Minister for Foreign Affairs Dr Vivian Balakrishnan's interview with The Business Report, Newsweek, 30 July 2021

29 November 2021

The Business Report (TBR): What gives Singapore the edge when you look at other high growth economies surrounding you as well?


Minister: I would make a couple of quick points. First, to be fair, history did not begin in 1965 with independence nor did Singapore’s history begin with Raffles in 1819. The former name, Temasek, has in fact been around for at least seven centuries or more. The point here was that this island – one degree, 15 minutes north of the equator, in a sense, the southernmost tip of the Eurasian continent – has geographically been a node for the flow of people, ideas, and goods for many centuries. But the next point there, which immediately follows if you take a 700-year history, is that its fortunes have waxed and waned according to the flow of global trade, according to the political empires in the region.


In particular, the last two and a half centuries, with the advent of the Industrial Revolution in Europe and therefore the projection of that technological advantage and economic superiority into military superiority and the ability to colonise large parts of Asia. And in particular to use Asia as a resource centre in order to feed the economic machine, which was primarily based in Europe, because that is where the Industrial Revolution began.


The point I am trying to make in going back in time, to answer your question is that yes, geography has been a huge advantage to us because in a sense that is unchangeable. But second, geography is not a sufficient explanation for fortunes waxing and waning in our region. We are acutely aware that we are held hostage to events and trends that emanate far from our shores. One way of looking at modern Singapore is that it is an act of desperate imagination in the face of existential vulnerability. It is not that we are the most brilliant geniuses or necessarily the most innovative, but we had to because of these existential vulnerabilities. If you can understand that mindset, then you understand many of the things that we have done or will continue to do.


One other caveat about geography, which is worth highlighting, is the Suez Canal. Before the Suez Canal, when ships from Europe had to trade with China or Japan, the shortest route from Europe to Asia was actually not the Straits of Malacca. It was the Sunda Strait – Batavia and today's Jakarta. The Straits of Malacca only became the shortest route after the Suez Canal opened. The corollary there is that that development, far from our shores, made a signal difference to our fortunes and our position as a trading hub.


That is the caveat to the point about geography being permanent. It is an illustration that in fact, geography is not necessarily permanent. There can be significant changes which affect us in profound ways. But again, it comes back to my earlier point about this acute sense of existential vulnerability. That will be my starting historical frame that sets the context for what we do.


TBR: In your own words and with your own experience, what do you think are the reasons behind this close cooperation and cohesion that you call the tripartite?


Minister: Well, it has got to do with our more recent political history. The trade union movement at a global level actually began in Europe. The reason it began in Europe is because the Industrial Revolution began in Europe. The Industrial Revolution represented a change in the means of production. With that, a complete reorganization of the political economy. It was a gilded age with greater inequality, migration from countryside to urban centres, the breakdown of extended families into nuclear families, and new political structures. Like all historical trends, there is always a cycle or a counter reaction. The history of trade unions in Europe is a reaction to balance the excesses of capitalism in an Industrial Age – that is its historical context.


Now, let me zoom into Singapore. The reason why we have a rather unique arrangement has to do first with Mr. Lee Kuan Yew, our founding Prime Minister, who was a Cambridge educated lawyer. But he was also the lawyer of the trade unions here and in particular, when the postal union went on strike back in the 1950s. They were striking against the authorities which were basically the colonial authorities at that time – he was their lawyer. This meant that you had a leader who did not need to prove his loyalty to the trade unions; it had been demonstrated. It is an enormous advantage if a political leader enjoys almost instinctive trust between himself, the party he represents, and the trade unions.


What I am saying is that, even before they got into parliament and constituted the government, the founders of the People’s Action Party of Singapore (PAP) already had a proven track record of service and, in a sense, allegiance to the trade unions. That helped. Now, the other unique point is that it is one thing to hitch your wagons to the trade unions, but after the PAP came into power (initially in 1959 with self-government) in 1965, when we were ejected from Malaysia – as if there was not enough trouble – the British decided they would withdraw from their bases east of the Suez Canal, which represented a potential removal of about 20 percent of Singapore's gross domestic product (GDP) and jobs at that point in time. You had a government, which at that time was probably to a large extent, Fabian socialists and allied with the trade unions, suddenly realising that you are now going to see a big gaping hole of 20 percent of GDP and enormous unemployment.


