The
Economics of
Modernization
Goh Keng Swee
FEDERAL PUBLICATIONS
Singapore • Kuala Lumpur • Hong Kong

© 1972, 1995 Goh Keng Swee
First published 1972 by Asia Pacific Press
This edition first published 1995 by
Federal Publications (S) Pte Ltd
A member of the Times Publishing Group
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All rights reserved. No part of this publication may be reproduced,
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D ^ / 7 Contents
Preface viii
* VjL " The Economics of Modernization 1
M'' Cities as Modernizers 16
j»« ,* Some Delusions of the Decade of Development 27
T Abolition of Poverty 36
£f * Making Compatible Choices 40
;fX^ Man and Economic Development 46
e ?wi Social, Political and Institutional Aspects of
Development Planning 52

vi The Economics of Modernization
$£? *« Management in the Developing Society 71
sifR Workers in Developing Countries 81
|f Labour and the Co-operative Movement in Singapore
? j|lL Differences in Economic Development Problems as
between Singapore and Other Asian Countries 98
Regional Co-operation in Southeast Asia 104
*jh*$* Foreign Big Business in Singapore 112
H Singapore's Monetary System, 1969 117
ll Education Reform 126
Population Control 130
3np* Voluntary Social Work 134
150 Years of Singapore 141
Jurong Bird Park 147
$®.

The Hippie Threat 150
£t% Government and Society 157
Industrial Growth and Political Stability 164
Parasite States 171
cor*
* iffl! Socialism in Singapore 182
I The Nature and Appeals of Communism in
Non-Communist Asian Countries 188
Aftercare of Ex-Detainees 206
§ Creating an Officer Corps 210
*llpff Hard and Soft Armies 215
Singapore's First Decade of Development 219
Facing the Future 243
Index 252

l-J^ii'r- ■'•'■'■■' Preface * ;'-•,,<""{''}''.•*'''•
My colleagues and 1 of the People's Action Party (PAP) Government of
Singapore may be the few remaining members of a vanishing breed of
political leaders. We write our own speeches.
We have our ideas as to how societies should be structured and
how governments should be managed. We prefer to express these ideas
our way. This habit of self-expression we formed during our undergraduate
days, when Singapore was governed by the British and the underground
Communist Party was the dominant political force. Indeed, but for the
intensity of our convictions, we would hardly have been moved to take
what in retrospect was a reckless and foolhardy course of action — to
engage the two in a three-cornered political struggle. That we eventually
emerged unscathed and victorious was as much due to our good fortune
as to our capacity for crisis management.
The essays in this book are a selection of speeches which 1 made
from 1959 to 1971, in the course of my tenure as a minister of the
Singapore Government. During this period, I served in the Ministry of
Finance and the Ministry of Defence. Most of these speeches were
addressed to lay audiences, only a few were directed to gatherings of
specialists. Understandably there are few on defence matters.
Singapore Government leaders address their citizens on matters of
public policy more often than is usual in most countries. A foreign
scholar made this observation: "The PAP inaugurated a policy of
information saturation to educate, convert, give shape to, and guide
public opinion. This emphasis on political communication, which has
accelerated over the years, evinces an abiding belief in the efficacy of
information, argumentation, and reason to establish and confirm popular
viii

Preface ix
support for the government. This policy also manifests a PAP conviction
that the common man possesses a substantial rational streak which will
generally lead him to support a policy which can be presented and
defended as factually and logically correct. This conviction is integral
to PAP thinking."1
Such a policy is necessary for several reasons. Singapore lacks
established tradition and its people are of several ethnic origins. Social
and political processes do not necessarily lead to a working consensus on
important matters. Quite the contrary, there is probably an in-built
trend towards division and discord as citizens compete for jobs, university
places, housing and business licences.
Another reason lies in the rapidity of political and economic
changes which Singapore experienced in the past decade. Some of these
changes took on crisis proportions and were accompanied by violence or
organized acts of lawlessness. The Singaporean, an irrepressible optimist
by nature, is apt to forget in his recently acquired period of tranquillity,
the riotous episodes of the past two decades. The vicissitudes of fortune
which we experienced in our quest for a decent living in a none too
hospitable environment bears resemblance to the biblical journeys of
the children of Israel in their search for the promised land. And like
Moses, we had to explain, exhort, encourage, inform, educate, advise —
and to denounce false prophets.
The essays form part of the information effort of the PAP
Government. As I had said earlier, they were addressed mostly to a lay
audience. This circumstance makes for brevity and colour in presentation,
a minimum of technical jargon and an absence of footnotes. If, sometimes,
I make unqualified assertions with a confidence hardly justified by the
evidence adduced, would the reader bear in mind that time did not
allow me to do the research needed, nor did the type of audience
encourage a pedantic approach.
The careful reader will detect inconsistencies in some of the views
expressed in these essays. The simple reason is that I have held different
opinions at different times. This, I hope, is the result of learning from
1 Thomas J. Bellows, The People's Action Party of Singapore Emergence of a Dominant Party System,
Yale University, Southeast Asia Studies, 1970, pp. 46-7. The author went on to observe: "Such an
assumption is an interesting contrast to the supposedly more developed political systems of the
West. These systems, with their long tradition of popular support, tend to adopt strategies which
reinforce existing, often non-rational political dispositions of the electorate."

x The Economics of Modernization
experience. I have left the inconsistencies alone rather than superimpose
consistency by post hoc editing.
Some readers may consider unduly harsh my strictures on the
economic policies of developing nations. A detached observer can take
a cosmic view of the development process and accept with equanimity
shortcomings in performance or vagaries of conduct observed in the
Third World. But those of us who take part in the great Asian drama —
as Gunnar Myrdal aptly calls it — cannot escape feelings of anguish.
I do not want to leave the impression that the policies we found
effective in Singapore can be reproduced in toto elsewhere. Our situation
contains several unique elements. Nevertheless, we did succeed in getting
the economy to grow at a fast rate under difficult conditions — the past
three years saw the GNP (gross national product) grow at rather more
than 13 per cent a year at constant prices. If our experience can be used
as a general guide to policy in other developing nations, the lesson is
that the free enterprise system, correctly nurtured and adroitly handled,
can serve as a powerful and versatile instrument of economic growth.
One of the tragic illusions that many countries of the Third World
entertain is the notion that politicians and civil servants can successfully
perform entrepreneurial functions. It is curious that, in the face of
overwhelming evidence to the contrary, the belief persists. And so in the
name of socialism, equality and justice, millions are denied the escape
from age-old poverty which rapid economic growth can provide.
Goh Keng Swee
Ministry of Defence
Singapore
May 1972

\ The Economics of
J Modernization
Speech delivered at the opening of the seminar on "Modernization in Southeast
Asia" organized by the Institute of Southeast Asian Studies at the University of
Singapore on 17 January 1971. Published by courtesy of the Institute of Southeast
Asian Studies and Oxford University Press, Singapore.
The subject of the seminar, "Modernization of Southeast Asia", is
one that is exercising the minds of many people, in academia, in
government and among leaders in many walks of public life. The subject
of modernization is rightly drawing increasing attention, not only in
Southeast Asia, not only in the lesser-developed countries of the world,
but also in the modern states. For the difficulties experienced in this
field in the contemporary political scene appear intractable. And many
people have expressed the fear that as a consequence, the growing
disparity of wealth between rich and poor nations, between the modern
states and those aspiring to be modern, may reach critical and explosive
dimensions in the course of this century.
I will not try to define the terms "modernization" and "modernity".
The subject is one which straddles several disciplines of learning and it
is unlikely that any definition will secure general acceptance. It is more
likely to give rise to sterile controversy, I shall take the robust position
that modernization is like the elephant, difficult to define but easy to
recognize when one sees the beast.
Probably three disciplines of learning are most intimately concerned
with the subject — economics, political science and sociology. My
experience with the subject is that of a practitioner in Singapore, My
specialization is economics and it is from this standpoint that I will
discuss the modernization process. In so doing, I do not decry the

2 The Economics of Modernization
importance of other disciplines. Indeed, it would be clear from what I
shall say that it is not possible to understand the modernization process
purely in terms of economic principles. Furthermore, it is dangerous to
execute an economic development plan which has reference only to
economic variables, important though these are.
Economists do not have a special theory of modernization. The
process itself is subsumed under the general principles of economic
development. In practice, however, in the field of applied economics, a
vast literature has proliferated on economic development of the Third
World countries.
There is now clear recognition among economists that economic
growth involves more than economic variables. Gunnar MyrdaPs
monumental Asian Drama makes the most thorough and explicit study
of non-economic factors which have a bearing on economic growth.
However, MyrdaPs plea for a new set of economic principles applicable
to the situation in less developed countries has largely been ignored.
The economist stands fast by his principle of doctrinal purity. While
admitting that non-economic factors have a bearing on economic growth,
he claims that these fall within the provinces of other specialists, upon
which he is reluctant to encroach.
In order to achieve a deeper comprehension of the subject, I was
obliged to do some reading in the other disciplines. While this study has
provided me with new and useful insights, I am afraid I discovered that
the performance of specialists in these other fields, political scientists
and sociologists, is no better than that of the economists. There seems to
be a state of mutual lack of comprehension between writers in these
various disciplines. Each is interested in developing a consistent, logical
and self-contained set of principles within its own domain with but
scant regard and superficial understanding of knowledge in other
disciplines. It is a depressing state of affairs, but I cannot presume to
offer any solution.
I think I can best spend my time by setting out the problems of
modernization as I see it from the point of view of a practising economist
in one developing country, and as a keen observer of the fortunes of
other developing countries. It is unavoidable that I see the modernizing
process in terms of economic growth with economic variables playing
the dominant factor. But I will raise a number of non-economic issues
which seem to be imperfectly understood at this stage, at least by
practitioners in the field.
Although the study of modernization and economic development

The Economics of Modernization 3
received widespread attention since the end of World War II with
the emergence of many newly independent states, the process of
modernization itself, so far as it affects the countries of Asia, goes back
several centuries. Indeed, if we wish to identify its genesis and nominate
a birthday, I believe 27 May 1498 has a special claim. That was the day
Vasco da Gama arrived at the port of Calicut in south-west India, For it
was the arrival of the European in Asia which set in train the process of
social change which we today call "modernization". However, it was not
until several centuries after Vasco da Gama's arrival that the European
presence began to make an enduring impact on the Asian scene. As
K.M, Pannikar said, "If by an act of God, the relations of Europe with
Asia had ceased all of a sudden in 1748, little would have been left to
show for two and a half centuries of furious activity,"
It is important to distinguish between the European impact before
and after the second half of the 18th century. In the earlier period, the
Europeans went there as traders. Their trading outposts existed by leave
and licence of local rulers. They bought goods available in the East
which they wanted, such as spices and sandalwood from Indonesia, silks
and horses from Iran, cotton and spices from India, They paid for these
by gold and silver and only to a negligible extent by manufactures as was
to be the general practice in the later period. Apart from these traders,
supplemented occasionally by zealous missionaries anxious to save
heathen souls from eternal damnation, Asian societies were left very
much to themselves.
In the latter half of the 18th century, and particularly in the 19th
century, the pace of modernization of Europe itself gained momentum
through the great technological and social changes we now call the
Industrial Revolution, As a result, the nature of European interest in
their trading outposts in the East underwent a profound change. The
growing industries of Europe, supported by a rapidly advancing science
and technology, required new types of raw materials on an increasing
scale. They took the form of minerals as well as agricultural produce in
tropical and sub-tropical areas of the East.
Political rivalry between European powers, which their growing
wealth encouraged, accelerated the drive for empire. Relationship
between East and West took a different form: no longer as between equal
trading parties, but as between overlord and subjects. Unlike the early
period when European traders bought goods already available, in this
period, new industrial crops were introduced on a large-scale, plantation
basis and new mines developed by modern methods. So we have a whole

4 The Economics of Modernization
series of new products grown or mined in the colonies of European
countries — tea, coffee, rubber, sugar cane, jute, oil palm, tin, copper, oil
and petroleum products and so on. To establish such a varied range of
products as a large-scale business, it was necessary to invest substantial
amounts of capital. And of course to support all these activities, the
colonial government had to introduce a wide range of infrastructure
services such as seaports, roads, railways, telegraph and other means of
communications.
So seaports were established through which the produce of these
lands could be shipped to feed the burgeoning industries of Europe. From
these seaports radiated a network of railways and roads to take out the
produce of the hinterland. Cities of substantial size grew at the site of
these seaports and communication centres.
Foi the efficient conduct of business on modern lines, it was
necessary to establish administrative and legal systems which would
ensure the two requisites of orderly business — first, public security, law
and order; second, the enforcement of contracts — for investments in
mines and plantations have a long gestation period, and the investor
must be able to plan several years ahead with assurance.
While the top management of the communication systems as well
as the administrative and legal apparatus could be manned by personnel
sent out from the metropolitan country, these have to be supported by
an army of lower-level management, clerical and technical personnel. It
would be wasteful, given the primitive systems of communication by sea
in those days, to bring these out from the homeland. So an education
system modelled more or less after the metropolitan country, teaching in
the language of that country was introduced, sometimes by missionary
effort and sometimes by the colonial government. In course of time,
universities and technical teaching institutions were founded.
And as local residents benefited from the economic growth resulting
from this infusion of Western capital and technology, they wanted their
children to take full advantage of modern education not only in the
local universities, but also in universities in the metropolitan country.
So we see the seeds of modernization planted during this age of
colonization in three principal fields. The first was in the establishment
of plantations and mines supported by a modern communication system
— seaports, railways, transportation, telegraph — leading to the growth
of cities. Second, the introduction of modern administrative and legal
systems. Third, the introduction and development of modern education
systems.

The Economics of Modernization 5
While all this was going on, it should not be forgotten that this
modernizing process was confined to certain geographical areas. I
mentioned the seaports, the lines of communications and the
administrative centres. We could also include hinterland areas opened
up to cultivation of new cash crops as well as the new mining enterprises.
For the rest of the country, the colonial government in general refrained
as a matter of deliberate policy from upsetting the traditional social
structure and reduced interference with local customs and institutions to
the barest minimum.
To be sure, the process of acculturation initiated in the cities was
bound to affect the countryside, but this was by way of side effects and
not by government design. The result was that subsistence agriculture,
mainly the production of food crops, which was the most common
occupation of countries in Asia before the advent of the West, remained
outside the mainstream of development. There were exceptions to this
rule such as, for instance, the "Culture System", introduced by van den
Bosch in Indonesia in 1830. The object was to compel peasants in the
subsistence sector in Java to grow cash crops. Initially a large number of
crops was attempted: pepper, cinchona, cotton, indigo, etc. But only
three — coffee, tea and sugar — survived. However, this was an exception
to the general rule.
Subsistence peasant cultivation was of little economic value or
commercial interest to the industrial West. No doubt peasants benefited
from improved communication systems and possibly from agricultural
extension services that were introduced here and there. They certainly
felt the effect of improved public health measures which diminished the
effect of Malthusian checks on population growth. But the technique of
production and the social system of village community life remained
largely undisturbed by colonial governments, except when the need to
increase revenue led to changes in the system of land tenure. A case in
point was the Permanent Settlement introduced by Comwallis in Bengal.
As with van den Bosch, revenue, not development, was the motivating
force.
The general picture then, in colonies at that time, was one of
coexistence of modernity and tradition, with growing modern cities in
the midst of a sea of rural traditional subsistence agriculture. This
picture still remains true today.
The role of Asian colonies as providers of industrial raw materials
and markets for manufactures is so well known that people may think it
too trite and commonplace an observation to merit attention. Yet it is

6 The Economics of Modernization
worthwhile examining this role in some detail because the subject is
much misunderstood and its true implications have sometimes been
missed. This, as I shall show later, has had unfortunate consequences
in the development plans of Asian countries in their post-
independence era.
We can regard investment of Western capital and the application
of technology in Asian countries, to produce raw materials needed by
European industries, as creating "surplus value" in the Marxist sense of
the term. These economic activities employing indigenous labour
produced a surplus value over and above what was required to maintain
workers at subsistence level Not only this, but this surplus value was
translated into foreign exchange as the products were exported to the
West, It is this fund of surplus value embodied in foreign exchange
earnings that enabled payments to be made on imports of goods and
imports of capital equipment needed for modernizing the economy, as
well as for remittance of profits earned by these foreign enterprises.
It would be wrong to conclude that the whole benefit of these
activities accrued to foreigners, though they were undoubtedly the
principal beneficiaries. Apart from workers engaged in these enterprises,
there was often a substantial spill over to local entrepreneurs and others
who engaged in similar activities. For instance, rubber estates in Malaysia
were introduced by foreign enterprises. In course of time, local residents
entered the field; these were not all capitalists. The peasant population
also benefited, growing rubber in smallholdings as a supplement to their
traditional activity.
When Asian countries achieved their independence after World
War II, the leaders who headed the governments of these states inherited
both the modern and the traditional societies. But whereas colonial
authorities, in general, had little reason to disturb the traditional order
of things outside the modern money exchange economy, the local ruling
elite were exposed to considerable pressure to improve the well-being of
all their citizens, those in the cities as well as those in the countryside.
Great expectations were raised that, with the end of colonial rule, a
liberated people would achieve not only a status of dignity in the world
but also sufficient material advance for all their citizens. In this way,
they put an end to the harsh poverty so many had to endure for so long.
Economic development plans were drawn up, sometimes with the
help of foreign experts but usually by indigenous effort, for the universities
and the administrations of past decades and centuries had produced
sufficient expertise.

