Goh Keng Swee, the practising economist

Business Times - 16 Jun 2010

IT'S been a month since former deputy premier Goh Keng Swee's passing away. The many eulogies for the great man have offered readers insights into his character and achievements. It is appropriate now to offer a dispassionate assessment of his record as a practising economist in the first decades of Singapore's independence. Praise is quite different from critical review, but our analysis suggests Dr Goh's achievements to have been as significant as many of his eulogists have suggested.
Over the course of his career, Dr Goh contributed in a myriad ways to Singapore's economic development, not to speak of education, defence and the arts. We focus on Dr Goh's policy preferences in three key areas which help explain how and why Singapore has achieved and sustained such a robust growth rate over the past 45 years.
First would be his determined practice of prudent public finance. In light of the spendthrift public policies (and ensuing fiscal meltdowns) in many parts of the world today, we hardly need to justify the importance of prudence on the part of government. But Dr Goh's early advocacy of prudent fiscal and monetary policies - unusual in the 1960s and early 1970s, when state enterprise and neo-Keynesian policies were in vogue around the world - helped to establish a solid macroeconomic base for Singapore's long-term development. As the plain-spoken economist put it in a speech to the Malayan Economic Society in 1966:
'Any small-time grocer in Chinatown can tell you that if you borrow money, unless you intend to abscond, it is prudent to put it to some use which will yield sufficient income to enable you to repay the loan with interest. Somehow or the other, this elementary precept of prudence has been considered to be beneath the dignity of economic planners.'
Second was Dr Goh's early rejection (by 1967) of then-popular strategies promoting import-substituting industrialisation (ISI) in favour of more open, export-oriented development. As the preferred route to development, ISI assumed that protected 'infant' industries would mature and compete in the world market. Alas, the 'infants' never grew up, and ISI proved disappointing (if not disastrous) to almost every country that tried it. Most damagingly, ISI policies led to the entrenchment of business and labour elites focused on protecting domestic monopolies rather than on raising productivity and competing in world export markets. As the record attests, Singapore's export orientation, based on free trade, manifested in part by the country's successful courtship of investments by large multinational corporations (MNCs), experienced great success.
Third was Dr Goh's emphasis on entrepreneurship in the process of economic growth. Few other economists during the 1960s and 1970s saw much of a role for entrepreneurs in their increasingly quantitative models of economic growth. Dr Goh, however, was well versed in the classics of social theory, particularly Max Weber and Talcott Parsons, and appreciated the economic importance of values and culture in determining economic outcomes for both individuals and societies.
Throughout his career, he therefore worked hard to establish public policies that would enable those individuals with values propitious to growth - sobriety, discipline, prudence, vision and an achievement orientation - to have a chance to prosper. He knew instinctively that Singapore needed entrepreneurs, but realised that the state could not create them; the most a state could do was to establish an institutional framework that would foster and support entrepreneurship, whether in individuals or in business entities of one kind or another.
There is nothing startling or original in what we have said. In fact, you can find it all in Adam Smith, who should be regarded as the proper mentor for policymakers in the Third World. Regrettably, many of the Third World policymakers have allowed themselves to be bemused and befuddled by the New Economists.
Dr Goh's pragmatic approach to economic development has been widely remarked upon. Yet, with the lavish praise accorded to the East Asian 'miracle' economies, it has been commonly argued that these examples of successful economic growth support the case of sophisticated government intervention in 'picking winners'. To be sure, Dr Goh envisioned an important role for the state - government promotion of public goods and externalities of one type or another through such institutions as the Economic Development Board (EDB) and the Jurong Town Corporation (JTC) are cases in point.
As importantly, however, he instinctively knew the limits of policy and legislation - what governments could not realistically do. He remarked that government involvement, other than maintaining a conducive investment environment, was not decisive for the 'dragon' economies of Hong Kong, Taiwan, South Korea and Singapore.
In terms of his general theoretical orientation, then, Dr Goh can be measured for the most part as a believer in the efficacy of markets and the private enterprise system. His pragmatic approach to growth arose out of his appreciation of the 'stern realities' of the development process, and respect for the 'harsh school' of experience, distinguishing him from the 'armchair pundits' who advocated purer strains of economic policy. For his 'impurities', everyone in Singapore owes Dr Goh many thanks.