Speech by PM Lee Hsien Loong in Parliament on 27 May 2009

Mr Deputy Speaker, Sir, we usually prorogue and re-open Parliament midway through the term of a government. It gives us a chance to set the direction for the remainder of the term of office of the Government and to give MPs a chance to discuss important issues of the day. But this time, this prorogation and re-opening is far from a routine mid-course correction. We are proroguing in the middle of a major global crisis, which is drastically affecting Singapore.

The impact on the world economy will last for a long time, beyond the downturn and the immediate recovery. There will be major changes to global markets. There will be major changes to the business climate worldwide. But at the same time, there will be new opportunities for countries and companies, which are fast off their marks into this new world. It may be a "Grave New World" for now, as one MP said earlier, but it will be a “Brave New World” after that.

Therefore, we have to set the direction for Singapore at least for the next decade. The President's speech covered the issues comprehensively. I do not intend to dwell on all of the subjects there. I will focus on just two of them: first, the long term economic transformation of our Singapore economy, and second, how we intend to evolve our political system.

The immediate measures to tackle the crisis have been taken, announced, debated, and settled. We have SPUR - the training programme for workers. We have the Resilience Package, which contains in particular the Jobs Credit and the Special Risk-sharing Initiative as key measures. These were the major parts of the Budget which took place in January this year. We obtained the President's approval to draw on past reserves and the House has fully debated and accepted these measures, which are now well in process of being implemented. But despite these measures, there is no getting away from the fact that this is going to be a very difficult year. Our latest growth projections are between minus 6% and minus 9%. Usually, we are used to seeing these numbers without minus signs in front of them. But this is not a joke, it is for real. It is not just Singapore but all countries that have been hit. Even large economies with big domestic markets -Germany, Japan - are expected to decline significantly this year. And even the most vibrant economies in the world - China, India - they too have seen a sharp slowdown, but will still have positive growth.

So it is obvious now, if it was not already obvious in January, that we were right to mount a decisive response in the Budget with all the resources at our disposal then, rather than to wait to see how the battle unfolded and gradually dribble in our resources bit by bit.

We have not won the war yet but we have succeeded in moderating the rise in unemployment. In the first quarter, our GDP shrank sharply, by 10%. But our unemployment rose only moderately, from 2.5% in the fourth quarter of last year to 3.2% in the first quarter of this year, much less than other countries and at the same time much less than the shrinkage in our GDP. It is something to feel relieved about but it is also something to give pause and to worry about. Because if you think about it, our output has gone down by 10%, which is way down, our unemployment has not gone down by much. That means each worker is doing 10% less work. That means employers are still holding on to the workers for now because of SPUR, because of Jobs Credit, because of flexi-work and flexi-wage arrangements, and because they hope that if they grit their teeth and see through this sharp downturn, the business will come back and there will be work for workers and the workers will be there.

We hope that our firms will receive new orders soon and, if so, the decision to hold on to these workers through the downturn will pay off. So far, there are orders but most of the orders coming in will only see their companies through to the middle of the year and no company can tell what the third and the fourth quarters this year are going to be like. I asked the EDB, they are not sure. I asked MTI, they cannot predict. I asked the unions, who usually have their ears close to the ground, and they are equally anxious. So we are not certain that the demand which we are seeing now, with some companies doing some overtime with workers, even a little bit of hiring here and there, is sustainable. If the orders do not come, then the companies have to let more workers go. Because they cannot sustain short-time and job-sharing indefinitely.

Workers have to have work. You cannot have workers who are regularly off one day of the workweek, who are on short-time, or who are in the office with nothing to do. Eventually, if this situation persists, the companies have to right-size and the workers have to re-deploy into new businesses which have orders, which have better prospects and where they can become fully productive again. That is from the company's point of view. From the economy's point of view, from the Government's point of view, if we are in that situation, we have to let the companies restructure, we have to let the resources shift from the businesses which are shrinking to the businesses which are growing and gear up for the changed new world, rather than wait in vain for the old businesses to come back.

We cannot prevent this from happening. We have to see how it unfolds but what we can do and what we have done is to have measures to save jobs in the time being, to buy time for us to make this transition. In this way, we can massage the problem away and the workers do not have to endure too much dislocation, unemployment and pain in the process. We are watching the situation very closely. All the economic agencies are alert and engaged and, if we need to, we have the resources and the will to do more.

To overcome crisis, you have to be good at crisis management, but it is not good enough to excel at crisis management. We also have to be able to strengthen ourselves during normal times and build up so that when problems come, we meet the problems in a strong position. Otherwise, we will be champion crisis managers but we will be chasing our tails without end. Therefore, we must have a sound long-term strategy for growth and development.

We have regularly reviewed and updated our longer term policies to meet changing circumstances. In fact, each time we have had a major downturn, we have had a major review. We did it in 1985, when we had Economic Committee. That was for those of you who remember, a very severe recession after more than a decade of sharp growth. We did it again in 1997, during the Asian crisis, and after 9-11 in 2001 we formed the Economic Review Committee which made many wide-ranging recommendations, most of which have been implemented. And since the Economic Review Committee, we have continued to make major policy changes over last few years.

I just cite you a few. We restructured Government revenues, cut the corporate tax progressively from 25% to 17%, raised the GST to 7%, and amended the Constitution to put in place a new framework for spending from investment returns so that we can achieve a better balance between saving for a rainy day and investing now for our future.

We invested heavily in education. We recruited and trained more teachers, which is close to the hearts of many MPs. We strengthened and re-organised our ITE into three new colleges. We built a fifth polytechnic - Republic Polytechnic. And now we are setting up two new institutions, just announced in the Addenda to the President's Address last week – Singapore Institute for Applied Technology, to open up more direct routes for polytechnic graduates to acquire degrees, and we are setting up a new public-funded university, teaming up with MIT in America and with a leading university in China. These are major initiatives.

