Global Risk Insights

Lee Kuan Yew’s passing offers Singapore unexpected lessons

The passing of longtime ruler and modernizer Lee Kuan Yew (LKY) in Singapore has raised questions about the future of the prosperous micro-nation. While some worry about the country’s prospects after Lee, others argue that the country is strong enough to survive his passing. Indeed, Singapore’s prosperity hinges on its ability to surpass, rather than preserve, LKY’s legacy.

Lee Kuan Yew ruled Singapore from 1959 to 1990, overseeing its creation as an economic giant touting first world living standards, a global financial hub, and lack of corruption. After stepping down from power, Lee mentored successive Singaporean leaders, witnessing his eldest son Lee Hsien Loong become premier in 2004. LKY retired from public life in 2011, and passed away on March 23rd, 2015, at the age of 91.

PAP facing new challenges from the Left

Many fear that post-LKY Singapore will witness the rise of factional politics, which undermine the nation’s legendary stability and competitiveness. In 2011, the People’s Action Party (PAP) – Lee’s longstanding ruling party – received 60% of the vote, its lowest share since independence. This result itself was 6.5% lower than the PAP vote in the 2007 election.

Moreover, current premier Lee Hsien Loong, now 63, has stated openly that he does not wish to be premier past 70. Consequently, by 2020, Singapore will face an even less popular PAP lacking a clear successor.

Simultaneously, Singapore has experienced louder calls for greater freedom – Singapore currently ranks 153 out of 180 on the Press Freedom Index – from a wealthy and well-traveled younger generation.

In response, the government launched ‘Our Singapore Conversation’ in 2012, a program which has hosted over 660 dialogue sessions to promote greater public input in government. Although a largely symbolic gesture, the program does demonstrate a greater willingness to foster an engaged citizenry.

Young Singaporeans are demanding a more democratic nation, a development being noted by the country’s political exiles. Some see the death of LKY as an opportunity for a loosening of censorship, yet Lee Hsien Loong has made little effort to roll back the controls instituted by his father.

Many self-imposed exiles cite the repeal of the Internal Security Act as a key prerequisite for future democratization. The Act allows authorities to detain anyone considered a risk to stability for up to two years, and has long been used to silence and expel leftist opposition in Singapore.

Demographic changes are signal of the need to reform

Alongside a young, more demanding cohort, Singapore faces a rapidly aging population. Singapore’s median age is 39, double that which awaited LKY in 1959, with the nation’s elderly population set to triple by 2030. This demographic shift has led to calls for greater social spending, with the government announcing changes in the national pension system to better support lower and medium-income workers.

Moreover, the government has announced increased welfare spending, paid for by an increase in the top marginal tax rate, set to increase from 20% to 22% by 2017.

Whereas under LKY the government sought to minimize social spending to focus funds towards growth, welfare spending is not anathema to his legacy. Lee himself stated that “the quality of a nation’s manpower resources is the single most important factor determining competitiveness.” Strikes were outlawed for this reason, but increased welfare spending also increases worker productivity as fewer working hours are lost to illness and injury.

In recent years, Singaporeans have voiced greater concern about inequality in the island nation, as the country’s Gini coefficient increased from 0.46 in 2004 to 0.464 in 2014. Currently, to attract the best talent to the government, Singapore indexes public sector salaries to comparable positions in the private sector, leading to some of the highest government wages in the world.

During the same period, annual GDP growth decreased from 9.5% to 2.9%. This is largely a sign of Singapore’s maturing economy, yet the country must remain vigilant to adjust to first world growth rates.

Demands for greater social spending coupled with the attendant costs of an aging population are putting pressure on government budgets. As both growth patterns and demographics change, Singapore needs to alter its economic model to maintain balanced budgets.

Ironically, the key to maintaining future stability may be for the PAP to adopt policies of the Left, the very opposition formerly suppressed in the name of stability. Despite decreased vote share in 2011, clever gerrymandering saw the PAP retain 81 of 87 seats.

However, the opposition, led by the centre-left Worker’s Party of Singapore, seeks to further prompt the government to address inequality and other social issues previously overlooked in the name of growth and modernization.

Kenneth Tan, vice dean of the Lee Kuan Yew School of Public Policy states that he expects

“the opposition to make inroads now, and in part this is to be expected in a more mature society. I hope that they do become a stronger opposition […] so we can go back to being the kind of place that experiments with alternative ideas.”

Singapore’s very existence is a most audacious experiment, one founded on hyper-capitalist sentiments. The economically savvy technocrats running the country are fully aware that a lack of competition in the market causes stagnation. The conceptual leap to competition in governance ensuring Singapore’s vitality is a small and logical one.

Thum Ping Tjin of Oxford sums up Singapore’s dilemma by highlighting that

“What constrains [the government] from truly embracing new challenges is their inability to let got of the past […] the lack of Lee Kuan Yew may actually, if they are wise, liberate them from a lot of historical baggage.”

The lesson of Lee’s legacy? Singapore must move on

Pragmatism has always been the defining characteristic of Singaporean governance. LKY did not fall into the ‘cult of personality trap’, creating instead a bureaucracy not utterly reliant on a single leader.

Lee was also open to revision. He dropped his longstanding anti-casino stance to capitalize on growing Asian tourism and counter manufacturing competition from China. LKY also encouraged wise investments, with Singapore’s sovereign wealth fund now managing over $100 billion, and state-owned investment company Temasek Holdings Pte overseeing $165 billion.

The passing of LKY has not signaled a drastic loss of market confidence in Singapore. As LKY lay on his deathbed, Singapore surpassed Australia to become owner of the world’s highest yielding (2.48%) AAA rated government debt securities. The day LKY died, there was no volatility on the Singaporean stock market; in fact the Singaporean dollar rose 1.2 cents against the dollar, closing more than two cents higher by week’s end.

The death of LKY will undoubtedly lead to a nostalgia-fueled boost to PAP popularity. However, pining for the past cannot supersede preparations for the future.

Singapore may have been forged by one man, but it is also stronger than any single leader. Lee laid the groundwork for the creation of modern Singapore. Compared to lifting a nation out of the developing world, Singapore’s current challenges are truly ‘first world problems’.