SPEECH BY MR GOH CHOK TONG, SENIOR MINISTER, AT UNIVERSITY OF PRETORIA HONORARY DOCTORATE OF BUSINESS ADMINISTRATION CONFERMENT CEREMONY , 18 OCTOBER 2008, 10:00 AM AT YONG SIEW TOH CONSERVATORY OF MUSIC
“Reflections on the Growth of Nations”
Vice-Chancellor Pistorius
Faculty members
Distinguished alumni
Ladies and Gentlemen
1. It is my honour to be conferred this degree by the University of Pretoria here today.
2. When I was Prime Minister, I took an interest in Africa for two reasons. First, I had studied in Williams College in the US for a Master in Development Economics way back in 1967. In my class of 20 government officials from developing countries, many were Africans. After graduation, I followed developments in their countries with more than a cursory interest. Like Singapore, many African countries were newly independent. Some had done well, others poorly. I wanted to know the reasons why. Second, I wanted to see whether there were opportunities to expand Singapore’s economic links with Africa. I also felt that Singapore should forge stronger political ties with Africa, given the continent’s increasing importance in the world and the large African constituency in the United Nations.
3. Indeed, one of the first international meetings which I attended as Prime Minister was the Commonwealth Heads of Government Meeting in Harare, Zimbabwe, in 1991. As the international community was about to decide on the lifting of sanctions against the white Apartheid regime of South Africa, I decided to stop over in Pretoria before returning to Singapore. President Frederik Willem (FW) de Klerk welcomed me warmly because, as he said, I “was making history” by being the first Head of Government to visit South Africa since 1961. At the dinner in his official residence, he told me that he and the others present were against Apartheid. I felt his sincerity and left the dinner convinced that there would be a political solution soon.
4. Later, in the course of my work, I travelled to many more countries, in and outside Africa. They were in different stages of economic development. I often wondered why some nations were able to grow while others stagnated or even regressed.
5. Even now, the same question can be asked of nations. The financial turmoil in the developed West will soon have an impact on the economies of developing countries. Which country will emerge stronger from the impact of the global financial tsunami and which will go under? Hence today, I would like to look beyond the financial crisis and focus on the fundamentals of economic growth from my personal experiences.
The Importance of Peace and Stability
6. The first classmate I knew in Williams College was a Kenyan. Later, I got to know others from Egypt, Ethiopia, Liberia, Tanzania and Uganda. Outside Africa, other classmates included those from Pakistan, Colombia and Yugoslavia. We were all young government officials from Third World countries. We were sent there to learn and then return to our countries to help solve our economic problems.
7. But forty years on, many of my classmates never had their dreams realised. For some of them, their hopes were shattered very early on. Take my Egyptian classmate, for example. Just before commencement, his country had gone to war with Israel. That six-day war, together with two subsequent wars in 1969 and 1973 exacted a heavy toll on Egypt. Ethiopia too, fought two ruinous external wars. Similarly, civil wars have wreaked havoc in Colombia and Liberia, split Pakistan into two and tore Yugoslavia into 6 different countries[1].
8. As a result of wars, civil strife and other reasons, the growth paths of the countries represented by my class at Williams College have differed greatly. Over the past forty years, real GDP per person has risen by more than 4% per annum in the more successful economies. At the other extreme, however, real GDP per person stagnated, or even declined. The moral is clear. Peace and stability are necessary conditions for a country’s growth and prosperity.
The Lessons of the Past Four Decades
9. What are the other conditions for countries to progress and get rich? This was the subject of a two-year long inquiry by the Commission on Growth and Development set up by the World Bank under the chairmanship of Nobel Laureate Mike Spence in 2006. I was privileged to be a member of the Commission, which included South Africa’s Finance Minister, Mr Trevor Manuel.
10. After an exhaustive inquiry, the Commission found that very few countries were able to sustain high economic growth over two or more decades. In fact, in the post-war period, only 13 economies[2] managed to achieve 25 years of annual GDP growth averaging 7% or more. Nine were from Asia.