We are developing new industries in Singapore. In high-tech, we have biomedical sciences, interactive and digital media, clean technologies, R&D beginning to take off. We are developing services industries. Financial services now hit but still with considerably potential. High-end tourism - the IRs are coming up and what EDB calls "HQ and Control Tower" activities. I know what HQs are. I asked them what "control towers" are, and they said, "Well, the command function is here. It is overseeing production in the region and managing the supply chain in the region." The production, the logistics, the financing all in different locations controlled from Singapore. We are into the "Control Tower" business.

We are getting companies from new geographies, not just Americans, Europeans or Japanese, but companies from China and India setting up in Singapore. To complement economic growth, we are also strengthening our social safety nets. We have created ComCare, which has been a life-saver for many families and a very valuable tool for many grassroots advisors. We have the Workfare Income Supplement to help boost the incomes of those at the lowest end of the totem pole. We have improved our CPF system, raised the interest on CPF accounts, particularly for those who have less than $60,000, and introduced CPF Life to make sure you are looked after into your old age. We have avoided western-style welfare but still ensured that every Singaporean who makes the effort to look after himself will get help and will be looked after, and will not be left alone.

These measures have seen us through good times and bad. In good times, they have enabled our GDP to grow strongly, 7% - 8% per year, created many skilled jobs for skilled workers as well as for PMETs, raised incomes for households so that the median resident household income has gone up from $3,600 in 2003 after the previous crisis, to almost $5,000 last year. So in good times, the policies have worked. In bad times, the policies have stood us in good stead. We have a restructured economy, which is efficient and competitive. We have accumulated resources to help fund counter-recessionary measures without borrowing. We have a good reputation to attract good partners and projects and we have got the ability and the organisation and all the plans to continue building even in a downturn. And that is how Singapore has weathered successive crises, and steadily developed and prospered.

After this crisis, the world is not going to be the same again. This is not just another cyclical downturn and recovery. The world's economy is undergoing a structural shift. We do not know what will come out but we can see some of the outlines to come. The developed countries will have slower growth for quite some time. The financial sector is likely to have much more stringent regulations, as governments would be much more intrusive, cautious, risk averse. Businesses will have industries which have excess capacity which will now be consolidating. Their customers will have access to less credit, which means there will be less demand, less need for new capacity, less new investments. Governments all over the world will play a larger role in their economies. The visible hand will be more visible and more reluctant to leave it to the invisible hand. The governments would be more interventionist, more redistributive. I think the result will be less vibrancy, less dynamism, slower growth, but hopefully less likelihood of a repeat disaster.

In Asia, we expect the Asian economies to develop faster than the OECD. China is shifting to boost its domestic demand to drive growth. India just had a general election, a decisive victory by the Congress Party and its coalition partners. We hope this will help it to push faster towards further economic reforms, but we shall see. With rising affluence and rapid urbanisation, Asia will offer new opportunities for growth. But taken as a whole, Asia does not have the weight, the heft, the size to make up for the slowdown in the OECD countries and so overall I think we are headed for a slower period.

It is not just faster or slower growth. I think there is also a change in attitudes worldwide. People have seen this major crisis and the subsequent economic troubles and in the West, many voters have turned against globalisation and become negative on international trade and investments. In America, for example, which is one of the most open of the developed economies, the mood has become nationalist. In fact, it is nationalistic and anti-trade. When the American government had a stimulus package, they put in "Buy American" rules into the package. When the American government helped their banks with funds and capital, they put in a rule "No foreign hires". It was not helpful because then the banks are deprived of the talent they need to solve their problems and they got around it by having their foreign subsidiaries hire their foreigners. But, politically, it was necessary. And recently, the American government has announced a proposal to make American MNCs pay tax on their off-shore income. When the President announced it, President Obama vowed to make the US tax code 'more fair'. He said, “We will be finally ending tax breaks for corporations to ship our jobs overseas”. So it is emotional, rousing political language, completely understandable in this situation but the effect will be less support for trade, less support for globalisation, less opportunities to grow and prosper together.

It is happening in Europe too, where we have seen angry agitation against immigration and foreign workers. On May Day, we had a rally and we celebrated at NTUC Downtown East. I went back and watched TV, and saw that everybody else had demonstrations and riots, in Asia as well as in Europe. These are real sentiments which will have real implications. The protectionist moves will affect us because our economy depends so much on free flow of goods and services, on capital and talent.

There will be political impact from the economic crisis too. There is deep anger against those who are perceived to have caused this problem, to have led the countries into this mess, to have fed at the trough, to use the vivid language which is being used now against bankers, against those who prospered and got rich during the good times. AIG, the biggest triple-A insurance company in the world had gone bankrupt. It received government assistance by the billions, and paid bonuses to some of its people, causing an overwhelming public reaction, even though the people who received the bonuses were not the ones who caused the company to go bust, but the ones who are helping to sort out the company and get it back on its feet. But the mood was such the anger was palpable.

So governments are under pressure. In France, you have seen strikes and demonstrations. In Iceland, the government has fallen, replaced by a new government. In Hungary, the government has also fallen. It is now a caretaker government, waiting for elections. As countries come under political pressure, relations between countries are also likely to be affected. Trade disputes can widen into broader frictions in their relationships. The Chinese are very worried about this. Their leaders are writing Op-Eds (Opinion Editorials) in Western newspapers - you see them in the Herald Tribune, the Washington Post and the Wall Street Journal. Senior Chinese leaders, like the Deputy Prime Minister, sometimes the Premier himself, writing Op-Eds extolling the virtues of free trade, encouraging countries to work together and to cooperate to keep their doors open. It is unimaginable a decade ago, or even five years ago, but now they are deeply worried that their relations withAmerica will turn sour and that will sour up not just the trade relationship but the whole global strategic situation. So far, the major economies are emphasising their need for cooperation. They are saying the right things. But what they are being forced to do is another matter. So we will have to watch what they do and not just listen to what they say.

