The new cyber-economy has cast doubt on Singapore Inc.'s decades-old formula of state-led success. Can it survive?
The gauntlet dropped in the chandeliered dining room of the Mark Hopkins Inter-Continental, an elegantly restored 74-year-old hotel atop San Francisco's Nob Hill. As usual, Lee Kuan Yew minced none of his words to a standing-room crowd, participants at the Singapore Techventures 2000 conference. But his forthright remarks on March 9 were really meant for an audience half a world away - in his home country and its neighbors.
"Asia needs to embrace the New Economy," the Singapore senior minister declared, referring to the exploding world of Internet-enhanced enterprises. "Failure to do so will mean an inability to compete." To Singaporeans the nation's founding father warned: "If we do not change fast enough, we're going to miss so many chances, we'll kick ourselves for it."
And Lee's prescription for Singaporeans to join the cyber-charged global e-race? "We need to get our people to be more willing to undertake risk. It requires a completely different mindset." Like major mental overhaul, to hear the former PM put it: "For us, the change means the abandonment of rules which have served us well for 30-plus years."
In case people haven't felt the tremors, the ground is shifting in Singapore. As it searches for novel strategies for the New Economy, time-honored tenets are being questioned, if not discarded. Among them: risk-wary conservatism in business and finance, the single-minded quest for efficiency and control, and even the leading role of the state and government-linked corporations (GLCs) to plot and spearhead economic moves. Under this Singapore Inc. strategy, GLCs have long amassed and deployed financial might, and operated in a vast array of sectors, from phones, ports and power to property and, at one point, pastry shops.
Now, Singapore leaders are thinking of accelerating plans to pull the state out of business, through faster deregulation of major industries like electricity, and the speedier sale of public stakes in GLCs. The apparent aim is to recast the economy into one truly driven by private enterprise. "Societies must be flexible in re-inventing and refining their economic system," Lee told his listeners in San Francisco. "The strength of the American system is that it has always embraced change and creative destruction."
While applauding the new tack, advocates of a less dominant state also wonder whether the loosening up will extend beyond the economy. Lee notes that Singapore, like several other Asian countries, is already trying to promote creativity among children by making primary schools less results-driven. The government is considering tweaks in the local media, now ruled by Singapore Press Holdings newspaper group and the Television Corp. of Singapore, though foreign ownership is still limited to 3% (see story page 47).
Denying any sudden sweeping change, Trade and Industry Minister George Yeo Yong Boon says that Singapore society has been shifting for some time. "You will find year after year a continued transformation of the social and cultural landscape," he told Asiaweek. "It's more evolutionary, the result of a new generation educated after Independence."
In an interview with London's Financial Times, Prime Minister Goh Chok Tong said the government would consult with people more, and may designate an area for the public, including political activists, to freely speak their minds. A number of Singaporeans in key sectors such as the arts, gay rights and women's issues do speak of gradual change in the air (see story page 48).
Those who want to cling to the safe, old ways have Richard Li Tzar-kai partly to blame for this subversion of the status quo. Last month the Hong Kong Netrepreneur jolted the Lion City with his headline-grabbing, ego-zapping victory against well-established, cash-laden Singapore Telecom, the giant telephone GLC. There are other reasons for Singaporeans to question their past formula for success. But up there among the big whys has to be losing Cable & Wireless HKT, SingTel's Hong Kong counterpart and erstwhile merger partner, to a 33-year-old upstart and his Pacific Century CyberWorks outfit, backdoor-listed less than a year ago.
"We lost because we were overconfident and arrogant," says a senior Singapore banker. "What hurt us more is that the winner wasn't a large American telco like AT&T or even a big Hong Kong tycoon like Li Ka-shing, but his young son using a relatively new Internet company." Adds an American consultant: "To take its companies to the next level Singapore needs to swallow a bit of its pride. Can it?"
Looks like it can, on many levels. The Lion City seems keen to make the HKT setback not just a humbling experience, but also a learning one. And the quickest study may well be the entity with the most pride to guard: the government. "It should give more space to the private sector," Goh told the Financial Times newspaper. "We must allow ourselves to be challenged by other people and be prepared to listen."
And not just listen. Authorities plan to allow more competition sooner in the telecommunications and power generation sectors dominated by SingTel and Singapore Power, another GLC (see story below). Already, the electricity company has delayed its listing, while a new private venture licensed to enter the telephone market is thinking twice about laying land lines, amid the prospect of more rivals coming in sooner.
For its part, the state-run investment company Temasek Holdings may speed up the sale of holdings in leading GLCs, which include 15 of the 20 largest listed enterprises. Goh acknowledged that the state's 77% stake in SingTel may have caused a problem for its HKT bid. Many people in Hong Kong and possibly China were concerned that the Singapore government would get involved in the running of the Hong Kong telco - a misimpression the government must remove, said the PM.
Others, however, see weightier reasons for Temasek divestment. Inderjit Singh is a legislator of the ruling People's Action Party (PAP) who heads his own microchip services company, Utac. He says state ownership slows down GLCs - a major disadvantage during fast, aggressive takeover battles. "There are probably several levels of approval before a decision can be made," Singh explains. "In SingTel's case, the majority shareholder Temasek would have had to convene [its own] board to get approvals, because these are government funds." The MPhimself says he sold an e-commerce start-up to Norwegian investors for $7.7 million within 48 hours of starting negotiations.
Indeed, state authorities tend to be very conservative, keen to avoid the appearance of profiteering or excessive risk-taking - hardly the sort of attitude that makes for go-getter moves. At the same time, there is a tendency for state companies to copy the winning strategy of one of their number. "There was this group think among GLCs," says a real-estate analyst. "The head of one sees his friend who heads another GLC making money in property, so every GLC goes into property."
