Some UK politicians happy to walk away from the Brexit negotiations without a deal have brokered the idea of turning their country into a minimal tax, minimal regulation economy, and have cited Singapore as a model to follow. They should look more closely.
As James Crabtree wrote in yesterday’s FT:
“Many things the Brexiters think they admire about Singapore also turn out to be only half-true. Singapore is indeed a competitive market economy with relatively low tax and a threadbare social safety net. But rather than a model of laissez-faire capitalism, its state is actually highly interventionist, from its famous chewing-gum ban to wide-ranging public ownership of everything from banks to airlines.
Its success as a financial hub, meanwhile, is based not only on openness to capital and goods, but also people. Extraordinarily high immigration has seen the island’s population double in 30 years. Today, not far off a third of its 5.8m people are foreigners, from Filipino nannies and Bangladeshi builders to Japanese bankers. The government has tightened migration rules recently, but still expects to add 1m to its population by 2030 – hardly a policy migration-averse Brexit backers would want to copy.”
State intervention in the market, widespread public ownership, mass immigration. These are not the sort of policies supported by Brexiters, at least those on the right of the political spectrum.
The example of Singapore illustrates the need to closely examine different ‘models’ of capitalism when searching for policies to promote widely shared prosperity. There are a range of institutions which successful capitalist nations have adopted over time. Both these and the appropriate policies will tend to change as development proceeds and technologies, the structure of the economy, the distribution of income and the balance of political power interact and evolve.
The UK government has made positive noises about industrial policy and investment in infrastructure as part of its plan to ‘build an economy that works for all’. They have been rather timid in bringing these forward in practice, although perhaps it is still early days.
The historical achievements of industrial policy in the UK have been rather hit and miss. Those on the right often point to a failure to ‘pick winners’, which they claim simply resulted in supporting ‘lame ducks’ or loss-making companies which absorbed resources and were not returned to profit. Those on the left tend to be more sympathetic towards state intervention. Neither side seem to offer much evidence that they have learnt any particularly deep lessons from the history of industrial policies around the world. There have been both successes, from Japan, South Korea and Taiwan, to failures, such as in South Asia. The distinction is probably less clear-cut, with narrower successes in particular industrial sectors in various countries.
One of the main lessons from the history of state intervention to promote development around the world is that virtually all successful economies’ governments have done it, but the different political and institutional contexts have meant that it has taken different forms in different countries and at different times. Today’s rich countries, which include the late developers in East Asia, have all done so. So have many nations which have failed to make the difficult transition from middle-income to rich country status, such as some in Latin America. But rapid growth, development and structural change seem to require a successful industrial policy. The failure of such policies can be worse than no policy at all, so it is imperative to get things right and to learn from experience.
Certain Brexiters and other devotees of laissez-faire economics may wish otherwise, but the lessons from Singapore do not exactly support their case. Getting state intervention right can be difficult, and requires an experimental approach which draws on the lessons of history and the political economy of development. But it seems to be necessary to successful human progress.