The Economics of Modernization 7
An economic development plan is basically a programme of
allotting capital investment among various sectors of the economy —
agriculture, transportation, social services, manufacturing industries,
mining, electric power, irrigation and so on.
Planners have to lay down a strategy of development if they are to
make good and consistent decisions on resource allocation. Funds are
limited; the demand for funds exceeds available supply many times over.
Economic planners have to draw up criteria on which decisions on
allocations can be made. And these criteria embody the strategy which
planners believe to be the best way of achieving economic growth.
It is extremely dangerous to generalize on strategies adopted by
countries with such varying backgrounds of historical experience and
economic potential. However, I believe it is true that, in general, the
position taken by Asian economists was as follows. First, they believed
that since resources were limited in relation to demand, to spread
resources evenly over all the sectors of the economy would not produce
the best results. They believed that it was better to identify the crucial
sectors of the economy whose development would stimulate general
growth of the economy. It was there that the main effort should be
mounted. To use the jargon, planners preferred the strategy of encouraging
the leading sector to the strategy of balanced growth.
The leading sector was identified as manufacturing industry. It was
here that they pinned their hope. They believed that it was the progress
of manufacturing activities in the West and its near absence in the East
that explained the disparity in wealth. The expansion of industry was
expected to introduce new technology, new social attitudes, raise levels
of existing skills, provide employment for the large numbers of
unemployed or underemployed citizens. In short, industry would
modernize and enrich. The general raising of the technological level of
the countries, the spread of modern systems of production and
management, all these, in the calculations of the planners, would not
only generate economic growth but also help to bring about a rapid
transformation of social attitudes to those more consistent with the
needs of modernizing societies.
The second common position taken by Asian economic planners
of the early years was that they regarded the relationship of their country
— as a provider of raw materials and market for finished goods — with
the West during the colonial period as an unequal and unsatisfactory
one. It symbolized colonial exploitation and inequality between rich
and poor nations. Why not convert these raw materials themselves

8 The Economics of Modernization
into manufactured goods? Why not produce those goods traditionally
imported from the West, and in this way save foreign exchange for
more productive use?
All these different considerations, the decision to take the
manufacturing industry as the leading sector, the policy of manufacturing
goods that were formerly imported — import substitution in the jargon
— the political stigma of dependence on Western industries, all these
combined to support the policy of industrialization based on supplying
the domestic market as well as processing raw materials formerly exported.
This course of action seemed to be in accord with the national
aspirations of developing nations. This policy seemed consistent with
common sense and in accordance with the logic of economic
development.
Yet, with hardly any exception, those countries which embarked
on this line of development ran into serious trouble before long. Instead
of saving foreign exchange as they substituted domestic manufactures for
imported manufactures, they spent more foreign exchange than they
earned. In the process, they ran into chronic balance of payments
trouble and increased the load of foreign debt to dangerous limits. The
exceptions were those laggard countries which, while paying lip service
to this policy, in practice did little to implement it.
The trouble experienced by developing countries in this respect is
best illustrated by data on external public debts. This means foreign
credits and loans which governments of these countries had borrowed
and had to repay in foreign exchange. It excludes foreign credits and
loans to private enterprise. By the end of 1969, total external public
debts of developing countries amounted to US$60 billion. Over the last
15 years, foreign debts had grown at a compound rate of almost 15 per
cent a year; that is, debts owed by poor countries to the rich doubled
every five years.
Debt servicing, the payment of interest and repayment of capital,
has been growing at the rate of more than 12 per cent a year. This is
twice the rate of growth of exports of developing countries, and nearly
three times the rate of growth of their GNP (gross national product).
Servicing of foreign debts assumes an increasing proportion of
export earnings of developing countries, and in many instances has
passed the danger limit. There are no hard and fast rules which determine
the safe proportion of debt servicing to export earnings. The World
Bank has laid down a rule of thumb limit at 6 to 7 per cent. Several
countries have already passed the 20 per cent limit, a good number fall

The Economics of Modernization 9
in the 10 to 20 per cent range. The general average for all developing
countries was above 9 per cent at a count made some years ago, and is
probably well over 10 per cent now.
What went wrong? There is no one simple reason. Part of the
trouble stemmed from sheer bad luck, such as crop failure due to droughts
and floods, making it necessary to import large quantities of food thus
dissipating foreign exchange resources. Another reason is the decline of
prices of primary export commodities in relation to manufactured goods
over the last decade or two. A third is deliberate trade discrimination by
some wealthy countries against certain products of poor countries, for
instance, textiles. But I believe that even allowing for these adverse
factors beyond the control of developing countries, their performance
could have been better if they had not embarked on the type of
industrialization strategy that they did.
Industrialization based on import substitution had proved a double-
edged weapon. As a means of saving foreign exchange it had been self-
defeating. The reason is that machinery and equipment needed to
establish these industries had to be imported from abroad. In many,
probably most, instances, the value of the output consumed at home,
representing the maximum saving on foreign exchange, is less than the
amount needed to pay for interest and instalment payments on machinery
as well as for current purchases of spare parts needed for maintenance.
This is particularly true of capital-intensive industries such as steel
production, oil refineries, heavy chemical plants and other so-called
basic industries which seem to have a fatal attraction for economic
planners.
In addition to this, because countries are poor, the effective demand
for these products is small, even in countries with large populations. It
is therefore necessary to introduce some kind of licensing system for new
industries in order to avoid over-capacity. The result has generally been
the emergence of monopolistic practices, a lowering of efficiency, an
increase in cost, with damaging effect on the economy. Practices such as
padding of the labour force and executive personnel, which would not
have happened under free market competition, became common.
One economic effect of this kind of industrialization is that
consumers have to pay more than if goods were imported. But this is
probably less harmful than the non-economic effects. For one of the
objectives of the leading sector strategy of development planning is to
spread new social attitudes appropriate to modern societies. These include
respect for hard work, innovation, a meritocratic system of personnel

10 The Economics of Modernization
selection and advancement, continuous striving for greater efficiency, in
short, achievement-orientation. With the feather-bedding and
monopolistic practices made possible under high tariff protection of
domestic markets, the drive to efficiency is blunted. Quite often, business
success depends on obtaining official permits and licences, not on efficient
production and management.
The balance of payments difficulties which afflicted most
developing countries had other unfavourable side effects. I said earlier
that foreign exchange earnings resulting from the export of raw materials
and other goods from developing countries represent a claim on the
goods produced by the industrial West. In countries without balance
of payments problems, exchange controls are either non-existent or
lenient. Those who have local currencies are able to use these to buy
imported goods from any country. When foreign exchange difficulties
arise, it is necessary to introduce exchange controls, that is to ration
foreign exchange through a system of permits. The result of this is
that the government becomes the sole arbiter of what goods may be
imported, who may import them, in what amounts and under what
conditions. This control endows contemporary governments of Asian
states with a power of patronage of immeasurably greater range and
variety than were possessed by the wealthiest monarchs of ancient
civilizations. While the riches owned by these were confined to
personal ornaments, household entourage and such like, exchange control
decides who will have access to the whole range of goods and services
produced by modern states, including foreign education and foreign
travel. The wealth of ancient kings derived from taxes imposed on a
peasant society, and this has a built-in limit, for beyond a certain level
of exaction, the kings risked a popular revolt. But because foreign
exchange earnings originate in the modern sector, the disposal of
foreign exchange resources in any way that the government thinks fit
has but marginal effect on the peasant subsistence economy.
Contemporary governments' powers of patronage are therefore less
circumscribed by the risk of peasant revolt.
The risk here, however, is less in a general election where
democratic constitutions operate. However, this does not necessarily
encourage rational use of foreign exchange resources to promote economic
growth. Other short-term purposes, such as strengthening the bond of
loyalty and cohesion in the rank of the governing party or creating
short-term economic euphoria, have obvious appeal. Even where
democratic elections do not operate, those in power are also obliged to

The Economics of Modernization 11
pay heed to the loyalties of supporters of their regime, that is, the
soldiery.
It is, of course, not unknown for prime ministers and presidents of
modern states to phase the rhythm of monetary and fiscal policies in a
manner most favourable to their electoral chances. However, the
industrial economies of the West can withstand such temporary departures
from financial rectitude. The economies of developing countries are too
fragile.
It is here that the interaction of economic, political and sociological
elements interact in a crucial way. Economic difficulties inhibit the full
spread of modernizing attitudes and place severe strains on the political
system. The political leadership in office is obliged to take defensive
action to secure its power positions. In this way, they are obliged to
depart from rational economic policies which would give them the best
long-term chances but which may compound their immediate troubles
because these call for unpopular measures. Once things go wrong, events
in the economic, social and political fields interact in a cumulative way.
Unless arrested at some stage, the process reduces the whole system into
a pathological condition.
Despite the general picture of disarray in developing countries and
increasing gloom evident in the literature about their future prospects,
I remain fairly optimistic. I am, of course, taking the long view. The
economic strategy adopted by Asian economists, which I described, and
which had led them into serious trouble, is in my opinion basically
sound. Except in special cases, of which Malaysia is one, the strategy of
favouring the leading sector — that is, the manufacturing industry — is
the correct one. It is here that the surplus value is most quickly generated,
both in terms of domestic production and foreign exchange earnings.
The fact that many countries made mistakes in their selection of industry
does not invalidate the soundness of this approach. This is but a technical
error resulting from faulty calculation of production and foreign exchange
consequences. The remedy is to concentrate on export-oriented industries
and on the development of minerals and to export primary produce,
which had tended to be neglected in the immediate post-independence
era when such economic activities bore the taint of colonialism. Also,
the jet age brings into the developing countries a source of foreign
exchange earnings which they can tap with but little effort. This is the
tourist trade. For a lucky few, there is the dazzling prospect of striking oil.
If economic variables were to be the decisive factor, there is every
reason for optimism. The creation of wealth, which is what economic

12 The Economics of Modernization
development is about, is basically a simple process. All it requires is the
application of modern science and technology to production, whether
in agriculture, mining or industry. The knowledge for this has been built
up over the past 200 years and is easily accessible. It only needs a
moderate intelligence to absorb this knowledge and to apply it
productively. What is more difficult to achieve is a social and political
order that enables development to take place. Where a stable political
system is achieved, progress can be spectacular, as the examples of South
Korea, Taiwan and Hong Kong demonstrate. These have growth rates
in the region of 15 per cent a year.
Let me draw together the threads of my argument before I go to
the next stage, I will summarize as follows:
1. The modernization process in Asian countries began several centuries
ago under the impact of European colonization,
2. Because colonies fulfilled special roles in relation to the metropolitan
power, such modernization as took place was generally confined to
the seaports, administrative and communication centres as well as
hinterlands developed to produce raw materials,
3. The result was a coexistence of modernity in the midst of a traditional
agrarian society, by far the larger segment of society in most countries,
4- Newly independent regimes were under pressure to accelerate the
modernization process, and chose as their principal instrument
economic development plans in which the main effort was generally
placed on industrial expansion based on import substitution,
5, For a variety of reasons, these development plans encountered
serious trouble, as a result of which economic and political troubles
compounded each other.
6, Despite the prevailing mood of pessimism, it is likely developing
countries will eventually achieve a breakthrough, adopting a modified
form of the general economic strategy now in use. It is, however,
unlikely that this time will arrive until they have established political
institutions of sufficient strength and durability that will support
the economic effort.
If we view the modernizing process in terms of a historical
panorama, the development efforts in the post-independence age are
but a continuation of processes which have their origins more than
200 years ago. Economic development in the age of imperialism had
limited objectives. It proceeded within a strong framework of stable
government, enabling these limited objectives to be reached with
apparent ease. The post-war development plans had larger objectives

The Economics of Modernization 13
and aimed at more ambitious rates of progress. Despite this, they are no
more than a major variation of a theme, and not a fundamental change,
of course, as some people erroneously believe.
But the greater effort which these larger objectives demanded
did not have the support of the sturdy frame of political and
administrative institutions of the colonial era. It is not surprising that the stresses
and strains that they imposed on contemporary social and political
systems resulted in the weaknesses which I had described. The course of
political development differed from that of economic development.
There was a major and abrupt discontinuity in the political process
on decolonization.
How can the other disciplines participate in what Myrdal called
the great Asian drama other than as observers and chroniclers of events?
Here I must speak with some diffidence as I am approaching an area in
which I have no specialist knowledge. It is certainly easier to say what
should not be done than to say what should be done and I will start
from here.
In the course of my reading of sociological and other literature in
the preparation of this address, I came across this observation: "Efficiency
and thrift, those two great Western virtues, are not such in the eyes of
the peasant in Uttar Pradesh." At the risk of being unkind and unfair to
the author, may I suggest that the ethos and psyche of the peasant in
Uttar Pradesh are of no great moment. Nor should thought be given as
to how he could be modernized. If, by an act of God, all the peasants in
Uttar Pradesh were suddenly to be modernized, the result would probably
be an unmitigated disaster for that state. I believe that social institutions,
including the so-called traditional beliefs of man, are part of the total
ecological environment. They keep man at peace with himself and in
adequate harmony with his fellowmen, and enable him to endure a life
which otherwise would be intolerable.
To remove all these and introduce alien values and institutions
would be to perpetrate a reckless act of cruelty, unless it is possible in this
instance to give the peasant what he would require for self-fulfilment —
twenty to thirty times the land area he now possesses as well as access
to tractors and all the paraphernalia of modern farming systems.
The time will no doubt come when peasants in Uttar Pradesh will
be able to acquire these. But this will be the result of successful
industrialization, the growth of cities and industrial concentrations,
drawing into their systems an ever-increasing labour supply from the
countryside. This happened in Europe over the last two and a half

14 The Economics of Modernization
centuries; it happened in Japan and, doubtless, it will happen in other
developing countries in course of time.
It is better to leave the peasant and his quaint ways to the
anthropologist. For those who are interested in the modernization process,
the crucial area of study lies in the cities. It is here that the transformation
is taking place and the interaction between old cultural systems and
values and new ones takes on their most acute form. It is here that the
development plans of economists place their greatest hopes. It will be
here that the breakthrough to modernity for the whole nation will take
place through the accumulation of wealth and the earning of surplus
value on an ever-increasing scale by the application of modern science
and technology.
There are great problems of social adjustment of people brought
up under a pre-industrial culture who have been drawn into the city to
work under the hard discipline of wage employment. At all levels of the
social ladder, conflict takes place between traditional customs and usage
and the requirements of efficiency of modern economic institutions, be
they private firms, public utility, a government department or whatever.
All this is familiar stuff but it looks to me, standing outside the
specialization, that the applied research on these subjects needs to be
supplemented by theoretical principles which will give coherence to an
apparently bewildering array of experience.
Take another as an example. The system of education in developing
countries will play a decisive role in the successful modernization of
these societies. So will the mass media. These are the means whereby
new values may be inculcated among those who will play leading roles
in their societies. I may be unfair to the education authorities of
developing nations, including that of my own, but I get the distinct
impression that the principles that guide them in making practical
decisions as to curriculum content, and indeed their understanding
of the purpose of education, all these seem to be derived from the
theories and practices of Western teaching institutions. Because Western
societies do not experience the kind of culture and value conflicts
common in modernizing societies, their education systems need not
prepare pupils for such conflicts. As a result, the Asian intellectual is
often a confused person and the process of education can be a
traumatic experience.
Asian university students in the humanities are often accused by
Western critics of lacking independence of thought, a critical faculty,
and an ability to relate what he learns to his environment. I suggest that

The Economics of Modernization 15
it is this hiatus between what he learns and the real world around him
that explains this shortcoming.
I suspect that it is this lack of comprehension of contemporary
social processes, this absence of adequate preparation which should have
been given in school that contributes to the fragility of political
institutions in the new states, especially those which are based on
democratic elections. And unless we prepare the young adequately, it is
unlikely that we shall achieve that durability and resilience of political
institutions which have to underpin the economic development effort.
Hitherto there has been a blithe assumption that the process of counting
heads is sufficient to secure the kind of leadership that can successfully
see modernizing societies through their difficult transition stage. There
is not much in contemporary history to support such optimism. Nor is
there much to rejoice over in other systems of leadership selection,
such as the counting of guns instead of heads.
Here I am touching on some basic issues now largely ignored in
Europe and America because of their irrelevance, but which agitated
men's minds in the troubled days of antiquity. Plato and Confucius in
the 5 th century BC, independently of each other, were concerned with
the process by which societies chose their governments and the qualities
ruling elites should possess. I suggest that the issues which they discussed
are of deep relevance to the new states and that the disciplines of
political science and sociology in these countries could usefully devote
attention in this area and seek solutions in the modern context.

* *••*»< < to'? y ^ V> »' * * ' 1 2, ' <•
' Cities as Modernizers
Speech delivered at the inauguration of the World Assembly of Youth (WAY)
Asian regional seminar on "Urbanization" at the National Trades Union Congress
Hall on 16 April 1967. Published by courtesy of the World Assembly of Youth,
Brussels, Belgium.
The subject of the seminar centres around problems of urbanization.
This is a problem that has been exercising the minds of many
people in Western countries. They are appalled at the vast urban sprawl
which has come about in their countries with apparently very little
control or direction, as a result of which acute social problems and
manifest deficiencies have been brought to light. Some of these are
painfully visible, for instance, the breakdown of the transport system.
Others are less obvious but more damaging in their long-term effects.
For some reason or other, large numbers of people living in big cities
feel unhappy and badly adjusted. It may not be the fault of the persons
themselves. They may have come from strange environments in search
of a better life. They may be employed in poor occupations and may
even be unemployed. They may have broken down under the stress
of city life and developed neurotic habits of one kind or another. All
cities have their problem families.
But problem families apart, there is acceptance of the fact that,
despite all the many amenities which a concentration of population
could give rise to, such as theatres, opera houses, libraries, museums and
other places of delight, the city dweller remains, on the whole, an
uncultured and uncaring individual, often with standards of civic
behaviour which leave much to be desired.
Now I am not going into these matters which are properly the
subjects of the workshops and plenary sessions into which this seminar
1/;

Cities as Modernizers 17
will be organized. These are matters for experts in their respective fields
to deal with. I do not want, nor am I qualified, to venture into their
domains. What I want to discuss today is the background to the whole
problem of urbanization in Asia. Put in another way, I want to ask the
question: What is the role of the city in Asia? By "role" I mean not
merely in terms of providing the comforts of good living to its inhabitants,
but the relation of the city to the other parts of the country. We must not
forget that unlike the developed West, some 80 per cent of Asians live
in villages. The city inhabitant, in other words, is the exceptional
person. What I want to ask is: How have cities come about in Asia?
What functions are they now fulfilling? What functions should they
fulfil but are not fulfilling in relation to the rest of the national
community?
I think these are not matters which will be touched upon at length
in the course of your study sessions, but it will be useful to inquire into
them so that when you form your conclusions about the problems of
urbanization and how they affect youths living in cities, you will have
some notion of how they fit into the larger problems confronting the
developing nations of Asia.
Many of the modern cities in most Asian countries — though not
in all — owe their origin and their development into their present size
and importance to the fact that they were historically the beachheads
of Western imperialism. During the period of the expansion of Europe
from the 17th to the 19th century, European traders, invariably backed
by naval and military power, had at some stage or other established
trading outposts in many Asian countries. At first their primary purpose
was not political but monetary: they wanted to make money and grow
rich. So "factories", as they were then called, were established, for
instance at Surat near modern Bombay, in Hong Kong and by the
Singapore River in this island.
When the Europeans first came to Asia, they were moved not by
the lust for power, but by the lust for money. Their motives were merely
ignoble, not heinous; after all, it is not a crime to make money. But it
soon dawned upon them that they could make more money if their
political influence over the territory were stronger than what they as
traders could establish. So the flag followed the trade, and gunboats,
battalions and missionaries came after the traders. All these groups were
to ensure that the business of money^making would not only be more
profitable, but would also be more secure, and that the whole enterprise
would be carried out with the blessing of the Almighty. Let us not forget

18 The Economics of Modernization
that Europeans in those days were highly devout and religious people,
and if, in some instances, they murdered and plundered the countries of
their conquest as Francisco Pizarro and his conquistadors did to the
Incas of Peru, it was always with the loftiest religious motives.
In the course of time, cities grew and expanded. Because of the
considerations which led to their founding, cities were founded at
convenient trade centres, and as such, they were usually sited on the
junctions of lines of communications by sea, river or land. So today we
find that most of the cities fulfil the functions of the market town for the
surrounding hinterland. In addition, of course, in the course of time,
they acquired importance as administrative and communication centres,
as manufacturing centres, and even as military bases.
Now, however much we may deplore the depredations of the
imperialists during the past centuries, we must never forget that they
were, though doubtless quite unintentionally, the standard-bearers of
modernization. It was the Western trader and the Western administrator
who introduced modern ideas, modern systems of government, modern
education and modern techniques of communications and production
into traditional Asia. No doubt, they did this to make more money and
acquire larger empires, but nevertheless their positive contribution to
the process of modernizing Asia is not to be denied. So it is in the cities
of Asia that we find the amenities of modern civilization. The best
schools are there. Power, pipe-water, modern sanitation, modern buildings
and offices, roads, motor vehicles, railways, television, ports, factories,
universities and all the other physical and intellectual paraphernalia
of the 20th-century technological civilization are to be found in the
cities. By contrast, in the traditional villages, people live very much
as they did over the past thousands of years. They grow food for
themselves, and the little extra they have, they sell or barter for the things
that they need. They believe in the ancient gods, in evil spirits and
practise the most benighted superstitions which had been handed
down to them over the ages.
What I want to put to you is this. It is the role of the cities in
Asian countries, established and developed as beachheads of Western
imperialism, to transform themselves under their independent national
governments into beachheads of a dynamic modernization process to
transform the countryside. The imperialists did not bother to do this as
there was no money in it. Independent Asian countries can hardly be
satisfied with the definite continuation of backwardness in the
countryside. It is in the process of transforming the countryside and its

