Lessons for India from Singapore

When Lee Kwan Yew became Singapore’s first prime minister in 1959, its per capita income was $400. Today, it is $55,000. No other country has gone so fast from rags to riches.

Yet in the Nehru-Indira era, Indian socialists viewed Lee with contempt as a neo-colonial puppet destined for humiliation and poverty. As things turned out, India earned maximum humiliation as a beggar for foreign aid, and the number of poor Indians doubled in 1947-77 even as Singapore soared.

Nehru feared foreign trade and investment as vehicles for India’s re-colonisation through economic means. So, he sought to reduce both and aim for self-sufficiency through import substitution. Incredibly, socialist intellectuals saw no contradiction in extolling self-sufficiency while constantly demanding more foreign aid.

Far from viewing international trade and investment as vehicles of neo-colonial domination, Lee saw them as pathways to unprecedented prosperity.

Nehru had the typical brahminical contempt for the bania. He admired the Soviet Union, where visionary intellectuals supposedly led the country forward with five-year plans. He wanted the public sector to dominate the economic heights, enabling noble brahminical intellectuals to decide outcomes rather than slimy banias.

Nehru was inward looking and public-sector friendly. Lee was outward looking and private-sector friendly. Far from viewing international trade and investment as vehicles of neo-colonial domination, he saw them as pathways to unprecedented prosperity. He grasped the key virtue of globalization: it converts poverty from a disadvantage into an advantage provided a poor country develops good institutions and investment conditions. The lower the wages in a poor country, the more competitive it becomes in exports and investor attraction.

Of course, rapid development will raise wages rapidly. But provided productivity rises as fast as wages, competitiveness will not suffer. Lee grasped that the key was to constantly raise productivity. That required good governance plus market-friendly policies. This went dead against Nehru’s philosophy. It fits in much better with Modi’s.

As for socialist fears that globalization meant neo-colonialism, Lee said what mattered was the quality of internal governance. A badly governed country will always be easy prey for outside dominators, but not a well governed country. Unlike most Indians, Lee could see that the biggest threat to freedom and prosperity came not from western imperialism but communist imperialism, and so developed close ties with the US. The Soviet collapse in 1990 vindicated him.

In the 1960s, Singapore and other Asian tigers (Hong Kong, Taiwan and South Korea) created miracle economies growing at almost 10% per year. India was stuck at 3.5% growth. Yet most Indians looked down on the Asian tigers, saying their path would take them to poverty and neoserfdom. In fact Singapore soon became much richer than its colonial master in per capita income ($55,000 against $42,000). India, of course, stayed poor.

Lee did not follow laissez faire. For him, good governance included massive public, social and physical infrastructure that was world class, facilitating productivity and private enterprise. The biggest Singapore companies in his early years were government companies building power stations, ports, roads and water supplies. Socialist India did a lousy job in physical and social infrastructure: it focused instead on massive (and woefully inefficient) public sector manufacturing, especially in steel and heavy industry.

Lee’s social infrastructure stretched from universal education and health coverage to massive public housing and old-age security. Lee and Nehru agreed on the importance of social infrastructure, but capitalist Lee did an infinitely better job than socialist Indians. He created a quick, efficient police-judicial system, with an agency that cracked down on corruption. India failed dismally in these areas. Lee kept raising the salaries of top ministers and bureaucrats, making these comparable with private sector salaries. But not India.

After the reforms of 1991, India began moving in Lee’s direction, becoming more outward looking and market friendly. Narendra Modi is an admirer of Lee. But Lee ruled a small island-state with an iron fist, something Modi cannot do in a vast country with an opposition majority in the upper house, powerful state governments, unsackable bureaucracies, and activist courts.

Some of Modi’s maxims — like minimum government, maximum governance — echo Lee’s philosophy. Like Lee, Modi sees public infrastructure as an essential facilitator of private and foreign investment. This explains his plans for high-speed trains, Sagar Mala (garland of ports), massive inland waterways, and giant power plants. But unlike Lee, Modi cannot provide social infrastructure — in India that is the province of state governments.

Where is Modi failing to learn from Lee? First, he is doing nothing to create an efficient police-judicial system. Second, his Make in India scheme has a protectionist touch. Third, he shows no hurry to catch and jail influential people for corruption. Fourth, he has done surprisingly little to improve the ease of doing business. Lee in his grave will frown at such a large unfinished agenda.

Swaminathan S. Anklesaria Aiyar is a research fellow at the Cato Institute.