Essay by SM Lee Hsien Loong "Microeconomics in Public Policy: A Practitioner's View" (Mar 2026)

Microeconomics in Public Policy: A Practitioner's View*

1. Introduction

One of the most important roles for any government is to grow and maintain a well-functioning economy.

The theories about how best to do so are well-studied, going all the way back to Adam Smith. He explained how the invisible hand of self-interest plus the free market give rise to co-operation between strangers on an economy-wide and even international scale, to produce good outcomes (Smith, 1776).

250 years later, Smith’s insights into human nature and how markets work remain valid and relevant. So much so that Dr. Goh Keng Swee, the architect of Singapore’s modern economy, once said provocatively that “Developing nations need not go beyond Adam Smith for guidance on their economic policies” (Goh, 1972a, p. 456).

Adam Smith envisaged a very limited role for governments. He saw them as only responsible for public institutions that benefit the whole society but are unprofitable for any individual to maintain, such as national defense, the administration of justice (establishing and enforcing property rights), certain types of public infrastructure, basic education for the population and hardly anything else.

This was how societies worked in Adam Smith’s day.

But societies and economies have become vastly more complicated and modern governments have correspondingly expanded their public policy objectives and roles. Most governments deliver a wide range of public services. They promote, regulate and participate in many economic activities. They administer elaborate social, health and education systems. They redistribute income and resources.

Almost by definition, these are areas where the free market does not work well by itself, thus necessitating government intervention. But how should governments best perform these tasks?

One approach is to rely exclusively on non-market means and to perform these tasks directly — creating departments and bureaucracies to do the work themselves, or to regulate and require businesses and individuals to do what the government wants.

Alternatively, governments may create an overall policy framework, but in implementing these policies, use economic laws and market forces to accomplish their objectives.

2. When Designing and Implementing Policies, Use Economic Principles and Market Forces

Singapore has adopted the second, more market-oriented approach.

Ours is not a purist laissez-faire model, where the government does as little as possible.

The Government actively intervenes in many areas to achieve public policy objectives.

But we have adopted the philosophy that when intervening and pursuing these goals, we need to be cognizant of economic laws, market forces and incentives. This way we work with, rather than against, human nature. The better we understand these powerful forces and the more we use them in designing and implementing policies, the more effectively we will achieve our goals.

2.1. Public housing

One example is public housing, a signature policy of the Singapore Government.

Today, around 80% of Singaporeans live in public housing and 90% of Singaporeans own their own homes.

This would never have been achieved had the Government not intervened on a massive scale to acquire large swathes of private land, plan and build public housing, enact elaborate rules and sales conditions to govern how to allocate these flats, and institute systems and policies to make public housing affordable and pervasive home ownership a reality.

Yet in implementing the public housing program, we have recognized economic principles and used market mechanisms to achieve the overall political and social goals of universal home ownership and good quality, affordable public housing for Singaporeans.

For example, we set up the Housing & Development Board (HDB) as a statutory board to build and sell flats, instead of doing this through a government ministry or department.

When HDB needs land to build flats, it has to buy the land from the state at fair market value. This recognizes that there is an opportunity cost to using land for public housing, that land is a scarce resource which has value and that this value can and should be objectively ascertained and costed into the flats. This creates the right price signals and incentives for HDB to make full and optimal use of the land that it takes for public housing.

HDB does not design or build all the flats itself. It designs some of the flats so as to retain core expertise, but tenders out most projects to private sector architects and construction firms. This allows HDB to exploit the flexibility, efficiency and innovation inherent in the private sector operating in a competitive market. It helps HDB keep costs low and deliver value for money.

As flats are built, they are sold to the public. To achieve social objectives such as home ownership, affordability, and social and ethnic integration, HDB imposes restrictions on who can buy the flats and conditions that homeowners must comply with.

But the key question is how to price the flats.

By policy, flats are sold at a discount to their market value, to make them more affordable and to help households build up a nest-egg for retirement.

But not all flats of the same type have identical value. Where the particular unit is located, which direction it faces and which floor it is on, all make a difference.