Cities as Modernizers 19
traditional societies that the Asian city has a vital role to perform. It is
about this role that I want to say a few words.
First, since Singapore is a city-state, a few words about our situation
can hardly be avoided. But I must warn you that Singapore is completely
untypical of Asian cities. The simple reason is that the hinterland of
Singapore lies in other national states and not within the territorial
boundaries of the Republic of Singapore. We are the natural trading
centre for a part of Malaysia — the southern and eastern states of
West Malaysia and much of the two states of East Malaysia — and we are
also the natural entrepot trading centre for the Indonesian islands of
Sumatra and Kalimantan. This role was foreseen 150 years ago by the
great imperialist, Stamford Raffles, the founder of modern Singapore.
But because we are a separate nation-state from the others, the natural
course of economic forces may be hindered — and indeed in the past
have been hindered — by political action on the part of the governments
in our two neighbouring states. Apart from this, of course, we can hardly
take upon ourselves the role of modernizing the populations of our
economic hinterland. So what we do instead is follow a good-neighbour
policy towards our two neighbours and accommodate their wishes as far
as this is possible and continue to provide efficient services by way of
trade relations, finance, insurance, shipping, communications, banking
and development capital. It is regrettably too often forgotten that a great
deal of development in our economic hinterland was financed by
Singapore capital and nurtured by Singapore management skills.
It is within the rights of these governments to dispense with our
services if they so desire and if they wish to pay the price for providing
their own services. If they want to bypass Singapore in their trade
relations, there is nothing we can do to stop it. The only deterrent is
the cost of establishing and maintaining their own services. This cost is
not only the money cost of building port installations and a complex
business and financial infrastructure. There is also the cost in terms
of losses caused by less efficient services. The magnitude of this cost
becomes apparent only after it has been tried as did happen in our recent
history. On that occasion, it was discovered by painful experience that
the damage to the hinterland was greater than the damage to Singapore.
While we will do everything possible to retain our trade links with
our hinterland, we will only be prudent if we try to broaden our external
economic ties by attempting to provide services and goods to countries
outside the immediate region. In fact, the economic policy which we
have to adopt on our independence is to bring about a reorientation of

20 The Economics of Modernization
our external trade network. The opportunities are not inconsiderable,
though many difficulties and obstacles have to be overcome. We broaden
our service and export base in several ways. The first and most obvious
is tourism, and that is providing services to tourists from Europe and
America who want to see the Orient. So our Tourist Promotion Board
promises tourists who come to Singapore an experience of what they call
the "Instant Orient". There seems to be a good future in this, and no less
than five first-class tourist hotels are now under construction which,
when completed, will provide tourists with more than 1,300 rooms and
employment for several thousand citizens.
Then, of course, there is the search for export markets in goods
which we have an economic advantage to produce. This mainly depends
on the expertise of skilled manual work.
The third field in which we can broaden our external base is in
ship-repairing and shipbuilding, and a great deal of effort is now being
put into this.
Finally, there is the sea. Seventy per cent of the earth's surface is
covered by oceans and the opportunities that this offers to a large
seaport like Singapore are very obvious. So we are planning to establish
more shipping lines to more distant countries. We are also trying to
establish a modern fishing industry.
As I have said, our position is not typical and, apart from a few
freak situations such as Hong Kong with south China as its hinterland
and possibly Beirut in the Middle East, there are probably no other cities
situated as we are. In most Asian countries, the hinterland served by a
city is part of the same national territory. Hence, the relationship of
city to hinterland and the role that the city plays in the advancement
of the countryside all belong to matters falling under the same national
government.
If we study the experience in China in this matter, I think we
might find more valuable lessons to learn from it than from our own
city-state. A number of extraordinary illusions have been held in the
past about China and its people. At present, the country is going
through what the Chinese call the "great proletarian cultural revolution",
the meaning of which is obscure to most people and has been interpreted
in several ways by so-called China watchers. Unfortunately, none of
the explanations which they have offered make sense, at least to me.
One of the widely held misconceptions about the Communist
regime in China is that it came to power as a result of the conquest of
cities by the countryside. Many of you have read the famous article by

Cities as Modernizers 21
Marshal Lin Biao published in September 1965 entitled "Long Live the
Victory of the People's War". In this article, the Marshal explained how
the countryside can be organized as a revolutionary force. In extending
Chinese experience to the international plane, Marshal Lin likens the
poor countries of Asia, Africa and Latin America to the countryside and
the rich states of the West, including, of course, the Soviet Union, as the
cities of the world. The long-term revolutionary strategy of the "people's
war" is to kindle revolutions in the underdeveloped countries and in this
way envelop and conquer the developed industrial nations. I myself
think that this analogy is fanciful and far-fetched. But in any event,
what needs to be corrected is not so much Marshal Lin's thesis about the
future — for in these matters his guess is as good as mine or anybody
else's — but the popular notion that the Communists rose to power as a
result of the conquest of the city by the countryside.
I believe that it is the reverse which is true. I believe that the
Chinese Communists come to power through the conquest of the
countryside by the city. Let me explain what I mean. I will not draw you
into an intricate discourse on the Marxist-Leninist doctrine of proletarian
revolution. It will be sufficient for me to make the point that in the
orthodox communist doctrine of revolution, it is the urban working
class led by the Communist Party that seizes power through an urban
insurrection. That was the way Lenin's Bolsheviks won power in 1917.
It was also the way in which the Chinese Communist Party attempted
to win power during the period 1928 to 1930.
The Chinese Communist Party mounted a series of urban
insurrections according to orthodox Marxist-Leninist theory.
Unfortunately for them, these insurrections were speedily suppressed by the
Kuomintang authorities. It was almost by accident that the Chinese
Communist Party hit upon the correct route to revolutionary success. In
1928, a young, obscure and relatively unimportant Communist leader
had collected a small ragtag and bobtail army of defeated insurrectionists
and marched them off to the Ching Kang mountains on the Hunan-
Jiangxi border. Among the weapons of this fugitive army were spears,
swords, bows and arrows. It was in this remote mountain fastness that
this man established a guerrilla base. It was there that he worked out the
outlines of the strategic doctrines that were to win for the Communists,
in less than two decades, mastery over the whole of China. The young
man's name was Mao Zedong.
It was Mao who first propounded the heresy of using peasants as
revolutionary material and of discarding the urban proletariat as the

22 The Economics of Modernization
cutting edge of the revolution. Needless to say, this heresy was strongly
opposed by the then leaders of the Chinese Communist Party. It was not
until the Communists had started on the Long March away from the
Ching Kang mountains that Mao Zedong won ascendancy for his strategic
doctrine of protracted guerrilla war. It was said — and I do not know
with what truth — that Mao's ascendancy in the party was hastened by
his posting of tiresome opposition party cadres to dangerous front-line
units from which they did not return.
Whatever the truth is, you must remember that Mao Zedong,
Liu Shaoqi, Zhou Enlai, Lin Biao, Zhu De, Deng Xiaoping, and all the
other Communist leaders were not country bumpkins. They belonged to
the urban intelligentsia of China trained, if not brought up, in the cities
and educated in the high schools and universities of Chinese cities. It
was they who conquered the countryside and created out of the rural
peasantry a revolutionary weapon of enormous power and resilience. On
the other hand, their adversaries, the Kuomintang, also mainly an urban
intellectual elite group, remained in the cities and this, as the history of
China shows, was the principal reason for their defeat.
The urban intelligentsia in the Chinese Communist leadership
conquered the countryside by a strategy that seems almost ridiculously
simple. They treated the peasants as human beings. That was all they
did. Yet, this was sufficient for them to win the support of the entire
countryside which they found vital for their extensive guerrilla operations.
They were able to achieve this effect because China was in a state
of virtually total social collapse. An ancient civilization and its political
apparatus, the Confucian state, had crumbled under the impact of
confrontation with the modern world. In the ensuing chaos, law and
order disappeared in most parts of China and the peasant in the
countryside was completely at the mercy of whoever commanded the
gun in his area — be they the troops of the provincial warlord, or the
Kuomintang, or, in later years, the Japanese army of occupation.
Unspeakable misery and terror reigned for many decades. On 5 January
1930, Mao Zedong wrote these prophetic words: "All China is littered
with dry faggots which will soon be aflame." At that time, the Chinese
Communists were taking a terrific beating on all fronts from the
Kuomintang and most of the leaders who survived were extremely
demoralized. But Mao never lost his confidence in ultimate victory and
he saw the role that the despised peasant was to play in its achievement.
And so when the Communists treated the peasants like human beings,
cared for them, gave them education and medical treatment, protected

Cities as Modernizers 23
them from landlords, and in many ways lightened their burdens, and,
above all, gave them a feeling of dignity, the response of the Chinese
peasants was overwhelming. They worked for and supported and were
prepared to die for the Communist Eighth Route Army, whose exploits
became legendary throughout China.
The People's Government of China is now trying to take the
country through the difficult stages of modernization and it is doing it
by its own method — the Chinese Communist method. We have heard
many horror stories about China. We have heard accounts of economic
collapse, extensive mismanagement, dislocation, chaos and disaster.
No doubt, some of these accounts are true. No doubt, the Communist
leaders have made serious mistakes. But they have the apparatus and the
social system and the discipline to take this huge country forward. Much
of the stories you now hear about Chinese economic failures sound
remarkably similar to former accounts of Russian bungling and
mismanagement. Everybody believed them until one day the Russians
put up a Sputnik into orbit before anyone else. All talk of Russian
inherent clumsiness or Soviet technological backwardness stopped.
The Russians had arrived.
The great problem posed by China is not, in my opinion, the risk
of military aggression by way of direct invasion of neighbouring states.
I do not believe that the Chinese Government seriously contemplate
sending their armies across their borders other than in special
circumstances, as, for instance, in the event of the uncontrolled expansion
of the Vietnam War, or in the event of an American nuclear attack
against China.
The great problem that China poses and to which in Asia we have
yet to find a solution is this. If, by the 1990s or in the early decades of
the 21st century, the Communist system in China were to produce a
modern industrial state equipped with all the technological advances,
what will happen to the rest of Asia if it fails to achieve similar progress?
The present picture of disarray in Asian countries, apart from Japan,
Taiwan and one or two other countries, is hardly one that inspires
confidence in the ability of non-Communist Asian countries to bring
about successfully the modernization of their societies and economies.
The main reason is not so much that they do not have sufficient
capital, for vast amounts of capital have been available to them from
richer countries. Some countries have in fact borrowed more than they
can spend! The problem is not even one of misallocation of capital and
other resources, for errors of resource allocation in planning will be

24 The Economics of Modernization
revealed in the course of implementation and experience. These errors
can then be remedied.
I think the failure of Asian countries to achieve a dynamic, self-
sustaining and forward thrust is due to the fact that the modern sector,
that is, the cities of Asia, has been leading by and large a self-contained
and isolated existence. Here we see progress. Here we see advancement.
New industries are built and universities expand both in the range of
faculties and the number of students. But there has been no serious
attempt to get the countryside into the grip of a dynamic modernizing
process. So the peasants live and work as they have done throughout the
past millenia. So they remain poor, dispirited, superstitious and
backward. It is this which constitutes the real failure in Asian
economic development — the failure of the city to fulfil its function of
taking the modernization process to the countryside. Nor did the cities
go scot-free for their neglect. The cities are punished with food
shortages, which have not only increased the discomfort of living in
cities but have also imperilled their entire national development plans.
Why has this state of affairs come about? I think there are two
main reasons. The first is the absence of a conscious strategic doctrine
on how to set about extending the urban beachheads outwards to the
backward countryside as part of a national modernizing process. Whatever
thinking has been done on this is limited mainly to theories of economic
development. For instance, there is the theory of the leading sector
whereby it is assumed — I repeat, assumed — that the establishment
of modern industry in the city would automatically bring about a
spontaneous chain reaction of modernization in the countryside. The
Asian economists, following the example of their Western counterparts,
confine their attention to the conventional economic variables. They
have discovered that this isn't enough to serve their objective of rapid
growth, and that there are more things in heaven and earth than are
dreamt of in their philosophy.
The second set of reasons relate to institutional factors. City life is
more comfortable than village life, whatever town planners and others
may say to the contrary. The result is that an intelligent administrator
finds a way of remaining in the headquarters of the city and the second-
raters are posted to the villages in what are virtually considered penal
appointments.
Then there are the barriers to modernization in villages whose
traditional societies cling stubbornly to ancient beliefs which form a
virtually impenetrable barrier to modern ideas.

Cities as Modernizers 25
Last but by no means least, there are the limitations imposed by
the democratic system. When the supreme purpose of political activity,
including the running of government, is to obtain the maximum number
of votes at the next general elections, it will take either a reckless or a
foolish person to upset the strongly held sensitivities of a traditional
society. And, of course, without upsetting these sensitivities, you cannot
hope to transform a traditional society into a modern one. That is one
great limitation from which democracy suffers in Asia. Nor is the position
any better if the democratic system is abolished. When this happens, it
has usually been succeeded not by a Communist dictatorship but by
military rule. The achievements of military governments in Asia, with
one possible exception, have not been impressive. Although some
Western intellectuals have assigned to military leaders an important role
in the modernizing process, I myself remain sceptical as to whether
the soldiers can or will do the things their modernizing role has
conferred upon them.
Although I have drawn what may appear to you to be a bleak
outlook for non-Communist Asian countries, I would not like to leave
you with the impression that all is lost. That is manifestly not true.
In the first place, it is by no means certain that China will emerge
into modernity before other Asian non-Communist countries. If the
Communists cannot rid themselves of the present absurd obsession with
doctrinal purity — or the thoughts of Mao Zedong as they call it —
they will not be able to develop and nurture in their universities and
technical institutes the top-level scientists for the type of intellectual
activity demanded of them. The ablest minds will choose to be ideologues
rather than scientists.
On the other hand, if they make a determined attempt to create
a corps of scientists and technicians in the same systematic way as the
Russians did, there is no reason to doubt that they will create a modern
technological society in course of time. And it is this development
which, if unmatched by the performance in other Asian countries, will
constitute the real long-term challenge of communism in Asia.
That is why it is imperative that we all bend our energies to this
task of modernizing our societies. The present condition of Asia is
unsatisfactory — modernity and progress in the city, while the countryside,
the real Asia, remains a vast stronghold of obscurantism and
backwardness. The result is a kind of schizophrenia both in the thinking
of Asian leaders and in the policies of their governments. Can Asia
modernize without recourse to the methods used by the Communists?

26 The Economics of Modernization
The Japanese have succeeded in establishing a modern state in every
sense of the word while preserving all that is precious in their cultural
heritage and discarding what is not consonant with progress.
This then is the backdrop to the seminar on problems of
urbanization in Asia — a sombre backdrop to be sure. If the subject were
to be discussed against a Western setting, attention need be paid only to
the technicalities of the problem, be they sociological, architectural,
economic, town-planning or health. But against the Asian setting, there
is this modernizing role of the city which has to be taken into account,
a role which is only vaguely understood at present but whose importance
will grow in the course of time.

Some Delusions of
the Decade of Development
Speech delivered at the 10th anniversary dinner of the Malayan Economic Society
on 24 July 1966.
In savage societies when a man falls ill, the belief is that he has been
possessed of evil spirits. The remedy is sought from a witch doctor,
who through rituals, spells and magic incantation, drives away these
evil spirits and restores his patient to health.
Hie belief in the omnipresence of evil spirits is so widespread
among primitive people that, even in ordinary conversation, certain
words and expressions are forbidden. They believe that these taboo
words will attract the unwelcome attention of dread evil spirits. The
accounts of ethnologists and anthropologists are full of examples of
these quaint and often diverting customs.
We moderns expect — and rightly so — that all our citizens will
conduct their lives on a rational basis and not succumb to primitive
superstitition.
And yet in the conduct of affairs of state in backward countries,
the approach to basic problems, in particular to problems of economic
development, resembles the mental approach with which the primitive
tribesman tries to overcome his private misfortunes. The literature of
international conferences on economic development is replete with
examples of sorcery, magic incantation and the avoidance of taboo
words. Let me give you a few examples.
I have attended many international conferences concerned with
economic development over the years and in not a single address or
paper have I come across an instance where the poor and backward
countries of Asia and Africa are described as such, that is, poor and
backward. These words are clearly taboo. Instead, euphemisms are resorted
3

28 The Economics of Modernization
to; at one time in the 1950s, backward countries were called
"underdeveloped". In the 1960s, more hopefully, the term "developing"
is used.
An example of magic incantation is the often-used phrase now
debased into a cliche — "the revolution of rising expectations". I will
deal with this revolution in more detail later. Then there is another
phrase which by now has surely acquired the status of a magic incantation
— "the take-off into self-sustaining growth". I believe Walt Rostow
coined this phrase. It is an attractive one, conjuring visions of an
aircraft trundling down a runway at an accelerating pace and eventually
taking off into graceful and effortless flight. It suggests to the uninitiated
audience that what is really required for self-sustaining economic
growth is the acquisition of gadgetry of the right type and on a sufficiently
large scale.
It is therefore small wonder, given such naive, not to say primitive,
public attitudes towards problems of economic growth, the "Decade of
Development" so confidently launched by the United Nations in 1960
now threatens to be the "Decade of Disenchantment". All over the vast
stretches of Asia and Africa, not only has there been a general absence
of significant economic growth, there has been in many places serious
retrogression. Indeed, the position in many places threatens ominously
to be like that of medieval Europe in its darkest age after the collapse of
the Roman empire. The roads and cities, the viaducts and the
amphitheatres which the Romans built slowly crumbled in decay, and
the institutions of law and order and of stable government were submerged
beneath the rising tide of barbarism.
To be sure, the picture is not one of unrelieved universal gloom.
Countries with ancient cultures do not risk any reversion to barbarism,
and there are isolated areas, our own for instance, where real progress is
being achieved. But I think it as true as any generalization can be about
so diverse an entity as the Afro-Asian world, that the attempts to
modernize their societies and their economies have generally been a
sorry performance. The real trouble is that the difficulties encountered
are not those of an ephemeral or technical-economic nature such as, for
instance, the worsening of the terms of trade vis-a-vis the industrial
West, bad though the effects have been. There is awareness now that
underlying the purely economic troubles such as inflation, balance of
payments difficulties, slow rate of capital accumulation and general
economic stagnation, there is a deeper underlying malaise whose real
nature has not been properly understood.

