leekuanyew

Lee Kuan Yew: How Singapore forged its own unique way forward

Model ensures every generation lives within its means, say Western observers

Lee Kuan Yew, the first prime minister of Singapore, died last week at age 91. Almost every obituary has remarked on the radical transition his leadership heralded. As John Fund wrote at National Review: "By embracing free trade, capital formation, vigorous meritocratic education, low taxes and a reliable judicial system, Mr Lee raised the per capita income of his country from US$500 a year to some US$52,000 (S$70,500) a year today. That's 50 per cent higher than that of Britain, the colonial power that ruled Singapore for 150 years. Its annual growth rate has averaged 7 per cent since the 1970s."

Part of the reason for Singapore's remarkable climb up the international income ladder is bread-and-butter capitalism. The Fraser Institute's Freedom of the World report lists Singapore as the second-freest economy in the world - right behind Hong Kong. As Fraser scholars have demonstrated year after year, economic growth and free markets go hand in hand.

But Singapore has done something even more remarkable than its economic accomplishments. It has built an alternative to the European-style welfare state. Think of all the reasons why people turn to government in other developed countries: retirement income, housing, education, medical care, etc. In Singapore, people are required to save to take care of these needs themselves.

At times, the forced saving rate has been as high as 50 per cent of income. Today, employees under 50 years of age must set aside 20 per cent of their wages and employers must contribute another 16 per cent. These funds go into accounts where they grow through time until specific needs arise. For example, one of the uses for these savings is housing. About 90 per cent of Singapore households are home owners - the highest rate of home ownership in the world.

In healthcare, Singapore started an extensive system of "Medisave Accounts" in 1984 - the very year that Richard Rahn and I proposed "Medical IRAs" for America in the Wall Street Journal. Today, 7 percentage points of Singapore's 36 per cent required savings rate is for healthcare and is deposited in a separate Medisave account for each employee. Individuals are also automatically enrolled in catastrophic health insurance, although they can opt out. When a Medisave account balance reaches about $34,100 (an amount equal to a little less than half of the median family income) any excess funds are rolled over into another account and may be used for non-healthcare purposes.

For many years, the only two scholars in the Western world who paid much attention to Singapore were Washington University economist Michael Sherraden and me. Michael approached the Singapore experience from a left-of-centre perspective and I came from the opposite direction. We both ended in the same place: this is an alternative to the welfare state that works.

Lately, quite a number of other scholars have discovered Singapore, especially its healthcare system - again, with both right and left finding a lot to admire. It's taken almost three decades, but Singapore is now the subject of a book by Brookings Institution, a whole slew of posts by Austin Frakt and Aaron Carroll, and a good overview by Tyler Cowen, with links to other studies and comments.

Sherraden recently summarised some of Singapore's major social-policy innovations as follows: "Step by step, the Singapore state created a new social-policy system that had asset-building as its central structure…. In the world of social policy, it would be hard to overstate the exceptionality and the extent of this innovation… During the past 25 years, Singapore policy has taken important steps towards lifelong asset-building, beginning very early in life. These innovations include EduSave, the Baby Bonus, Child Development Accounts, and related asset-building incentives."

For John Fund, Singapore's most significant accomplishment is the avoidance of the mistakes of other countries: "I believe that the least appreciated part of Lee Kuan Yew's legacy is his method of ensuring that one generation won't bankrupt future generations by selfishly living beyond its means. It's a welfare state that works, and one he always said was available to any political leader with the courage to tell his people the truth about the limits of government's power to pass out goodies."

For my part, I would summarise the philosophy of Singapore as follows:

  • Each generation should pay its own way.
  • Each family should pay its own way.
  • Each individual should pay his own way.
  • Only after passing through these three filters should anyone turn to the Government for help.

If the United States had adopted a similar approach to public policy, there would be no deficit problem in this country.

www.brookings.edu

John C. Goodman is a senior fellow at the Independent Institute and author of the widely acclaimed book, Priceless: Curing The Healthcare Crisis. This article was first published on Forbes.com