HDB has to take this market reality into account and price each flat accordingly. Taking its offerings as a whole, HDB can then offer affordable flats for every income group and homebuyers can select a flat matching their preferences and within their budgets. We avoid large and unfair windfall gains accruing arbitrarily to a lucky few, as would happen if all flats of a given type were priced equally.

After the flats are sold, their new owners are required to live in them for a Minimum Occupation Period.

But ownership ultimately means being able to sell one’s flat and perhaps buy another, when one’s life circumstances change.

How should this be done?

We do not want HDB to be the arbiter and administrator of these secondary transactions.

Hence, we do not require flat owners to sell their flats back to HDB and then apply for another flat from HDB. Instead, we allow households to buy and sell their flats on a secondary resale market, at market prices set by willing buyers and sellers. There are still some restrictions and interventions to maintain key social objectives. For example, only citizens and permanent residents can buy resale flats; each household can only own one HDB flat at any given time; the flat must be owner-occupied and may only be fully rented out if tight conditions are met; ethnic ratios at block and precinct levels must still be maintained; and Government provides some subsidies for eligible families. But overall, the restrictions and interventions on resale flats are much less than on new flats.

This approach creates a diversified but interlinked national housing market, ranging from flats bought directly from the HDB at a market discount, to resale HDB flats transacted on the secondary market at market prices but subject to HDB rules, to private property bought and sold more freely. This spectrum gives owners the flexibility to upgrade or downgrade their homes in the course of their lives and enables them to realize the true market value of the flats, while maintaining key social objectives.

2.2. Healthcare

Another example is healthcare.

Most modern societies see healthcare as a key social safety net, a basic need and even a human right. But it is also a vexed subject, famous for market failures arising from information asymmetry, principal–agent problems and misaligned incentives. Left to its own, the healthcare sector will tend to overprescribe, overservice, overconsume and underdeliver.

Developed countries have taken different approaches toward healthcare. At one extreme, the US relies heavily on the free market and private providers for both healthcare delivery and health insurance. But despite its high cost, this has yielded unsatisfactory outcomes.

Access is very unequal and beyond the reach of many households.

At the other extreme, the UK relies heavily on the public sector. The National Health Service delivers nationalized healthcare free at the point of use, paid for by taxpayers. In theory, healthcare is affordable and accessible to all British residents. But in reality, resources are finite and healthcare is rationed through queuing. Waiting times are long, sometimes lasting years, compromising the quality of care and causing considerable dissatisfaction.

There is also little incentive to improve efficiency and trim overheads.

Singapore has developed a hybrid solution that involves both the public and private sectors. It seeks to use economic incentives to produce the desired outcomes.

The Government is the major provider. But it does not deliver care through a government ministry or department. Instead, it has created three autonomous public healthcare clusters, which run 11 acute hospitals and assorted other public healthcare institutions such as polyclinics.

These public providers operate on a not-for-profit basis. They charge fees and receive subsidies, but are required to cover their costs. Their mission is not to maximize profits, but to deliver good quality, cost-effective healthcare to the population while being mindful of the costs. They deliver both unsubsidized and subsidized healthcare, which are distinguished by the right to choose your doctors, creature comforts and waiting times.

However, even for subsidized services, patients always co-pay for at least part of their treatment costs. Nothing is free at the point of use. This is to reflect the value of what they are consuming and to discourage excessive demand for treatments, procedures and prescriptions.

This is a fundamental philosophy that the People’s Action Party Government adopted right from the beginning.

But co-payment can only work if patients can actually afford it. Therefore, the Government created MediSave, a national compulsory health savings scheme which people contribute to and build up during their working years, and which they can draw upon to pay their medical bills. These savings need to be complemented by risk-pooling to protect against unexpectedly large medical bills. Recognizing this, the Government later created MediShield (which became MediShield Life) as a national basic health insurance scheme.

Its essential features include deductibles, co-payments (co-insurance) and claim limits.

These are necessary not only to keep premiums low, but also to reduce the risk of overconsumption common in medical insurance schemes.

