Singapore Miracle Dimming as Income Gap Widens Squeeze by Rich

Economic miracles sometimes need course corrections, even in Singapore, which last year was home to more U.S. dollar-millionaire households per capita than any other country, according to Boston Consulting Group Inc.

From 1959 onward, under the leadership of Lee Kuan Yew and his successors, Singapore transformed itself into a rich hub for a range of industries, from financial services to transportation, to pharmaceuticals, Bloomberg Markets magazine reports in the September issue. From 1960 to 2010, the city- state’s GDP increased 41-fold, to 285 billion Singapore dollars, as it became the world’s second-busiest container port and fourth-largest financial center. Three of the world’s six strongest banks are based in Singapore, according to a June Bloomberg Markets ranking.

As non-Singaporean workers and companies have poured into what the World Bank says is the easiest place on earth to do business, some Singaporeans have been left behind. The income gap between richest and poorest has widened in recent years, according to the government statistics department.

Non-Singaporeans now make up more than one-third of the island’s population of 5 million. The influx of wealthy expatriates has inflated demand for housing, pushing up prices, while the opposition Workers’ Party argues that large numbers of immigrant laborers have depressed local wages.

‘Learn and Lead’

Against this backdrop, the voters in May’s general election handed the ruling People’s Action Party (PAP) its smallest margin of victory since 1965. While the PAP still collected 60 percent of the votes cast, the decline from previous showings was bracing enough for Prime Minister Lee Hsien Loong, Lee Kuan Yew’s eldest son, to promise a period of soul-searching.

The government pledged to pay attention to the electorate. “My mantra is to listen, learn and lead,” says Lui Tuck Yew, the new transport minister.

The Workers’ Party, which won six seats in Parliament (up from one in the 2006 election), called it a watershed election. Some Singaporeans went further. Catherine Lim, a best-selling novelist and political commentator, said the electoral landscape had turned toxic for the PAP by the time voters went to the polls. “This election shocked them like no other,” Lim, 69, says. “I call it a renaissance -- a Singapore revolution of sorts, like the Arab Spring.”

In reality, Singapore bears little resemblance to the fragile autocracies of countries in North Africa and the Middle East, politically or economically.

Hybrid Democracy

Lee Kuan Yew co-founded the PAP and was the world’s longest-serving prime minister when he stepped down in 1990 after 31 years in office. He presided over a hybrid democracy: Though political opposition was minimal, there were regular elections. Remaining in the cabinet first as senior minister and then as minister mentor, Lee was succeeded by Goh Chok Tong and, in 2004, by Lee Hsien Loong.

Over the decades, the city-state achieved its success by encouraging foreign investment, avoiding corruption and emphasizing discipline, efficiency and interracial harmony. In order to reduce Singapore’s reliance on exports, successive governments encouraged the growth of new industries through business-friendly taxes and a minimum of red tape.

The Singaporean economy has grown mostly without interruption since 1986. The exceptions are a 2.1 percent contraction during the Asian financial crisis in 1998, a 1.2 percent decline in 2001 after the dot-com bubble burst and a 0.8 percent decrease during the 2009 global financial crisis.

Casino Gambling

While Macau, China, has been the world’s biggest player in casino gambling since it overtook Las Vegas in 2006, Singapore will move into second place by the end of this year, forecasts Frank Fahrenkopf, president of the American Gaming Association.

In 2005, as part of an effort to further diversify the economy, the government lifted a four-decade ban on casinos. Singapore moved with lightning speed: The island’s two huge gaming resorts opened last year. The casinos say they employ about 21,600 people and had attracted almost 35 million people as of recently.

Immigration has driven Singapore’s development. Smaller than New York City in area, the city-state has few natural resources. It has one of the lowest fertility rates in the world: 1.2 births per woman compared with 2.1 in the U.S., according to 2009 World Bank data.

‘An Invasion’

To fuel its ambitions, Singapore attracted globe-trotting professionals and entrepreneurs from places such as North America, Europe and India, as well as lower-paid laborers from countries including China, the Philippines and Bangladesh.

“It feels like an invasion because one day you wake up and there seem to be foreigners wherever you go,” says Dixon Chew, 34, a Singaporean maintenance engineer. “It used to be that most of the foreign workers were maids or laborers, but now they’re driving the buses, they’re taking your orders at McDonald’s, they’re the cashiers at the supermarkets.”

Unaccustomed as it is to opposition, the ruling PAP may have underestimated popular discontent, says Vishnu Varathan, an economist at Capital Economics (Asia) Pte in Singapore. “The government has missed some clues, and there are very legitimate reasons why people are unhappy,” he says. “The onus is on the PAP to show that it is not old wine in a new bottle or it will continue to lose votes.”

After the election, Lee Hsien Loong moved quickly to show he had heard the voters. He reshuffled his cabinet. The government announced plans to release more land for homebuilding.

Coded Language

It also said it would review ministerial salaries that are among the highest in the world: Prime Minister Lee made $2.1 million in 2009, while cabinet ministers earned about $1.1 million each.

Lee Kuan Yew, who turns 88 on Sept. 16, left the cabinet, as did Goh, who had assumed the role of senior minister in 2004. In somewhat coded language, the elder Lee and Goh said in a statement a week after the election that it was time for change in Singapore.

“We have made our contributions to the development of Singapore,” they said. “The time has come for a younger generation to carry Singapore forward in a more difficult and complex situation.”

The government began to address immigration before the election. “We have moved quite fast over the last five years,” Lee Hsien Loong said last year. “But now, I think we should consolidate, slow down the pace. We cannot continue going like this and increasing our population 100,000, 150,000 a year indefinitely, and we should give Singaporeans time to adjust and our society time to settle and integrate better the newer arrivals.”

Reaching Out

In that vein, the government granted 48,023 permanent- residence and citizenship applications in 2010, down about 40 percent from 79,388 the year before.

Ministers are increasingly reaching out to the public. Some are connecting in time-worn ways. In June, Minister for Environment and Water Resources Vivian Balakrishnan waded through a shopping mall to see firsthand the effects of a flash flood.

Others are flocking to the Internet. “I will consult widely, with experts, customers, industry players and Singaporeans,” Minister for National Development Khaw Boon Wan said on his Housing Matters blog.

Adapting to shifting currents is something that Singapore has excelled at since Lee Kuan Yew came to power a half century ago. His exit marks more than a symbolic threshold for Singapore and for his son. The government recognizes that popular demands at home can’t go unmet.

‘Significant Concerns’

“Singapore has entered a new phase in its political development,” Lee Hsien Loong said at the swearing-in ceremony of his new cabinet in May. “It is clear that Singaporeans do have significant concerns over both the substance of government policies and the way they are implemented. In implementation, our approach must be more flexible, thoughtful and compassionate.”

Lee’s challenge will be to keep making the city-state his father built attractive to business and foreign workers while making sure born-and-bred Singaporeans continue to get a piece of the economic miracle.

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net

To contact the editor responsible for this story: Michael Serrill in New York at mserrill@bloomberg.net