SG Securities strategist Manu Bhaskaran takes the argument further: "The government has no business being in business. It is wasting time, money and other resources trying something that entrepreneurs can do far better. I'd like to see more true privatization, not just a cosmetic selling down of equity stakes in some high-profile companies." MP Singh argues for state holdings of no more than 30%-40% in any company. That, he adds, may require letting foreigners own sizable percentages. "We should allow any foreign entity to come in and take over whatever stake they can," says Singh, "and then play a relevant role in the company."
But are the authorities really ready to take a back seat and let the private sector take the economy's steering wheel? Many officials probably have little confidence in private firms, especially small ones. "The government says Singapore must develop world-class companies," says nominated MP and law lecturer Simon Tay. "But the assumption of the government is that these world-class companies will be GLCs."
The problem is partly historical, Tay explains. For decades, state companies were the main economic players, providing many essential goods and services which businesses just could not deliver. Small enterprises, moreover, have long been excluded from major economic and business policy-making.
Others believe GLCs and the rest of Singapore Inc. are part of the government's patriarchal control. "The government takes the best talent into the civil service or the armed forces," says a banker. "It takes away a huge chunk of our savings - equivalent to nearly 40% of the salary for most Singaporeans - through the CPF." The mandatory Central Provident Fund, adds the banker, pays a mere 4% a year on average. By comparison, local stocks earned 12% per annum over the past decade. Of late, officials have been saying that Singaporeans aren't saving enough. "They take away 40%," asks the banker, "and we're not saving enough for retirement?"
Defenders of the CPF and GLCs point out that these cash cows help fund Singapore's impressive infrastructure and mass housing. But such largess may lead to financial inefficiency. "The savings rate is so high, but the returns are bad, not even better than a bank deposit," says Tay. Many analysts contend that GLCs are capitalized far too much. "They can't seem to use all the cash they have, to get the sort of returns entrepreneurial Hong Kong companies deliver year after year," says the American consultant. One estimate puts the money GLCs are sitting on at $10 billion, partly a result of decades of highly protected revenues. Compounding the problem is a natural tendency for conservative officials to prize cash in the bank more than leaping profits.
When GLCs go abroad to invest and make deals, the pile of money is an edge. But it isn't enough to win, as SingTel found out in Hong Kong. Just as important is having an image and a pitch that would fire up investors and partners. "We've got cash in the bank," says Tay. "We are known to be very honest people - efficient, but maybe not entrepreneurial. Singapore can effectively deliver, but it's not known for grabbing new ideas and running with them." By contrast, Li captured the imagination of investors who pumped up his stock value so high, he outbid SingTel even without as much cash.
There is no denying, however, that the tenets Singapore now finds problematic underpinned its success for decades. Forward planning, financial might, firm control, full commitment from everyone, and fear of failure - these five F's helped the nation weather economic crises and political strife, while creating an advanced, prosperous and well-ordered city. Which is why it is doubly hard to let go of them, even if they can be liabilities in the fast-shifting New Economy. Nor is it easy to embrace aggressive individualism, bold risk-taking, quirky imagination, wheeling and dealing, which could just as well be a formula for ruin if the market goes bad.
The reluctance to adopt new ways extends to other aspects of society. Despite more liberal mores, Minister Yeo believes Singaporeans still do not want Playboy on the newsstands in Singapore. Nor will people set aside their reserved manner and speak frankly. "The culture is Asian," says the reservist general. "We are not comfortable with children talking back to adults in a rude way. We better keep it that way. It's the essence of being civilized. Because I respect you and I know what the sensitivities are, I adjust."
A further challenge to those wanting to revitalize Singapore business - the effort may demand some relaxation of political curbs, to create a feeling of entrepreneurial confidence and freedom. But the ruling party does not seem keen to loosen up on politics much. "The PAP is willing to liberalize without democratizing," says Tay. "They are willing to open up to consultation and to make themselves and the civil service more entrepreneurial. But they don't want two political parties." Well, if the PAP won't allow the rise of a powerful rival party, can it tolerate differences of opinion with new business powers, especially if giant GLCs are privatized? Certainly, if speaking one's mind freely could still land a person in jail or subject him to other pressures, then that would discourage free thinking and tinkering.
Ultimately, however, it is Singaporeans themselves who must change, not just the GLCs or the government. They must be willing to cast aside past certainties and easy conventions and take on unfamiliar challenges. It won't be easy. Ask entrepreneur Paul Lim. Years ago he failed in business and became an outcast of sorts. But the 35-year-old has bounced back with an online shopping venture called GeoAsia. Still, he doesn't expect everyone to follow suit. "Some understand the new way," he shrugs. "Others are still stuck in the old economy." PM Goh speaks of tensions between "cosmopolitans" open to the world and "heartlanders" clinging to tradition. Yet it shouldn't be an either-or: like the 1999 Lear production of Singapore director Ong Keng Sen, which combined traditional Asian forms in an avant-garde staging, a synthesis of old and new is probably what will work best.
Mark Konyn of Dresdner RCM Global Investors in Hong Kong sees no rush for unbridled enterprise in the Lion City anytime soon. Kim Teo, a CMG fund manager in Singapore, thinks it is still attractive to investors even now. But Christopher Wood, a strategist at ABN Amro Asia in Hong Kong, says Singapore needs telecom deregulation, a free press and hordes of free-wheeling investment bankers for all those Net deals. He adds: "Trying to change the mindset of people and force them to take more risks... often takes a generation." Clearly, Lee Kuan Yew has his work cut out.
