The Businesses of the State

The world is again caught in a state of flux and many changes which are beyond our wildest expectations are taking shape. From ISIS to Brexit, there is a looming picture of gloom and the impacts in socio-political-economic terms are wide and extensive. In the tiny state of Singapore, these tumultuous occurrences taking place in the middle east and Europe are far away from the minds of ordinary Singaporeans. Their immediate worries are about bread and butter issues. 

 

 

The economic slowdown does not seem to recover anytime soon and retrenchment exercises are back. In the early 60's when Singapore was emerging as a developing nation, the state took control of economic development and charted a course which had state-owned enterprises taking the lead in opening up new industries. State capitalism intensified even after Singapore ascended the ranks and became a developed nation in the 80's. In the next 3 decades, the state continued to expand and acquire substantial business interests either directly under its statutory boards or indirectly through state-linked companies. Today, it has become the biggest landlord and business owner. It is also the biggest employer in Singapore and a major international investor with an enviable sovereign wealth fund.

When every citizen is gainfully employed and is able to afford a roof over their head, no one really cares too much about who owns what and how much money is made by the businesses and their management. In the minds of a people deeply accustomed to letting the state take the lead in almost everything, the business of running our economy, including what investments to make overseas, belongs to the state and not the people or even private enterprises. However, as at every critical point in our growth as a nation, past solutions invite serious questions when they no longer appear to be effective in dealing with present day problems. Ever-rising rents and costs of doing business, increasing unemployment, retrenchments and slower economic growth have become recurrent topics in our daily news. When state capitalism in our past as an emerging economy could create jobs, homes, higher incomes and hopes for a better future, these times are considered hard times. A fundamental question relating to market economics has to be asked. Is a state-owned and controlled economy, with its current breadth and depth, still a viable solution for the challenges that Singapore faces, given that the dynamics of doing business today requires greater innovation and creativity?

It is not suggested that state capitalism per se is undesirable. For instance, state capitalism in China has brought sterling economic growth for the Chinese economy in the last 20 years and it would be hard to find any no pure free market economy in the world today. The state is always involved in some economically strategic matters, such as regulating the banking system and lending activities and ownership of what are considered important national assets. However, to the extent that state capitalism is essential in order to protect its people from a wayward economy, the logic falls short when it goes beyond that. Heavy-handed state intervention in free market forces creates serious distortions of the market, generating misinformation and unrealistic expectations. Extensive business interests of the state also unwittingly compromises good political governance when the state chooses to protect its business interests over the rights of the people . Unfair competition may also breed disenchantment and stifle entrepreneurship in areas seen to be dominated by state-linked businesses .  

Is it time for our economy to be driven more by real private enterprises than by state-owned businesses? If so, how can we achieve a better balance between state capitalism and free capitalism? These are questions that need a rethink at higher levels.