In Southeast Asia, relations between the ASEAN countries are still good. We know that many of the members have domestic preoccupations. We were supposed to have a meeting in Pattaya a month ago. It had to be called off and dispersed because there were demonstrations and we could not hold our meeting. So understandably with these preoccupations, ASEAN cooperation has slowed down. And it will become more challenging to implement the ASEAN Charter and the ASEAN Economic Community by 2015, which is our objective. But, nevertheless, we will have to try because we have to work together with our neighbours to make the best of a difficult situation.

In this more difficult and uncertain outlook, there are opportunities for Singapore. The Asian growth story is intact and the main plot for us going forward. We are small which makes us vulnerable to external changes, but at the same time it enables us to focus on doing well in niche areas. We do not have to be good across-the-board. We can do well in specific areas where we can excel and take advantage of the bright spots to build new businesses for ourselves. And even in this downturn, we are not doing badly in some of these areas. I will give Members a few examples. One is in the manufacture of oil-rigs. We do not have oil, we do not have major oil companies, but we manufacture oil-rigs and we are the world leaders with 70% market share, thanks to Keppel and SembCorp. We drink Milo, it contains malt extract. One third of Nestle's malt extract for the whole world is made in Singapore, somewhere in Tuas. Foreign law firms servicing Southeast Asia, nine out of 10 situated themselves in Singapore. So if you go for targeted niche areas, we can really excel and we can make a living for ourselves by accumulating many such niche areas.

At the broadest level, our approach to economic development and growth remains valid. We have to stay open to trade and global competition. We have to be present all over Asia, and linked up with the world. We have to upgrade our skills, build new capabilities and keep our lead. And we have to encourage our people to be self-reliant and enterprising, rather than dependent on state support and welfare.

But while the broad strategy is valid, which MPs have acknowledged (even Mr Low Thia Khiang when he spoke on Monday, which I thank him for) we need to review our specific strategies to develop the different sectors of our economy. Relook at the potential. Find new ways to attract investments. Implement policies to keep growing faster than other developed countries can and to give Singaporeans good jobs. And as the President said in his Address, come out with "fresh thinking and creative answers".

I think we should study five specific strategies. Let me just run through them and give Members an idea of what are the issues which we are thinking about.

First, how can we seize growth opportunities? Because without growth, there is nothing to distribute, and no prosperity to share. But if we are creative and spry, there are still ways to prosper. I mentioned some of the niche opportunities just now, and we should pursue more of them. For example, manufacturing aerospace components, which is very high technology, needs precision, absolute reliability and quality assurance, and cost is less of a consideration. If we can do that, then aerospace companies looking for a place to establish themselves in Asia, will find Singapore is a good place to do that. We can develop new markets in emerging economies. The developed countries may be down, but emerging economies are still expanding and growing new business. For example, we have many projects in the Gulf which is still investing in infrastructure, and, I think, we can look for more projects and win more projects there with the capabilities, the reach and the track record which we are progressively building up.

We can make the most of Singapore's unique strengths and experience. For example, using our urban planning and development capabilities to help fast-growing cities in Asia. You have seen Suzhou Industrial Park celebrating its 15th anniversary this year. The Minister Mentor is there and is coming back this evening, which is why he is not here; Mr Wong Kan Seng came back early. They signed two additional agreements for the Suzhou Industrial Park to develop new projects in Jiangsu. Nantong is one, and another is a new town to be developed in Nanjing ;city, on an island. It is our reputation, our ability to deliver, our reliability which are creating these new opportunities overseas. At the same time, we look closer home and we maximise our win-win cooperation with our neighbours. Closest, of course, is just across the Causeway, the Iskandar Malaysia project. I had a good discussion with Prime Minister Najib Razak last week and he is keen to develop our relationship and take it forward, and have a forward-looking, constructive relationship between Malaysia and Singapore. I told him I fully agree with this approach and we must try to work together in these difficult times.

So the first key question is, how can we find new opportunities to grow? The second question is, how do we strengthen our corporate capabilities, make our companies stronger, able to do more things? We need not just MNCs, but also local companies, not just big companies, but also small ones, start-ups as well as mid-sized companies and established global names, so that we will have a diversified and resilient corporate landscape. We have got many of the big global companies in Singapore ;- Exxon, Shell, Motorola, Hewlett Packard, Sumitomo, and Thomson. We need to attract the next tier of global companies after the Fortune 500 - slightly smaller, but by Singapore standards still large. They are not quite so familiar with Asia, so they can invest here because they are comfortable with our business environment and they see this as a good base to expand in Asia. The Germans have a very powerful small and medium enterprise sector. They call it the Mittelstand - actually not so small by our standards, and very capable. We have been courting them for many years and some of them are here. We have a German centre where they can start up, begin to get their feet on the ground, before they have their own premises.

We have other European companies which are in this class and are setting up here, like Berg Propulsion, which is a Swedish manufacturer of marine propellers and thrusters. So we should look for not quite so large, but still valuable global companies. We should look for Asian companies. Asian multinationals are internationalising. Chinese multinationals are going worldwide. The Indian multinationals are also going worldwide. Can we be the global HQ for such companies which are going overseas and want to have a place to set up overseas?

There is one example which is Focus Media, China's leading provider of advertising platforms. They are here and more can come because many of them are going out into the world. Singapore is at once familiar with them and at the same time, operates by western and international business norms, so they can learn how to work in an international environment.