If you think about the late 1960s, yes, we were an entrepôt, yes, we had geographical advantages. But that was not going to create the requisite number of jobs to deal with the big gaping hole in our GDP in a hurry. Because we were confronted with such an existential threat, we industrialised, we had to attract multinational corporations in order to bring technology, networks, markets, and jobs to Singaporeans. In order to make it an attractive destination, we had to offer industrial peace and stability, the rule of law, a pro-enterprise government, and first-world infrastructure in a third-world city state. You see how Fabian socialism, trade union allegiance, and the necessity of becoming an attractive investment site and therefore being pro-enterprise, worked together.


This explains the relationship between government, trade unions, and employers. It has been unique, a key source of competitive advantage, but I am also trying to situate it in the political history of that time. The other element, which is worth mentioning again, is that back in the 1960s, if you think about what many newly independent countries were doing in the 1950s, for instance, India said they would basically build their economy on the basis of import substitution. If we had still been part of Malaysia back then, this question of import substitution and just feeding into the domestic market may have been attractive politically. But again, as luck would have it, that option was taken off the table once we were ejected out of Malaysia. In a sense, we were forced to be globalised before the word globalization became standard fare in the 1960s because we had no choice. But if you fast forward to the 1970s, you see the huge expansion of multinational corporations, the establishment of global supply chains, their search for more efficient or cheaper locations for manufacturing, closer to markets. You also realise that at that time, there was also the Vietnam War, before that, the Korean War, and the depths of the Cold War. Again, as luck would have it, the PAP underwent its own schism internally. This was because we started off as a coalition of Fabian socialists and communists, and that marriage of convenience broke down. What happened after that, was that we were anti-communist. In the Cold War, we ended up, I would say almost fortunately on the right side of history.


TBR: Looking at Singapore's role, not just in Asia, but in the ASEAN bloc, how would you assess Singapore's current identity within ASEAN and perhaps its future role as well?


Minister: The Association of Southeast Asian Nations (ASEAN) was created in 1967, and it was basically the anti-communist bloc of Southeast Asia. Again, this had everything to do with the Cold War, the ongoing Vietnam War, the fear at that time of dominoes falling – South Vietnam, Thailand, Malaysia, Singapore, and the rest of it. (ASEAN) was basically a reaction to the Cold War and it was represented by the anti-communist elements or half of Southeast Asia. What makes it in fact more remarkable, if you think about the time, 1967, is that it had been only two years earlier that Singapore had “a difficult divorce with Malaysia” and that Indonesia had sent marines who had planted a bomb in MacDonald house in Orchard Road, which had fatal consequences. In 1967, the Philippines continued to lay claim to parts of East Malaysia. The point I am making is that in fact, it was a very unlikely and unusual association amongst countries who in fact had pretty existential bilateral issues, but nevertheless felt a need to either “hang together or hang separately”, to quote my first foreign minister, Mr. S. Rajaratnam.


The first point is that it had everything to do with a response, a reaction, to global events, and to be prepared to set aside bilateral issues – fairly divisive, important issues at that – because we had to deal with a larger existential challenge. Now, if you fast forward to the end of the Cold War, the fall of the Berlin Wall and the breakup of the USSR, you see – unsurprisingly – that Cambodia, Myanmar, Laos, and Vietnam became part of ASEAN because that wall became a moot point, became irrelevant.


ASEAN expanded then, but it is worth remembering that I think the primary purpose of all these groupings, including the EU for that matter, is to secure a peace within the bloc so that individual members will have more to gain by keeping the peace, because we are interconnected and inter-invested with each other, rather than to let bilateral issues fester and become sources of conflict.


The other imperative, which I think we learned from that time in the 1970s, is that the Vietnam War and the troubles in Indochina were really because we became ensnared in proxy wars of the powers that were at that point in time. That is another kind of subliminal or subconscious lesson that I think is at the back of every Southeast Asian leader’s mind. Then you add on top of that, the whole superstructure of economic issues – bringing trade barriers down, trying to promote ASEAN as a single investment zone, as a single destination, attracting more investments in infrastructure and the role of multinationals – all that becomes obvious and has followed the agenda.


