January 10, 2001
Move over, state, and let Singapore's private firms take the lead
The only remaining virtue of Singapore's dilution of its equity stake this
month from its flagship industrial park project in Suzhou is its Asian veneer.
As a face-saving measure, Singapore will retain a small stake in the project
that was once billed as its bold attempt to recreate the Singapore business
experience in China. It did not work out. Instead it drained Singapore's
resources, causing the republic huge embarrassment.
A large share of the blame must be borne by the Chinese, who went back on
promises they had made to Singapore and allowed a cut-rate competitor to
be built. But failure lay at Singapore's doorstep too, for its failure to
grasp the mercantilist nature of China. This debacle reflects a deeper problem
for Singapore: its model of state-driven capitalism. Few businesses would
have taken the audacious gamble to invest in creating a Singapore-style township
near Shanghai. But Singapore bureaucrats, invincible at home, believed they
could replicate one overseas.
Unfortunately, Suzhou is not an isolated case. It is part of a growing list
of Singapore's state-driven, high-profile overseas failures. These include
Singapore Telecom's abortive forays in Hong Kong and Malaysia, Singapore
Airlines' repeated attempts to acquire a stake in airlines in the region
and, earlier, DBS Bank overpaying for some overseas assets.
To be sure, Singapore companies sometimes have been caught up in domestic
political compulsions they cannot control. But savvy investors do not expect
a handshake between ministers as a substitute for political strategy on the
ground. Singapore's problem is expecting competent technocrats at home to
operate as fire-in-the-belly entrepreneurs elsewhere in Asia without creating
a political climate in Singapore that rewards free enterprise.
Since the early 1990s, Singapore's state-owned enterprises (known as government-linked
companies, or GLCs) have made several attempts to expand overseas. They were
relatively well-managed, had surplus cash, and the region, until 1997, was
booming. But the results have not met the high expectations normally associated
with Singapore. It's true that the partners sometimes changed the rules,
or were reluctant to let a regional competitor take a strategic stake in
the local economy. But the sheer variety of the industries involved, and
the range of countries, shows that the GLCs found it difficult to operate
Singapore Airlines, which is more competitive abroad than other Singapore
firms, nonetheless failed to acquire a stake in an Australian airline, nor
could it launch new airlines in Cambodia and India. When SIA did take a stake
in Virgin, some analysts in London argued that a deal-hungry airline may
have paid too much. The story is similar with Singapore Telecom. The state-owned
telecoms company made bids in Hong Kong and Malaysia. In each case, it fell
at the last hurdle, mainly due to local political sensitivities.
These cases reveal flaws in the Singapore model. Deals that look attractive,
and which seek to build on the relationship between top political and business
leaders, have unraveled lower down the chain. At that level, Singapore officials
appear to lack deftness when the regulations overseas are amorphous. Singaporeans
say their unwillingness to pay or take bribes ties their hands. But the U.S.
has a robust Foreign Corrupt Practices Act, and many American firms have
refused to bribe and yet secured projects they wanted in the same countries
where Singaporeans said they had problems.
A home climate that does not encourage risk-taking is another deterrent.
Singapore has one of the world's highest savings rates. But there is downside.
A large proportion of national savings is pre-empted by the government. As
SG Securities has argued recently, when these savings flow back into the
market, they are parked as short-term deposits with local banks. As the banks
are flush with funds, interest rates remain low. This penalizes the risk-bearers,
because activities with higher returns and higher risk are not even attempted.
A rational assessment of risk becomes difficult.
This is coupled with another deterrent, cultural conditioning. Singapore
does not have an entrepreneurial class; state-led or multinational-led management
has crowded out private initiative. The GLCs and MNCs require clear rules
and guidelines, and technocrats run the best ones in each case. An entrepreneur
would know that tying up with a politically sensitive partner like the Salim
Group in the autumn of the Suharto era may not be politically sound, but
a bureaucrat would not think that way. No wonder some were surprised by the
hostility of locals when Singapore firms in Batam were attacked in the post-Suharto
Singapore will have to trust its private sector more. A few private companies
have thrived: Creative Technologies is often cited, and CDL Hotels has made
a reasonable success of its overseas investments. And reforming the GLCs,
once again, becomes a priority. Furthermore, a political environment that
allows debate on alternative ways of doing business, and a business environment
at home which tolerates failure, are necessary — though not sufficient —
conditions from which a new Singaporean model can take shape.
Salil Tripathi was formerly a regional correspondent in Southeast Asia and
is now a London-based writer.