Foreign Funding and State Capitalism: 1986-present
The PAP government abandoned the Second Industrial Revolution—a huge mistake, given how high value, high-tech manufacturing subsequently drove growth in other regional economies—and developed a new two pronged strategy: making Singapore as attractive for foreign capital while also making the state a capitalist itself. Public spending has accordingly been primarily focused on providing an efficient business environment for foreign investment and economic growth, with a strategy emphasising a) attracting foreign firms, portfolio investors, and foreign workers at all ends of the skills spectrum; and b) capital accumulation.
1. Maximising Singapore’s Attractiveness to Foreign CapitalInstead of reducing its dependence on foreign capital, Singapore instead went the opposite way and sought to tie foreign capital more tightly to Singapore (and vice versa). This took the form of three policies: restoring capitalist profitability; maximising Singapore’s regional role; and opening new inflows of capital to Singapore.
First, restoring capitalist profitability. The PAP government returned to low-wage export production, and since 1986, has been very careful to try to keep unit labour costs competitive with comparable regional economies to ensure foreign capital investments in Singapore are profitable.
A broad range of incentives were introduced to attract foreign capital. These included supply-side corporate subsidies (tax breaks, training subsidies, R&D grants, favourable loans via the Development Bank of Singapore). In addition to the capital subsidies, there were direct and indirect labour subsidies for foreign capital, and land subsidies, for example Jurong Town Corporation (JTC) and HDB factory buildings providing industrial space at cheap rates.
This, however, led to a second mistake. Rather than put in serious effort to create and develop a viable domestic capitalist entrepreneurial class (as was the case in the rest of developed Asia), in the 1990s, the PAP began to import massive quantities of low-wage unskilled migrant labour. Exploiting low wage migrant labour is a fast and cheap way to achieve growth, rather than doing the hard work of building up domestic productivity. Between 1990 and 2010 over 1.2 million unskilled and semi skilled migrant workers were added to the economy, and were exempted from the laws regulating labour and wages.
This massive availability of cheap labour depressed real wages and disincentivised firms from mechanising, using technology, or reorganising to raise labour productivity. Instead, labour intensive operations were artificially sustained by cheap labour for the next 20 years, creating an underclass of the working poor at the bottom 10-20% of the workforce. Today, Singapore has 5.9 million people, but only 3.5 million citizens. The migrant workers are paid as little as $10-20 a day in a country where the government itself considers you extremely poor if you make double that.
By 2010, foreign labour accounted for 1,113,200 or one-third of the total workforce, helping to boost Singapore’s population by nearly 32% in just a decade from 2000. By 2023, the numbers have reached 1,525,500 or nearly 39% of the total workforce. Low wage foreign labour was approximately 86% of the total. Singaporean companies have come to rely on low-cost foreign labour and any decrease in their numbers would likely increase the cost of services to the public and/or reduce capitalist profits—directly harming the PAP government’s political and/or economic interests. As Prime Minister Lee Hsien Loong explained during the 2015 election campaign, “there are no easy choices”, declaring that slowing the inflow of cheaper overseas workers has raised business costs and slowed economic growth. Lee conceded that “[w]hichever option we choose, it will involve some pain.”4
To his credit, he did try. Work Permit holders (the type of work visa that low wage migrant workers hold) fell from a December 2015 peak of 997,100 to 848,000 in 2020, but then rose sharply again to 1.113 million by December 2023. The continued rise of the low wage foreign worker population in Singapore (apart from a dip during the covid-19 pandemic) suggests that Lee succumbed to minimising pain for the state’s capitalist interests, rather than for the people. The continued rise in the number of foreign workers in turn has generated more pressure over material and social inequalities, as well as public concerns about the social and environmental sustainability of population growth.