Some Delusions of the Decade of Development 29
What has gone wrong? How could matters be set right so that the
backward countries of Asia and Africa can catch up with the industrial
West? Now I would be an exceedingly bold and foolish man if I were to
attempt to answer these questions in any definitive form. I have addressed
my mind to this subject for many years, and the more I ponder over the
problem and the more I read the literature, the more intricate and
complex and, indeed, intractable of solution it appears to be. So tonight
I will content myself to discuss only some of the things that went wrong.
In part, the politicians are to blame for a great deal of the misfortune
that has overtaken their countries. But in defence of the politician, it
can be said that the country gets the government it deserves, though
this gives comfort to nobody. Nor are the professionals and the economists
and the staff planners and the executives of the development ministries
entirely free from blame.
Let me first deal with the responsibility of the politician. In the
immediate post-independence years there was, quite naturally, a general
air of euphoria generated by the belief that once the colonial and
exploiting power is removed, nothing stands in the way of rapid advance
towards the millennium. For when political power is vested in national
leaders, then the wealth that was believed to be formerly appropriated
by the metropolitan power can be diverted into productive use in
the development of the economy. As one famous African ex-leader
said, "Seek ye first the political kingdom and all these things shall be
added unto you." The redeemer came a cropper but, even before
that, people were wiser, and the first flush of euphoria had long since
vanished.
But in its place, there unfortunately have been very few instances
where the political leadership has acquired a complete grasp of the hard
facts of economic growth. They do not generally understand that in the
history of advanced industrial nations of today, except the fortunate few
well-endowed with natural resources such as the United States and New
Zealand, the first stage of economic development had been a harsh and
cruel phase. It meant the destruction of traditional institutions and the
imposition of terrible sacrifices on the vast majority of the population.
In most instances, the first stage of economic growth represented a
traumatic experience. It was possible to drag the country through it only
within a strong political framework. Such was the experience of Britain
and Western Europe during the Industrial Revolution, and Japan too
during the Meiji Restoration. Such also was the experience of the Soviet
Union during the Stalinist period when both the worker and the peasant

30 The Economics of Modernization
were sweated to the bone to provide the surplus needed for the
accumulation of capital
At the helm of the affairs of these nations during this period were
men of iron resolve who were determined to set their countries on the
path of modernization as rapidly as possible, regardless of the cost in
human suffering.
What do we have today in the backward countries of Asia and
Africa outside the Communist bloc? In some countries, some form of
military dictatorship has been installed after the ignominous failure of
representative government. Many of these dictatorships are obscurantist
and reactionary, more concerned with their own survival than the
advancement of their country. Where democratic institutions still survive,
political leaders, instead of arousing and inspiring their society for the
strenuous exertions that lie ahead, are caught in the toils of a system
which seems to inhibit effective action. Politicking takes the place of
leadership and statesmanship. Modern ideas of liberalism, egalitarian
ideals, welfare state concepts — all these are appropriate in an affluent
society but are largely irrelevant to a nation struggling to escape age-old
poverty. These concepts encourage a propensity to laziness and inaction,
inculcate a belief that society owes every man a comfortable living, and
proliferate trade unions whose main purpose is to get more pay for less
work. It is not at all surprising that under such conditions, the intense
effort that was needed never had a chance of coming into fruition.
I do not know whether or not this state of affairs could have been
avoided. But it is worthy of note that Western Europe, the Soviet Union
and Japan, during the time they achieved their economic breakthrough,
did not have universal franchise. Franchise was severely restricted in
Western Europe. As for the Soviet Union and Japan, the political
leadership remained under the tight control of the ruling elite. Hence it
was possible to exact from the general population sacrifices which no
popularly elected government today would dare even to contemplate.
Does it mean then that the backward countries of Asia and Africa will
never be able to achieve a modern industrial society through democratic
processes as they are practised today?
On the evidence of the performance to date, the answer would
appear to be a clear, unequivocal "No, they will not be able tQ." I believe
that unless democratic backward countries can create new institutions
and promote new values which can galvanize, inspire, cajole, induce
and, in the last resort, compel men into action, they will not be able to
lift themselves out of the present state of stagnation and poverty. There

Some Delusions of the Decade of Development 31
is now an increasing acceptance of the view that the non-economic
factors are the decisive determinants of economic growth. But there has
been little study to ascertain exactly what these non-economic factors
are and even less understanding of how they operate. The economists
refuse to enter into this domain of study possibly in the fear that it will
turn out to be a morass from which they cannot emerge. Hie sociologists
and others who have made some attempts in this direction have been
unimpressive in their achievements.
Some of you may point to Malaysia and Singapore, which are
developing at a fair rate and which may, in a few decades, achieve the
same standards of living as Western Europe today, as a refutation of
the view that democracy is incompatible with fast development in
backward countries.
I believe, however, that such an argument misses the real point. In
Malaya1 and Singapore, the primary accumulation of capital on which
subsequent growth was mounted took place during the colonial era
about the turn of the century. This process produced conditions as
abominable as those in Western Europe, the Soviet Union and Japan
during the first stages of their industrial revolution. It was capital and
know-how imported from Britain, labour from south China and India
that opened up the jungles of the Malay peninsula and developed the
port of Singapore. That part of our common economic history was no
more attractive in its social aspects than British social conditions as
depicted in the novels of Dickens.
We do not have our own Dickens, but those who care to look into
the official records, for instance, the law relating to indentured labour or
the reports of the two Opium Commissions, 1909 and 1921, will get an
understanding of the dreadful conditions under which men were put to
work. For instance, it was said in defence of opium-smoking that it was
necessary for survival of labourers engaged in opening up the jungles.
Since they lived in complete isolation, it was their only form of relaxation.
Further, the odour of opium smoke in labour lines kept mosquitoes away
and thus ensured immunity from malaria. This was seriously advanced as
a defence of the colonial governments policy of selling opium to the
general population. Incidentally, revenue from the sale of opium and
licensing fees of gambling farms constituted the main source of
government revenue in those palmy colonial days.
1 Now known as West Malaysia.

32 The Economics of Modernization
I believe that unlike most countries of Asia and Africa, Singapore
and Malaya have gone through the initial birth pangs of economic
development. This is why we are able to continue our development with
much less of the shock and trauma which our less fortunate African and
Asian countries have yet to undergo. However, let us not be complacent.
While we are off the launching pad, we are not yet in orbit and, if we
become negligent, we may yet come crashing down in an ignominous
descent.
Apart from the lethargy of action induced by the political systems
of backward countries, a number of misconceptions prevail which
bedevil an already difficult situation. These misconceptions are largely
the result of the shortcomings of professionals — the economists and
staff planners who advise governments and carry out their policies. Even
the academicians are not entirely free of blame, for they should have
seen the danger signals many years ago and should have warned those
in charge of affairs that they were moving down a blind alley. Take, for
instance, the so-called revolution of rising expectations to which
I referred earlier. Many educated people believe that there is an upsurge
of desire throughout the length and breadth of Asia and Africa for a
better life, for greater freedom and dignity. This is one of the great
delusions of the decade, usually on the part of the urban intelligentsia
who have not ventured beyond the route between their suburban
homes and their city offices.
Field studies of actual situations point to a different state of affairs.
I take the case of India, not because it is any worse than other backward
countries, but because it has been studied in greater depth and volume
than other countries. Studies of the Indian peasant suggest that far from
entertaining any rising expectation, he is an exceedingly contented
individual. That is, of course, when he is not immediately faced with
natural calamities such as droughts or floods. One university intellectual,
who made a field study of the attitudes of the Indian peasant, concluded
that what the Indian peasant needed is not an economist to teach him
how to save, nor an agronomist to teach him to increase his crop yield,
but a psychiatrist to explain to him why he should be discontented with
the appallingly wretched conditions under which he lives.
I am not saying, of course, that nobody in Afro-Asia entertains
rising expectations. Obviously the ambitious city political elite who
were engaged in the anti-colonial struggle did entertain rising
expectations. However, on coming into office in many instances, these

Some Delusions of the Decade of Development 33
expectations were easily and rapidly fulfilled by practices which will not
bear close Treasury examination.
But may I come to a more basic aspect of the economic policies
which backward countries pursue, which have resulted in stagnation
rather than growth. I believe that among many high government circles
concerned with economic development, the curious notion is held that
a high rate of growth of the national income can be brought about by a
high rate of capital investment. Accordingly, governments try to maximize
the rate of capital investment in both the public and private sectors.
This exercise in increasing the rate of capital investment or the gross
domestic capital formation, as it is grandly called, is dignified by the
name of economic planning.
Deluded by the notion that if only they can increase their rate of
capital investment, they will increase their growth of national income,
development planning authorities in backward countries try to beg,
borrow or steal the capital they believe they need. In course of time, the
governments accumulated enormous debts and find, to their surprise
and dismay, that far from being richer they have, in fact, become poorer.
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 into some
use which will yield sufficient income to enable you to repay the loan
with interest. Somehow or other, this elementary precept of prudence
has been considered to be beneath the dignity of economic planners.
I find it difficult to understand how this notion — that more
capital investment creates faster growth of income — came into being.
I can think of any number of capital investment projects which, if
undertaken in a backward country, is guaranteed to bring it into complete
ruin. Indeed many Asian leaders, without prompting from anybody,
have been engaging in just this kind of activity. If you read the literature
carefully, you will notice that the academicians are very careful in
phrasing the relationship between capital investment and the growth
of income. They refer to an association or correlation between these
two elements, but have refrained from asserting a causal relationship
between the one and the other.
It is refreshing to come across an authority like Professor Caincross,
who stated that it is as justifiable to say that a high rate of growth brings
about a high rate of capital investment as the other way round, that is,
a high rate of capital investment brings about a high rate of economic
growth. But this has not deterred economic planners from fiddling

34 The Economics of Modernization
around with capital-output ratios which set out just how much increase
in the national income will result from how much increase in investment.
I suspect that the econometricians are to blame for this. They always set
out their equations in terms of AY (a change in income) as some
mathematical function of AI (a change in investment), income being
regarded as the dependent variable. As for the capital-output ratio,
the defence for its use is its observed empirical stability.
I suspect that if a study is made of growth rates in various countries,
it will be possible to establish a close relation between growth rates and
per capita consumption of bananas. It is even possible that the ratio
between the two rates will show stable performance. It will then be
regarded as logical to come to the conclusion that the consumption of
bananas brings about a high rate of economic growth. It would not be
beyond the ingenuity of any self-respecting economist to establish a
causal relationship between consumption of bananas and good economic
performance. The banana theory of economic growth can then be put
into a theoretical framework no less fanciful than, say, the sun spot
theory of the trade cycle.
If the banana theory of economic growth comes to receive universal
acclaim, there would be at least one blessing to backward countries.
When a wretched minister of finance is called upon by a creditor
government to explain the poor performance of his country, he can
come back with a crushing reply, "Yes, we have no bananas."
This belief that capital investment is the source and foundation of
economic growth has resulted in the lack of attention to the questions
of what kind of economic policies will best promote opportunities for
economic growth, what kind of incentives should be offered to enable
people to take advantage of these opportunities, and what kind of new
institutions should be created to give effect to growth policies of the
government.
So, in many backward countries, we see the curious spectacle of
the scarcest and most valuable of all factors of production — management
skill — being used, not to create more wealth, but to control, from the
commanding heights of a vast, intricate bureaucracy, the efforts of other
people who are engaged in creating new wealth and, in the process,
often inhibiting the creation of such wealth. All this is done in the
name of economic planning and even in the name of socialism.
The irony is that while the Communist countries are learning the
folly of centralized planning and control over the economy, backward
Asian and African countries, whose government machinery lacks the

Some Delusions of the Decade of Development 35
extensive powers which Communist bureaucracies have, continue to
proliferate controls, licensing systems and direction and decrees in an
ever-increasing torrent.
Backward countries, in inheriting or creating the political
institutions of modern states, have found some of these totally
inappropriate to their situation. In like manner, they have absorbed the
economic ideas of modern countries, but without realizing how
inappropriate they are to their own situation. We must not forget that
Keynes's General Theory, which underlies all this business about the
capital-output ratio, is really concerned with short-term fluctuations
of income and not with the problems of long-term secular economic
growth which is the real issue facing backward countries.
If I may be so presumptuous as to give advice to others (having
been freed from the burdens of the Finance Ministry, I can look at this
problem with a detachment that was not possible before), I would ask
them to throw away all the books published on economic growth since
World War II. I would advise them instead to read the essays of Samuel
Smiles — his exhortations to thrift, industry, ambition, honesty,
perseverence, etc. No doubt, to people who have been brought up in the
sophisticated 20th century — an era which has grown to accept Beatles
and beatniks — this may be an intolerable imposition, for Samuel
Smiles must appear a singularly odious Victorian character. Yet what
else is there to do? The economic planners have manifestly failed in
their job simply because, I suspect, they have not realized that at the
stage of development of their country, the injunctions of Samuel Smiles,
however offensively sanctimonious they may be, are more in keeping
with the needs of their times and their countries than all the stuff that
the econometricians are producing.
In this respect, what is remarkable about the way Communist
China is carrying out its task is the tremendous amount of moralizing
that is going on, and much of it along the lines which the great Victorians
would certainly have approved of. I am led by this as well as by other
evidence to the conclusion that Communist China will reach the
point of Rostow's self-sustaining growth well ahead of other backward
countries, unless these wake up in time.

f Abolition of Poverty
A radio talk on the Australian Broadcasting Commission network "Guest of
Honour" programme on 30 January 1967.
I shall speak about some general problems which Asian countries are
facing. It is dangerous to generalize about Asia with its wide variety of
societies and their different history and culture. But apart from Japan,
Asia shares one problem in common. This is how to abolish poverty,
which has been the lot of the common people, and how to attain a
decent standard of living for them in the not-too-distant future. This is
what all Asian countries are trying to do with varying measures of
success.
In the post-war years, as one state after another emerged into
independence, this attack on the age-old problem of poverty was launched
with vigour and enthusiasm. No self-respecting government worked
without a five-year economic development plan and there was widespread
expectation that, by a series of such development plans, Asian countries
would succeed in the conquest of poverty. We were, and had to be, in
a hurry.
These development plans were comprehensive and required
considerable preparation and thought. They provided for new
construction in various ways — the building or extension of ports,
construction of power stations, railways, setting up of new industries,
construction of irrigation dams, new roads and so on. All this required
large sums of money. Much of the capital equipment had to be brought
from abroad and this meant the use of foreign exchange.
I think it is fair to say that, with the exception of a few countries,
the main emphasis in these development plans was on industrial growth

Abolition of Poverty 37
— how to bring it about and how to sustain it. Asian planners were
influenced by a belief that industry had a potential for generating side
effects. They, of course, realized that modern industry does not constitute
the whole of a modern economic system. After all, there are wealthy
countries based on agriculture, for instance, Denmark and New Zealand,
but they thought that they would get not only the direct benefits, but
also the indirect ones. This would consist of the extension of skills
created by industry into other fields. They hoped that those engaged in
modern industry would speed up the process of breaking down tradition
and help in the spread of modern ideas. In a word, industry was considered
to be the leading sector of the economy and, once this expands, it was
hoped that the industrial sector will drag other laggard sectors in
parallel advance.
Unfortunately, things have not worked out in that way, and the
present state of affairs is one of dismay and confusion. To be sure, many
impressive achievements have been registered. For instance, India has a
substantial modern steel industry and produces jet planes, tanks, machine
tools and a vast range of products which she never produced before
independence. Yet the fact remains that she, like many other Asian
countries, is in dire trouble today.
The main reason is that problems of agriculture — and 80 per cent
of Asians are peasants — proved more intractable than were thought.
Farming still went on in much the same old-fashioned way and, although
progress was made in certain places — for instance, the Punjab in India
— in general, food production barely kept pace with population growth.
The slightest adversity in weather brought about dire consequences.
It is clear that the performance of industry as a sector leading all
others had been a sluggish one, and the demonstration effect which it
was hoped that industry would produce on backward sections of society
did not take place — at least not at the speed that would have produced
visible results. In fact, as we have seen from the recent agitation in India
against the slaughter of cows, the traditional forces of society proved
to have far greater resilience than the modernizers had thought. All
activity, including economic activity, was tied to centuries of social
tradition. It was necessary not only to introduce new skills, but also to
bring about a change of attitudes which would be receptive to these new
skills. What was involved was a way of living, not merely a way of
working, and the weight of history was heavy.
We may ask ourselves why this has come about, that is, the failure
of modern industry to serve as a transmission belt of the modernizing

38 The Economics of Modernization
process on which great hopes had been placed. Some people may say
that Asian countries went about it the wrong way by making the
government responsible for creating and managing these industries instead
of leaving this job to private enterprise. It can be claimed that if private
enterprise were to run modern industries, this would have had a greater
catalytic effect on society. For one thing, civil servants, especially those
brought up in the British tradition, are by nature timid and desire no
more than to lead a quiet unostentatious life. They are not fitted to the
role of innovation by example, and this role is best performed by people
who are less inhibited by government regulations and the civil service
outlook. There may be something in this argument. But the arguments
for and against government ownership and management of industry are
complex, and I do not think I need go into that now except to say in
some Asian countries, indigenous private enterprise is often backward.
I think, however, it is not wholly true to say that the establishment
and management of new industries as state enterprises was the whole
reason for the failure to achieve a general economic take-off. I suspect
that there are social processes operating here about which we know very
little. For instance, in Malaysia and Singapore, where government
ownership and management of industry are minimal, the extension of
new attitudes generated by private enterprise has also come up against
traditional barriers, though of a different kind. Here, it is the Chinese
people who are the modernizers. Uprooted from their societies in China,
which themselves had been in a state of turmoil for more than 50 years,
Chinese society abroad had to make its own adjustments to the
modern world unimpeded by traditionalist institutions. This has helped
them to make the economic breakthrough in Southeast Asia, and I think
it is fair to say that they are confident in meeting the challenges of the
20th century. Nevertheless, in Malaya, this has not served to bring about
similar changes in, for instance, Malay society. If anything, Malay society
has tended in some respects to retreat into its traditional strongholds.
Let me explain what I mean. Malay society, like most societies,
subscribes to a code of conduct which sets out what is desirable or
admirable and what is offensive or undesirable. Malay economy is geared
to the slow rhythm of agriculture and the Malay has been taught to seek
advance within the pattern of society established before the age of
technology. In the ethos of Malay society, the unrelenting pursuit of an
objective, like the accumulation of wealth, is not held in esteem. In fact,
it is condemned as inconsistent with gracious living on which they place
much importance. The spectacle of the Chinaman working like a demon

Abolition of Poverty 39
possessed, and ruthlessly brushing aside any one or any obstacle that
stands in his way, is not one that arouses Malay admiration.
And yet without this passion for wealth generating a fanatic
determination to accumulate, is it possible for the Malays to achieve the
economic success of the Chinese? Here, one is reminded of what Weber
and other Western sociologists have said about the contribution of the
Protestant ethic to the early development of capitalism. The early stages
of economic growth, be it through capitalism or communism, is necessarily
a cruel and harsh process, and it needs a robust philosophical outlook to
go through with it. There is no easy way to grind out of the mass of poor
people the economic surplus or savings needed to finance capital
accumulation. Victorian England and Stalinist Russia did not present
pretty pictures of bucolic happiness when they went through the process
of capital accumulation, and there is no reason to expect that the
backward countries of the world can hope to escape the same traumatic
experience if they want to achieve self-sustaining economic growth.
The trouble is that, given the traditional order and the prevailing ethos,
none of their leaders dares even to contemplate the stern measures that
need to be taken to propel their societies forward. To me this, rather
than the technical problems of economic planning, is the real dilemma
facing Asian countries today. It is one to which no solution has been
found largely because, I suspect, not much thinking has been done on
the subject. Economists limit their attention strictly to the economic
variables, political scientists are absorbed with problems of political
structure and processes, and anthropologists study exotic tribal customs.
The integrated, comprehensive, all-embracing approach to these vital
problems of the modernization process has yet to be made. Asia has
produced a Mao Zedong; it has yet to produce its Max Weber.
In the meantime, everybody travels hopefully, aware of his
shortcomings, but aware also that no one can plan a path or chart a
course of historical development. After all, the Japanese have succeeded
without the conscious guidance of dogma or doctrine. But it was more
than a hundred years since Commodore Perry's black ships anchored at
Edo Bay, now modern Tokyo. And throughout their lengthy process of
modernization, the Japanese had the advantage of a homogeneous society
and a strong and continuing framework of leadership. There are not
many countries in Asia that can lay claim to these advantages.