The key point for ASEAN is securing the peace – understanding where the dangers are to geopolitical currents and trying not to repeat history – and then doubling down on economic integration, trade, and investments. The most recent example of that is the RCEP, the Regional Comprehensive Economic Partnership. The heart of it is ASEAN, the ten countries of ASEAN, and then to be able to include China, Republic of Korea, Japan, Australia, and New Zealand. it would have included India but unfortunately India could not be a part of it, primarily because of India's anxiety about competition with China, but that is a separate issue. I am trying to put in context the focus of ASEAN on economics, but underlying that it is really about securing the peace and making sure we do not allow potentially difficult bilateral issues to fester or to blow up.


TBR: Minister firstly, where do you see scope for a closer bilateral relationship between Singapore and the United States? And the second part of my question is in terms of trade relations and how you see that developing in a post pandemic.


Minister: We have had a great relationship over the almost 56 years of (Singapore’s) independence. Again, I would situate that in the historical trends. I mentioned we happened to be anti-communist at the time of the Cold War. America was mired in Vietnam and clearly our status as a port, as a logistics hub, mattered to the Americans. On our part, with independence in 1965 and the need to build up a credible military, obviously the ability to access American technology in the military field was salient. It is not really a secret that we have good relations, particularly in the field of defense. The next historical element had to do with our industrialization and our need to attract multinationals at the same time that American multinationals were expanding their areas of operation on a global scale.


If you look at the figures today, I think the cumulative stock of American foreign direct investment (FDI) in Singapore stands around 315 billion US dollars. You can double check that figure. To put that figure in context: American stock of FDI in Singapore exceeds the total of American FDI in India, China, and Republic of Korea combined, which is an astonishing figure, if you think about it. American stock of FDI in this tiny city state, Singapore, exceeds the accumulative American investments in India, China, and Korea combined. Every time my Prime Minister and I met President Trump, I used to remind him about this fact. The second point I would remind him of is that we also have an excellent trade relationship. We signed the US-Singapore FTA way back in 2003; in our view that remains a gold standard FTA, ahead of its time – ambitious. And again, I used to remind President Trump regularly that since then, not only has trade increased, but America has a healthy surplus in goods and services against Singapore, but we are not complaining.


He used to chuckle at that and look a bit quizzical initially, as if he did not believe me but I think after successive meetings and double checking, he realised that that was true. The larger point is this: we never complained about a bilateral surplus or deficit because we look at economic development on a global scale, on a macro scale. It is not about just the bilateral surplus or deficit, but rather our niche in the world, our role that we play, and where we are in the global economic network. That is the second big point.


As I said there have been location, military, and economic factors. Another historical development – which also relates back to both the military and to the end of the Cold War – is that America used to have significant bases in the Philippines – Subic and Clark. For a variety of reasons, they had to leave. There is no way that Singapore would have become a base. We just do not have the land or the space for that. Nevertheless, Singapore has always believed that continued American presence and engagement in Southeast Asia, in particular in trade and investment, gives the US strategic interests to protect. That America provides an overall net constructive benefit to all of us in Southeast Asia. In a sense, it is the concept of “Places not Bases”.


Over the years, especially since the 1990 Memorandum of Understanding, the American military, both the air force and the navy, have been one of the heavy users of our facilities, our military airport and our naval base, but not exclusively so. In general, we will facilitate port calls by naval vessels from countries that we have good bilateral ties with and that promote stability in this region. These vessels will have to abide by our laws, regulations and rules during port calls.


Again, there was a confluence of strategic interests, but the largest strategic backdrop for this is that we have viewed America for a long time… it has been a historic Pacific power, it has been the biggest investor in Southeast Asia. Trade is strategy. It is also no secret that we were one of the early conveners of the Trans-Pacific Partnership (TPP). In fact, the TPP was an outgrowth of early prototype negotiations between Singapore, New Zealand, Brunei, and Chile – four small economies. After a while, these gained momentum and became the TPP and, in particular, once America and Japan came onto the scene. Now it is a source of regret that America was not able to sign on, but it is a big plus, and a surprising plus at that, that Japan and the rest of the other 10 were able to proceed and still sign and ratify the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).