Second, Singapore returned to its colonial role as a regional hub. As with the colonial era, we developed a highly sophisticated services sector, with financial and banking infrastructure, transport, communications services to facilitate the operations of transregional corporations. The main difference is that in the colonial period, it was trade and commerce that formed the biggest part of our services sector; from the 1980s, it was financial and business services. Singapore has sought to become an exporter of services, especially in banking and finance, transport and communications, and international services.5
This first prong was the model that was introduced by the PAP government’s economic committee, chaired by Lee Hsien Loong, in 1986, is the same model that he followed as Prime Minister and it is the same model we follow today, thirty years later. It basically doubled down on the alliance with international capital by increasing profitability, while also fostering Singapore as a regional hub for international capital, including the reduction of corporate and income taxes, lowering business costs, and building infrastructure, and making Singapore an attractive offshore financial (money laundering) centre.
Singapore also developed a new role as a major offshore financial centre. Low wage costs and good infrastructure could not completely stop the movement of manufacturing to lower-cost production sites in China and Southeast Asia. This is why, in 2005, the PAP controversially lifted its previous ban on casinos, to diversify the economy and boost tourism. For similar reasons, the domestic housing market has gained in importance to growth. This is a major reason why the PAP has not halted the skyrocketing price of housing, even though it owns 90% of the land in Singapore and can thus effectively set the price to anything it wants to, because foreign inflows purchasing housing are a major source of foreign capital inflows as well. Finally, Singapore has also seen explosive growth of what are euphemistically called “family offices”—private wealth management firms—that, in the context of what many consider an insufficiently strict regulatory regime, have enabled the laundering and concealment of illicit wealth. The term “Singapore-washing” has gained currency precisely because of this phenomenon. In the wake of a major scandal, the government itself has conceded the regulatory regime needs improvement and introduced a new Anti-Money Laundering and Other Matters Bill on 2 July 2024.
To justify this, Lee argued for Reagan-esque trickle down economics as a model of economic expansion, despite the fact that decades of experiences show it increases inequality and does not lead to shared prosperity or a rise in living standards for the working class. He remarked in 2013:
“In fact, if I can get another 10 billionaires to move to Singapore and set up their base here, my Gini coefficient will get worse but I think Singaporeans will be better off, because they will bring in business, bring in opportunities, open new doors and create new jobs, and I think that is the attitude with which we must approach this problem.”
Growth alone, however, does not mean that the profits are being fairly distributed, that living standards are being raised, or indicate people’s well-being in any way. On the contrary, the fastest way to maximise profits is to exploit people by lowering wages and spending less on decent working conditions. This is the case for Singapore’s low-wage migrant workers, who have their surplus capital extracted from them by their employers and the Singapore government. In the absence of proper regulation, taxation, and redistribution, profits are often retained by billionaire oligarchs.
This is borne out by the data:, a report by UBS shows that from the end of the global financial crisis in 2008 till 2023, Singapore’s average (mean) wealth rose an astonishing 116%, while as its median wealth (the wealth of the person in the exact middle) fell 2% two percent. In other words, while Singapore’s wealth has greatly grown, the vast majority of that growth is in the hands of the already very rich. [See Part 3: Inequality for more information on this.]
As part of this goal, Singapore also shifted from direct to indirect taxes, to maintain its international competitiveness in attracting investments and migration by the global elite, and so business and income taxes, which both stood at 40%, were slashed while a consumption tax (the Goods and Services Tax, GST) was introduced in 1994. The repeated raising of Goods and Services Tax—to 9% in 2024—has driven discontent and public anger.
Thus the very same sustained high growth, once pivotal to the PAP’s performance legitimacy, has recently also begun to erode its political support. But rather than listen to the public, the PAP government instead prefers to suppress discontent. The simple fact is that Singapore’s GDP is approximately 45% produced by foreign owned companies; 25% is produced by government-owned and controlled companies (euphemistically called Government-Linked Companies, or GLCs); the remaining 30% is produced by local companies (generally SMEs). Singapore cannot survive without foreign investment, which forms the biggest share of the economy; so the PAP bends over backwards to accommodate foreign funding, and naturally chooses the side of capital over workers.