The private sector too has a role in Singapore’s healthcare system. Privately-run general practitioner clinics service a large part of the primary healthcare market. Private hospitals offer an alternative to public healthcare institutions for those who prefer more comfort and choice and are willing to pay for it. We have also allowed private medical insurance, including Integrated Shield Plans (IPs) and riders that augment MediShield Life, to provide additional choice to those who wish to enhance their coverage.

But we have not allowed the private sector to run completely unrestrained, because market practices and market failures in private healthcare inevitably impact the public healthcare system. For example, we publish comprehensive fee benchmarks for private hospitals covering common surgical procedures and medical conditions, to enhance price transparency and discourage excessive charging. We have also intervened in the private insurance market to regulate the design of IPs and riders, which are continually at risk of market failure through a vicious spiral of the buffet syndrome, higher claims and higher premiums.

Managing our healthcare system is not a one-off exercise but a dynamic process. The system needs constant tending, especially as it is not a simple single-payer system.

Patients, doctors, healthcare institutions and insurance providers all react to policies and rules, changing their behavior and requiring our policies and rules to adapt again and again.

As our population ages, disease loads and medical needs evolve and so must the healthcare system. At the same time, medical science is constantly inventing novel technologies and treatments. We need to work out how these should be provided, funded and allocated.

Nevertheless, our hybrid approach — combining government and private sector provision, alongside active regulation and the judicious use of pricing and economic incentives, within an overall framework set by the Government — has provided good quality healthcare for Singaporeans, at a lower cost than in most other countries.

2.3. Public sector remuneration

Public housing and healthcare are examples of public services delivered with the help of market forces and incentives.

But the public sector requires inputs from the market economy too. It has to pay for these inputs and is therefore subject to the same economic and market realities as the rest of the economy. For example, when government departments consume water or electricity, they pay the same tariffs and taxes as all other consumers. When officers travel on official duties, they pay the same airfares as other travelers, even on Singapore Airlines, the national carrier.

But the biggest and most important factor input to the public sector is personnel.

Delivering good government and superior public services requires a high-quality public service workforce. This depends on having capable, committed and competent officers at all levels. The public service has to attract, recruit, train, develop and retain such people.

Here, the economic reality is that the public service participates in the national labor market. It competes with many other employers for people with the skills and abilities that it needs. Potential recruits have a choice between public and private sector careers. So do serving officers, especially when the economy is prospering.

We have therefore adopted the policy that the public sector will offer career paths and salaries that are competitive with the private sector. We benchmark public sector salaries to equivalent private sector ones, comparing job scopes, capabilities, contributions and responsibilities.

This applies at all levels, from rank-and-file officers to senior leaders and even political appointees. This is the realistic and effective way to attract and retain good quality public officers. It is a key reason Singapore has been able to build and maintain a clean, competent, committed public service.

Of course, the public service is not another private business. Officers must be imbued with the ethos of public service. They cannot have chosen a government career in the hope of enriching themselves, but their value and contributions must still be properly recognized and fairly rewarded.

In most countries, public service wages are substantially lower than those in the private sector. The basic mindset is that governments cannot afford to pay private sector wages, due to financial and political constraints. To mitigate this, public officers receive benefits-in-kind, such as housing, medical benefits, travel allowances, guaranteed job security or generous pension schemes. But despite these perks, without realistic remuneration, it is hard to sustain the quality of the public service. Too often, corruption becomes an endemic, insoluble problem.

Singapore has largely done away with such perks and instead pays the public service clean but competitive wages.

Perhaps one reason this model is unusual is that it is not easy to execute well in practice.

In the private sector, bottomlines are closely watched and results show up tangibly and fairly quickly. It is not so hard to assess someone’s capability or contributions, pay them what they are worth and let them go if they fail to perform. The public sector lacks the same financial pressures and signals. It deals with many intangible, complex and longer-term issues, where success is not so easy to quantify, and consequences emerge only years later. This makes it much harder to enforce performance discipline like the private sector.

Yet, rigorously assessing and rewarding both individual and organizational performance in the public sector is an essential complement to paying public officers properly. This remains a constant focus for the Singapore Public Service.

3. When Allocating a Scarce Resource, Just Price It

Beyond public housing, healthcare and public service remuneration, economic principles and market incentives are relevant to many other public policies.