In all my discussions with American leaders and bureaucrats over the years, nobody in America has made a serious intellectual argument against America being part of the TPP. The problem is political. In the last five to seven years, free trade, as we know it, has become politically toxic. And it is for that political reason that I do not see any prospects of an early American return to the CPTPP. Nevertheless, it is a mistake, but I understand the political reasons why they cannot do so.


Having said that, we should look forward. I think there is great scope for a digital economy agreement and for green economy agreements. Even if, for political reasons, you cannot deal with the Industrial Age economy, let us look forward. What kind of standards and norms should apply for digital economy – which, by the way, is growing very rapidly in Southeast Asia. As we deal with climate change and the necessary coordinated actions that are needed, surely there is scope for us to do more on the green economy.


What I am hoping for, is that by giving people something constructive and prospective to focus on, we can get back into the old recurrent pattern of America being deeply engaged and invested in Southeast Asia and Singapore, playing our traditional role as a small but hopefully vital node in that larger network across the Pacific.


TBR: As the world emerges into this new normal, given your unique position, what would you say are the lessons we can take forward from navigating and learning from this pandemic?


Minister: I would try to zoom out and make maybe just two points. One is to echo what George Shultz said. You know, his quote “trust is the coin of the realm”? If there is one thing on which the pandemic has really stress tested governments everywhere, it is the question of trust. Do people trust that the leaders know what to do? Do people trust the advice, the recommendations, the instructions, even of leaders? Do people trust each other to behave in collective ways? Whether it is about masks, vaccination or social restrictions and safe management measures, it is really a question of trust.


That is one key point that this pandemic has highlighted in exquisite detail, and we would hope that Singapore's behavior, Singaporeans’ reactions and actions, and the way we have behaved in the crisis, honoring the sanctity of contracts... and even while we had to take border precautions, never completely closing our ports and airports, which continued to function as vital transit centres, keeping supply chains open and making that extra effort. We believe that at some point the pandemic will recede, but the reputation built by being stress tested by a crisis is a source of competitive advantage. That is one element.


The other element – and it is one where we have had a somewhat unique advantage – is that this has been a time when governments all over the world have had to open the fiscal tap and even the monetary tap. In our case, we had the additional relief measures and stimulus that we put into our economy. You have referred to the successive budget statements. If you add them up, an additional impetus was committed of almost a hundred billion Singapore dollars. Now, just to put that in context, if you were to scan our budget statements of preceding years, you would realise that that extra infusion of a hundred billion is more than the usual budget expenditure in any particular year. Almost doubling. In other words, we are almost doubling committed government expenditure, but the unique point is that we were able to do that without borrowing a single cent. And for 55 years, we have been busy squirreling away reserves based on savings and investing it. And telling our people “look we have got no oil, no natural resources, no other buffers except accumulated sweat and investment”. This is a rainy day and we ought to be grateful that we have got this ballast accumulated because of the values, political economy, and the consensus that our people have had.


I think this is another unique, competitive advantage for Singapore. That when we did need to open up the fiscal tap, we could do so without mortgaging the future, without borrowing a single cent or adding on burdens to future generations. That, I think, is another unique advantage that we have from fiscal probity. So one element is trust. One is fiscal probity and stability.


The third dimension, may not be as unique, but we like to believe where we have also been able to move ahead on, is the digital front. In a sense, all the technology which we needed to conduct virtual press conferences, virtual meetings, bilateral or regional, had already been invented before COVID. But I think COVID turbocharged this transition and here again, it has paid off for us.


We have fibre going to every single home. In fact, if you look physically, we have two fibers going to every single home and office in Singapore. We have some of the most cost effective and reliable broadband access in any city state. We have a digitally literate and demanding people. The result of that is that it has enabled our businesses and our people to transit fairly seamlessly into this new digital age. Even in that sense, the fact that COVID pushed us to use infrastructure and technology, which fortunately we had already invested in over the past decade or more, I think puts us on a good footing.