2. Become a Capitalist tooSingapore was two sovereign wealth funds: Temasek Holdings, established in 1974, derives its revenues from its holdings (often of controlling shares) in GLCs primarily in power, transport, telecommunications, property, media and finance at home, and in non-controlling shares in a variety of industries abroad. The Government of Singapore Investment Corporation (GIC) was subsequently formed in 1981 because our huge sustainable balance of payments surpluses needed proper long term management. Then-Finance Minister Goh Keng Swee chose to create a Singaporean company to manage it rather than relying on foreign fund managers. This was related to his nightmare of Singapore becoming dependent and vulnerable to foreign capital—it’s not enough to have domestic capital, Singapore needs to be able to manage it well, too. It co-manages Singapore’s foreign exchange reserves with the MAS, invests more conservatively in foreign cash, stocks, bonds, property and private equity, and also manages CPF balances in non-marketable government securities included in the liabilities of both sovereign wealth funds; in 2015 CPF savings, which comprise part of Singapore’s reserves, amounted to US $205 billion.
The funds were supposed to function only as passive financial investors, not strategic investors. However, during the Second Industrial Revolution, these sovereign wealth funds would enable the PAP government to intervene to enable the state to direct domestic capital into areas that supported its economic restructuring, including making investments in key companies. This role persisted afterwards, as the PAP government sought to maximise Singapore’s returns on capital by investing in developing economies and emerging competitors. This strategy would be led both by the sovereign wealth funds and the companies they invested in, the GLCs. Singapore would invest in advanced industrialised economies to gain access to technology and skilled labour. This also allowed it to gain a share of the returns on capital where it was distributed. Singapore would also invest in regional economies as a way to facilitate the penetration of those economies by advanced industrialised countries. These state enterprises were used to lead development of strategic sectors of the domestic economy, mostly in infrastructure, transport, banking and defence, but subsequently many were partially or totally privatised. Examples are Temasek’s divestment, including to foreign buyers, of most of its domestic manufacturing holdings in industries such as textiles, steel, chemicals and even semiconductors, and more recently, shipping.
In other words, if capitalism rules the world, then the state of Singapore itself must be a capitalist too. If you can’t beat ‘em, join ‘em.
Today, the single biggest actor in the economy is the PAP government itself, via the state and the vast array of GLCs who dominate the upper echelons of the domestic economy and stock market. In 2023, Temasek Holdings boasted an investment portfolio of S$382 billion (about US$282.34 billion), while GIC’s assets are estimated at over S$1 trillion (approximately US$740 to 770 billion). These two sovereign wealth funds, connecting multinational corporations and an extended, consolidated network of state-owned and controlled businesses, has caused power to be greatly concentrated in the hands of technocratic elites.
However, the massive portfolios of these sovereign wealth funds have been created at the expense of Singaporeans, by taking money from Singaporean wages and consequently, suppressing the consumption, investments, and savings of Singaporeans.
The Singapore government has been able to accumulate capital via persistent structural budget surpluses averaging approximately 7% of GDP since 2003. Government expenditure has averaged around 20% of GDP in the same period, and has been heavily focused on development, particularly infrastructure and human capital, with extremely low expenditure on social protection. There is no unemployment insurance or public pension provision (retirement being entirely self-funded, through the CPF and primarily through housing asset growth). Public expenditure on healthcare was equivalent to only 1.5% of GDP in 2014, out of the total of 4% of GDP spent on health. Unlike in most other countries, revenue derives heavily (about 40%) from unconventional non-tax sources such as regulatory levies, usage fees of public infrastructure and amenities, income from sovereign wealth funds, profits from GLCs, rents from lease of land-use rights, duties on gambling, car quota premiums, and foreign worker levies. The ultimate incidence of these fees and levies falls on consumers, indicating that the total tax burden on the population is higher than indicated by individual income taxes (paid by less than 40% of the labour force) and the GST.
Surpluses are further ensured by a constitutional limit on the budgetary deficit that a particular government may run during its term in office, and the transfer of net investment income, of an annual maximum of 50%, from Temasek Holdings and GIC.