3.3.1
Note

Managing Globalisation (Singapore)

3.3.1 Globalisation & trade

Idea

A small, open economy such as Singapore has much to gain from globalisation but is also exposed to its costs — income inequality and structural unemployment in particular. Policy therefore aims to maximise the benefits while minimising the costs. This note catalogues the policy levers; it reaches no verdict on their adequacy.

Considerations

Supply-side policies to capture the benefits.

  • Raise price competitiveness. Long-run supply-side policy improves the quality of labour and physical capital, raising productivity, lowering costs of production and making exports more price-competitive — letting the economy exploit the larger markets globalisation opens. Singapore’s Productivity and Innovation Credit bonus subsidised firms that invested in worker productivity.

  • Raise export competitiveness. Subsidising research and development improves the quality of exports, raising export demand and revenue. Singapore invested heavily in research, innovation and enterprise to this end.

  • Attract FDI. Maintaining a skilled workforce, a technologically progressive economy and good infrastructure draws multinationals to invest, raising inward FDI.

Policies to limit the costs.

  • Reduce economic instability. Because Singapore is highly trade-dependent, it diversifies its sources of export revenue — a strategy of “decoupling” — by building a network of free trade agreements with more partners, including non-traditional ones. A shock to any single partner then does less damage to its trade balance, giving greater economic resilience.

  • Reduce structural unemployment. Long-run supply-side policies that continually upgrade the quality of labour — for example, Continuing Education and Training courses — reduce the skills mismatch that globalisation creates.

  • Regulate labour movements. Foreign-worker levies and mandatory ratios of domestic to foreign workers limit over-immigration and its social costs, incentivising firms to hire domestic workers rather than preferentially hiring foreigners.

The common thread is that supply-side policy does double duty — it both exploits globalisation (competitiveness, FDI) and cushions it (reskilling) — while trade diversification and labour regulation manage the specific risks of openness.