Of course, we also want to nurture our own companies and make them globally competitive in time. So how do we grow our local companies and make them internationalised? Many MPs have spoken about this and, in fact, the Government wants to help these companies grow. We are trying many ways to do this, we are willing to do more, and we will study this further. But I would like to say that there is no simple answer to this question, and I do not believe this can be done simply by the Government pouring money in or - one of the favourite quick proposals - setting up "Temasek II".

The critical factor is not the availability of money or capital. The critical thing is that we need to build an entire enterprise ecosystem. A whole environment where we can attract talent and develop entrepreneurship, so that people with bright ideas, passion and drive, and the organisational abilities to take a spark; to a brainwave; to a startup; to a company; to a Initial Public Offer (IPO) and then to - we hope - a fortune, and roaring success. They need entrepreneurship, they need professional management, they need to invest in technology and they need to develop distinctive brands. It is not an easy thing to do. I thought I should explain this because otherwise we may go back thinking that the new slogan is a new policy. But it is something which we will study and work at.

Thirdly, besides growing our companies and their capabilities, we have to develop the capabilities of our people; grow our human and knowledge capital. Our future lies in being a leading global city for talent - our own talent, as well as top talent from around the world. How do we make Singapore an exceptional place inAsia? It is a chicken-and-egg problem. If we can get talent, we can shine, but we must be a first-class place for talent to want to come. And we have to encourage talent to come here, to work here and to take root here. We have to encourage Singaporeans to welcome them and help them integrate into our society. I think it will happen. If you walk around our shopping centres, take a ride on the MRT or go downtown in the evenings, you will hear not just Singapore voices and Singlish, but many accents and many voices. And I think that is good because that is the way we will become cosmopolitan, vibrant, and prosperous.

I was in VivoCity last weekend to have lunch. I met somebody with two kids, and he said, "Hello" to me. I said, "Where are you from?" He is an American, and his kids are in two Singapore schools. Good schools, butSingapore schools and not the American schools. One of them is a Special Assistance Plan (SAP) school, so I asked the daughter, "Ni hui jiang hua yu ma?" She looked doubtfully at me, but she can speak Mandarin. One child was born in Australia and the other child was born in Singapore, and he is working in Singapore and mixing with the Singapore crowd.

That is just one - there are many more and I think that is the future for us if we want to become a global city. If we say, "Foreigners out, Singaporeans first and only", we have a problem. We have to say, "Foreigners come; Singaporeans first; but we are going to make this place prosper with all the help we can get", then we will have a bright future. Of course, when we talk about knowledge and talent, we are also making a big investment in our research and development (R & D) programme. It has been five years since we started the programme, I think it is time for a review. It is starting to yield results and we have made good progress. The question now is: how can we take it to the next level, and expand the economic pay-off from R & D?

The fourth question we should consider is: how to create good and high-value jobs for Singaporeans? Growth is important but growth is for the purpose of improving the lives of Singaporeans - not just a few at the top, but many across the board. Improving their lives through good jobs and rising incomes. How do we achieve this? We have to attract industries that will require skilled workers and technicians, as well as professionals and managers so that our polytechnic graduates, ITE graduates, skilled workers, technicians and diploma holders will have their skills in demand and can find jobs which will pay them well and have their lives improved. We must have companies upgrading their workforce, raising productivity and creating high value jobs. We must have Singaporeans acquiring skills that are in demand through good education and upgrading opportunities like the new university and the new Singapore Institute of Applied Technology. And of course we need continuing education and training. All the good work which Employment and Employability Institute (e2i), National Trades Union Congress (NTUC) and the Workforce Development Agency (WDA) are doing.

Finally, we have to ask ourselves how can we deploy our resources to maximum effect. Singapore is a small population, land is finite, and our resources are finite. How do we get the maximum value and bang for the buck? Land, for example, is 700 square kilometres and every plot planned and "choped" for something significant in our Masterplan. If you fly over Singapore on a sunny day, without clouds, it looks like a beautiful tapestry. If you have not got the chance, go to Google Earth, zoom in and you can see every building, every road and almost every ERP gantry, but nothing is left to chance and nothing is left over. Now, in that situation, what do we do? We need to expand. We can reclaim land. Yes, we are reclaiming land but reclaiming land does not stretch our international boundaries. And the more land we reclaim, the less ocean space we will have. And PSA reminds us that we need sea space for the port, anchorages and navigation lanes, so there is a limit to how far we can reclaim. So what can we do?

We have to make judicious trade-offs - recover land from less productive and declining industries, make space for new industries which are bringing in better jobs. We have to make difficult decisions - the port is 30 plus million TEUs (Twenty-Foot Equivalent Unit) per year. If we are going to make a 60 million TEU port, we need twice as much land. Can we afford that? What do we have to give up to do that? It may mean fewer factories, less housing and less training areas for the SAF. Nothing is for free, there is always a trade-off. But I think we should try to relax this trade-off as much as possible. Think of creative ways to expand supply of space, if not of land. Can we go down and use underground space? We are digging. We have underground storage. We are thinking about underground malls. We have talked about ideas to have a whole underground space under the Padang. It is expensive, but some of it can make economic sense. Can we go upwards? There are limits, partly because of air traffic constraints, because we have airports and air bases and we have to leave enough space. We cannot become like Kowloon in the old days, with aeroplanes making sharp turns to land, because I think it will be too exciting for all our visitors coming to the IRs. But with better air navigation and air traffic control, I think that the limits can be tightened. The limits for the aeroplanes can be tightened. Where the height constraints are because of this reason, they can be relaxed and we can build higher with high-rise development in such areas. These are real issues which we are studying. I think that there is potential. We have not reached the absolute limits yet.