Making Compatible Choices
Speech delivered at the opening ceremony of the University of Singapore Students
Union student conference at the National Youth Leadership Training Institute
on 9 May 1971.
As this is a training course on leadership, it seems appropriate for me
to talk on some aspects of leadership. I want to discuss a rather
fundamental aspect of leadership, and that is the question of choice
of objectives. Before a leader can lead, he must decide exactly where
he intends to lead his flock to. That is an obvious, indeed, a trite
observation.
Yet leadership in the real world is seldom such a simple matter.
The reason is that we are not leading people to one physical destination.
For instance, if you are a leader in the political field, you need to have
some notion, some idea, or some vision of the future society into which
you want to lead your people. This is a complex business for there are so
many aspects to a modern society in regard to economic structure,
political systems, cultural values and so on. And in each of these fields,
you will have to select, consciously or otherwise, a set of goals. The
question I want to discuss today is: How to make choices that are
compatible? All too often, we see people pursuing contradictory
objectives. In the end, they just weary themselves out without achieving
anything worthwhile.
Let me discuss this subject of compatibility of choices by reference
to some examples. Some 15 years ago, an Indian economist doing his
PhD thesis at the London School of Economics, set out this proposition:
It is desirable for a modern society to achieve four objectives —
(1) political democracy; (2) full employment; (3) price stability;
5

Making Compatible Choices 41
(4) economic growth. His thesis was that a modern society can choose
any three of the four, but not all four simultaneously. If a democratic
nation strives after full employment and economic growth, this can be
only at the cost of price inflation. On the other hand, if it wants to
achieve price stability, then it must give up either full employment
or economic growth. And so on for other variations on the theme.
It is an attractive thesis, not without relevance to the world today.
Countries in Europe and America have achieved full employment with
economic growth; at the same time, they have saddled themselves
with near endemic inflation.
Yet, like most propositions in the social sciences, this thesis cannot
be pushed too far. We have dictatorial regimes in Latin America, and
unhappily in countries in Asia as well, which have achieved neither full
employment nor price stability nor economic growth. And there are
countries in Asia which have achieved only one of the four objectives,
namely, political democracy, and find themselves ridden with massive
unemployment, price inflation and economic stagnation. Needless to
say, political democracy does not last very long under these conditions.
In the physical sciences, the question of compatible choices is
easily seen and understood. Take, for instance, the design of aircraft. As
technology advances, we can design and build faster, larger, more versatile
aircraft, with longer range, payload and other desirable characteristics.
However, at any one moment, at any given level of technology, or, to use
the jargon, at any given state of the arts, you have to make some
compromise between the various characteristics you want — speed,
range, payload, etc. You can have more of one at the expense of less
of the other. So you trade off speed for payload, payload for range, or
whatever.
Whereas in the physical sciences, the constraints in making these
trade-offs are unavoidable, spelt out in theory and observable in
experiments, that is not the case with the social sciences. Not only are
the social sciences inherently inexact, but human beings themselves,
when they make judgements on human affairs, are captives of their past
experiences, including what they have learnt in schools and universities,
the biases that developed from these, their unconscious desires and
frustrations. The result is that the level of thinking on human affairs
by human beings themselves is often deplorably low.
Let me illustrate the subject of compatible choices by reference to
our experience in Singapore. I want to discuss the trade-off between
economic growth and nation-building. At first sight, it might appear

42 The Economics of Modernization
that there is no conflict of choice between the two. You may argue that
economic growth helps nation-building and nation-building in turn
helps economic growth. As people improve their standards of living,
they become more conscious of their common identity and common
interests, and as unity and solidarity improve, people are better enabled
to increase the GNP. This, I am afraid, is a simplistic version of social
and economic processes. In the real world, in Singapore, things do not
work out this way.
There are several reasons for this but I will deal with only two
major ones. In Singapore, we have mounted the main effort to achieve
fast economic growth through the free enterprise system. There is no
other realistic alternative. The free enterprise system, as you know,
depends on individual initiative. It is not the Government that makes
the crucial investment decisions on which our economic, particularly
our industrial, growth depends. It is people in the private sector which
do this. They may be our own citizens or they may be foreigners. These
decision-makers make close calculations of markets, costs, profitability,
incentives, future earnings and so on. On the basis of their calculations,
they decide whether or not to invest in this or that industry.
The key element in their calculations is how much profits can
they make, now and in the foreseeable future. Throughout the free
enterprise system, calculations of this kind are constantly being made.
The type of people who run the system are necessarily those who are
hard-headed, ambitious and pretty ruthless in overcoming obstacles.
Such people are conditioned to placing their individual interests and
that of their firms above all other considerations.
These are the successful and they set the trend, the style, the ethos
— call it what you will. Unless our society is tempered with a broader
vision, it is easy to see that the prevailing values will be self-centred,
self-seeking and concerned with short-term interests. Nation-building
does not flourish in a climate of this kind.
There is a second unfavourable element in this free enterprise
system. And it is that the greater the inequality of wealth, the larger
will be the proportion of national income saved. Big corporations
and rich people save a larger part of their earnings than the poor do.
Savings make capital investment and economic growth possible. It is a
sad but nevertheless true observation that inequality of income is good
for economic growth.
So here you will find, readily, the elements of social tension.
People compare their present income not with what it was five or ten

Making Compatible Choices 43
years ago, not with what it would have been if there had been no
economic growth; they compare their present income with the income
of those who are more successful Discontent of this kind is good for
economic growth as it spurs people to put in more effort to increase their
income. But the result is that the big economic growth of the type we
have had in the past few years, far from leading to unity and contentment,
produces the reverse effect.
Let us now consider the reverse case. Indonesia, under the rule of
the former President Soekarno, provides a striking example of a different
kind of trade-off between economic growth and nation-building.
Soekarno thought that economics was for bookkeepers. Though, as you
know, the economy performed dismally during his regime, there is little
doubt that the Indonesian people achieved a higher level of consciousness
of their national identity than has been the case with Singaporeans.
Anyone who doubts this need only hold discussions with Singapore and
Indonesian intellectuals. He will find that, in this respect — acceptance
of the national identity — the two differ profoundly. Another indicator,
and it is only an indicator, is that Indonesians take defeats of their
national sports teams very seriously. In Singapore, we bear these
setbacks with complete equanimity. Indeed many of you would question
whether "set-back" is the right word to use. Indonesians would not
question this.
The trade-off between economic growth and nation-building is a
subject which, to my knowledge, has not been dealt with in the literature
of any of the social sciences. One, therefore, has to move carefully in this
terra incognita. The observations which I want to make relate to the
situation in Singapore and may not have any validity beyond our shores.
First, though in the short term the claims of economic growth and
nation-building may be competitive or contradictory, in the longer term
this may not be the case. If we did not have sufficient economic growth
at least to mop up the large number of unemployed youths, which was
then thought to be an insoluble problem, then any talk of nation-
building would be idle chatter. Our society is likely to plunge into a
series of social and political convulsions; and as these cause further
deterioration to the economy, the country will go into a tailspin
from which recovery is very difficult to contrive. My second observation
is that the choice between economic growth and nation-building, like
so many choices in human affairs, is not a choice of all for one and
nothing for the other. It is how much of one at the expense of how
much of the other.

44 The Economics of Modernization
Only history will tell whether we have selected the proportions
correctly and, within the selected proportions, whether we have done
enough to redress imbalances, to reduce the tension resulting from
rapid economic growth, and to inspire the broader vision I referred to
earlier.
How do we advance our national cohesiveness in the face of
short-term constraints created by economic growth? The solution lies in
taking advantage of certain long-term factors produced by sustained
economic growth. As we get large numbers of educated and successful
careerists and entrepreneurs, a growing number of them will realize that
a firm and durable political system is a prerequisite for their continued
affluence. We will then get an increasing number of them who, out
of enlightened self-interest, will make the effort to contribute towards
this objective. They will learn, I hope not by the hard way, why and how
they can work for greater social cohesion and how they can provide
effective political leadership.
At the same time, economic growth will make possible
improvements in the standard of living of the working class. This would
be achieved both through higher wages and better social services. Despite
the occasional grumblings from those who fail to keep up with the
Joneses, an expanding economy generally benefits workers, both by
expanding employment and career opportunities as well as by wage
increases.
The assumption for believing that we can reconcile economic
growth with nation-building is that the Singapore citizen, despite his
occasional waywardness, is basically a rational human being. In the final
analysis, he knows where his own interests lie. If he is provided with
adequate information, his choice will be predictable and, in the main,
rational.
There are other types of trade-offs which one can conceive of as
being relevant to Singapore. For instance, there is a trade-off between
individual liberty and nation-building. If you care for more complex
stuff, you can think of a three-way trade-off between economic growth,
individual liberty and nation-building. This is a subject worthy of a
PhD thesis. I cannot hope to do it justice in a brief address.
I treat the subject from the point of view of a trade-off between
competing objectives to emphasize the point that, in human affairs,
there seldom are absolute values, that there is no such thing as going all
out for economic growth or nation-building or individual liberty, or this,
that or the other. We have to find a right mix of these desirable

Making Compatible Choices 45
objectives, often sacrificing a measure of one to get more of another. In
Singapore, people often forget this, especially in arguments or public
debate. The result is that they want to have their cake and eat it as well.
It is all right for the general public to do this. But those who want to
lead them cannot afford such careless thinking.

Man and Economic
Development
Article published in Commerce, journal of the Commerce Society, Nanyang
University, Vol. 1 No. 4, in November 1961.
A student of economics who has gone through dozens or hundreds of
books on economic development may lose sight of the basic human
and sociological principles because of overemphasis on details. The
textbooks will discuss technical matters, such as the rate of gross domestic
capital formation, the capital-output ratio, balance of payments problems
and so forth.
There is a danger that in his absorption with technicalities, he
overlooks the basic elements of the problem. When we talk about
economic development, we often forget that what we really mean is how
to make man better off materially — how he can have more and better
food to eat, better homes to live in, better education for his children,
better means of transportation, more leisure, in fact, how man can
achieve a fuller life. Building of factories, opening of docks, railway
lines, mines and power stations are merely the means whereby man can
have a fuller and more meaningful existence. We know that in Asia, the
vast majority of mankind live on the verge of starvation. Economic
development is a means whereby we could abolish the endemic poverty
which has been man's fate for centuries and generations.
In other words, economic development is for man. This is quite
obvious. But what has also often been overlooked is that it is also man
that carries out economic development. It is not an amorphous body like
the state which carries out economic development, nor is it carried out
only by experts, be they engineers, financiers, economists or whatever
they are. It is the human aspect of economic development to which, in
my opinion, inadequate attention has been paid.

Man and Economic Development 47
This failure on the part of economists is not surprising. Economic
theory presupposes rational economic behaviour in man. Theory assumes
that man would prefer to consume more goods than less; it assumes that
man can make rational calculations as to the future and will be prepared
to undergo present sacrifices in return for a greater deferred reward in
the future. These assumptions as to human conduct are true only in a
limited sense, and they are made in regard to economic phenomena in
a limited context. Students are familiar with what economists call
"marginal analysis", that is, analysis of small change, in the economic
system. Where large changes have to take place, then it by no means
follows that the assumptions under marginal analysis hold true.
But there are other more important reasons why the question of
human motivation is of fundamental importance in the study of economic
growth. First, the assumption that man wishes to improve his basic
material living conditions does not always hold true. There are societies
or sections of societies where, owing to lack of contact with modern
civilization, or the drag of centuries-old traditions, or the resignation
and torpor which grinding poverty induces, or a combination of all
these factors, human beings seek no improvement or change in the
material conditions of life. To arouse such societies from their lethargy
is the business not of the economist, but of the sociologist and the
politician. Until they get going, there is little that the economist can do.
Secondly, economic theory dealing with economic changes almost
invariably postulates complete mobility. This means that people are
free to change their occupations according to what they think is to their
best advantage. They are free to buy and sell their labour, their services
and their products on the most advantageous terms. In the real world,
this very often does not happen. There may be social or political factors
which prevent the free mobility which economists postulate in their
theories. For instance, religious customs may prevent certain types of
people from entering certain occupations, thereby preventing any
improvement of their status. Where the state controls the economy
through licences, then obviously there is a check upon mobility. A
person may want to produce certain goods or enter certain occupations
but may be prevented from doing so by the licensing authorities.
The problem therefore resolves itself into the policies which a
government should adopt to achieve the changes in society and in
individual human beings that will permit the objective factors of
economic development to assert themselves. One of the primary
objectives is the spread of education which can itself be subdivided into

48 The Economics of Modernization
general education and utilitarian education. General education is
fundamental, and the percentage of literacy in a society is taken to be an
index of its cultural level and general well-being. The state's attitude to
compulsory schooling, the school-leaving age, free education and facilities
for higher education are important for sustaining long-term economic
growth. Without a well-educated population, no state can possibly develop
its economic resources to the fullest. Besides giving rise to a population
that is aware of the benefits of economic development, education — if
suitably directed — can inculcate in its people a sense of social discipline,
which is of prime importance if the process of economic growth is to
take place with a minimum of unrest. It will moreover ensure, at a
later stage, that the fruits of economic growth are not dissipated in
frivolous hedonistic pursuits, but in the attainment of a fuller and more
cultured life.
But education also has its utilitarian functions to perform to
ensure that citizens are well equipped for the functions they have to
perform in society. Obviously no society can afford to, or will be well
advised to, provide each and every one of its young citizens with education
to university level. Such a system will never work as human beings
basically are not endowed with the same talents or skills. Secondly,
no society can consist entirely of the intelligentsia. The duty of the
state, however, is to provide all its citizens with the same opportunities
to make the best that they can of their available talents and energies. A
developing society requires a wide range of skilled personnel and the
state has to provide them at the right time in adequate quantities. This
requires, besides the usual general secondary schools, the establishment
of vocational and craft schools, of technical colleges and polytechnics,
and of the modern university departments of science, technology,
agriculture, economics, business administration and accountancy.
Besides education, the other main non-economic factor which
affects economic growth is the opportunity which a society affords to
those with talent, ability and skills to rise to the position for which they
are best fitted. This requires, firstly, that the state is ably led and well
administered, that the political leadership and the bureaucracy are free
from corruption and nepotism. To achieve an honest and energetic
administration appears easy in theory. In practice, very few of the young
and emergent nations in Asia and Africa have achieved this. Even in
the most advanced and leading societies, whether communist or
democratic, the problem of nepotism is a recurring one and can only
be countered by constant vigilance. In advanced societies, it is not so

Man and Economic Development 49
much open nepotism which is to be feared but the insidious "old boy"
type whereby no illegalities are committed, but in which the pinnacles
of power, influence and wealth are the reserve of those born into the
right families. In underdeveloped countries, the matter could be more
serious. A system may arise in which the dominant minority, whether of
families, clans or even entire communities, arrogates to itself not only
the openings to the seats of power, but also the avenues by which
individuals can fit themselves out for such positions of power. The
dominant minority is thus able to point out that those outside of the
charmed circle just do not have the necessary qualifications to be admitted
to the elite group. Thus many able and aspiring people are denied the
opportunity for the full use of their abilities. This represents a loss which
a developing economy, almost by definition short of skills and talent,
can ill afford. This loss takes place in two ways. First, there is the direct
loss of talent kept out. But the second way is even more serious and
sinister. The dominant minority will be, in effect, a closed privileged
group and will be likely to exhibit the familiar traits of such groups. They
are likely to be lazy, inefficient and, in varying degrees, corrupt. Finally,
when they find their privilege threatened, they are likely to be oppressive.
Experience in other countries show that economic development is
not likely to succeed in such circumstances.
The attitudes of society to change and social mobility determine
whether individuals are able to find their proper level in society, with its
corollary that the most able individuals get to the top. In both democratic
as well as communist societies, these are the proclaimed ideas. So far as
economic development is concerned, what matters is how to ensure that
your ablest men rise to the top in business and in industry. In other
words, how to produce and expand your class of entrepreneurs.
This is the most vital aspect of economic development on the
human side. Entrepreneurs are something which the state cannot directly
create. Entrepreneurial talent emerges if the conditions in society are
appropriate. All the state can and should do is to remove the restrictions
on the development of such talent. It is a paradox that developing
societies require more such entrepreneurial skills than developed societies.
In developed societies, whether capitalist or communist, the
entrepreneurial function is very largely performed by corporate bodies
consisting of members recruited from the managerial elite. These
corporate bodies plan the moves which lead to the expansion and
diversification of industries and organizations, to take-over bids, mergers
and so on. These functions call for a great deal of knowledge, experience

50 The Economics of Modernization
and shrewdness on the part of the new type of entrepreneurs, but theirs
is distinct from the sort of entrepreneurship which creates an enterprise
from the ground level The era of the captains of industry emerging
from the grass roots to create a vast new industrial empire is all but
over in the developed societies.
But in the developing countries, the need is just for such men who
are willing to build from the ground leveL Whether they are allowed to
go forward and pursue their goals unhindered determines, to a large
extent, whether society moves forward or stagnates. For it is the
entrepreneur who supplies the push to expansion. It is a sad paradox that
many of the developing countries which are so desperately in need of
this push are carrying out policies which frustrate the activities of
entrepreneurs and actively discourage the growth of an entrepreneurial
class. Often, this is done in the name of socialism. It is held that
entrepreneurs belong to private enterprise, which is capitalistic and
therefore bad. So both naivete and dogma combine to induce the leaders
of these developing countries to pursue self-defeating policies in economic
development and, hence, their efforts are doomed to failure from the
start. The matter is of some importance and deserves closer attention
than it has so far been given.
I come finally to an assessment of the position of Singapore in
relation to the human and sociological factors which influence economic
growth. The first thing to be noted is that the existence of a large
population of immigrant or recent immigrant origin presupposes that
our society is willing to accept change and progress. If the immigrant
peoples were not so inclined, they would not have left their homelands
in the first place. Their presence here in large numbers further implies
that the indigenous peoples are themselves sooner or later affected by
the forward-looking dynamic characteristics of the immigrants. At best
the indigenous people are stimulated, at the very least they are goaded
on, by the thrustfulness of the immigrants. Furthermore, in Singapore,
society, or at least that section of the population living in the urban
conurbations, has generally cast aside its rigidities, taboos and prejudices
of the past and is willing to permit a degree of social freedom and
mobility that is quite remarkable by Asian standards.
Secondly, we have an administrative machinery that is relatively
free from corruption and the grosser forms of nepotism. Moreover, the
economy permits a high standard of living which makes for a fairly
contented population that will not readily upset the apple-cart. Our
social services, while not up to the standards of advanced countries, are

Man and Economic Development 51
nevertheless improving and are even now commendable in the fields
of health and social welfare. In education, we have already reached the
goal of free universal primary education and the next decade will witness
an expansion of the facilities for vocational, secondary and higher
education.
Finally, the existence of a class of entrepreneurs who have been
allowed a free hand in the past has ensured that we will be well served
in the future when a great deal of entrepreneurial work will have to
be undertaken for the economic development of our country. It is
necessary that conditions should be set right so that their abilities can
be channelled into the growth of new industries which is the most vital
aspect of the economic development of our country.

