promote merit, devise incentive compatible solutions
In less than sixty years Singapore has transformed from a poor developing country into one of the richest – its per capita income is now double that of Australia. Singapore will be in a class entirely of its own by 2050.
People tell me that Singapore is not worth examining because it is small. But being small doesn’t guarantee success. Singapore became successful only because of the genius of Lee Kuan Yew (LKY), a grandmaster of governance on par with Kautilya. LKY was Singapore’s prime minister from 1959 to 1990 from age 35 to 67 and continued mentoring Singapore till he was 87 years old.
Both LKY and Nehru started out as socialists, being personally influenced by Harold Laski. But LKY was obviously much smarter. LKY recalled that Laski’s “socialist theories had a profound influence on many colonial students, quite a few of whom were to achieve power and run their underdeveloped economies aground.” He learnt a lot from Nehru’s colossal failures: “It was my good fortune that I had several of these failed economies to warn me of this danger before I was in a position to do any harm in government.”
Unlike Nehru who repeatedly rejected any advice from classical economists, LKY was much more open to new learnings. In an interview in 2013 LKY greatly praised economics Nobel Prize winner Friedrich Hayek as “a very clear thinker” who “hit upon the eternal truth, explaining that the free market is necessary to get the economy right.” Elsewhere he wrote, “Long before Milton Friedman held up Hong Kong as a model of a free enterprise economy, I had seen the advantage of having little or no social safety net.” There is no welfare state in Singapore, only minimal social insurance. People pay for healthcare and pensions from their savings, but since taxes are low they are able to save a lot.
A key plank of LKY’s model from the beginning was to attract foreign investment by assuring investors of strong property rights – this was at the same time when Nehru’s overzealous daughter, Indira Gandhi, was driving away investors from India.
Most importantly, LKY’s instincts for public administration were uncannily strong. He was interested in mechanisms to ensure honest and accountable governance. Initially he could not afford to pay the best bureaucrats as much as he would have liked, so he focused on strong punitive measures against the bad ones. But as soon as he could, he raised the salaries of the best bureaucrats and politicians to the highest levels in the world. Kautilya would have approved.
The administrative system of Singapore is not just about paying high salaries. Unlike in India where Part 14 of our Constitution makes it next to impossible to dismiss corrupt (leave alone incompetent) officials, Singapore has extremely strong mechanisms of accountability. And there is no relationship between a particular role and age. For example, “headmasters are often appointed in their 30s and rewarded with merit pay if they do well but moved on quickly if their schools underperform.”
One can legitimately disagree with LKY on a few issues even where he succeeded superlatively. For instance, LKY decided that his government would own a few businesses such as Singapore Airlines. He knew that these companies would fail if the government got directly involved or set the salaries of their staff. So he created an arms-length asset management company called Temasek in 1974, to which 30 government-owned firms were transferred with a mandate to subject them to market discipline.
The Temasek board comprises some of the most competent private sector managers of Singapore and operates entirely independently of the government. Its sole task is to maximise profits while ensuring the highest standards of delivery. This has seen Singapore airport and Singapore Airlines perform at the world-best level. Only the best talent is hired and promoted, and obviously paid competitive wages. We can perhaps characterise LKY’s model as state capitalism, elements of which are found in Kautilya’s Arthashastra.
But one wouldn’t advocate this aspect of Singapore’s model for India. Even in Singapore allegations of political interference in Temasek have sometimes arisen, and in full-fledged democracies it is practically impossible to avoid such pressures. In any event, there is no reason for government to own businesses in the first place. Where there are monopoly effects or other concerns, regulation can be implemented.
Despite this, the Temasek model tells us something very important about LKY’s approach – that he was always innovating incentive-compatible policy solutions, something unheard of in India’s policy circles. All policies in Singapore are worth studying closely, even if India doesn’t adopt them all.
One must, of course, reject Singapore’s limits to freedom of expression and its limited democracy. Singapore also depended critically on having one good person at the helm, which is not a sustainable strategy. Our party is committed to implementing systems that continuously attract the best talent to politics and governance.
LKY’s eldest son Lee Hsien Loong is following in his father’s footsteps today and India should actively (and humbly) seek his advice. At the same time our numerous socialists like Arvind Kejriwal should stop their prattle about being able to create Singapores when they do not understand even the most basic concepts of economics. These people are following Nehru’s footsteps and running India further aground.
DISCLAIMER : Views expressed above are the author’s own.