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Business Times - 28 Oct 2009

Economists rethink S'pore growth models

Country needs to go beyond tweaking or fine-tuning in post-crisis world


LOCAL economists said yesterday that Singapore's model of economic growth needs rethinking, as they presented ideas such as encouraging more privately owned local enterprise, a sharper shift to services, and aiding regionalisation.

At the fourth Singapore Economic Policy Forum, organised by the Economic Society of Singapore (ESS), both private sector economists and local academics shared their views with an audience of about 190 fellow economists, public-policy makers and educators.

To meet post-crisis challenges, Singapore needs to 'go beyond tweaking or fine-tuning', to really rethink its economic growth model, said Manu Bhaskaran, Centennial Group partner and vice-president of the ESS.

He said that there has been an 'inordinate emphasis on numerical targets of GDP (gross domestic product) growth' over the past few years, which may have led to larger reactions to episodic shocks than they warranted. The economy needs to build resilience by diversifying both demand and production so as not to be as dependent on selected markets and multi-national companies (MNCs), Mr Bhaskaran said.

To strengthen 'inherent capacity', he suggested building a 'more diversified corporate eco-system' with more strong, privately owned home-grown enterprises. This could help raise consumption too, he said, Singapore's low consumption ratio being another concern among some economists.

Given the huge savings pool in Singapore, Mr Bhaskaran said, there is much capacity for growth for Singapore's 'pygmy financial sector', if savings can be mobilised to nourish the local rather than the foreign financial sector.

He also recommended regionalisation, and gave the example of Iskandar Malaysia and how linking Singapore to it could open up a larger market for local businesses.

Also calling for a change in mindset among economists in the bureaucracy, was Nanyang Technological University (NTU) economist Choy Keen Meng, who said that a 'long-held bias in favour of manufacturing must be shed' so as to develop the services sector.

Singapore's high but declining growth rate has come with severe volatility not merely due to external factors such as the global economy or electronics cycles, but also domestic industrial restructuring and the falling consumption ratio, Dr Choy said.

A stronger services sector would help temper volatility and stimulate private consumption, he said, adding that he expects services to make up 70 per cent of output in future. He thinks that the government can offer greater tax incentives and reduce start-up costs for service companies.

To boost domestic demand in the medium term, he suggested that government-linked companies hand out shares to raise Singaporeans' wealth.

Long-term growth has been the focus of several Singaporean economic forums now. In May, the government formed the Economic Strategies Committee to look at new ways for Singapore to grow, and will unveil its recommendations before next year's Budget.

But yesterday's forum also saw a couple of more specific discussions, on the use of monetary policy to contain asset price bubbles, as well as Singapore's health care system.

Tackling the latter, National University of Singapore (NUS) economist Tilak Abeysinghe spoke of how Singapore should move towards a more equitable financing of universal health care.

But his suggestions for compulsory Medishield, cross-subsidies via a Medishield tax, and an elimination of the ward-class system from public wards, drew opposing voices from the floor.