One broad area is the use of pricing to allocate scarce resources, rather than having the government decide who needs these resources most.

With most goods and services, this is not controversial. That is how a market economy works — if you buy a handphone, you pay the asking price for whichever brand and model you want. If you need a haircut or a home renovation, you choose a service provider and pay the going price. Even with services by government agencies, for example, the issue of passports or licenses, people generally accept having to pay for the cost of the service.

Where the use of pricing is more argued over is when the scarcity of the resource results from government action. The government may have deliberately limited its supply for some policy reason, as we do with entry to casinos or Certificates of Entitlement (COEs) for cars. This can also happen when the scarce resource is a basic necessity, such as potable water. In such cases, an argument can be made to allocate these resources administratively to those whose needs are most meritorious, instead of through the price mechanism.

Yet even in these situations, often the cleanest, fairest way to allocate the resource is to just price it. The resource then goes to those who really value it the most and not just those who merely say so. We avoid the need to make subjective judgments and elaborate rules on who is more deserving than whom. We also avoid having to police a gray or black secondary market trading the resource. The revealed preferences of consumers will generate the correct price signals to guide production and consumption and enable us to make the most productive use of the resource.

There are limits to this principle, but it is a very good first cut. We have used it in many areas, even some unexpected ones.

3.1. Casino Entry Levy

For example, when we allowed Integrated Resorts (IRs) in Singapore in 2010, which would include casinos among their offerings, our goal was to boost tourism and spur the economy.

Foreigners would naturally enjoy free access to the casinos. But what about Singapore residents?

We did not want to completely ban residents from the casinos. Some local clientele was important for creating the right atmosphere and buzz. Also, residents already had ready access to gambling, for example, in nearby countries or on ships cruising to nowhere.

Casinos located right in the middle of the city would create a more convenient way to gamble, but would not present a radically different risk. Still, we did not want the casinos to give a big boost to gambling locally and worsen problem gambling among the population.

Hence, we decided to restrict the number of residents visiting the casinos. This made casino entry a scarce resource. The question was how to allocate it: who should be allowed entry, who should be excluded and how?

A few cases for exclusion were clear-cut: those on government financial assistance or legal aid; people living in HDB rental flats; undischarged bankrupts; and individuals whose families had obtained exclusion orders against them or who had excluded themselves.

But beyond these groups, there was a long tail of other plausible archetypes to exclude: parents with young children (how young?); low income (how low?); ex-convicts (what type of crimes?).We would have had endless arguments on whether it was fair or necessary to exclude a particular group by fiat and where to draw the line.

We adopted a simple solution: just price it. We explicitly excluded only the few obvious groups. Beyond that, we imposed a Casino Entry Levy on residents, collected by the Government, to discourage but not prevent people from visiting casinos. This avoided arbitrary judgments on who was more vulnerable to problem gambling and who was more “deserving” of the right to visit casinos. At the same time, it effectively limited the number of residents visiting the casinos.

Pricing casino entry has worked well. The IRs are thriving, generating many jobs and significant economic activity. Residents can and do visit the casinos, but there has been no flood. 90% of casino patrons are tourists (Parliament of Singapore, 2025). The problem gambling rate among residents has remained low and stable at 1% (National Council on Problem Gambling, 2024).

We were probably the first country in the world to adopt this unconventional solution.

Now, Vietnam, Japan, Philippines and the European Union are considering doing the same.

3.2. Certificates of Entitlement

Another area where the Government has deliberately imposed scarcity to achieve a policy objective is vehicle ownership.

Road space in a city-state is inherently scarce. Traffic congestion is a chronic problem.

To keep traffic free-flowing, we decided to directly control the size of the vehicle population through a quota scheme. To buy or own a vehicle, a person or business would need to obtain a Certificate of Entitlement (COE), which is a permit conferring the right to own a vehicle for a fixed number of years.

Once the vehicle population was limited this way, the right to own a vehicle became a scarce and valuable resource. Then the question was: who should get a COE?

One can argue that this scarce resource should be allocated based on an assessment of one’s needs. For example, some people need a motorcycle or car for work, others need a car to ferry young children, elderly parents or disabled family members and companies need vehicles to conduct their business.