Social^ Political and
/ Institutional Aspects of
Development Planning
A paper prepared for the conference on "Economic Planning in Southeast Asia"
organized by the East West Center in Honolulu held from 1-5 February 1965.
Introduction
Preparing a development plan is one of the least troublesome efforts
which an underdeveloped country has to make in its quest for self-
sustaining economic growth. The techniques are standard and well
known. Basically, a development plan aims to achieve both economic
and social improvements. To obtain economic growth, it is necessary to
set aside resources for capital investment in projects which will encourage
economic expansion. In a system where the bulk of economic activity is
carried on by private enterprise, there is substantial agreement among
economists as to the sphere of government activity in promoting growth.
Public sector investments are concentrated principally in providing the
physical infrastructure which will encourage private investment. These
are roads, railways, telecommunications, power and water supplies, ports,
industrial estates, research institutions studying important agricultural
crops of the country, and so on. The optimum combination of projects
that will induce the desired rate of private investment is very largely a
matter of judgement. Conceptually, the marginal return on any given
investment should be equated to its marginal cost. In practice, however,
it is generally not possible to quantify the elements involved.
At the same time, the development plan must also provide resources
for social development, the building of more schools and teachers'
training colleges, enlargement of universities, improvement of health
services, provision of public housing, and so on. A balance must be
struck in the allocation of resources designed to promote economic

Social, Political and Institutional Aspects of Development Planning 53
growth and to improve the social services. This is a matter of policy, and
the point where the balance is struck depends on a number of political
and social considerations.1
The first step in formulating a development plan is to compile an
inventory of available resources in funds, in manpower and in natural
wealth such as minerals and underdeveloped lands. This will involve the
projection of government revenues and expenditures over the plan
period, an assessment of external reserves and surplus funds, central
bank financing and the ability to raise loans. When the estimate of
resources available both from external and internal sources has been
made, this may be compared with the total cost of the desirable projects.
Where initial estimate of the latter exceeds the former — as is usually
the case — then a scaling down of projects according to some policy
criteria must be carried out to achieve the balance between resources
and needs.
As outlined above, it may appear that as an intellectual exercise,
economic planning is a simple and straightforward matter. In practice,
complications of course arise. There are tests of consistency to be applied
to ensure that no sector has been unduly neglected to such an extent
that it impedes progress in other sectors. For instance, if it is proposed
to build a certain number of new power stations, it is necessary to
ensure that there will be an adequate number of skilled staff to run the
operation when these projects have been completed, without impinging
on other sectors of the economy. Where deficit financing is resorted to,
an assessment of inflationary pressure must be made and its effects on
the balance of payments estimated. In particular, the impact of the plan
on the key economic variable, whether it be the growth of the gross
national product or the reduction in the level of unemployment, should
be estimated as closely as data imperfections permit.
These are the economic considerations and, in respect of most of
them, techniques of estimation are available. Models may be set up,
some of which are of a very sophisticated nature, to show the interrelations
between economic variables. While economic variables form the main
substance of a development plan, they are probably the least troublesome
factors to be taken into account by planners and implementation agencies,
mainly because, in the aggregate, fairly reliable estimates can be prepared;
1 It is not proposed to discuss resource allocation here as this is of secondary importance to the theme
of this article.

54 The Economics of Modernization
further, the planning body should be able to make quantitative checks
on plan performance against plan targets from time to time. It is the
non-economic variables that have, in the experience of so many
underdeveloped countries, proved troublesome. Economists have, of
course, been aware of the existence of these non-economic factors and
their general bearing on the rate of economic growth. The literature is
replete with references to these elements. A United Nations committee
of experts puts the matter succinctly as follows: "Economic progress will
not occur unless the atmosphere is favourable to it. The people of a
country must desire progress and their social, economic, legal and political
institutions must be favourable to it."2
Political, social and institutional factors influence the economic
variables of a development plan in three ways. First, they set certain
limits to the magnitude of resources which can be made available for use
in the development plan. Second, by their effect on the criteria by
which decisions on resource allocation are made, they determine the
distribution of resources between competing claims in the plan. Third,
there is a complex interrelationship, as yet little understood, between
the rate and manner in which development plans are implemented
on the one hand, and the changes in the structure of political and
social institutions on the other.
Mobilizing Domestic Savings
Economists are agreed that by far the most important single economic
variable determining the scope and effectiveness of a development plan
is the amount of domestic savings that can be made available from the
economy during the plan period or, more precisely, the proportion of
the national income that can be saved.
In this respect, underdeveloped countries are caught in the well-
known vicious circle. The level of savings depends on, among other
things, the level of income. Where incomes are low, savings would be
low, not only in absolute terms but as a proportion of income. The poor
man saves a smaller percentage of his income compared with the rich
man. Similarly, a poor country saves a smaller proportion of its gross
domestic product than a rich country. In many poor countries, kinship
ties impose certain economic obligations that are absent in Western
2 United Nations, Measures for the Economic Development of Underdeveloped Countries, 1951, p. 11.

Social, Political and Institutional Aspects of Development Planning 55
countries where welfare and social security schemes assist those whose
sources of incomes have been disrupted through old age, illness or
unemployment. The extended or joint family system, by placing these
functions on the income earners of the extended family, diminishes their
capacity to save and may even reduce incentives to earn more income.
Since the volume of foreign aid available to underdeveloped
countries amounts, in most instances, to a very small fraction of their
gross national product, the capital accumulation that is needed to produce
more wealth must come principally from domestic savings.3 But poor
countries find it more difficult to save a given proportion of their
national income than rich countries. Thus poverty itself becomes a
reason for stagnation and for the indefinite continuation of poverty.
There are several ways by which the ratio of savings to income can
be increased. One method would be to promote a greater inequality of
income distribution. Since the ability to save increases with the level of
income, an economy with a high inequality of income distribution is
likely to generate more domestic savings than one with a more even
distribution of income. From this, the conclusion may be drawn that a
highly unequal distribution of income in underdeveloped countries,
by favouring a high level of savings, favours economic growth. But
there are institutional factors which may falsify such a conclusion. First,
such a distribution of income, if it serves to produce social unrest, may
thwart economic growth because of the instability of the political system
which social tensions may engender. Second, the recipients of large
incomes in certain underdeveloped countries belong mainly to the rentier
class who are generally much given to conspicuous expenditure. A high
level of savings depends not only on large incomes, but on the kind of
large incomes that are generated. It is profits from business enterprises
that can be depended upon to supply savings.4
Even this needs a further qualification for an underdeveloped
country. Where business enterprises are foreign-owned, part of the profits
are lost to the country in the form of dividends remitted abroad. Where
prospects of expansion are not seen to be good in the lines in which the
original capital was invested, it is unlikely that such profits will be
3 There have been notable exceptions, as for example the Canadian experience, and more recently,
the Formosan one.
4 W. Arthur Lewis, The Theory of Economic Growth, Home wood, Illinois, Richard Irwin, 1955,
pp. 226-7.

56 The Economics of Modernization
available as a source of domestic savings in any significant amount, as for
example, the traditional, colonial-type investments in mines and
plantations. The limit to expansion is set by the availability of mineral
and land resources, but often, before this limit is reached, further
expansion is restricted by a falling world market demand for primary
produce. These considerations, together with a reluctance of such capital
to move into other fields, such as manufacturing industry, reduce the
usefulness of traditional capital as a vehicle for the continuous generation
of growth.
Where investment capital is free of such institutional immobilities,
an increase in the share of profits in the national income will increase
the rate of savings. Economic considerations obviously lend support to a
policy to achieve this end. But a government that derives its authority
from popular franchise obviously will experience certain inhibitions in
pursuing an income distribution policy that will maximize savings. Most
of the leaders of governments of underdeveloped countries have been
exposed to the influence of Western egalitarian concepts. They are
loath to accept a policy whereby savings for development are consciously
generated at the expense of the poor, although this was the historical
experience of many successful economies, both free enterprise and
communist.
Further, there are the real pressures of the electorate which an
elected political leadership cannot ignore except at its own peril. These
pressures are likely to be acute, since in the campaign for independence,
the political leadership usually attributed mass poverty to colonial
exploitation. With the removal of colonial authority, the populace
naturally expect immediate and widespread increases in their standards
of living, an expectation which is not often fulfilled. In urban centres,
where rapid growth is easiest to achieve, the poor are most likely to have
organized themselves into interest pressure groups such as trade unions.
Such techniques of mass organization are easier to learn and to apply
than the more complex tasks of increasing productivity, the consequence
must be disadvantageous to achieving a higher rate of domestic savings.
Where a substantial part of the private enterprise sector is under
foreign ownership, the government is even more inhibited in promoting
a policy of wage-stabilization in the interest of greater profits.
A second method whereby domestic savings can be increased by
government action is to raise taxes and commit the yield, or part of it,
to development expenditure. Most underdeveloped countries on
achieving independence have inherited from former colonial authorities

Social, Political and Institutional Aspects of Development Planning 57
a tax base which is inadequate to the needs of development planning.
Colonial governments differed in their policies towards their colonies
in regard to political and cultural matters, but in economic policy, there
was substantial similarity in their objectives, and these did not envisage
a rapid rate of economic growth through planned effort by the
government. Accordingly, the resources required by colonial governments
were much more limited than that which independent governments
would consider essential. In their attempts to increase government
revenues, underdeveloped countries have undergone widely differing
experiences. This is only to be expected as the adequacy of government
administration, particularly the tax collection agency, differs widely
from country to country.
In the main, revenue from taxes in the colonial era was derived
principally from the collection of indirect taxes, since these are the
easiest to administer. Where a good proportion of manufactured goods
was imported from abroad, customs duties, designed not for protective
purposes but for revenue purposes, produced a good yield with minimum
effort. Similarly, where the economy was dependent on the export of a
few primary commodities, export duties were again easy to levy. Much
the same tax structure remained after independence.5
The reasons for such a tax structure are fairly obvious. Import
duties are easy to collect where the bulk of imports passes through a few
ports. Where domestic manufactures are unimportant, import duties
collected at the point of entry will obviate the need to set up an
extensive system of tax collection through retail distribution outlets
widely dispersed throughout the country. As regards export duties,
these may also be collected at the ports with relative ease and little
possibility of evasion. It should be noted, however, that such taxes
affect only the monetized sector of the economy.
Savings in the Subsistence Sector
Such taxes as those discussed above will not impinge upon the subsistence
economy, and where this sector produces a large part of total output,
then a problem arises as to how resources from the subsistence sector can
be mobilized for development purposes.
5 A.R. Prest, Public Finance in Underdeveloped Countries, London, 1963, pp. 63-4. Prest gives
the following percentages for customs duties related to total government revenues: 25% for Ghana
and 30% for Ceylon as against 1% for the USA and 6% for Australia.

58 The Economics of Modernization
The typical underdeveloped country of Asia has one outstanding
characteristic: an abundance of labour in relation to the other resources,
land and capital Nearly three-quarters of the labour force are engaged in
peasant agriculture, mainly in the cultivation of food grains. With
public health and sanitation measures and the eradication of epidemics,
population growth has reached a point where underemployment in the
rural economy has become a serious economic and social problem in
most underdeveloped countries. The stage is believed to have been
reached when the marginal productivity of the rural population may be
zero or close to zero, in the sense that if labour was transferred from
farms to other uses, say to the urban centres, there would be no decline
in food production. Where the opportunity cost of surplus labour is
virtually zero, it is argued that the strategy for development planning
should be to concentrate on the growth of manufacturing industries
in the cities.
It is also argued that savings can be generated in the subsistence
economy by the transfer of surplus labour on the farm to productive
work in new industries in the cities.6 The argument runs as follows. As
these surplus labourers are taken away from the land, the output that
was formerly used to sustain them accrues to the economy in the form
of savings as those who supported these idle hands are relieved of the
task of feeding them. Accordingly, subsistence economies contain a
hidden resource which may be utilized for development.
We can examine this concept from the point of its theoretical
foundations as well as its practical value as a guide to the strategy of
development planning. The theoretical analysis rests on a number of
assumptions; it is possible to question the validity of three of them:
1. the marginal productivity of farm labour is zero;
2. the marginal propensity to consume of farm workers who support
unproductive dependants is also zero; and
3. the state of technology in the villages remains constant while
innovations are introduced in the cities.
Whether the marginal productivity of farm labour is zero is a
matter for empirical test. It is widely believed that a densely populated
countryside resulting in minute subdivision of farm plots means that
virtually the same output can be obtained with fewer workers. A corollary
6 R. Nurkse, Problems of Capital Formation in Underdeveloped Countries, Oxford University Press,
1962. See also commentaries by R.J. Bhatia, "Disguised Unemployment and Savings Potential",
Indian Economic Review, August 1958, and A.S. Bhalla, "On Nurkse's Concealed Savings Potential",
Indian Economic Review, April 1960.

Social, Political and Institutional Aspects of Development Planning 59
to this, however, is that as population increases through time, the unit
area yield will remain constant while average productivity per worker,
and hence the amount of food available per head of population, must
fall If this had happened to the overpopulated underdeveloped countries,
then a decline in the average food consumption must reach a point
where the land can support no more people, and the rural population
must therefore remain constant either through migration or an increase
in the death rate, or both. In fact, this has not happened and there has
been a sustained and continual increase in the rural population.
What has happened is that population growth has caused marginal
lands to be brought under cultivation, thereby increasing food output.
For instance, in India — a country believed to be as densely overcrowded
as any in the world — the area brought under rice cultivation rose
from 22.3 million hectares to 33.6 million hectares in the 15-year
period ending in 1961, an increase of 47.6 per cent.7 The population
increase was 35.3 per cent over the whole period. In Indonesia, there
was a 73 per cent increase in the area under rice cultivation and a 33 per
cent increase in population during the same period. Further, unit area
yields have not declined, as marginal lands were brought into use.
There was a 17 per cent increase in unit area yield in India and 16 per
cent in Indonesia. It is unlikely that, if the population had remained
constant, either a larger cultivated area or a higher yield per acre would
have been achieved, assuming that the state of technology has not
changed.
There are technical possibilities in the case of wet rice cultivation
of increases in yield per acre with additional inputs of labour. Because of
the importance of irrigation in wet rice cultivation, greater care of
irrigation bunds between fields and irrigation ditches will tend to increase
output. So will more careful sowing of rice shoots in the paddy fields,
more careful methods of harvesting, double cropping, alternative cropping
in off-seasons and other labour utilization measures.8
7 FAO (Food and Agriculture Organization), Yearbook, 1948; FAO, Rice Report, 1963; United
Nations, Economic Commission for Asia and the Ear East, Economic Survey of Asia and the Far East,
1963. Statistics of area under cultivation and crop yields in underdeveloped countries are notoriously
subject to error. It could be that the larger areas reported to be under cultivation are partly due to
better statistical coverage. Also the population increase in the countryside would be less than that
for the whole country if there was an urban drift. All these notwithstanding, the available evidence
does not support any assumption of zero marginal productivity of farm labour.
8 See C. Geertz, Agricultural Involution, University of California Press, 1963, p. 151. Geertz claims
that wet rice farming is "the most highly perfected device of running faster while staying in the same
place".

60 The Economics of Modernization
The assumption of zero marginal propensity to consume is not
entirely realistic.9 With an average food intake at extremely low levels,
any reduction in the number of dependants will almost certainly result
in an increase in average consumption and not an increase in savings,
unless the food that was formerly consumed is compulsorily acquired by
some form of taxation. Only in this way would the savings potential in
practice be utilized for economic development. This case then falls
within the general case of increasing government taxation to yield a
surplus for savings.
The third assumption of constant technology in the villages is
probably a realistic one. Agricultural technology can, however, be changed
by planning policy in the provision of larger and better extension services,
more agricultural research, the supply of subsidized fertilizers and so on.
Improvements in technique are unlikely to take place in peasant
agriculture without state intervention. But if this possibility is allowed,
then certain policy implications follow.
It is a practical impossibility to operate a tax system which will
extract the food surplus only from peasant producers whose dependants
have migrated. However, if as a result of the migration of farm workers
there is a general increase not only in output per worker, but also in
yields per acre through improved technology, it becomes possible to levy
a general tax on the countryside that will cream off a portion of the
increased output and make this available for development expenditure.
The example of Japan during the Tokugawa Shogunate and the
early years of the Meiji Restoration has often been cited as an example
whereby the countryside provided the savings for industrial development
in the cities. There was a sustained and continued improvement in
agricultural techniques and output increased both in terms of yield per
acre and per worker. Through high land taxes, it was possible to extract
savings from peasant agriculture for investment in new industries. But it
is unlikely that such a process is possible even with a strong central
Government such as Japan had if there had been technological stagnation
in peasant agriculture.
In Indonesia during the Dutch period of the culture system between
1816 and 1830, the same process of using surplus labour in introducing
new lines of activity as a means of capital accumulation also took place.
Here, it was a case of introducing a new crop, commercial sugar, as an
9 Nurksei of course, recognized this. See op. cit., pp. 41-3.

Social, Political and Institutional Aspects of Development Planning 61
alternating crop on rice terraces.10 Since the peasants did not have to
migrate, the problem of physically transferring the surplus labour did not
arise. Fiscal measures were, however, necessary. Land taxes were reduced,
not increased, to provide the peasant with the incentive to grow sugar.
The strategy of generating a surplus in agriculture for development
purposes, particularly for capital accumulation in industry, is basically
sound. Indeed, for underdeveloped countries containing a large
subsistence sector, it is the only possible strategy, barring foreign aid on
a massive scale or the fortuitous discovery of rich natural resources such
as oil. Advocates of this strategy are, in part, moved by the dynamic
potentiality of modern industry not only to introduce technological
innovations, but also to create new social forces powerful enough to
raise traditional society out of the stagnation characteristic of the peasant
subsistence sector. But this short-cut to economic take-off is full of
pitfalls and unlikely to succeed if it leads to a neglect in improving the
technology among the peasants, however intractable the difficulties
may appear to be.11
Unless food production is adequately secured, the nation's
development plan is likely to run into both short-term and long-term
difficulties. In the short run, adverse climatic conditions, leading to crop
failures, may create acute balance of payments difficulties when food has
to be imported from abroad at the expense of capital equipment imports
scheduled under the development plan. In the long run, of course,
increased incomes in urban manufacturing centres must lead to an
increase in the demand for food, not only more food but better food, that
is, food containing a higher content of animal protein. If an increased
flow is not forthcoming, this will bring about inflationary pressures
or balance of payments difficulties or both.
In certain countries which imported immigrant labour in its early
stages of development, there is an additional political complication.
The division between rural and urban population follows racial lines.
For instance in Malaysia, labour required for the opening up of jungle
areas to rubber plantations and tin mines in the 19th and early 20th
10 See Geertz. op. cit., p. 63.
11 Democratic economic planners may take comfort in the fact that they are not the only ones to
underestimate the importance of food supply. The chaos created by Stalin's liquidation of the kulaks
is past history. More recently, Communist Chinas Great Leap of 1958-59 flowed from the same
facile assumption that with the massive diversion of resources into manufacturing industries, the
food supply can take care of itself.