Another area where we have to consider limits is foreign workers. Many MPs have spoken about foreign workers. As Mr Heng Chee How pointed out just now, one-third (about one million) of our workforce are foreign workers. The majority are lower skilled work pass holders. They helped us to grow our economy - building our infrastructure, bolstering our workforce and filling critical gaps. I think in this downturn the number of foreign workers will fall, particularly in manufacturing and services. Maybe not in construction because that is chugging along. But when the economy recovers, demand for foreign workers will grow again. We cannot do without them, but I think we should find ways to reduce our dependence on them because while we can have one million foreign workers in Singapore, I find it hard to imagine that we can have two million foreign workers in Singapore. And, try as we may, we run out of housing units. Therefore, we have to study how we can grow our economy without indefinitely growing our foreign worker numbers and making the best use of the foreign workers who are here to complement our workers so that we get productivity, growth and results.

There is a third area of limits which we now have to think about which did not used to be so critical before, and that is energy. It is an important utility, like water. We take it for granted, we turn on the switch, and it is there. Not so in many parts of the world, especially in Asia. Now the price is not so high but last year, there was a spike because oil prices went up. I expect in the long term, the trend for energy prices will be up because as China and India grow, their demand will grow and that will put pressure on the energy markets worldwide. So the question is: how do we encourage energy conservation to grow more sustainably and to be less affected when energy prices go up from time to time or in the long term?

The Japanese did this well. After the first oil shock in the early 1970s, they were very severely affected. They put their minds to it. They restructured the economy and they kept energy prices quite high for a long time after that. So, by the time there was a second oil shock in the late 1970s, they were less affected. By the 1980s and 1990s, they were one of the most energy-efficient developed countries in the world. We have to learn how to do that. At the same time, we have to diversify our sources of energy for security. We need to become less dependent on piped natural gas, which is from nearby sources, and look for alternatives to piped natural gas, e.g. LNG. We are building an LNG terminal. That is an alternative because once it is LNG, you can buy from around the world - Australia, the Middle East, Trinidad and Tobago, Russia - many possibilities. That is a major step we are taking. What do we need to do beyond that? Do we need to develop other sources of energy?

We also have to consider climate change. This, I think for many Members, is a new subject. The younger Members have focused on it. They have green issues on their minds, which is right. There is a global deal currently being negotiated under the UN Framework Convention for Climate Change. Singapore must do our part in any global deal because it will be expected of us and we have to do this. That means that there will have to be adjustments and improvements in our energy efficiency. It will mean costs for our economy and we have to prepare for a carbon-constrained world. So these are finite limits which we have to study - how can we push the limits and do our best within them.

I think that these are important enough issues for us to have a major strategic review. We will form an Economic Strategies Committee (ESC) to look into these issues, and Minister Tharman Shanmugaratnam will chair the Committee. We will involve both the public sector as well as the private sector, so as to tap the strengths of both, as Mr Inderjit Singh and several of the other MPs have suggested. We want a broad representation to canvass a spectrum of views. We have found such exercises very useful. I have personally been involved in several of them over the years, including the ERC most recently. We hope that the Committee will be able to develop its main recommendations in time for next year's Budget.

So I am confident that we can develop strategies to pursue global opportunities by enhancing our capabilities and growing our economy, that we can pursue inclusive growth and make the best use of our resources. And that is the way to transform our economy to continue to prosper and to build a first-class home.

Now let me turn to politics. Maintaining growth depends on getting our politics right. We do not possess inSingapore some secret or magic recipe for growth. As Assoc. Prof. Koo Tsai Kee noted just now, individually, we are not necessarily smarter or more hardworking than people in other countries. But as a Singapore team, we outperform many other countries. Why is that? It is because of the trust between the Government and the people. It is because of the close relationship between the tripartite partners. It is because of the strong social cohesion we have forged, all of us working together for a better future for all sectors of our society. And the key underlying factor which makes sure that we can have this trust and we can have the right policies in education, social policies, foreign policies, security and politics, is in fact a good political system - a system which ensures continuity, so that you have consistency from year to year in the direction the country is going; which ensures renewal, so that there is systematic political succession every four or five years, with a new batch of MPs and Ministers entering Parliament and taking over the baton progressively. And we also have renewal in terms of the way the system works, so that it stays abreast of events, is not overwhelmed by a tsunami unexpectedly, and it can produce a long period of stable, competent government, which will develop and implement policies which will work for the country.

Our political system follows the British model of Parliamentary democracy but we have evolved it over time, in response to changing needs and to our own circumstances. I will just cite some of the major changes we have made to our system to show you how far we have come and how different we now are.

In 1963, 40-something years ago, when we joined Malaysia, we amended the Constitution so that when an MP resigns or is expelled from his party, he loses his seat. It has prevented MPs from switching sides in Parliament and it has shielded us from the unstable politics which are so common in other legislatures.

In 1984, we introduced the Non-Constituency MP (NCMP) scheme to ensure a minimum representation of opposition members in Parliament.

Then, in 1988, we introduced the Group Representation Constituencies (GRCs) scheme to guarantee a minimum representation of minorities in Parliament and ensure that we always have a multi-racial Parliament and never have a freak result when suddenly you have Parliament all of one colour or of one faith, and we have a crisis.

Then in 1990, we provided for Nominated MPs (NMPs) to bring more alternative views and constructive dissent into the House.

In 1991, we created the elected President. It does not affect the House but it is a major component of our political system. The President with his second key custodial powers over reserves and key appointments has become crucial to the whole structure.

In 2001, we provided for overseas voting because more and more Singaporeans are now scattered on all the continents of the world. All these changes have kept our system well adapted to our needs and have given our people easy access to the ministers and senior officials in government through their MPs.

But this is always work-in-progress like Singapore. So as the world changes, and as Singapore society continues to evolve, so too must our democratic institutions. We are moving beyond providing for the basic survival needs of citizens. We face more complex policy choices, and we need more creative ideas for social and economic development.