The problem is that there are many different needs, each important to that individual. It is very hard for the Government to decide which should warrant special consideration — such decisions are inherently subjective. Further, there is no guarantee that once the right to own a vehicle is allocated to someone who supposedly needs it urgently, he will not on-sell the valuable asset in order to buy something else he in fact needs more.

So we decided to allocate COEs through an auction. This way, the scarce resource goes to those who derive the most value out of it — because they are the ones most willing and able to pay for it, while the Government collects the scarcity value created because the number of COEs issued is limited. This approach also “internalizes the externality”, as economists say, because each additional vehicle on the road increases congestion and imposes additional delays and costs on all other road users, and the COE makes the owner of the additional vehicle bear this cost financially.

This idea traces back to Dr. Goh Keng Swee, who first suggested it in 1972 (Goh, 1972b, p. 480), years before we introduced the COE scheme in 1990. The scheme as implemented has a more complicated design than this simple concept, mainly to make it more politically palatable without undermining its economic logic. But the core idea remains sound and the scheme has kept our traffic free-flowing and prevented the gridlock that plagues many major cities.

3.3. Water

Potable water supplied by the Public Utilities Board (PUB) is an interesting case for different reasons.

It is essential for life — a basic necessity that nobody can live without. At the same time, in Singapore, water is a scarce resource and a strategic and security concern. The cheaper sources — from Johor and our local reservoirs — are already at their capacity limits. Additional supplies have to come from recycling used water (NEWater) or desalination, which are significantly dearer. This creates an upward-sloping supply curve, with the Long-Run Marginal Cost (LRMC) of producing water much higher than the average cost of production. That makes conserving water a national priority.

How should we allocate such a resource?

One way is to tier prices by volume consumed. Set a low price for a basic quantum of water per household, which we treat as its entitlement to a basic necessity. Then charge higher tariffs for consumption beyond this amount to discourage excessive usage. This was what PUB did for many years.

However, determining what the basic quantum should be is subjective and arbitrary. Not all households will need this full entitlement, while some will need more. For most other essentials of life, such as food or clothing, we do not decide how much each household needs. People buy whatever food or clothing they need and are willing to pay for. Second, most households can afford to pay the full price for water; there is no need to offer them a concession price. So, tiered tariffs incur a significant deadweight revenue loss. Third, the water price should incentivize users to conserve water from the first drop, instead of only after a certain amount has been consumed. Tiered tariffs do not achieve this.

Hence, from an economic point of view, the correct approach is to set a flat water price, equal not to the average cost of production but to the full LRMC, which is higher. We then charge all users this same price starting from the first drop they consume, with no tiering of prices.

This will reflect the actual scarcity value of water and create the right financial incentive for all households and businesses to save water however much or little they consume. This also ensures that additional investments to increase the supply of water (through NEWater or desalination) are financially viable and make economic sense.

This is how we price water in Singapore. The water tariff (paid to PUB) reflects the average cost of production to PUB, including the cost of capital. On top of that, users pay a Water Conservation Tax (to the Government), bringing the total price up to the LRMC.

PUB switched to this approach in 1997. It meant tripling water prices within two years.

To make it work politically, we coupled the price increase with a scheme of utilities rebates called U-Save, which provided targeted financial assistance to lower-income households.

U-Save was an integral part of the LRMC pricing policy and was critical to its success.

U-Save is designed to be cash-like. The rebates are credited to the utility bills of households. They can be used to pay not just for water, but also for electricity and other utilities. The quantum depends on the housing type, a proxy for the household’s income, with smaller flats getting larger rebates. But it is independent of the amount of water or electricity actually consumed. If not immediately used up, the balance can be rolled over to the next billing period. Hence, unlike a discounted price of water or electricity, U-Save does not incentivize households to use more water than necessary or to leave their lights on, just to enjoy its benefit.

Overall, this approach has ensured that lower-to-middle-income households are still able to afford this essential good, without distorting the economic incentives around production and consumption of water, which should apply to all.

3.4. Is pricing fair?

One criticism of allocating scarce resources through price is that this is unfair.

