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Monday, August 28, 2017

Singapore’s Greatest Resources Are Location and Liberty

Singapore's "founding grandfathers" were three British classical liberals.

Singapore is rightly heralded as a beacon of economic success and one of the freest economies in the world today, placing near the top of economic freedom indexes. Sizing up to only about two-thirds of New York City, the country is but a speck on the world map. Casually referred to as a “Little Red Dot”, this colloquial nickname for the prosperous city-state today is embraced by its own populace, despite its origins as a derogatory remark.

A look into the early development of Singapore unveils its steep and robust foundations in free trade.

The case of Singapore is strong evidence for how tightly economic prosperity is tied to a high degree of freedom to trade.

In 1971, when the British yanked their safety net out from under Singapore in a bid to cut their own spending, Singapore’s early government jolted into action. With a realistic understanding of their lack of natural resources and space limitations, the early leaders of post-independence Singapore embarked on a strong, export-led, market-oriented economic path.

To what does Singapore owe its success? To answer this question, it is necessary to look at Singapore’s earlier history – an area that has largely been neglected in mainstream discourse but extensively explored by historians. A look into the early development of Singapore unveils its steep and robust foundations in free trade.

So, how far back should one go? Why not back to 1819, when the British first stepped onto the shores of Singapore?

The Founding Grandfathers

The country’s first Prime Minister, Lee Kuan Yew, is often recognized as the father of Singapore. If that is so, then the grandfathers of Singapore would rightfully be three men: Sir Stamford Raffles, who founded the trade settlement, William Farquhar, whom Raffles put at the helm of Singapore in his periodic years of absences, and John Crawfurd, whom Raffles appointed to succeed Farquhar.

“The ‘natural resource’ of Singapore – an island of just 225 square miles – was location.”

To Raffles, Singapore was two things: (1) a treasured British colony that thwarted the monopoly of naval trade then held by the Dutch in the eastern seas, and (2) a sanctuary he hoped would one day be “the pride of the East.” Despite the fact that Singapore was not yet officially a British possession, it was the bold vision of Raffles that paved this eventuality in 1824 under Crawfurd.

Singapore’s greatest “natural resource” is its location. The island is situated at a perfect choke point along the Straits of Malacca, one of the busiest maritime sea routes which connects the West with East Asia. Raffles’s high hopes for Singapore stemmed from the fact that he understood the unique geographic advantages that the island offered. As W. G. Huff puts it, “Geography can be thought of as a natural resource like, for example, mineral deposits in the sense that both are ‘superior’ land. The ‘natural resource’ of Singapore – an island of just 225 square miles – was location.”

Raffles tapped this “natural resource” to its fullest, advertising Singapore’s ports as free of tariffs, imposed minimal port charges and banned customs duties – an alternative that proved enormously attractive to most neighboring ports of the time that were subjected to extortions, unstable laws, heavy duties and other restrictions. The trading settlement also enjoyed a natural deep-water anchorage that enabled the luxury of deep-water berthing. Both these factors made the port of Singapore unrivaled by any other in the region in its time.

Not Territory, but Trade

In the very same year that he stepped foot in Singapore, Raffles’s intentions were plain as he wrote in a letter in June 1819: “Our object is not territory but trade; a great commercial emporium and a fulcrum whence we may extend our influence politically as circumstances may hereafter require,” and to develop “the utmost possible freedom of trade and equal rights to all, with protection of property and person”. It was at this point in history that this poor and unknown fishing village began to undergo its most radical transformations.

The first leaders of colonial Singapore were staunch classical liberals.

These instructions were relayed to Farquhar in Raffles’s year-long absences. As First Resident and Commandant of Singapore (1819 – 1823), the early Singapore port grew and prospered under his four years of careful supervision. However, Farquhar also went against Raffles’s instructions, legalizing gambling dens and sales of opium and alcohol in order to raise revenue. Coupled with his lax attitude to the slave trade amongst other administrative disagreements, this eventually led to a falling out between the two men, and Farquhar was replaced by Crawfurd in 1823.

Like Farquhar, Crawfurd shared Raffles’s strong free-market beliefs and pushed his laissez-faire policies even harder than Raffles would have himself. Crawfurd kept the tariff-free port and also abolished port charges, anchorage, and other fees. Crawfurd also found a delicate middle ground for gambling houses with Raffles, choosing to license the activity while regulating and taxing them at the same time. Under his administration of three years, Singapore saw a dramatic upswing in trade and revenue.

Championed by its leaders and the merchant communities, a no-restriction immigration policy was a critical attribute to its early economic growth and success. As a result, many Chinese immigrants were attracted to the free and bustling trading port of Singapore. From the 1830s to the late 1860s, Singapore’s population quadrupled.

A Free-Trade Faith

The common denominator of the grandfathers of Singapore was their economic philosophies – capitalism and free enterprise were at the root of their beliefs. The first leaders of colonial Singapore were staunch classical liberals who professed strong beliefs in economic freedoms, preaching and practicing the gospel of free trade every step of the way.

“Free trade became a sacred cardinal principle and any threatened infringement was opposed vehemently as commercial heresy.”

Laissez-faire was the norm and a free economy was fiercely ingrained in the institutional context of Singapore’s society. The historian C.M. Turnbull writes in her magnum opus A History of Modern Singapore: “The principle of free trade was accepted by the East India Company’s Board of Control in London in 1826 and thereafter defended zealously by the Singapore merchants. Free trade became a sacred cardinal principle and any threatened infringement was opposed vehemently as commercial heresy.”

Raffles, she wrote, “…reflected the most advanced radical, intellectual, and humanitarian thinking of his day. The type of society he aspired to establish in Singapore was in many ways ahead of contemporary England or India… he established in Singapore a free port following the principles of Adam Smith and laissez-faire at a time when Britain was still a protectionist country.”

The transformation from a third-world fishing village to a metropolis is largely (and rightly) attributed to the late Lee Kuan Yew. Yet, the role of the grandfathers of Singapore in this transformation is often neglected. In A History of Singapore, historians Ernest C.T. Chew and Edwin Lee echoes Turnbull and attributes Singapore’s early success to free trade and immigration:

“It (Singapore) succeeded because it was an island enclave of uninhibited private enterprise, open to all races, without any religious or linguistic qualifications. It was also a free port. Except for a short interlude at Penang between 1786 and 1801, the idea of permitting trade without simultaneously taxing it was virtually unknown in the East at this time. Trade in ports under Western colonial rule were either subject to monopolies or higher duties and all kinds of restrictions, while the ports, great and small, under local rule were heavily taxed and were often subjected to all forms of exactions imposed at the whims and fancies of their rulers. Trade sometimes seemed to be tolerated rather than encouraged. Free port status, which attracted both Asian and Western traders, was one of the principal reasons for Singapore’s rapid success.”

If Lee Kuan Yew constructed the first-world metropolis that stands today, then the very first bricks for the foundations of Singapore’s economy was laid by the founding grandfathers who erected laissez-faire institutions that to this day remain deeply entrenched. This set Singapore on the road to prosperity as the leading port of South-East Asia, establishing the bedrock that the modern metropolis rests on today.