malaysian Tanjung Pelapas port. This is already an immediate threat to the Singapore economy. Also, there are policymakers in Thailand and China who are keen on creating a channel through Southern Thailand – possibly the Kra of Isthmus. The two countries have powerful incentives economically in doing so, especially for China as it pursues its political-economic objectives under the One Belt One Road initiative. Such a channel will complement the land route it already has that links it to Spain.

 

Oil and gas companies also have encountered problems linked to a decline in global oil prices. Recent depressions of oil price have reduced the propensity of global firms to explore or extract oil. With the United States increasingly contributing to global oil production, the Organization of Petroleum Exporting Countries’ (OPEC) inability to secure consensus over price-volume balance and Iranian sanctions being lifted, the overall outcome is an over-supply of oil. At the same time, the global economy has not expanded at a level fast enough to match supply of oil with demand as a countervailing check on equilibrium price. Too much uncertainty has led to local oil and gas companies and downstream firms reducing capital expenditure and laying off workers.

 

Evidently, Singapore's economy has imputed too high a degree of risk despite being diversified. For diversity is as strong as elements in the basket sharing low levels of risk and responsibility for economic growth. But as it stands, the ripple effect of these traditional yet major, physically intensive and high-risk industries contracting are almost likely to be felt across the nation. Unemployment is no longer cyclical in nature - it is fundamentally becoming a structural problem. More innovation to insulate Singapore's economy from high risk sectors and also those with high rates of obsolescence must be taken on. To this end, opportunities to be found in the future is a good way to decide how we proceed.

 

How does the future resemble?

 

A central goal of every modern government has been to increase capital in the economies they are entrusted with advancing. Opportunities of the future seem to indicate that much of economic growth can be achieved by the production of technological goods and services. The world has fundamentally realigned itself with the very real possibility that the digital world provides considerable value for the physical counterpart. Not only is it impossible to ignore the growth of technology on the economy, but to ignore the need to leverage on technological growth for economic growth proves even tougher when facts are triangulated with predictions of the future economic landscape.

 

Internationally, digital technology companies such as Google and Facebook have logged impressive growth rates. Where stock price is a proxy indicator of how consumers perceive company potential, then the commensurate rise in prices of Google and Facebook stocks clearly indicate that much of the future is being deemed strongly positive by investors. Also, between 2011 and 2014 their reported gross revenue have increased by around 45 % and 65% respectively. Another point to note is that Google and Facebook offer virtually no physical products at all – their business model has been built about online platforms that have filled an important gap in service provision around the world. Services include Internet search and social networking. In addition, companies that do produce physical technological products such as Apple record similarly impressive levels of growth.

 

Furthermore, what is of greater relevance to economic development is the creation of employment opportunities that are attuned towards the higher tiers of economic value additivity. Google today employs about 57,000 workers. Many of these workers are housed in their home country, the United States. This is in spite of the fact that their service provided is global in outreach. It points to the benefit of cultivating a larger technological-economic base – the retention of jobs that are less likely to see outsourcing to more cost-competitive regions, such as in South Asia. Because much innovation involves the need for collaboration, the physical siting of technological engineers and associated professionals are necessitated as a result. Thus, there are strong reasons to believe that most of the benefits accrued by technology businesses can remain in the home country it was created in.

 

What can Singapore do in a changing world?

 

Singapore’s ability to seize opportunities in the future therefore must be well informed by the benefits of growing an even stronger technological core. While Singapore may not produce another firm like Google or Apple, it can still focus its energy on capturing downstream value that these firms would be keen to see added along the way. Whether it prioritizes goods or services production in the field of digital technology is a decision best left to comparative advantages that is best gauged in the future. Tentatively, there is a case to be made that Singapore will greatly benefit from pursuing both as production goals. An example of a physical product it could consider developing is in virtual reality (VR). As it is, Facebook’s recent interest has shifted towards the growth of VR products. VR’s allure lies in its potential for use in multiple problem settings. Governments may employ VR in simulation of policy outcomes; businesses with VR could record more efficient work processes through innovative work process enhancements. In short, much value is seen in further refinements to existing technological capacity. The world’s desire for technological advancement is still strong. Singapore can play an integral role in augmenting the growth of technology to these firms, or even perhaps outdo such firms at the initial stages of research and development. Pioneering product development in technology can only provide benefits in the long term. Even if it cannot achieve dominance in the global digital market, Singapore nonetheless must at least be able to achieve the status of indispensable and highly preferred partners to the technological giants in the world, such as Google and Facebook.

 

With the outgrowth of a technologically competent population today, Singapore is well placed to leverage on such a strong foundation to build the economy on further. This is aided further by the relative backwardness of neighbouring countries who lack the technological know-how found in Singapore. A fundamental reconfiguration of the economy, with an eye on creation of value, therefore will find participation in the global digital industry highly attractive. There are already plans in place to enhance the digital technological base of the labour force. Leading this is the creation of a digital hub within the new Singapore Institute of Technology (SIT) campus in Punggol. Primary schools have also begun to introduce basic computer coding programmes. These developments may actually indicate the potential for easier economic realignment. If indeed true, the government is even better placed to catalyze an economic transformation that will have powerful and positive effects on Singapore.

 

At the same time, the population arguably still appears to be materially incentivized. Where rational gains are esteemed in a capitalist economic system, there are strong reasons to believe that the government’s ability to raise general pay level will more than suffice in gaining popular acquiescence. Survival of material benefits, not liberal democracy, is still an end that a preponderant majority subscribes to. Such a pairing provides a stable dyad that mutually reinforce, insofar as the state can guarantee that institutional rules are geared towards the affirmation of these two outcomes. As technological employment tends to carry premiums to salary because of its highly professional and technical nature, this is likely to gain traction and acceptance to a greater extent than jobs that pay less. This potentially can spur greater productivity, for material incentives and matching of skills to job needs are enhanced and refined. With greater satisfaction at work, productivity gains can be predicted quite stably.

 

The matching of policy to basic motivations of the people is something that sounds simple enough, yet perhaps not carried out in reality that often. Case in points is the recently launched upgrading programme, SkillsFuture. The government has provided the institutional structure and subsidized the initiation cost for the public to participate. At the same time, however, the level of enthusiasm for such a programme has been an issue not examined at a level and depth that ought to and merits congruency with policy intentions. In fact, the creation of value may be at tension with the values of SkillsFuture, which appears to desire the enhancement of existing skillsets or the picking up of ‘hobbies’ that serve more a recreational than productive purpose per se.

 

How the government promotes an economy of the future must therefore be coupled to and aim at advancing the fundamental value underscored and esteemed as a potential savior against excessive costs of economic contractions. Entering 2016, the country is likely to feel the effects of various negative factors as touched on earlier in this essay. Being a small economy reliant on the world for economic growth, these events will necessarily affect us adversely. The economy of the future must attempt to minimize the fallouts that future such events could cause on our dependent and highly sensitive economy.

 

At the same time that the government is pushing for Singapore to be a ‘smart nation’, advancements in digital technology are likely to be of aid to this cause. Digital technology’s growth can utilize the nation as a test-bed. But over and above, the greatest gains are to be accrued to the domestic political economy – in other words, both to state and to society. The only way ahead is to accept that our comparative advantages are steadily eroding under regional competition, and act on identifying or developing such advantages in valuable realms as yet under-maximized in terms of global scale.