It is argued that the affluent always have an advantage, since they are more able and willing to pay for these resources. But this is true not just of casino entry, COEs or water, but of all goods and services bought and sold in a market economy. Yet most governments do not, for the vast majority of goods and services, intervene to replace the free market with a merit- or needs-based approach. This is for good reason. The Communist ideal — from each according to his ability and to each according to his needs — is contrary to human nature and has never worked in practice.

Complete equality of income or wealth is impossible and even not desirable in human societies, though extreme inequality can be a serious problem.

But the way to reduce inequality is not through individual non-price schemes, which administratively allocate each scarce resource to those considered most deserving.

Rather, it is to implement a progressive system of taxation and income transfers and to use the revenues to provide high-quality public goods for all. Better-off households will pay much more in taxes than they receive in government services and benefits, while lower-income households will receive much more from the government than the taxes they pay.

If pricing a particular scarce resource will unduly impact poorer households, the solution is to create more affordable alternatives or provide targeted financial assistance to those who need it.

Thus, while we allocate COEs through an auction, we also offer good alternatives to owning a car: an efficient public transport system and a competitive private hire car and taxi industry. While we charge properly for the scarcity value of water, we also give U-Save rebates to households that need financial help. (There is no need for schemes to help those who cannot afford the Casino Entry Levy.) This way, we preserve the price signals and incentives to guide the production and consumption of each scarce resource or product, keep policies simple and clean and target our assistance more accurately and effectively.

4. When Providing Assistance, Cash or Cash-Like is Better

Helping households cope with higher water prices through U-Save rebates illustrates another basic economic principle: when providing assistance, cash or a cash-like voucher is better than price discounts or assistance-in-kind. Beneficiaries can use the cash or voucher to purchase what they actually value and want to consume, instead of having their needs and entitlements defined for them. This way, we avoid distorting economic incentives and respect the preferences and autonomy of the beneficiaries.

Between cash and cash-like, in theory, cash is the superior choice, because it gives beneficiaries full flexibility to spend on whatever they need most, while costing the government no more than a voucher.

But in practice, cash-like is often better, as with U-Save. This is because a voucher is more mentally salient and retains the psychological link with the purpose of the assistance, especially if the beneficiaries must consciously do something to use the voucher, for example, by clicking in an app. Whereas cash will be co-mingled with the beneficiaries’ other money, making it harder for them to make the connection. They may not remember or even realize that they have received the assistance, especially if it is credited automatically and silently into their bank accounts.

We have applied this principle to other forms of assistance too.

4.1. Goods and Services Tax Vouchers

Goods and Services Tax (GST) Vouchers are a type of government assistance to lower-income households to offset the GST, a consumption tax. The vouchers comprise cash, MediSave top-ups, U-Save rebates and Service and Conservancy Charges rebates.

When we introduced the GST in 1994, we designed it to have a single flat rate of tax, but paired it with GST Vouchers and other measures to lighten its burden on lower-income households. We distributed GST Vouchers again each time the GST rate was subsequently increased. First implemented as a one-off, transient measure, it has since become a permanent scheme.

The alternative approach would have been to implement multiple GST rates, with lower or even zero rates for essential goods and services. Many countries with a GST or value-added tax have done this, because politically it is an easier sell.

But this approach is more expensive and less effective. Most of the tax revenue forgone does not benefit lower-income households, because higher-income households spend more on “essential” goods and services like food and clothing, and are therefore the ones who actually benefit the most from reduced taxes on these items.

Also, with multiple tax rates, the government cannot avoid making arbitrary distinctions and pursuing unproductive litigation as to exactly which goods and services should qualify for a lower rate. If apples and oranges are “essential” fruits (zero-rated), why not avocados (taxed)? Is sushi raw (zero-rated) or cooked (taxed) food? Should an exotic nightclub show (taxed) qualify as performance art (zero-rated)? These are absurd but actual examples.

A single GST tax rate, combined with cash and cash-like transfers, is a far more efficient and effective way to help lower-income households.

4.2. Community Development Council Vouchers

Community Development Council (CDC) Vouchers are another type of cash-like assistance that the Government has provided households to help them with the cost of living.