11. These 13 economies all had some things in common. One, effective governments. Two, relatively open economies.
12. The Commission, however, refrained from recommending any model of economic development because it concluded that development strategies must be contextualised. Instead, it identified 17 policy ingredients which any growth strategy must have. Quite wisely, the Commission did not recommend any winning recipe. Which recipe will work depends crucially on a country’s endowment, social fabric, values and political climate. Besides, even if the Commission had recommended a recipe, it could not produce the master chef, namely a leader who could turn all these ingredients into a wonderful dish!
13. This leads me to the key point I want to make: it is leaders who make or break a country. Here, I am not talking about a single, talented, charismatic, strong leader. Such a leader is rare, and is often thrown up by specific historical circumstances. I am referring to leadership in governance. Here, you can systematically identify, collect and nurture a group of people to provide effective leadership for the country.
14. This is what Singapore has done and is doing – systematically identifying good men and women with the character, values, drive, motivation and commitment to stand for elections and lead the country. This culture of planned political succession of Prime Ministers and Ministers on the basis of merit distinguishes Singapore from other countries. Political transitions in Singapore are stable, orderly and predictable. This is a valuable competitive asset because investors know that government policies will not lurch from right to left, both in the literal and political sense.
15. We have also built up strong institutions to implement public policies effectively – the judiciary, the civil service, the Police, the media and lately, the NGO sector. Recently, when I asked an Egyptian Minister about the pace of reforms in his country, he told me that it was nearly impossible to navigate through the “5,000 years of bureaucracy” in his country. But it is not just efficiency of the bureaucracy. More important is integrity: integrity of political leaders, public officials and the value system of the country. The tragedy of many developing countries is the curse of corruption coursing through the veins of government and society.
16. Building trust with the people is absolutely important. The best policies can fail if the people cannot accept them or if they distrust the intentions of the government. It is best to be upfront with the people, especially if you are introducing policies which cause pain in the short term but are necessary in the long term. Trust, like respect, cannot be decreed. It has to be earned. It is this trust of Singaporeans in their government which has enabled us to persuade them to accept some tough, painful but necessary policies and win elections.
17. Will the 13 “high growth” economies cited in the Growth Report, including Singapore, be able to keep on improving the living standards of their people over the next 25 years?” If history is any guide, there can be no guarantee. Indeed, history is peppered with many accounts of the rise and fall of nations. Take China. In 1820, China accounted for a third of world GDP. However, after decades of isolation from the outside world, China’s economy and wealth gradually declined. By the mid-1900s, China’s share of world GDP had shrunk to just 4%. Today, however, China is on the rise again.
18. Forty years ago, East Asians were on average less well off than Africans. Today, their positions have reversed. In 1900, Sri Lankans were the wealthiest Asians, richer than the Japanese, and almost as well off as the people in Greece and Portugal. Today, Sri Lanka is in the economic backwaters, largely self-inflicted. This shows how economic fortunes can change over time.
Staying Rich in a Flat World
19. Going forward, I see two continuing challenges for developing economies. The first is globalisation. It was Thomas Friedman who first coined the term “the world is flat” to describe a world that has become more interlinked in terms of the flow of people, goods, services and capital. In such a world, which he now says is flatter than he thought, national boundaries are irrelevant and the government has less direct control. This is vividly illustrated by the current global financial crisis which started in the US.
20. The second challenge is the increasing importance of developing knowledge-based capabilities in the economy. A successful economy demands the innovative energies of the private sector and the flow of creative ideas, whether through the internet or other communication technologies. Inspiration matters more than perspiration, and growth cannot be sustained by sheer dint of sweat and the clang of machinery.
21. Given these two global trends, will the role of government in economic management change? In a flat world, should governments be more hands-off and rely even more on the free market? Or does a flat world demand even more enlightened regulation? I would argue that the role of the government remains critical and strong political leadership is more indispensable than before. Witness how western governments turned the free-market on its head when they were forced to recapitalise commercial and investment banks by taking up equity stakes in them, in effect, nationalising them, and providing blanket guarantees for bank deposits. Post-financial crisis, I expect governments to introduce new rules to curb, to borrow a phrase from Alan Greenspan, the “irrational exuberance” of financial engineering, derivatives and an executive compensation structure which encourages short-term performance and risky behaviour.