62 The Economics of Modernization
century was supplied from south China and south India. The indigenous
population remained a self-sufficient food-producing peasantry and was
bypassed in the early economic development, which took place in the
plantations and tin mines, along the main lines of communications and
in the urban centres, particularly the ports which served as outlets for
the produce of these new enterprises. The population of cities and
ports tended to be predominantly immigrant, and enjoyed the fruits
of development to a greater extent than the indigenous rural population
who remained largely outside the mainstream of economic growth. Such
disparities between urban and rural areas which follow the communal
divisions of the population create a source of tension that can be removed
only by bringing about an accelerated pace of development in the
countryside. Unfortunately, this development of the rural sector, although
given urgent recognition, has not proved easy to achieve.
Individual countries, especially if their populations are small, may
pursue industrialization at the expense of food production if they can
develop export earnings from which they can pay for food imports. For
larger countries and for underdeveloped countries as a whole, this cannot
be the solution. The experience of the industrial development of Europe
in the 19th century is probably a unique experience in human history
for, concurrently with the growth of industrial cities and rapid population
increases, vast new granaries were opened up in the New World to meet
the food demands of the industrial population. In underdeveloped
Asia where the river valleys have long been settled, there are no new
frontiers of any size awaiting development for food production.
It is likely that food supply will remain the critical factor in the
economic growth of underdeveloped countries which contain a large
subsistence economy. The trouble is that a sufficiently rapid growth in
this sector is extremely difficult to bring about because of the peasant
nature of production and the various social and institutional rigidities of
the traditional peasant society. This is particularly true when the ratio of
population to resources is unfavourable, as is generally the case in these
countries.
It is hardly necessary to adumbrate the backwardness of peasant
society which results principally from overpopulation and antiquated
social customs and institutions. The literature in the form of case studies
provides ample evidence of this.12 New techniques are resisted because
they transgress social norms. Improved rice seeds are rejected because
the taste of the new rice is unfamiliar to the palate. Caste systems not
12 See for instance Admantoos Pepelasis, Leon Mears and Irma Adelman, Economic Development,
Analysis and Case Studies, Harper International Student Reprint, 1961.

Social, Political and Institutional Aspects of Development Planning 63
only retard the social mobility, which is necessary for economic progress,
but act as a barrier against new ideas and innovations. In terms of
numbers, the magnitude of the problem staggers the imagination; more
than 1,000 million people subsist on minuscule plots of land. It is little
wonder that many who have addressed their minds to the problem —
such as Boeke in his studies of the Netherlands East Indies — see no
hope of such economies ever escaping stagnation.
Social and Political Causes of Stagnation
The problem extends beyond economics. In a stagnant peasant economy,
concepts of entrepreneurs as the standard bearers of economic progress
and as introducers of innovation are of little relevance. In such a society,
the accumulation of personal wealth takes the form of buying up other
people's land or usury or both.
In our present state of knowledge, we do not know how such
peasant societies can be transformed so as to make self-sustaining growth
possible. Any increase in productivity through government action by
way of agricultural extension services, improved seed selection, irrigation,
and fertilizers threatens to be absorbed by the growth of population. No
practical method has yet been devised whereby population growth
can be controlled in these peasant societies. The widespread use of
contraceptive techniques is prevented by poverty and ignorance, which
therefore perpetuate themselves in an apparently inescapable vicious
circle.
Certainly the democratic governments of the overpopulated,
underdeveloped countries have yet to find an effective operational
technique whereby rapid self-generating growth in peasant production
can be achieved. It is likely that this will involve uprooting the traditional
social order, and no democratic government would have the courage
even to contemplate this.13, H
13 The views of an intelligent layman can be more illuminating than those of an expert. "There are
pervasive limitations on planned achievement imposed by India's type of democracy... Where an
overarching plan has to succeed, it can do so by either monolithic coercion which India does not
employ, or by an animated forward-surging democracy which India does not have." Albert Mayer,
"Social Analysis of National Economic Development in India", Pacific Affairs, Vol. XXXV, No. 2,
summer 1962, p. 130.
14 It is not denied that even in the most backward states, elements of modernity exist. But these
consist almost entirely of the urban intelligentsia, and the political, administrative and business
elite. They live in a different world from village life and there is little interpenetration of ideas and
values between the two societies. There is thus a dualism not only in the economy of underdeveloped
countries but also in their social structure and cultural patterns.

64 The Economics of Modernization
Can totalitarian methods succeed where democracy has not
produced a solution? If the experience of the Soviet Union is any
indication, there is room for doubt whether such draconic measures
would produce the desired result, at any rate in food production. Russian
agriculture remains conspicuously backward in comparison with Russian
achievements in industry, science and technology, and this in a country
with a favourable ratio of land to population. Nevertheless, the result of
the Chinese experiment in communes is awaited with interest. In the
system of communes, there is no barrier to the full exploitation of
Nurkse's concealed savings potential.
The problem is basically one in which economists have a limited
contribution to make. When prospects of economic growth become so
closely related to changes in the social order, other disciplines may be
called upon in the search for a solution. The results so far have not been
encouraging. Various theories of social change have been put forward
which hardly bear close examination. One characteristic of these theories
is their postulation of inevitable and autonomous progress resulting from
the introduction of certain catalytic elements into a traditional society
or from the operation of certain dynamics inherent in society.
Karl Marx was, of course, the first to work out a theoretical system
postulating the laws of development of society from one stage to another.
Marx's dialectical materialism leads him to the inevitable progress of
society towards a classless Utopia. Rostow's propensities take him through
another route to a different kind of millennium — a high, mass
consumption society on the North American pattern.
More recently, Hagen, greatly distressed and puzzled after a tour of
duty as economic adviser to the government of an underdeveloped
country, decided that the answer is not to be found in economic analysis
and produced a bold and original theory of social change based on the
application of psycho-analytical techniques to social groups.15 While the
intellectual vigour of the approach is not to be disparaged, Hagen's
theory suffers from the same shortcoming as other theories of social
change. It is simple enough to select a case where the theory does not fit.
This is probably the inevitable fate of social theories which are specific
enough in identifying social elements that make for change and, at the
same time, claim an encompassing universality. This is not, of course,
15 E. Hagen, On the Theory of Social Change, Homewood, Illinois, the Dorsey Press, 1962.

Social, Political and Institutional Aspects of Development Planning 65
to deny their usefulness; they provide an insight into the manner in
which societies have changed in the past and may change in the future.
If we eschew such theoretical generalities, it is clear enough what
kind of institutions should be created in a society that would encourage
development. The government must be effective and incorruptible; it
should strive continuously to achieve economic growth and should not
be distracted by other goals such as national prestige, military strength,
the personal fortunes of those in power, or religious sanctity.16 Enterprise
is to be fostered, modern efficiency to be encouraged. Status should be
dependent on successful performance and not on birth and inheritance.
Law and order should be maintained and the sanctity of contracts
observed. The catalogue of economic virtues can be expanded but, in
themselves, they are hardly of any operational value. For in practice,
governments have often proved themselves irresponsible, corrupt,
obscurantist and oppressive. Law and order is difficult to maintain in the
face of rebellion or banditry. Antiquated customs survive from the past,
stultifying progress. Success in business depends less on good management
than on favours and concessions corruptly procured. These factors are
both the result and the cause of backwardness and very little can be
done in such circumstances, short of sweeping away the old order.
Development plans, if they are prepared at all, remain a pious expression
of intention and are not serious targets capable of being achieved.
This then is the explanation why performance in this "Decade of
Development" has been generally so disappointing in underdeveloped
countries. To effect the transfer of resources from the countryside for
development purposes requires a ruthlessness of purpose of which only a
well-established (perhaps only an irremovable) central authority is
capable. The harshness of the process may be mitigated where
productivity, both per acre and per worker, increases continuously. But
in many stagnant agricultural communities, the new techniques that are
needed to achieve this can only be introduced if fundamental changes
take place in the social structure and cultural patterns in these
communities.
It is precisely in these areas that political obstacles arise which
appear so formidable as to defy solution. In states governed under a
democratic constitution, the causes of these difficulties are clear enough
16 Manning Nash, "Social Prerequisites to Economic Growth in Latin America and Southeast Asia",
Economic Development and Cultural Change, April 1964, pp. 225-42; provides some useful case
studies.

66 The Economics of Modernization
and have been discussed above. Do the non-democratic, non-Communist
states fare any better? Experience has shown that the same inhibitions
operating in a democratic society also obtain there. Indeed, the situation
is probably worse as the political leadership is not constrained by the
need to produce results by way of economic and social improvement.
The underdeveloped countries have emerged only recently as
independent nation states. Their boundaries were often fixed not by
rational criteria of cultural or historical homogeneity, but by historical
accident. Hence, there is a need to engage in nation-building activities
to bring about an acceptance of the recently established authority by a
diversity of peoples and cultures.
This may explain the reluctance of elected governments to upset
the social order, apart from vote-catching propensities natural to an
elected leadership. Nor are the options open to a non-elected government
much greater. In non-democratic, non-Communist political systems, it
is not possible for the leadership to maintain a totalitarian authority
indefinitely, particularly in a large territory with difficult communications
and a culturally heterogenous population. To the power of the army
must be added the charisma of political leadership if the new nation
state is to survive as an entity. The result is usually disastrous to the
planning of economic growth.
It is not difficult to see why this would be the case. A development
plan calls for sacrifices from the people. Calling for sacrifice is not
necessarily something which a charismatic leadership will reject if results,
particularly spectacular results, can be immediately demonstrated. But
starting from the low level of technology, quick results are impossible to
obtain. Instead, there is only the prospect of a long haul to develop
human skills over a whole range of activities — a slow, laborious,
exacting but unexciting process. Further, success in this process requires
the widespread inculcation of rational habits of thinking which of
necessity undermine the emotional appeals of the leadership. Hence the
retreat into romanticism and obscurantism, and the appeal to the
traditional virtues of some mythical bygone age. In such a society,
planning for economic development merely takes on the form of a
symbolic activity devoid of substance and economic meaning.
The Case of Small Countries
Until the problem of rapid increases in productivity in peasant agriculture
has been solved, it is likely that the conquest of poverty in underdeveloped

Social, Political and Institutional Aspects of Development Planning 67
countries would be achieved only in those small countries whose
economies are export oriented. In these countries, the problem of feeding
a growing population is less intractable so long as terms of trade do not
move against their export goods. Curiously enough, in such countries,
there are often found advocates of self-sufficiency in food supply, even
though success in this direction would mean a lowering of achieved
standards of living. But in other respects, such economies have far
greater prospects of taking off into continuing growth. The per capita
national income is substantially greater than that of a country with a
large peasant agriculture. For instance, Malaya in 1958 had a per capita
annual income of more than US$200 and Ceylon more than US$118
compared with some US$60 or less in the case of India, Pakistan,
Indonesia and Burma.17 It is in these raw material export-oriented
economies that development planning is not bedevilled by stagnation of
peasant food production.
There are other more tangible advantages in such economies
which development planners can utilize. In the first place, the proportion
of the gross national product accruing to the government as revenue is
substantially larger than that in peasant-based economies. In Ceylon,
Malaya and Taiwan, government revenues amount to 20 per cent or
more of the gross national product. In India, Pakistan and Indonesia, the
percentage is between 11 per cent and 12 per cent.18 One reason for this
is that taxes on the import and export trade are, as we have seen, easier
to collect than taxes on peasant agriculture. Further, there remains the
choice open to the government in which, by judicious selection of
commodities to be taxed, it is possible to ensure that government revenues
increase at a faster rate than the national income. The implementation
of a steeply rising rate in the export tax structure will cream off substantial
incomes during periods of high prices of the raw materials.19 The inclusion
in the customs tariff of import goods with a high income elasticity of
demand will also help to achieve this end.
The second advantage is that these export-oriented economies
17 United Nations, Economic Commission for Asia and the Far East, Economic Survey of Asia and the
Far East, 1961.
18 Ibid.
19 In Malaya, for instance, the rate of export duty on rubber is a parabolic function of the current price.
Curiously, for tin, it is a linear function.

68 The Economics of Modernization
enjoy wide possibilities of import substitution as a means of promoting
the growth of manufacturing industries. The value of imports to the
gross national product in the case of Ceylon and Malaya ranges between
one third and nearly one half. For India and Pakistan, the proportion is
less than 5 per cent. A high import ratio provides the government with
substantial opportunities to determine the types of manufacturing
industries which can be established through the erection of protective
tariffs. By relating market size to the economic scale of production as
determined by technological factors, it is possible by judicious planning
and selection to introduce industries which are competitively viable. In
this way, planners may apply a rational economic calculus and need not
depend on faith and guesswork to set up a chain reaction that will
maintain the momentum of industrial growth.
The third advantage lies in the better infrastructure of social
overheads. These were, in the first instance, designed for the use of the
raw material export industries, but they can be shared by the new
manufacturing industries.
Finally, modern business institutions in banking, finance and
insurance, as well as specialized trading skills and the supply of
entrepreneurs, are relatively ample in these economies. Thus nearly all
the prerequisites for economic take-off exist. Under such conditions, the
role of a government planner is meaningful. He can programme capital
investments in a way that will maximize, with less uncertainty, the rate
of expansion given the resources that are available. Further, since the
supply of entrepreneurship is not an insurmountable bottleneck, it is
possible to follow a planning strategy that will create the inducements
needed for the growth of private investment. Whether these economies
will actually adopt such a policy depends on the political philosophy of
the government leadership. In Ceylon, for instance, concepts of state
ownership and the suspicion of the role of private investment are
prevalent; encouragement of private entrepreneurship will therefore not
take place.20 Malaysia, on the other hand, follows a more orthodox
policy of giving private investment a leading role.
20 Indonesia also discourages non-native entrepreneurship, thereby creating problems. D.S. Paauw in
Financing Economic Development, the Indonesian Case, Glencoe, Illinois, The Free Press, 1960, p. 73,
notes: "Indonesian experience since the transfer of sovereignty in 1949 suggests that the country's
prospects for development may hinge more on its capacity to provide effective entrepreneurship
than on its capacity to mobilize financial resources."

Social, Political and Institutional Aspects of Development Planning 69
The Role of the Entrepreneurs
The role that is to be accorded to private entrepreneurs in the
development plans of underdeveloped countries not only depends on
political attitudes, but to some extent is influenced by the adequacy of
the supply of entrepreneurs. In India, for instance, planners believe that
the supply of entrepreneurship is inadequate. Further, for many of the
large industrial projects included in India's development plans, resources
to meet the demands of private entrepreneurs are also believed to be
inadequate. Accordingly, the role accorded to private sector development
is restricted while the state itself participates in both the ownership
and the management of new industries.
The role of entrepreneurs, broadly, is to perform the function of
risk-taking by investing capital in new ventures. They introduce
innovations in processes or in products. It is on the successful performance
of entrepreneurs that continuous economic expansion in modern
industrial society largely depends. In modern businesses and institutions,
entrepreneurial functions are generally performed, not by one man, but
by the co-ordinated effort of the corporation management staff. Whatever
the actual institutional arrangements in modern industrial societies,
there are some important differences in the character of entrepreneurship
found in developed and underdeveloped economies.
In general, as underdeveloped countries are at an earlier stage of
development, the more elementary type of entrepreneurship is likely to
predominate. But more important than this, the entrepreneur in
underdeveloped countries fulfils the function of innovation only in a
restricted sense. It is not his function to invent fundamentally new
processes or to introduce new products. Entrepreneurial functions are
more characteristically those of an imitator rather than an innovator.
Technical processes already developed and in common use in industrial
countries are introduced in the new environment. Products which were
formerly imported are now made in the country.
The demands on entrepreneurs are, therefore, less exciting in
underdeveloped countries than in industrial countries. Further, feasibility
studies of products to be introduced, studies of technical processes and
costs of production can be worked out either by some government
agency or a consultant service. Technical know-how may be obtained by
agreement; trade marks and patents may be used on the payment of
royalties. Where specialized technical staff are required, they can be
hired from overseas.

70 The Economics of Modernization
It is in this easy and relatively inexpensive access to the
accumulated knowledge of advanced nations that underdeveloped
countries can find an assured way of achieving sustained economic
expansion. There is, however, one problem. This access to modern
scientific know-how can be achieved with little social change, especially
in the countryside, since it is in the cities that modern institutions are
located and where the new industries will be established. In the
countryside, where the surplus for capital accumulation has to be
generated, the traditional social milieu either will not have access to
modern science or will resist it.
Where techniques already in operation elsewhere can be supplied
and accepted in the countryside, the gains that can be achieved are
likely to be substantial, and probably adequate for purposes of capital
accumulation. Japanese rice production in terms of unit area yield is
three times that of other Asian peasants in south and Southeast Asia.
Her superiority in output per worker is probably of the order of six times
or more.
This rich potential resource — the access to science and technology
— seems to have been neglected by development planners — and
government leaders — in favour of more glamorous short-cuts in
development through integrated steel industries, "basic" chemicals
and the like. As a result, the spectre of Malthus, exorcized in the West
by the discovery and establishment of the rich granaries of the New
World, hovers over underdeveloped countries in Asia, casting a malignant
spell on their efforts to free themselves from poverty.

