By: Bryan Cheang
A Disruptive Future
Recently at the 2016 National Day Rally, Prime Minister Lee Hsien Loong strongly highlighted that “disruption”, is the defining challenge that the Singapore economy will have to deal with moving forward. He pointed out in his speech: “Old models are not working, new models are coming thick and fast, and we’re having to adjust and to keep up, because of technology and globalisation. And the disruption will happen over and over again, relentlessly.”
A broad look at the global economy over the past decade reveals that great pace of change, and how companies today must innovate to stay ahead. Singaporean SMEs must, engage in what Clayton Christensen of Harvard Business School calls “disruptive innovation”, which creates new markets by discovering new customer segments, as opposed to “sustaining innovation”, which merely preserves the firm’s existing competitive advantage. PM Lee, is therefore, spot on when he mentions that “we all know we cannot stop progress. Even Uber and Grab are going to be disrupted!”
In his speech, PM Lee then proceeded to highlight how the Singapore government plans to get the economy prepared for the disruptive future. The economic agencies of Singapore, EDB, SPRING, IDA, IE Singapore, etc, will work various stakeholders, including trade associations and chambers and private firms, to ensure that firms and the local workforce are “future-ready”. This explains the formation and function behind the“Committee on the Future Economy (CFE)”.
Government is not the solution
What may be observed from the above account is that PM Lee proposed an essentially governmental response to an economic challenge. His position assumes that governmental solutions are appropriate when it comes to dealing with an economic future, that for all intents and purposes, is highly complex. I will argue in this article that proposed governmental response is disingenuous, and potentially counterproductive. To be truly prepared for a disruptive economic future, we must foster a disruptive culture and build a disruptive people, which are tasks that preclude governmental involvement.
Conformism in Singapore
To prepare for a disruptive economic landscape, the key focus should be to foster a disruptive culture. Singapore needs to have a culture that not just accepts, but also embraces individuality, creativity and risk taking. Students should dare to question their teachers and not shy away from unconventional courses. Sportsmen should dare investing their time and effort in their field without feeling like they cannot secure a “stable future”. Artists should dare hone their craft without the constant reminders that “art has no future” in Singapore. Aspiring entrepreneurs should not be deterred from the world of business due to the real possibility of failure. Dreamers who want to dream should be given wings, not be discouraged by the cold logic of pragmatism that rules in Singapore.
There’s evidence to show why the soft aspect of culture matters. Singapore is ranked 1st in the Ease of Doing Business Ranking by the World Bank. Despite this, a 2010 Gallup Survey found that only 16% of Singapore residents who are not already business owners have thought about starting a business, a dismal result in relation to the 40% in Hong Kong and 33% in Taiwan. Singapore is a pro-business nation lacking the risk-taking, entrepreneurial mindset necessary for business excellence and innovation.
Our higher educational establishments also need to embrace innovation. This is not to say that our local universities are doing poorly, far from it, as shown in the 12th and 13th places achieved by NUS and NTU on the QS Rankings of World Universities. Looking at other indicators however, may suggest room for improvement. The Thomson Reuters List of 100 Most Innovative Universities place NUS only 94th in 2015. This asymmetry suggests that our academic excellence is a product of top-down effort, not spontaneous creativity.
A society’s culture does not and cannot change overnight. It is a slow process, but one that can be hastened if we understand the impact of institutional reform on cultural development. Institutions, which are simply, the laws, dominant norms & practices, and politico-economic structures, shape the incentives of actors that live under them, and eventually determine outcomes.
In other words, if we change the rules of a game, we can incentivise a particular type of behavior aligned to our goals. Institutions matter. Just as increasing the penalties for foul play in a football match would reduce the incidences of bad tackles, putting in place institutions that incentivise individual innovation and enterprise will prepare Singapore for the economic future characterized by disruption.
Two areas of reform
There are two main areas of institutional reform that are in order. Singapore should first and foremost, move away from a centrally planned economic system that has dominated economic policymaking since our independence. Additionally, this has to be accompanied by socio-political reforms that embrace civil liberties.
Competition as a discovery procedure
The intellectual contributions of the political economist Friedrich Hayek are of utmost relevance in considering Singapore’s preparedness for its economic future. Hayek argued that the market system should be understood as a “discovery procedure”, in which trial-and-error learning takes place. Over time, the process of competition would enable us to devise better goods and services, better techniques to our problems and challenges.
This model, which sees the market as a process, and not as a static outcome, should warn policy-makers in Singapore who are used to a top-down approach of economic management. Such an approach is problematic because it assumes that innovation can be planned, top-down. But innovation cannot be predicted or planned. The notion of planned innovation is fundamentally, an oxymoron. The discovery of the law of gravity, surely a momentous development, was itself the product of a fortuitous set of circumstances, where an apple hit Newton on the head. Innovation happens, and best occurs in an unhampered, laissez-faire economic environment.
A specific area of reform would be to do away with the practice of giving out government incentives to promote productivity, restructuring and innovation. Local SMEs in Singapore for instance, are beneficiaries of a slew of incentives administered by SPRING Singapore. Such subsidies have the result of creating a “crutch mentality”, where our local enterprises become dependent on such monetary benefits from the state. Instead of investing effort and resources into creative endeavors, the availability of state privileges creates an attractive target of opportunity for entrepreneurs to divert their resources into unproductive, rent-seeking activity.
The lamentable situation today – in part highlighted by the annual SME surveys – is that our businesses struggle with innovation. There is also an obvious absence of internationally recognized Singaporean firms on Fortune Global 500 lists. If wish for our SME sector – which employs 7 out of 10 workers in Singapore – to be more innovative, then they must be exposed to the cut-and-thrust of harsh competition, not be shielded from it. What SMEs need is more competition, not more subsidies.
Tolerance as a practical necessity
Aside from adopting a more decentralised model of economic management, which would surely free up the creative-entrepreneurial juices of Singaporeans, there is also a need to reform the socio-political institutions in Singapore into one that tolerates diversity and dissent.
A cross-national study by Marcus Noland of the Peterson Institute for International Economics demonstrated that societies which embraced diversity, including towards LGBT individuals, tend perform better economically. Specifically, “more tolerant countries attract more FDI, obtain better ratings, and exhibit more entrepreneurship.” This should not come as a surprise: people more readily create and innovate when they know their unique differences are celebrated.
Our social policy in Singapore must therefore change. Laws that stifle social diversity is most clearly evident in the Penal Code 377A which criminalises private homosexual relations. This is not to say that LGBT individuals are actively victimized, but such formal laws do nothing to promote the tolerance of diversity, which is so necessary for socio-economic progress. Accordingly, it seems that toleration of diversity in Singapore is an urgent economic imperative.
Political authoritarianism also does not bode well for the economic future. Where dissent is discouraged, how may outside-of-the-box thinking be fostered amongst individuals? Expecting Singapore to be prepared for a disruptive economy, but doing nothing to better enhance civil liberties makes no sense.
Accordingly, one aspect of reform will be to abolish speech laws in Singapore, even those that touch on “sensitive” and “hateful” speech. Yes, even hate speech has value. By allowing the right to offend, society can break taboos, and thus facilitate social progress and understanding on what was previously kept in the shadows.
Being aware that the economic landscape will be marked by disruption is already the battle half won. But talk is cheap. Nothing short of fundamental institutional reform will suffice in fostering the disruptive culture so necessary for economic progress.