And Singaporeans want national issues to be more fully debated, and they increasingly want to participate in this discussion, which is all to be encouraged. Therefore, we should improve our political system to encourage a wider range of views in Parliament, including opposition and non-government views. Some of the changes we have made to our system over the years have been, in fact, for this purpose, like the NCMP scheme or the NMP scheme. But we should do more. I think there are many benefits to doing this. It will generate more robust debate and improve policy formulation. It will expose PAP MPs to the cut and thrust of the debate, and demonstrate what the opposition can and cannot do. Most importantly, changes like these will keep Parliament in sync with the concerns and aspirations of Singaporeans, and strengthen the role of Parliament as the key democratic institution where important national issues are deliberated and decided.

But we have to make the changes carefully. Our goal is to improve on a system which is already working but can still be improved. We must not jettison the lessons that we have learnt at great cost through our political history and experience over the last half century, as to what really works for Singapore. Nor should we create a system which inadvertently produces weak governments, just to placate those who desire a stronger opposition in Parliament. Singapore has to have a strong and capable government, with a clear mandate from the people and the ability to act decisively to protect and advance our interests. We cannot afford a government that is ineffective, indecisive, or paralysed by internal divisions. We are seeking a system that works well for Singaporeans, and that will deliver good governance, and strong and competent leadership. We are not looking for a system which sounds good in theory, but is unsuited to our conditions and unworkable in practice. This approach, this sort of system, is what marks us as different from many other countries.

Our political system is based on the "first past the post" principle. Westminster is like that. We have kept our system "first past the post" despite making modifications and refinements to it, because it tends to produce decisive majorities and enables the winning party to govern effectively. The alternative to the "first past the post" is a proportional representation (PR) system. This would certainly increase representation of alternate views and opposition parties in Parliament. But PR systems tend to produce weak governments, based on shifting coalitions of different parties. In some countries, this is fine. It has worked for the Scandinavians, the Germans and the Swiss. These are homogeneous societies. The political views are along a spectrum, primarily from centre left to centre right. Different parties are arranged along that spectrum. And depending on the mood in the country, you form a more left coalition or a more right coalition, and then you govern for the next few years. But it does not always work like that. The most extreme example of proportional representation in the world is Israel where any party can get a seat in Parliament provided it collects just 1% of the total vote of the whole electorate. And Israeli politics is much more exciting than Singapore politics. It is characterised by weak coalition governments, with small extremist parties wielding a disproportionate influence on the policy of the government, because the government needs the minority partner. The minority partner only cares about one thing, and you either give me one thing or I force a vote of confidence, and you are out. It happens all the time. In Israel, the negotiations begin after the elections end, because then you decide, argy-bargy, who to form the next coalition; then you test the coalition with a vote of confidence; then you really know you have a Prime Minister and a government.

In Singapore’s specific context of a multi-racial and multi-religious society, situated in a dynamic and unpredictable environment that South East Asia is, proportional representation would ruin us. We need strong national leadership, and cannot afford a system which is going to produce weak coalition governments. That is the first reason PR does not work for us. But I think the most important reason PR does not work for us is this second one, that because we are a multi-racial and multi-religious society, PR will encourage parties to form based on race and religion or, for that matter, based on cause-related issues, to push stridently for the narrow interests of their group, at the expense of other groups, and this would polarise and divide our society. Instead of politics bringing people together, politics will pull people apart and make them clash, andSingapore will fail.

You can have a hybrid system. Mr Siew Kum Hong suggested a hybrid system - a mix of "first past the post" voting, and then you have some proportional representation seats. There are such systems. If you go to Wikipedia and look for "proportional representation", you can see a list of about 30 countries and what sort of PRs they operate. But even hybrid systems have the same tendency as pure PR systems. New Zealand, for example, has a hybrid system. They used to have a "first past the post", but changed to a hybrid system, and now New Zealand regularly has coalition governments. There are two big parties but neither can form a government on its own. They always have to negotiate with the small parties to form a coalition. It is a very interesting business. In the previous coalition government, Labour led by Ms Helen Clark, the coalition was so diverse that they had to have parties in the coalition who really did not support the policies of the government. And Helen Clark had to appoint two Ministers from her coalition partners who were Ministers outside Cabinet. I looked up what "Ministers outside Cabinet” means. It means they are bound by collective responsibility only on the matters in their portfolios. In other words, if I am the Foreign Minister - their Foreign Minister was Mr Winston Peters from the New Zealand First Party, a Maori party - on foreign policy issues, I have to abide by Cabinet decisions and support whatever Cabinet decides. On education, defence, trade, or anything else, I am not bound by what Cabinet decides; I can have my own policy. And he does not sit with the Cabinet on the front bench, he sits near the Cabinet on the cross benches. I think I do not have to elaborate a lot more to explain why we have always rejected proportional representation as being unsuitable for Singapore.

Therefore, it is best for us to refine our present "first-past-the-post" system further to fit the changing needs of our society. I propose three changes to the system - NCMPs, NMPs, GRCs and SMCs.

The NCMP scheme was introduced in 1984. Currently, the Constitution provides for up to six NCMPs. Under the Parliamentary Elections Act, the Act prescribes a minimum of three Opposition members in Parliament, although the President can specify a higher number, up to six, before Nomination Day. So if fewer than three Opposition candidates are returned as elected MPs, then you top up to three from the best losers to make with an additional one, two or three NCMPs so that there will be three Opposition members in the House. The Constitution says there can be up to six NCMPs. The law says there will be at least three Opposition members in Parliament. The President can gazette that it can be six before Nomination Day but so far, that has not been the practice, we have not done it. So, we have at least three Opposition MPs in Parliament. In the last election, Mr Low Thia Khiang was an Opposition MP, Mr Chiam See Tong was an Opposition MP, so there was one additional possibility for NCMP offered to the best loser which was from Aljunied GRC, and it was Ms Sylvia Lim.

