• The Straits Times: In your view, what is the biggest economic challenge facing Singapore over the next 10 years? And what must Singapore and Singaporeans do to face that?

DPM Tharman: The advanced economies are going through a rough period. The United States is showing some improvement but the long-term challenges are very significant, particularly because of its fiscal problems. Europe is in a much tougher condition and it's not going to get out of its current problems quickly. Japan is now trying a new approach but the situation is essentially quite similar to Europe - an ageing society, debts that have mounted up and a fiscal strategy that can't last for long because someone has to pay for the older generation and they're going to find it very difficult to raise taxes on the scale required.

So these are advanced societies, still very rich markets for us, wealthy markets. We shouldn't take our eye off them as markets.

So stay plugged in to the US, Europe and Japan because they are very valuable markets for sophisticated products, especially in manufacturing as well as in services. Sophisticated demand is very importantly generated by the most advanced markets.

But the growth isn't going to be very significant from that source. So we've got to increasingly look at the middle and even the bottom of the pyramid, the emerging countries where growth is still significant, a middle class is emerging, becoming more sophisticated.

Tremendous opportunity for us. And it means that not just our large companies but our SMEs (small and medium-sized enterprises) have to be outward-oriented.

In fact, quite impressively, a significant proportion of our SMEs are now deriving more than half their revenue from abroad. Compared to 10 years ago, many more are now abroad in some way, exploiting opportunities in the markets around us.

But it also means that our whole orientation, starting from young through education, and in the workforce, has to be to look outwards for opportunities, and not just in the advanced countries, or English-speaking countries, but the countries around us.

We've got to have that cultural flexibility of being able to work and operate in these environments because there are plenty of opportunities for Singaporeans. We have to make it easier in terms of their children's education, so that when they come back, they can fit into our system easily.

• When you first entered politics in 2001, you said that the biggest challenge for the PAP is to win the hearts of young people. How do you think the PAP has performed in that regard?

Well, I think the first challenge the PAP faces is the fact that it's the incumbent. People want a check on the PAP. And that's natural. It's just human psychology. So that's the first disadvantage you face in terms of human psychology. And you have to accept that.

Second, and this is an important point, all over the world, the economies that are more advanced, and that includes in the Asian context, Taiwan, Hong Kong, Singapore, South Korea, they're finding it more difficult to get the improvements in the quality of life seen in the past.

First, because of course in Asia we've caught up and we're at a higher standard of living. Second, global competition has changed. The pressures at the middle end of the workforce have increased internationally. So you find that in the US, for instance, the median American has a lower real income now than 10 years ago, in fact 15 years ago.

You find that in Europe as well. The average person has not seen his life improve. You find it in places like Taiwan. The average person has not seen his life improve.

In Singapore we've at least been able to achieve a significant improvement in the standard of living of the average person. Any young person can find a job very quickly, in fact faster than anywhere else in Asia. Find a good job very quickly. ITE grad, polytechnic grad, university grad. Any person can see improvement on the job and over time see his pay going up. That's something which we've got to work very hard to preserve.

So economic policy is not irrelevant to the type of society we want because we are a society that still has aspirations to move up. People, families do want to move up. They want their children to do better than the parents. And economic strategy is not irrelevant to that.

But capturing the hearts of the young is also about catering to diversity.

Very importantly, the PAP can play the role of galvanising views or being a generator of views, encouraging people to come up with ideas, alternative ideas on a whole range of strategies - our social strategies, how we can help the elderly, our transport strategies, our housing strategies. Bring up views from all quarters of society. Take them seriously. Help the thinking process take place on the part of citizens. That's a very important role that we can play as well.

And you can see that the PAP today is quite different from five years ago, and almost unrecognisable compared to 20 years ago. A very different party. Still a lot of work to do.

So I think getting the hearts of the young and being close to the young is about, first, never ignoring the fact that policies are important, and making sure we're an economy that provides good jobs for the young and that they will be able to see improvement in the course of their working lives. It's important.

But, second, it's also about not just tolerance of diversity but being welcoming of diversity and going out there to get it, to actually generate alternative views.

• What do you think is a tolerable threshold of opposition the PAP can live with?

I don't have a number in my mind but we have to accept that part of a healthy political system is one with a decent opposition presence in Parliament and outside and a responsible opposition will, I think, be able to contribute to Singapore.

• Do you think you'll be able to persuade the vast majority of voters, especially young voters, that the PAP can be dominant without being dominating?

Yes. If we continue along the path that we've taken in recent years and which you can see our younger ministers very actively pursuing, creating new fora, new ways in which people can be part of the thinking process for Singapore, can express their preferences particularly on values, on identity and also on policy. If we continue along that path and if we can continue to involve people and help them take responsibility collectively for making a better Singapore, I think we can retain our anchor role in Singapore society.

