Senior Minister (SM) Goh Chok Tong was interviewed by The Straits Times’ senior correspondents, Ms Lydia Lim and Ms Lee Siew Hua, on SM’s participation in the Commission on Growth and Development as well as its recently completed Growth Report.   The interview was held on 19 June 2008 at 5.00 pm at the Istana and was published in The Straits Times on 21 June 2008.  Below is an edited transcript of the interview.

Question: What were the highlights of your participation in the Growth Commission?

SM: The first meeting was the most interesting one for me.  That was the first time that I met Mike Spence, Chairman of the Growth Commission, and another Nobel laureate, renowned economist Robert Solow.  Mike Spence was not trained as a growth economist.  He came up with a very comprehensive list of all the possible issues which the commissioners could look at.  Many of us raised an eyebrow. I remember Robert Solow remarking that many of these topics were PhD theses in themselves.  But Mike Spence explained that it was not his intention to cover every topic.  It was just meant to be an agenda for discussion and for the commissioners to identify the important issues which the Commission should focus on.

Question: What were your key contributions to the discussions?

My own contribution in that and subsequent meetings was to emphasise the need to take a practical approach.  The subject of investigation was not new.  Literature on development economics abounds.  We had to decide on the target group of people whom we wanted to read the report.  To me, the target group should be the  decision makers.  We should aim at the heads of government and the economics and finance ministers.  If you can get the policy-makers to read the report and be influenced by it, then the Commission would have succeeded in its mission.

My view was shared by others.  This was not a theoretical exercise.  We should not just put up another academic report to add to the abundance of literature on the subject. The test was whether we could get the right people to read the report. 

In order to get them to think that way, I told the economists in the Monetary Authority of Singapore (MAS) to put up a resource paper for the Commission.  I gave them the rough outline.  Essentially, it was meant to be a political-economic approach to analysing the factors of growth. I suggested that we should look at the countries which have succeeded in attaining sustained economic growth, as well as those which had not.   We should then try to understand why some countries had done well and others had stumbled along the way.  MAS used the term "the good, the bad and the ugly".  But of course, politically, we could not use this term in the Commission’s report.

The Commission found the MAS paper useful. It did a study of 13 economies which had succeeded since the 1950s to grow at at least 7 per cent per year for 25 years.  I proposed but did not succeed in getting the Commission to list in the report the countries which had not done well – the “ugly” so to speak.  I thought useful lessons could be drawn by looking at countries which had gone backwards economically.  They did look at some of these countries, but for good, politically correct reasons, thought that we should not name these countries.  But they did include in the report a section on the “bad ideas” to be avoided.

Question: What would you say are the key findings of the Growth Report?

SM: There is no single item which I would regard as a revelation. As the commissioners put it, we were trying to identify the ingredients which would go into a good recipe, which would result in a marvelous, delicious dish.  However, besides having the right ingredients and the right recipe, you must have a master chef.  I think this sums up what the Commission was trying to do.  The report identified some 17 ingredients, which included effective government. 

I would avoid ranking the importance of each ingredient because as in any cooking, all ingredients play a part.  However, though effective government is listed as an ingredient, we could regard it more like a chef than an ingredient. 

Effective government, meaning a government that delivers political and economic stability, implements the right macroeconomic policy, inspires people to follow their vision, and is able to implement the policies taken.

The ability to exploit the world market is also important.  In other words, a government must know how to take advantage of globalization and not close itself against competition.  This includes welcoming capital, technology, ideas and people who can make a contribution to the country.  Of course, a country must not ignore investment in its own people, infrastructure and technology.

Question: As Singapore develops, will effective government be more relevant, or the private sector?

SM: The Commission underlined a point, which we also underline in Singapore, that it is the private sector that creates wealth. An effective government doesn't mean having more government.  Effective government means that at each stage of the life of an economy, the government knows what to do. So if you take the case of Singapore, in the initial years, we were more interventionist.  We set up the Economic Development Board, started companies like Neptune Orient Lines, Singapore Airlines, Sembawang Shipyard and in more recent years, companies like Ascendas and Surbana.  But as we grew, the government took one step backward in directly running companies.  The companies were corporatised and left alone to compete in the market place.  While the private sector should grow relative to the government in terms of contribution to the economy, effective government is necessary for it to do so.

Question: Many media reports have focused on how the Growth Report seems to lay to rest the Washington Consensus. Do you agree?

SM: No.  The Washington Consensus came about in the 1980s. The International Monetary Fund, the World Bank, academics and economists in Washington were trying to see how they could get South American countries to stabilise their economies and grow because at that time, the South American economies experienced high inflation and weak growth.  The context was South America and not all developing countries.  However, as some people put it, much of the Washington Consensus recommendations were all motherhood and apple pie.  Many of these statements would still be relevant in the right context.

In short form, many summarise the Washington Consensus as “stabilise, privatize and liberalise”.  By stabilise, they meant not just a stable government but also stable macroeconomic policies.  By privatise, they meant that government should get out of business.  But do you privatise the way we do in Singapore by listing the companies on the stock market, or do you give it to your cronies and your friends?  By liberalise, they meant opening up the economy to global market forces. Again, we can have a lot of debate on this issue, on the timing of opening up, for example.  Are your financial institutions ready to withstand the volatility of capital flows?  

Question: The most controversial part is possibly when the report says that you don't need a specific political model to have growth. What are your comments?

SM: The Commission never got down to discussing political models. We were more interested in the meaning of effective government because we found that the 13 countries which had sustained economic growth over a long period had different systems of government. We did not believe in a one-size-fits-all political model for generating economic growth just as we did not hold up a particular model for economic growth for all countries.  The model for economic growth has to be contextualized; so does a political system.