The history of the NCMP scheme is quite an interesting one. When it was first introduced in 1984, in that election there were two Opposition MPs elected - Mr J B Jeyaretnam and Mr Chiam See Tong. There was one NCMP who was eligible, Mr M P D Nair of the Workers' Party in Jalan Kayu Constituency. The seat was offered to him but the Workers' Party - Mr J B Jeyaretnam as the Secretary-General - rejected the seat on his behalf. He had to agree because under our laws, if he did not agree and he accepted the seat, the Workers' Party would have expelled him from the party, he would have been disqualified. The following election, 1988, the best loser was again the Workers' Party, and this time Dr Lee Siew-Choh took the seat and occupied it. In 1991, the best loser was again the Workers' Party, and this time Mr J B Jeyaretnam took the seat, despite having been the person who in 1984 was leader of the party and having insisted in 1984 that he would never accept a non-constituency seat. Then in 2001, we had Mr Steve Chia of Singapore Democratic Alliance and most recently in 2006, we had Ms Sylvia Lim of the Workers' Party.

The NCMPs - I think we can say fairly - have made their contribution to the national debate. They have expressed Opposition views in Parliament, they have let Singaporeans compare the policies and programmes of the Government and the Opposition and they have enabled Singaporeans to evaluate the performance of parties and MPs through the continuing debates in Parliament day in, day out, during the whole term of the Government, and not just during the short period of the campaign during the General Election. So this NCMP scheme has achieved its purpose and has been accepted by the public. However, given that there are 84 elected MPs in the House, instead of a minimum of just three Opposition MPs, we should increase this to a minimum of nine opposition MPs, including NCMPs, which would make the minimum number of Opposition MPs equal to the number of NMPs in the House, which is also nine.

We will amend the Constitution to change the current maximum number of NCMPs that Parliament can legislate from six to nine. We will also amend the Parliamentary Elections Act to increase the minimum number of Opposition MPs plus NCMPs in Parliament to nine. So the actual number of NCMPs will then be nine minus the number of Opposition MPs who are elected directly to Parliament. Since the number is nine, there will be no need for President to specify any number before Nomination Day. Therefore, whatever the election outcome, Opposition members directly elected, or non-constituency members, will form at least one-tenth of the directly elected members of Parliament who have constituencies, right now 84 of them.

We also propose one more change to the NCMP scheme, and that is to amend the Parliamentary Elections Act to set a cap of two NCMPs to come from any one GRC. This will spread out the NCMPs more evenly and make them more representative of those voters who have voted for the Opposition nation-wide in a general election. It will also clearly distinguish between the winning and the losing teams in a GRC because we should not have an outcome where the entire losing team enters Parliament as NCMPs and enjoys almost equal status with the winning team. For example, if we had done this before the last general election, the outcome would have been like this: There were two Opposition MPs elected - Mr Chiam and Mr Low Thia Khiang. Then we would go down in order of decreasing percentage of votes - Aljunied GRC, Workers Party, we would have had two NCMPs, Ms Sylvia Lim presumably, plus one; Chua Chu Kang, a "single" (SMC), Mr Steve Chia; then East Coast GRC, Workers' Party with two NCMPs, up to the party to decide who; Joo Chiat, SMC, Workers' Party candidate Dr Tan Bin Seng; and Nee Soon Central, SMC, Workers' Party candidate Mr Lian Chin Way. So two Opposition MPs and seven NCMPs.

Next, we will improve the Nominated Member scheme. The scheme started in 1990. Initially, the Constitution provided for up to six NMPs and we in fact appointed two in the first batch. In 1997, we amended the Constitution to provide for up to nine NMPs, which is where it is today. The scheme has worked well. The NMPs represent non-partisan alternative views in Parliament, and the NMPs have made effective contributions and raised the quality of debate in Parliament. Sometimes, if I may say so, they may have outshone even the Opposition MPs. This NMP scheme should be a permanent part of our political system. Presently, each time Parliament meets after an election, Parliament is required to pass a motion resolving that there shall be NMPs for that term of Parliament. This was a safeguard which was introduced when the scheme was new because we could not be certain how the scheme would work. But after 20 years, this is no longer an issue, as Dr Loo Choon Yong pointed out yesterday. Therefore, as he suggested, we will do away with the motion on the NMP scheme in each Parliament so that we will always automatically have NMPs in Parliament. This will also require an amendment to the Constitution.

We also propose to fine-tune the scheme to broaden the representation of various interest groups. NMPs are chosen by a Special Select Committee of Parliament. The Committee invites nominations from the public in general but also formally invites nominations from six groups - business and industry, the professions, the labour movement, social and community organisations, media, arts and sports and tertiary education institutions. I think that the Committee should broaden its reach to invite nominations from one additional group which we have paid a lot of attention to and would like to cultivate, and that is the people sector. It could be those in the environmental movement, it could be young activists, it could be new citizens, it could be the community and grassroots leaders. This will give civil society a voice in Parliament and encourage civil society to grow and to mature further.

Thirdly, GRCs and SMCs. Our present electoral system is to have most MPs elected in GRCs with a limited number of SMCs. This is a sound system. The GRCs ensure multiracial representation in Parliament. They encourage political parties to appeal to all races with moderate policies and not to one race or another with chauvinist or extremist policies. And they also put a premium on parties which can field credible teams and therefore demonstrate that they are fit not just to become MPs but to form the government. In this GRC system, we always have some number of single member constituencies to keep the entry barriers low, which means small parties can still participate in the elections and it will give adequate opportunities to the small parties and to the independent candidates to contest in a general election.