• In 20 years' time, your children will be aged between 37 and 42. What kind of Singapore do you hope for them?

Well, I hope it'll be a Singapore where we treat each other as equals, which is I think a different type of meritocracy. We've had a working meritocracy, it has brought us quite far, it's allowed for a tremendous amount of social mobility in our first 40 years but I think it has to evolve.

It starts from young. I think we have students who go through our education system, those who are doing well, who are very aware of their strengths and achievements but not sufficiently aware of their weaknesses and not sufficiently aware of the strengths of others. That's one group.

We have another group that goes through the system very aware of their weaknesses so that, you know, they got into a certain stream or didn't get into a school of choice, they're very aware of what they didn't achieve but not enough of them have discovered their strengths. And I believe very strongly that everyone has a strength.

Very few people are strong in everything and very few people are weak in everything. Everyone has a strength. So how do we evolve our system to keep it meritocratic but broaden it, make it more flexible and very importantly allow for more mixing?

There's nothing like mixing where, as part of your day-to-day activity, what you go through from primary school through to Secondary 4, you interact with people who are different from you. That's the only way in which, over time, quietly, without realising it, you recognise the strengths of others and you also know your weaknesses. So I think that's a society I would like to see.

We are moving in that direction, we've made significant changes in the last decade but I think there are still more changes required. It's not just education, it's the way we treat blue-collar workers generally, ordinary workers whether it's in restaurants or when you're taking transport, everywhere. We are still a little too much of a hierarchy based on what happened to you at age 18, what scores you had, what qualifications you had, which course you could go to. So we are a meritocracy that's still a bit too much defined by what happened in your school years or your post-secondary years.

There are some societies which are not meritocratic enough in the school system. I mean the US is a good example, public schools in very bad shape, giving a very bad deal to ordinary kids and then they've got private schools that are very well endowed, providing a very high quality of education, not meritocratic and they have bad outcomes for average folk.

But there's something about their workplace culture that I think we can learn from, both in the US and in Europe where they are very respectful of people in different vocations. They treat each other a little more as equals and I think that's a very important culture to have and they rarely look at what happened to you 20 years ago. It's always about continual improvement or what I call a continuous meritocracy.

So we've got to be a broader meritocracy, recognising different strengths and different individuals but also a continuous meritocracy where it doesn't matter so much what happened when you were in Sec 4 or JC 2 or when you finished your poly or ITE, but what happens after that.

Are you continually improving, are you developing mastery? Regardless of where you start, we have to recognise what you have achieved to develop mastery in what you are doing.

• People have described Budget 2013, which you presented recently, as a Robin Hood Budget. There are some concerns that perhaps now the Government is leaning too much towards the socialist stance and there is concern about welfarism. What are your views on these comments?

Well, first, I don't think we have become, and will become, populist in the sense of doing things for short-term electoral gains. We will not do that.

Second, have we shifted to the left? Yes, we have. If I compare our thinking in Cabinet, or the weight of thinking in Cabinet, when I first entered politics about 11 years ago, I would say it was centrist but there were two flanks on either side of it. There were some who were a little right-of-centre, and there were some a little left-of-centre.

Now, I would say the weight of thinking is left-of-centre. You still get diversity of views in Cabinet but the centre of gravity is left of centre. And that means the current team is very clearly focused on upgrading the lives, improving the lives of lower-income Singaporeans and of our older folk.

Those are two very important social objectives and we're going to succeed. We're going to do something to improve life for these two very important groups of Singaporeans.

Middle-income Singaporeans, compared to the rest of the world, I think we've done quite well. The fact that the median earner has seen a significant increase in real wages after knocking off inflation is something that few other societies in our position have achieved in the last five years and the last 10 years.

So, keeping an economy competitive is also very much on our minds. It's not because we are, you know, always looking at economic issues or looking at GDP (gross domestic product) and so on. It's got nothing to do with that. It's got to do with Singaporeans. If you want to help the majority and you want to help the middle-income earner, there's no other way other than having an economy that's competitive, that's able to create good jobs where businesses are able to run a profit and are able to share gains with workers.

And that's something that Singaporeans want because the average Singaporean does not want to coast along at the present standard of living. They do want further improvement and they want their children especially to have a better life than them.

And I think that optimism is a great part of Singapore. The fact that we are still an optimistic society and expect our children to do better than us, I think it's a very important part of Singapore and we shouldn't lose that.

So, it is a pragmatic, left-of-centre government, focused especially on those who need help the most - which is the low-income group and the elderly - but it has to make sure that we keep this ship moving in what can be quite rough seas because that's what will determine the lives of the majority, including the middle-income group. Make sure that we stay competitive.

For the full transcript of the interview, go to singapolitics.sg

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