Introduction
Virtually all countries in the world have undergone significant social, economic, and political transformations throughout their history. The Republic of Singapore, for instance, has witnessed landmark progress both during the pre-colonial and postcolonial period (Lee, 2009, 143). It is a country located south of Johor, one of the Malaysian state, and it is also to the north of the Equator.
Singapore has a population of about 5 million and is notably cosmopolitan since foreigners alone constitute over 42% of the entire population. Half the service sector is made up of foreigners. Moreover, it is historically known that Singapore was recognized as one of the world’s thriving economy, particularly in the East Asia region, long before it gained independence.
The trend of economic growth
When Singapore became independent in 1965, its GDP per capita stood at $511. The country’s economic advantage can be traced largely to its strategic positioning since it is a port. Singapore’s outstanding economic performance could only be compared with that of Japan and Hong Kong in East Asia (Lee, 2009, 143). The leadership in independent Singapore played a central role in transforming the economy and their quest to see the country attain the industrialized status.
The encouragement of direct foreign investment (predominantly U.S.) coupled with well designed pro-business policies saw the emergence of the modern economy in Singapore (Lee, 2009, 145). This was motivated by the country’s lack of physical amenities as well as the poor domestic market environment.
There was an overhaul across the educational, industrial, and urban sectors. For a long period of time after independence, Singapore’s economy was largely market-based characterized by the importation and exportation of merchandise, import duty-free. This has led to the generation of whooping profits.
The economic strategy that was employed by the government in Singapore proved effective since, by 2008, the average rate of growth stood at 7.8% (Lee, 2009, 150). It was in 1988 that Singapore became the busiest port in the world with its annual rate of economic growth at 11%-also the highest in the world at that time. This was after the worldwide economic downturn experienced between 1985 and 1986.
In 2001, there was a global electronics slump, the backbone of Singapore’s economy, and hence the stability of the economy was significantly shaken. The outbreak of severe acute respiratory syndrome (SARS) two years later was another blow to the economy in the history of Singapore’s growth. However, the country was able to recover at a very high rate driven by the rising demand for electronics, manufactured goods, financial services, as well as pharmaceuticals in the major business partners across the globe (Lee, 2009, 152).
It was during the global financial crisis experienced in 2008 that saw the economic growth of Singapore drop to near collapse. The crisis was noted as one of the worst to have ever hit Singapore since independence. The economic growth rate, however, was on the rise again towards the end of 2009.
The purchasing power parity (PPP) as of 2008 was estimated at $237.9 billion compared to $218.3 billion in 2006 (Lee, 2009, 155). The GDP, per capita (PPP) stood at $51,600 in 2008, a significant increase compared to that at independence ($511) and $48,600 in 2006. Different economic strategies used by the government in Singapore were greatly shaped by global market forces (Lee, 2009, 156).
Free market economy vs. Command economy
There are two major types of economic engagements: the free market economy and the command economy. A free market economy is defined in economic terms as a type of economy which is largely based on the forces of supply and demand which determine the terms of engagement (Anderton, 2006, 280). Under such a system, there is limited or no interference/influence from the government. It is clearly evident that it is not practical to have a fully free market economy but it can only be idealized.
In an ideal situation of the market economy, therefore, the sellers and the buyers are free to mutually determine their terms of engagement/trade ranging from the goods and services to be produced, sold, as well as to their prices. The governments of the trading countries are not expected to intervene by imposing taxes, subsidies or even any form of policy regulation. This ideal definition of a free market is mainly a construct of politicians and other policy ideologists.
An ideal situation of a market economy is not practical in the field of economics (Anderton, 2006, 285). The dominant characteristics of a market economy, however, are the highly decentralized operations of the market as well as the very flexible nature of the market in general. Moreover, the rules of engagement in a market economy are very dynamic.
Command economy, on the other hand, is characterized by strict government restrictions as far as trading is concerned. Under this economic system, the central government directly controls the type of goods and services that are produced, determine who will buy them, as well as regulating the pricing terms (Anderton, 2006, 273). In a nutshell, the state is in charge of all key sectors of the economy and formulates the policies that regulate the utilization of available resources and how the output is distributed.
The market forces of supply and demand are not allowed to shape the economy in a command economic system. The former Soviet Union is usually used as an appropriate example to illustrate a strictly planned economy that is a command economy.
All the policies governing the pricing, types of goods and services, and their distribution are fixed and are dynamic unless changed by the state or the central government (Anderton, 2006, 277). In a practical sense, it is not easy to get a pure command or free market economic system. Instead, most economies in the world adopt the mixed system of the economy (Anderton, 2006, 286).
Type of economic system in Singapore
From the above discussions, it is evident that Singapore as a country has more of one type of economic system than the other. Since independence, the government in Singapore has tried to create a conducive business environment. It has put in place pro-business policies, opened opportunities for direct foreign investment as well as setting national development goals to be achieved.
The government has had a significant influence in determining the direction which the market takes like pricing of goods, types of goods and services produced, and their distribution. The rate of production and distribution of the numerous goods and services in Singapore has been shaped by, apart from government forces, market forces of demand and supply, and competition. The partners involved in the trade have also from time to time determined the pricing of the goods and services.
Moreover, during special circumstances like times of crises and other forms of economic downturn, the government in Singapore has been forced to intervene to ensure the stability of the country’s economy. Therefore, we can say that Singapore, at some point, has exercised a great degree of planned/command system of the economy. Singapore, therefore, does not qualify to be regarded as a free market economy since it applies the principles of a free market economy as well as those of a command economy.
Reference list
Anderton (2006) Economics. Pearson Plc. 273-289
Lee, Kuan Y. (2009) From Third World to First World: the Singaporean case: 1965-2008 (2nd ed.). New York: HarperCollins, 143-256