GRCs should continue to be the same basis of our electoral system but we should refine the size and the number of GRCs and SMCs. The rules are specified under the Constitution and in the Presidential Elections Act. GRCs can have three to six MPs each and there must be a minimum of eight Single Member Constituencies. In practice, currently there are nine GRCs with five members and five GRCs with six members, making a total of 14 GRCs, and there are nine Single Member Constituencies. We should fine-tune the implementation of the GRC and SMC scheme, in the light of our experience. There is no need to amend the Constitution or the Act. These specify the basic framework for the scheme. Within these limits, the Electoral Boundaries Review Committee (EBRC) has the flexibility to work out specific sizes and configurations of constituencies to match the population distribution. So we can effect the refinements by making them explicit in the terms of reference to the EBRC when I appoint the EBRC.

There are advantages to having bigger rather than smaller GRCs. They enable stronger multiracial teams to be formed which include MPs who have different backgrounds and skills, who can serve voters more comprehensively and effectively. For example, they can pool resources and provide economies of scale to run town councils more effectively. Bigger GRCs also require any challenger to field a strong team and offer a serious alternative to have a chance to win. Therefore, bigger GRCs encourage responsible and credible Opposition parties to emerge.

But, at the same time, there are some downsides to having too big a GRC because it becomes harder for voters to identify with the whole GRC or with the whole GRC team. The members split up, so the voter knows who is looking after his area but for the other MPs, he may not have quite as close a relationship. Each MP has to look after his own ward in the GRC and, therefore, it is not easy for him or her to get to know the voters in all of the other wards.

In the light of our experience, we have concluded that, on balance, smaller GRCs (less than six members) have the edge over larger GRCs (six-member GRCs). Therefore, we should have more smaller GRCs and fewer six-member ones. I do not think we should rule out the six-member GRCs entirely because sometimes the configuration of constituencies on the ground makes this the most practical option, but we should have fewer six-member GRCs. On average, the GRC size should be smaller. Therefore, when the EBRC is next appointed, its terms of reference will state that it should create GRCs such that, firstly, there will be fewer six-member GRCs than now, and secondly, the average size of the GRC will be smaller. The present average size of GRCs is 5.4 because there are five and six-member ones. The new average, which will be stated in their terms of reference, should not exceed five. This guidance to the Committee will achieve our objective of having smaller GRCs while giving the Committee enough flexibility to do its work properly.

Within this GRC system, it is useful to have a limited number of SMCs. But over the years, the number of voters has increased. The number of elected MPs has also gradually increased. And it may rise further as voter numbers increase further. Therefore, we should increase the number of SMCs to keep pace with the increase in the number of elected MPs. At present, there are nine SMCs. The terms of reference of the EBRC will state that they should create at least 12 SMCs.

The changes to smaller GRCs and more SMCs may or may not result in more seats being contested or more Opposition MPs being elected. That is not their purpose. Ultimately, it is up to the Opposition MPs to field candidates to contest elections and up to the voters to decide who they want to represent them in Parliament. The purpose of these changes is to make the GRCs scheme work better and to strengthen the link between voters and their MPs. We want voters to have a strong incentive to vote for candidates who will do the best job of looking after their interests, representing them in Parliament and forming a government to run the country. So it is really three duties - looking after their interests, representing them in Parliament and forming a government. And we want the voters to think carefully and decide and vote for the group and the party which will do the best of these three jobs. At the same time, we want MPs to have a strong incentive to do their best in these three responsibilities and to work hard to serve their voters well, both as individual MPs and as a GRC team, and therefore win the support of voters.

Overall, the changes to the NCMP, the NMP scheme, the GRC and SMC scheme will result in a more balanced electoral system. There will be at least 12 SMCs, fewer six-member GRCs and a range of smaller GRCs. Each Parliament will have at least nine Opposition members and nine Nominated MPs, so that there will be at least 18 members who are not from the ruling party, which is about one-fifth of the House. This change in the composition of Parliament will affect the dynamics of the House, between the Government and the Opposition parties. MPs on both sides will have to learn how to operate in this new environment. Government MPs will have to become sharper at defending their positions, accepting constructive criticisms and scoring points off the Opposition once in a while. And I am sure Opposition MPs and NCMPs will want to score points too, which they are entitled to, but they must also understand that while they may be in the Opposition, they must uphold the political system and the institutions of our democracy and their loyalty must be to Singapore.

These changes are not to entrench any one party, nor to deliberately result in weakened governments. They update our political system so that it reflects better the aspirations of Singaporeans. They provide adequate voice for diverse views in Parliament, including non-partisan views and those who have voted for the Opposition. They also ensure that the government, which is elected, has a clear mandate to govern in the interests of Singapore, so that our political system will continue to serve Singapore well, now and into the future.

I am making these changes now, mid-term, not because I am about to call elections. I have not yet appointed the EBRC, but I want to initiate these changes now so that we can discuss and settle this in a calm atmosphere and make the amendments in ample time before the next election. These changes are not just for the 2011 General Election but also for the long-term strength and stability of the system.

Finally, please remember whatever political system we may have, it will only work well if the electorate votes wisely, in the full knowledge that if they vote for frivolous or fickle reasons, it will mean a setback to our economy and our future. Otherwise, we will not have honest leaders to run the system and govern the country. Voters have to see the parties and candidates for who they are, what they can do and make a decision in line with their true interests. If the PAP is serving them well, then they should vote for the PAP. If the PAP is letting them down, then they should vote against it. That way, we make sure we always have the best team to serve Singapore well.

To do that, we also need good leaders, because no system works by itself. You can have the most ideal system on paper, but without the right people to operate it, it will malfunction and go awry. So we must always have honest, able and committed men and women to come forward to contest elections to serveSingapore. We will make sure the system works properly, and where it needs improvement, we will make changes to address these problems.

I have a good team in place now. But my most critical job is to find and nurture more such men and women to be the next generation of leaders. Only then can we secure our future and improve our lives and the lives of our children. Thank you, Mr Deputy Speaker.

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