They can be spent at heartland shops and hawker centers or at supermarkets, but beyond that, we do not prescribe what households can use them for.

These vouchers have proven to be a very popular form of government support.

We regularly receive requests to extend the use of CDC Vouchers to other areas from both individuals and businesses and even requests to replace them with cash grants, but we have not done so. The current range of uses is sufficiently broad for households to spend the vouchers only on things they would have purchased anyway, while being focused enough on groceries and daily necessities to keep a clear link to their cost of living. If the Government distributed cash instead, this link would be lost.

4.3. Community assistance

Community assistance schemes often adopt such an approach too.

In my own constituency, during festive occasions, we used to present hampers to needy households. The hampers included mostly food items like rice, cooking oil and milk powder, things that we thought the beneficiaries would find useful.

But we later realized that not all needy households necessarily needed or valued the same items.

So we decided instead to bring the beneficiaries on shopping trips to the supermarket, give them a budget and help them pay for their selections (alcohol and tobacco excluded) with shopping vouchers.

We discovered that residents far preferred this. They could choose what they really needed and appreciated our gesture far more. An unsentimental economist would say that the deadweight loss of the gift was greatly reduced (Waldfogel, 1993).

We also observed a few residents using some of their vouchers to purchase more expensive items like abalone or bird’s nest, as a small festive treat for themselves. I felt moved and happy for them. We could not have made such choices on their behalf. But they used our gesture of help to obtain something they truly valued and needed. I was glad we had given them the agency to exercise this choice and add some sparkle to their lives.

5. Conclusion

The Singapore Government intervenes heavily to achieve major public policy objectives.

But it also recognizes economic realities and has relied on market forces more than other countries, sometimes in unconventional ways, to achieve social and economic objectives.

This does not mean that only economic considerations matter. Nor should they always take precedence. Governments must balance them against other considerations such as political acceptance, social norms or intangible objectives. For example, National Day Parade tickets are in great demand, but we do not auction them to the highest bidder.

Kidneys for transplantation are scarce too, but we have not legalized trading in human organs. In these two cases, nation-building and ethical qualms trump economic logic.

However, in my experience, the more common problem is governments paying insufficient attention to economic principles and market forces when designing and implementing policies. Only occasionally is the problem the opposite — governments taking too purist an approach in applying economic logic, to the detriment of wider objectives.

This essay does not present any breakthrough in economic theory. Rather, it describes, from a practitioner’s view, how Singapore has applied microeconomic principles to real world situations. In particular, we have found three rules-of-thumb useful: (i) when designing and implementing policies, use economic principles and market forces; (ii) when allocating a scarce resource, just price it; and (iii) when providing assistance to beneficiaries, cash or cash-like is better.

Because Singapore has done this systematically and extensively, we run a smaller government than most. The outcome, whether in terms of growth, equity, social stability or quality of public services, confirms that this is a viable way to achieve not only the economic, but also the social and political goals of the nation.

References

Goh, KS (1972a). Town and gown. In The Essays and Speeches of Goh Keng Swee: The Practise of Economic Growth (1977), KS Goh (ed.), p. 456. Marshall Cavendish International.

Goh, KS (1972b). Zero growth rate for private motor vehicles. In The Essays and Speeches of Goh Keng Swee: The Practise of Economic Growth (1977), KS Goh (ed.), pp. 480–492. Marshall Cavendish International.

National Council on Problem Gambling (2024). Report on survey on participation in gambling activities among Singapore residents, 2023.

Parliament of Singapore (2025). Singapore Parliamentary Debates, Vol. 96, Issue or Sitting No. 10, 5 November 2025, Written answer to question section, Question No. 16, 15th Parliament, First Session, sprs.parl.gov.sg/search/#/sprs3topic?reportid=written-answer-20981%23.

Smith, A (1776). An Inquiry into the Nature and Causes of the Wealth of Nations. Strahan.

Waldfogel, J (1993). The deadweight loss of Christmas. The American Economic Review, 83(5), 1328–1336.

* This is an Invited Discussion Policy Paper.

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