22. A vital ingredient for a country’s success is talent. A country which attracts, retains and builds up talent will do better than one endowed just with natural resources, even if these are oil and gas, over the long term. Global cosmopolitan cities such as London, New York, Boston and Chicago have demonstrated the importance of attracting talent. These cities have thrived, in part due to the contribution of migrants from all over the world and across many professions, such as scientists, engineers, teachers and artists, not just bankers.
23. The last US census in year 2000 showed that there were 2.2 million foreign-born in the US who held at least a bachelor’s degree, up by nearly 50% from the 1980s. In the UK, about 1,000 applications were approved when the Highly Skilled Migrants programme was launched in 2002. By 2006, this number had risen to 22,000[3]. And the authorities are not stopping there. The UK’s Migration Advisory Committee has identified some areas of “skills shortage”, with the view to attract more foreign skills in these fields. While professions such as engineering, medicine and physics are on the list, interestingly, dancers, animal care givers, and chefs are in shortage too, let alone master chefs.
27. China has also encouraged foreign participation in its economy, despite its huge population of 1.3 billion. Foreigners are working as educators, hoteliers, managers, and bankers all over China. Singaporeans already form the fourth largest group of foreigners in Shanghai[4].
28. Using the World Economic Forum’s measure of Brain Drain, the top 20 countries which are successful in retaining talent also have very high GDP per capita averaging around US$20,000[5]. In contrast, GDP per capita averaged just US$2,800 in the bottom 20 countries where people leave to pursue opportunities elsewhere. One could endlessly argue whether the low GDP per capita is a cause or consequence of Brain Drain. Whatever it is, I believe that countries must face up to the brain drain challenge. For instance, in a survey of 200 South African students from major tertiary institutions by The Weekend Post last month (20 Sep 08), more than half wanted to explore life abroad after completing their studies and, of that, 78% had no intention of returning. If not reversed, the brain drain will be a severe constraint to growth. I would therefore urge policymakers, perhaps working in collaboration with educational institutions such as the University of Pretoria, to play an active role to give more attention to education, human resource development and the attraction and retention of talent.
24. Singapore is committed to facilitating “brain gain” to generate a virtuous cycle of innovation, better opportunities, and higher living standards. There are, of course, challenges in integrating foreigners in our society as well as in minimising the brain drain from emigrating Singaporeans. Mustering the collective effort and innovation of our foreign and local talents is our strategy to sustain Singapore’s growth.
Conclusion
25. South Africa and Singapore have undergone major transformations in the past four decades. Singapore was forced into sudden independence in 1965. We were vulnerable, and against all odds, overcame our challenges to be where we are today. South Africa’s history is different, with years of struggle against Apartheid, out of which a “rainbow” nation was born. As our two countries journey into the unknown future, we can learn from each other’s experience and help each other to overcome common challenges.
26. It is in this spirit of learning that I accept this honour that the University of Pretoria has bestowed on me. I am privileged to join the ranks of illustrious alumni such as former Archbishop Desmond Tutu and former President Nelson Mandela, selfless and visionary leaders who have devoted themselves to make their country better.
27. In concluding, may I congratulate the University of Pretoria for celebrating its centennial anniversary this year.
Thank you.
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[1] The six are Bosnia and Herzegovina, Croatia, Republic of Macedonia, Montenegro, Serbia and Slovenia. Singapore does not recognise Kosovo.
[2] The 13 economies are: Botswana, Brazil, China, Hong Kong, Indonesia, Japan, Korea, Malaysia, Malta, Oman, Singapore, Taiwan and Thailand.
[3] UK Migration Advisory Committee, Skilled Shortage Sensible, Sep 2008.
[4] Shanghai Statistics Bureau, 2007 Statistical Yearbook. Figure refers to foreigners with Permission to reside in Shanghai. The top 3 countries are Japan, Korea and the US respectively.
[5] “Brain drain” indicator from The Global Competitiveness Report 2007-08 by the World Economic Forum. GDP per capita data from Penn World Tables 6.2. Singapore is ranked 14th out of 131 countries on the Brain Drain measure, behind the US, Ireland, Switzerland, Japan, and Hong Kong.