The other element I would highlight is the fiscal tap, but you should also look at how we use that additional stimulus. Additionally, two elements which I am sure you will get when you speak to my Finance Minister, are the Jobs Support Scheme and the SGUnited Traineeships Programme.


Now, before getting to the details, the top line is this. We knew that when we got into this storm, there would be a major impact on unemployment – the Jobs Support Scheme in effect, subsidises employers to keep citizens of Singapore on their payrolls. That job subsidy range between 25 and 75 percent of the first $4,000 of a person's salary that helped to cushion the impact on local citizens, who would otherwise have been facing significant unemployment. The other scheme I referred to, the SGUnited Traineeships Programme, was because we were very mindful that we did not want to have unemployed young people. Because if you look at the evidence in previous crises, a generation that graduates in a time of significant economic hardship has an outlook and lifetime earnings trajectory that is often scarred.


We put in money to create traineeships and internships, to subsidise companies to take on young people fresh out of school. We knew that without those subsidies and without those incentive schemes, they would otherwise have had to wait out the pandemic. We did not want our young people to be scarred like this. Here again is an example of intelligent design of social security and safety nets.


I think when the pandemic recedes, you will see that schemes like this made a big difference. It gives our people confidence that yes, when storms hit, we have the fiscal power and the policy innovation to look after our own people and especially our young. The fifth element I would add, is in order to not waste the crisis, it is not just about immediate relief, but about restructuring our economy to prepare for the future.


We are also using this as an opportunity to restructure our economy. It is not just to talk about it at a macro level, but to have detailed plans for each different sector of the economy. To go to the employers and trade unions and say, “Well, tell me what is going to change as a result of digitalization in your view? What are the skills which are needed? What is the infrastructure, which you need the government to invest in? What are the networks that you need to build? Let us work on it together.” We have got very detailed plans to restructure the economy for the future.


I am not saying that our plans are perfect or that everything works according to plan, but you can see that there is a big picture and there is a strategy writ large behind what we are doing. It is not just a reaction. It is not just a response out of fear. But again, it is another example of what I refer to as desperate imagination in the face of existential vulnerability


TBR: How would you say your considerable past experience personally and professionally benefits you now in fulfilling your, your position at the helm of diplomacy in Singapore?


Minister: Well, I think before getting personal, it would actually be worth your while to analyse the makeup or the composition and of the collective experience of our cabinet. We have a Prime Minister who is a mathematician, who spent a couple of decades in the military before he entered politics. Our Deputy Prime Minister, Heng Swee Keat, was a former central banker. Of our two Senior Ministers, Teo Chee Hean is a graduate from Manchester, an engineer, and the other Senior Minister, Tharman, was also a former central banker. If you go through the list of ministers, I think you might find that what is somewhat unique in our cabinet is a rather scientific technocratic bent.


We have no professional political class in Singapore, so all of us have had a life where we had a job, whether it is in a profession or business. We have had to operate and run something. And in a sense, you can see that also explains our pragmatic approach to policymaking eschewing ideology and in this time and age, when you are facing a pandemic and you are facing a digital revolution, and you are thinking about long-term plans for climate change, guess what? A technocratic cabinet that understands science, math, and programming and yet has picked up enough political nous to be able to explain and convince people, has been an advantage.


Do not take it on faith from me, but just do a quick count of the number of engineers, surgeons, and so on. We have lawyers too obviously – I find it an interesting cabinet composition. For myself, as someone who has been reading Newsweek since the age of 10, with a scientific background, in applied healthcare and also being a surgeon, is therefore used to not just thinking or pontificating, but actually having to use my hands. I can fix watches, I can build computers, I can crimp network cables, and do some amateurish programming.


Living through the last two decades, a time of digital revolution, a time of thinking through climate change, a time of economic restructuring, when we all need to be polymaths in some form. This has been an exhilarating time for me, intellectually and professionally. At the same time, being in politics has given me a ringside seat into this revolution. Even more importantly, it has been an opportunity to make a difference in the real lives of real people. So (there are) no regrets – I could not ask for more in terms of both stimulation and meaning in life.



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