Take China for example.  For close to 30 years since 1978, China was able to generate and sustain economic growth. It's not a democracy but it has an effective government in so far as generating and sustaining economic growth is concerned.   Do all democracies result in good growth?  I don’t think so.  Do all governments which are not democracies enjoy good growth?  The answer is also no. 

Question: What is the best definition of effective government?

SM: In so far as economic growth is concerned, I would say a government that is pro-business and creates the right environment for investments to flourish.

Then I would say the government must also be pro-worker. There's no contradiction here because if you do not have a pro-worker environment, you are not going to have inclusive growth and the workers, at some point, will rebel.  A government which can balance the interests of both groups will be one that can generate economic growth and sustain it for a long time. 

Apart from these, there are other attributes to assess whether a government is effective or not, for example, its investment in its people and its ability to bring out the best in them.  In Singapore, I would say that this is a very important criterion to judge the effectiveness of the government.

Question: As Singapore develops, will the rights and freedoms associated with a liberal democracy become more important?

SM: I think it's going to be discussed more, because as the people get used to long periods of growth, and their wealth goes up, so will their hierarchy of needs. They will look for things beyond bread and butter, like intellectual discourse, political expression, arts, sports and so on.   More people will want our politics to be more liberal  That is fine provided you’re not worried about your stomach and shelter, security and physical freedom, economic growth and unemployment.   

I think it is fair to ask and debate, “Can Singapore practise liberal democracy now that we are a middle income country?”  Are we now so strong and secure that we can ignore our geography, our neighbourhood and our permanent vulnerabilities?  What are the long-term implications for us if we move away from our present system of government?

Liberal democracy includes the right to gather, demonstrate and protest against anything under the sun. Do you want demonstrations every day along Orchard Road or Shenton Way? I don't think so. This is a small place. If there's a big demonstration in our city, the whole place comes to a halt. This is different for big countries.  If there is a demonstration in the capital city, the rest of the country will keep on producing.  We can’t follow that model of liberal democracy.

But can we have a managed kind of freedom to demonstrate, like designating Speaker's Corner, for example, as a place where you can demonstrate as long as you don’t spill out to other areas and hold up other people’s daily activities?  Or we can allow people to rent a stadium and demonstrate.

Question: The report says what matters is not whether policy discussions are closed or open, but the quality of debate.  But what if people want to take part in these discussions?

SM: We encourage that. But there are certain debates which are best done behind closed doors before they go public.   The people in charge have to shape the policy first and work out clearly the communication plan. If policies are discussed openly too early, you may alarm the people and the policies may be shoved aside before they could see the light of day.

Some policies are price sensitive, so you can't discuss them openly, like taxes and land acquisition for the MRT. 

But in general, I am for a more participative government, meaning more quality debate and consultation on matters which affect our people’s lives. I also  do not believe that anyone has a monopoly of knowledge and ideas.

Question: Economists say the Growth Report is more useful in identifying the ingredients for catch-up growth.  Do you agree with that statement?  Now that Singapore is a high-income country, what are the challenges?

SM: I agree. When we did the report, it was aimed at the poorer countries, hoping we can help them to eradicate poverty. For countries like Singapore and South Korea, it's a different problem.  We are middle income countries. How do you sustain growth when you have others snapping at your heels? If you want to move up, you bump into the developed economies with their superior technology and organisation.

But many elements in the report are still relevant to us. If I may use the cooking analogy again, we have to come up with a special dish with the same ingredients as identified by the report.

We can't be cooking the same dish as before because others can now copy us. To whip up a new dish, we have to be creative and have that special touch.

Question: Would you consider inequality of income to be a big challenge for Singapore?

SM: It is a big challenge and the challenge will become bigger. In a globalised world, incomes stretch out.  The able people, be they businessmen or professionals, are in demand everywhere and the world is their market.  They will go to wherever will yield them the highest return for themselves.  As we can see, many of our young students who graduated in the US don’t come back.  They prefer to stay back there for the experience and the higher income.

Those at the bottom will see their incomes squatted upon by the abundance of cheap labour on a global basis.  The people may not understand this.  They may not know that they are competing with labour in China or Vietnam because they cannot see these workers.  But the fact is that they are competing because businesses will go where the labour is cheaper. 

Can you close the gap? You can’t fight globalised market forces.  But the government can intervene to ensure that growth is inclusive. We ensure economic growth and through prudent fiscal policies, generate  budgetary surpluses.  Then we find creative ways to distribute the surpluses, giving more to those who need help more.

Our primary way of doing this is through housing.  If you look at housing, the gap is narrower than the income gap.  The difference in income between someone who lives in a 5-room flat and someone in a 2-room flat is quite wide.  But the difference in floor space between a 5-room and a 2-room flat is not that wide.  The difference in amenities is even narrower. 

Another area is transportation.  You might not own a car but does that mean you can't move around?  If you can't afford to own a car and you can't move around in Singapore, then the gap in the ability to move around between those who own a car and those who do not is very wide. But if you put resources into the MRT and buses, people can move around quite freely. The comfort level may not be the same as traveling in your own car but the point is, you can move around Singapore freely.  So that is how we narrow the income gap in a practical sense.

For the very poor, we make sure they have public assistance and, for the rest, top-ups from time to time. I think we should be able to refine the Workfare Income Supplement top-ups over time.  The Workfare Income Supplement is a form of negative income tax.  You work, you don’t pay taxes, and in fact, we give you something.

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PRIME MINISTER'S OFFICE

SINGAPORE

21 JUNE 2008