8
Management in the
Developing Society
Address given at a symposium on "The Role of Management in Industrialization'
at the University of Singapore on 15 March 1963.
Following the end of World War II, countries in Asia and Africa
which were formerly part of the empires of Western nations, achieved
independence one after another in rapid succession. The emergence of
independent nations in the two continents constitutes a process which
is unique in world history. Hundreds of millions of people who were
formerly held in political subjection attained their freedom. National
governments were formed with the establishment of independence and,
without exception, these governments accepted as one of their basic
duties the improvement of living standards through economic growth.
For centuries, large sections of mankind which were on the border of
subsistence had at last the opportunity, through their own efforts, to
tackle the problem of endemic poverty and of economic backwardness
which had been their lot for many centuries.
It would not be an exaggeration to say that in the early years of
independence, there was optimism and confidence of their ability to
solve this problem. Nearly every country established a planning agency
to map out the future course of economic development and to ensure
that adequate resources were devoted to carrying out the plan for
economic growth. The subject of economic development itself aroused
unprecedented interest in universities, in government ministries and in
various international organizations, particularly the specialized agencies
of the United Nations. A vast literature proliferated on the subject. A
new jargon grew up. There was talk of a revolution of rising expectations.
Phrases such as "the take-off into self-sustaining economic growth", etc.
became stock expressions at international conferences when these

72 The Economics of Modernization
problems are discussed. In 1960, it was confidently predicted that the
forthcoming decade would be known in history as the "Decade of
Development".
Unfortunately, the performance in recent years in many developing
countries has not completely justified the original optimism. In many
countries, not only is there absence of economic growth but there has
been an actual retrogression. It would be unkind perhaps to specify the
countries concerned and painful to dwell upon the details. But the latest
casualty gives cause for disappointment. This is the case of Ceylon, a
country with an advanced standard of education, a standard of living
above the Asian average and possessing a competent administration. In
fact, if we look around Asia today, we find that nearly every country is
in serious economic difficulty. There are notable exceptions. India,
despite the immensity of population and size, struggles valiantly to
maintain economic growth. The territories comprising Malaysia form
another bright spot on an otherwise dark horizon.
The present time seems to be an appropriate one to take stock of
the situation. Are the difficulties which the developing countries have
run into temporary troubles, inescapable in the early stage of historical
development? After all, a major endeavour of such magnitude must
have its early teething troubles. If so, these teething troubles can be of
value as they enable the countries to gain valuable experience which
will be of use in the long term.
Are the difficulties of developing countries of this nature, or, on
the other hand, do they point to some deep-rooted deficiencies somewhere
which has created a permanent block to economic growth? If so, precisely
where does the deficiency lie and what are the remedies?
There are many complex reasons for the collapse that has occurred
in these countries. In each and every country, there may be in addition
a special set of circumstances which is the immediate cause of the
stunting of economic growth. An adequate treatment of the subject
would entail much labour and occupy many volumes. It is quite possible
that no consensus of opinion would be reached and there may be as
many viewpoints as there are minds addressing themselves to the problem.
It is not my purpose here to enter into what may well turn out to be a
morass. But I wish to select one aspect of the process of economic
decline that we see in some developing countries. This is the role of
management in the process of economic development.
Management is a crucial factor in economic growth for reasons
which are too obvious to need elaboration. If you want to run a railway

Management in the Developing Society 73
or an agricultural co-operative, or a steel mill, you obviously meet the
people who have the capacity and experience to do the job properly.
Otherwise, you cannot hope to run these*enterprises as going concerns.
Yet obvious though the proposition may seem to us, it appears that it is
precisely here that fatal weaknesses have appeared in the development
efforts of these new countries.
I wish to examine the role of management in developing societies
in a somewhat broad perspective. I am not concerned here with specific
problems of how a particular project or industry could improve the
quality of its management personnel. I wish to go even beyond the
general problem of encouraging the growth of an effective managerial
class in developing countries in the strategy of economic development.
There are certain basic social issues in regard to economic growth in
general, and the establishment of a managerial class in particular, which
have not been resolved in developing countries. In many instances,
these issues have not even been faced, and the result has often been a
contradiction between the declared policies in support of economic
growth and the actual performance which hinders such growth.
This matter is of some importance for unless the contradiction is
resolved, we will not achieve economic progress. Underdeveloped
countries, by definition, are in short supply of management skills because
modern economic institutions are found only in limited fields of their
economy. Furthermore, much of the modern sector of the economy was
either run directly by overseas personnel or had only recently been
managed by local personnel. This being the case, we can expect that
much of the thinking and social attitudes of the population run along
traditional lines, hardly affected, if at all, by the impact of modern ideas
and thought. Given the large illiteracy rates prevalent in underdeveloped
countries and the strength of social traditions, it is only too easy for the
governments of these new states to be unwilling to accept the new
social attitudes that are necessary to sustain modern enterprises. It could
even happen that the governments of these states may not even be
aware of the inhibitions which traditional thinking must place upon
economic progress. Perhaps I may explain the position more clearly if
we could compare the social values of a modern state with those common
in developing societies. By modern states, I refer both to the countries
of Western Europe and North America, as well as to the Soviet
Union. These are the countries which have the highest industrial and
economic capacity as well as the most advanced scientific and technical
know-how.

74 The Economics of Modernization
It is one of the curious illusions of the present age that there are
fundamental and enduring differences between an advanced Communist
state like the Soviet Union and the democratic states of the Western
bloc. It is true that the political institutions are different, but there is
more similarity between them in other respects than either side cares
to admit.
Under both the democratic and Communist systems, there are
three basic beliefs sustaining economic growth. The first is the belief
that man through his intellectual powers, disciplined under training in
the physical and biological sciences, can find solutions to the problems
and limitations imposed on him by his natural environment. This belief
in man's ability is of fairly recent origin. Its first seeds were sowed during
the Renaissance of Europe which cleared intellectual cobwebs that have
hindered man's development until then. Without this confidence in the
ability of science to provide man with powerful instruments to achieve
whatever purposes he seeks, the growth of modern industry would hardly
be possible. Both the modern Communist states and the Western
democratic states accept this belief almost without reservation, and
accordingly, the keenest intellects that they can muster are concentrating
their talents and energies towards extending the frontiers of human
knowledge.
The second belief common to both systems is that material welfare
is an end worthy of pursuit. The Communists are quite explicit in terms
of their philosophy, the Western countries rather less so. But in both
systems, people and government believe that material improvement in
terms of a higher standard of living, more food, better housing, more
leisure, are useful ends and a substantial part of government action is
undertaken to secure these ends. The Western industrialized countries
have already attained to what they sometimes term the affluent society
and the Russians are hoping to catch up with them.
It is true that in the Western democracies, there have been critics
of this materialist approach to life. The poets, painters, novelists, even
in Victorian times, have raised voices of protest against the industrial
society. Nevertheless, their impact has not extended beyond their narrow
artistic and intellectual circles. So far as the ordinary man is concerned,
he appears avidly in support of the good things of life, better homes,
motor cars, scooters, household gadgets, foreign travelling and the like.
And the ordinary man proceeds with his hedonistic pursuits untroubled
by any sense of guilt. On the contrary, there is every display of relish and
enjoyment and, of course, in this process he is incited by an extensive

Management in the Developing Society 75
advertising industry which exploits every psychological gimmick to make
the consumer eager to consume more. This, of course, at present holds
true only of the Western democracies which have reached a high stage
of affluence and abundance in the production of goods. The Russians
have not quite reached this happy position and no doubt when they do
so in the future, similar exhortations will be directed to the Russian
consumer.
The third belief which has sustained economic growth under
both systems is respect for meritorious performance in the creation of
wealth. This, again, is of recent origin. In previous ages, the adulation of
society was reserved for artists, sculptors, poets, scholars, soldiers, bishops
and other non-productive types. It was only when the Industrial
Revolution had reached an advanced stage that success in industry, and
the wealth and the position that it carries, came to be accepted as
worthy of respect and emulation. There are people who regret that this
should be so, but neither in Russia nor in the West do their views have
much influence.
The processes of production are technically similar under both
systems, and even the forms of economic organization bear substantial
resemblance. The fact that in one part of the world there is private
ownership of property, and in the other state ownership of property, has
not led to the differences in economic organization which philosophers
of the 19th century had predicted must follow. Under both systems,
there is a labour force and there is a management personnel. Both
systems are faced with similar organizational problems created by increase
in size of production units. In Western countries, although there is
private ownership, because of the institution of joint stock corporations
and the rise of financial institutions, which provide much of the
investment funds for modern industries, the control of industry has been
largely divorced from ownership.
Where the technical processes are similar and where the forms of
economic organization do not differ considerably, it is not unexpected
that similar difficulties are faced and very much the same solutions are
reached in overcoming these difficulties. One of the problems of
management of large-scale enterprises is to ensure that the most able
man rises to the top. This is true whether you run a capitalist corporation
or an industry in a Communist state.
And in both systems, it has been found necessary to provide
incentives that are in keeping with the responsibilities and skills required.
Studies made of differences in pay between worker and top management

16 The Economics of Modernization
in Russian industries and their counterparts in the capitalist countries
show that very much the same structure of differentials exist. Under
both systems, it has come to be recognized that the only criterion by
which a man can be appointed to executive positions in industry is his
performance. Merit and not birth should be the criterion. Of course,
there are variations in practice and departures from this standard.
Influence in high places has sometimes become an important
consideration both in the free enterprise and the Communist systems,
but when this happens, it is more often regarded as a symptom of some
defect rather than the norm to be followed.
The result of this is a highly competitive struggle for status and
position. Because the prizes are rich, the ablest men are attracted into
management positions of industry. Of course, the severity of competition
differs from society to society even in the West. It is probably fiercest in
the Soviet Union and the United States, and an opinion has been
expressed that there is very little difference between an American business
tycoon and his Russian counterpart. Both are men of tremendous vigour
and capacity for work, combined with shrewdness of judgement. In
other countries, the rat race is not as fierce. Apparently, material prosperity
does not suffer much harm in consequence. For instance, Denmark and
New Zealand are wealthy by any standards, but the people seem to be
free of the tensions that go with a ferociously competitive system.
It is easy to see that once these three sets of basic beliefs permeate
through a society, the net result must be advantageous to industrial
growth and must lead to a recognition of the value of the managerial
class. Similarly, it also follows that when these beliefs are either rejected
wholly or in part, or when their diffusion is limited in a society, the basic
drive towards economic growth would be inhibited. Take a few examples.
When a society believes that wealth and poverty, health and disease,
happiness and misery are pre-ordained by supernatural powers, then it is
impossible to expect their members to devote time and effort towards
the acquisition of knowledge and modern techniques. In the case of the
developing countries, it is a regrettable feature that a large part of the
population subscribe to various forms of fatalism. This induces an apathy
which is not conducive to economic growth. Further, as it is likely that
vested interests, either in the form of landlords or religious institutions,
would have been built around the maintenance of superstition among
the masses, any attempt to awaken them is likely to meet with serious
political resistance.
Then take the attitude towards higher consumption standards.

Management in the Developing Society 77
Here again, it is well known that many Asian societies reject the
materialist approach. The supreme excellence in life is often assessed in
terms of spiritual values and not material progress. So long as powerful
sections of the community believe in this, they will view with grave
suspicion the reforms that would be necessary to bring about economic
growth. In this respect, however, the situation is less serious. I suspect
that much of the emphasis on spiritual values — important though they
are in attaining a full and rounded life — is influenced by despair over
the prospects of success in the conquest of age-old poverty. Should
visible signs of material improvement be achieved, then we are likely to
see a fading-off of the advocacy of spiritual welfare. So far as the ordinary
people are concerned, there is little doubt that they will accept the
material improvement in their livelihood as eagerly as the people of the
West. For instance, the Japanese, who have always been brought up in
the Spartan tradition, are now energetically participating in the
production and consumption of all the gadgets that go with Western
standards of living.
When we come to the third factor, the acceptance that
advancement in life, and the status and prestige it carries, should be
based on proved merit in free competition with all others, we see that,
other than in one or two enlightened countries, this principle is hardly
observed at all. In most Asian traditional societies, status and position
are determined largely by birth and heredity. Undoubtedly, this will take
a considerable time to overcome, for social institutions do not change
overnight. Even where a modern political system is introduced, such as
the national state which replaced the colonial regime, we again see that,
except again in a few enlightened countries, the opening of opportunities
on an equal basis to all persons is not observed in practice. In view of the
wide variations in education and social status between people in these
countries, we can hardly expect the egalitarian principles to be established
in a short time.
In the developing countries of Asia, these are some of the important
factors that have inhibited economic growth. They operate directly
through the unwillingness of national governments to carry out the
most effective policies to promote economic growth. Indirectly, the
effects are probably more pernicious. The most important is its inhibitory
effect on enterprise and the growth of an energetic and self-assured
managerial class.
In addition to these social attitudes which are harmful to economic
growth, there are often found in these developing countries irrational

78 The Economics of Modernization
political attitudes and dogmas which are harmful to economic
development. Where the political system is unstable, then, of course, we
cannot expect economic growth to occur. The efforts of those in power
will be directed towards non-economic objectives such as the
maintenance of large armed forces which absorb substantial sums of
money and skills that otherwise could have gone towards capital
formation. Even where this does not occur, an unstable political situation
is likely to have certain undesirable consequences. First and most obvious,
neither the domestic nor any potential overseas investor is likely to
establish new enterprises where the future cannot be foreseen with any
degree of certainty. The second consequence is likely to be the posturing
of contending political forces. Such political postures are likely to take
the form of exaggerated nationalism with its concomitant anti-foreign
and anti-capitalist content. When the economic situation goes from
bad to worse, the political gestures become increasingly extreme. At
some stage in the debacle, there is a resort to the incantation of magic
words as a remedy for all troubles. It is a curious phenomenon that in
almost all instances, some ill-digested brand of socialism is invoked as a
magic cure for all social ills.
What conclusions can we draw from this account of the early
difficulties encountered by developing countries? The first is that the
slow-down of economic growth is almost inescapable, given conditions
obtaining in most of these countries. Social attitudes of the majority of
the population are not in keeping with the needs of modern economic
organizations. The political institutions established in these new states
were beset by all manner of difficulties. In some, there was inadequacy of
administrative personnel. In others, internal dissensions occupied most
of the energies of the government to the neglect of economic problems.
Under such conditions, it cannot be expected that serious attention
would be paid to fostering the growth of technical and managerial skills
needed to sustain economic growth.
Nevertheless, it is too early to assume that progress will not
eventually take place. We should not ever forget that it took some
centuries of cultural revival in Europe followed by an almost equally
long period of social change during the Industrial Revolution before
Europe itself took its final shape as a progressive industrial society. If it
takes just as many decades in Asia as it took centuries in Europe to
accomplish the change, then there should be no cause for disappointment.
Progress will be easier in Asia because it has to encounter none of the
pioneering difficulties which the early Europeans had to contend with.

Management in the Developing Society 79
Much of what we have to do lies in the acquisition of knowledge already
available to mankind.
A further reason for qualified optimism that long-term progress is
likely is that the factors making for permanent change in Asia are likely
to be stronger than those resisting such change. Each year, literally tens
of thousands of Asians go overseas to acquire knowledge in various fields
of learning or to undergo experience in various fields of practical work.
Moreover, in most Asian countries, new forms of economic organization
had already been set up. They may not be of the highest standards of
efficiency but, having been set up at high cost, it is unlikely that they
would be abandoned. The passage of time will likely see an increase in
efficiency and a spread of influence of these modern economic
organizations throughout their own societies.
Early in my address, I made passing references to our own position
in Singapore and Malaya. We are far more fortunate than most of our
neighbours in our economic progress. Our success in this respect has
not been accidental. In part, it is because we are fortunate in that we
have a better starting position to proceed from. Our per capita national
income is well above the Asian average and this is important, because it
is easier for us than it is for the poorer countries to maintain a given
rate of gross formation. But apart from this, there are other favourable
factors to economic growth. People of Malaya and Singapore have no
reservations about obtaining the highest standards of living open to
them, and everyone will make the effort to better himself if the
opportunity offers itself. Opportunities are available, in large measure,
equally to everyone who possesses the ability and capacity to work. We
are fortunate in that, because of the strength of our national currency, it
has not been necessary to impose the various government control
measures on trade and industry that are found in other developing
countries and which serve to strangle initiative.
The need for improvement both in quality and quantity, in
managerial and technical skills, is not only accepted by the Government,
but every practical measure is also undertaken to press forward with
implementation. In fact, this symposium itself is a testimony to the
importance which both the Government and industry place on this
subject. When we look to our future supply of talent and skill, the
position is most reassuring. In recent years, there has been an
unprecedented expansion of educational services at all levels — from
primary schools to universities. The clamour for education is a
spontaneous expression of our people for progress and advancement.

80 The Economics of Modernization
However fast we expand our schools and universities, we seem unable to
satisfy the thirst for education, and each year we see our young men and
women in their thousands in search of knowledge. Our universities are
filled to capacity and thousands have to go abroad to study the subjects
which are not yet taught here.

Workers in
Developing Countries
Address given at the opening of the International Labour Seminar, sponsored
by the National Trades Union Congress, at the Singapore Conference Hall on
18 October 1965.
The subject on which I have the honour to address you is "The
Problems of Workers in Developing Countries". Before coming to
the substance of the subject matter, I intend to spend some time dealing
with the setting of the problems rather than the problems themselves.
This is a matter of some importance because in an era of rapid change
such as we live in today, it is all too easy to be so absorbed in contemporary
events that one loses the broader aspect. Therefore, I propose to examine
the general setting of the problem, mark out the general terrain and
indicate some possible guidelines as to the course of future development.
It is hardly necessary for me to say that the diversity of conditions
in Afro-Asian countries is so great as to make valid generalizations a
dangerous matter. Whilst this is true, it is also true that only the quibbling
academicians will refuse to see that there are important similarities in
broad experience and general trends in developing countries of Asia and
Africa. I intend to make three generalizations in respect of developing
countries which I believe to be valid for most of Afro-Asia. These
generalizations are as follows.
First, the economic gap between poor and rich nations in this
world is large. Further, this gap is widening and not narrowing. That is
to say, rich nations are getting richer, and by contrast the poor become
poorer.
Second, workers form a minority of the population of the
developing countries. There are exceptions to this as, for example, my

82 The Economics of Modernization
own city-state of Singapore. But in general, the predominant economic
pursuit of countries in Asia and Africa is that of food growing. Anything
up to 70 to 80 per cent of the population in developing countries are
engaged in the growing of food. This is done mainly by the peasant, who
may or may not own his land. Here, I distinguish the peasant from the
worker in the sense that the worker offers his service and is paid a wage
by the employer. The peasant gets his return from the harvest he collects
less the taxes he has to pay to the Government, rent to the landlord if
he has one, and payments for fertilizers, insecticides, animal feeds, if he
buys these things in his process of production.
In fact, the economy of most of Afro-Asia resembles more that of
medieval Europe rather than that of the modern cities which have
developed within their national boundaries. Often, we tend to lose sight
of this basic fact. It is in the cities that workers are found, apart of course
from plantations employing wage labour. For the worker is a person
whose livelihood depends on the wage employment, and this is the
product of modernization in Afro-Asia. Even in Europe and America,
wage employment became a predominant source of livelihood only
in the 19th century.
From this we come to the sobering thought that all the matters
that have been discussed in this conference and will be discussed in this
seminar, that is to say, matters of interest to democratic trade unions, are
totally irrelevant to 70 to 80 per cent of the population of Afro-Asia
which pursue their livelihood in peasant, feudal or tribal economies.
Nevertheless, the position of workers in developing countries
assumes an importance out of proportion to their membership. One does
not have to seek far for the reason. As I have just said, workers are the
result of the modernization process which has taken place in developing
countries. As such, they are the advance guard in the process of social
change which is going on. And this is my third generalization.
So much for the general background. Now I want to deal with the
general trend of change in developing countries. It has become more
and more accepted that social and economic change in developing
countries will not or must not be allowed to take place autonomously,
that is to say, without control or intervention by the government.
Indeed, it has come to be accepted, at least in principle, though
regrettably not in practice, that it is the prime responsibility of the
government to guide and control the process of social and economic
change so that the greatest benefit may accrue to their citizens.
I make this point because it seems to me that developing countries

Workers in Developing Countries 83
are presented with a range of choices in meeting the challenge that is
facing them today. Basically, it is the challenge of modernization. In
international conferences at which representatives are present, everybody
speaks as if no choice exists. That is to say, it is taken for granted that
developing countries should attempt, by modernizing their societies and
their economies, to close the widening gap between developed and
undeveloped nations. But I am not so certain that, in practice, such a
decision had been taken by all the governments concerned. This is only
one of the options open to governments of the developing countries.
Other choices have never been explicitly stated in respectable circles,
but they nevertheless exist: first, to retreat from the challenge into
some kind of revolutionary romanticism; second, to retreat into political
and economic isolation. These are choices of some importance. They
have, in fact, been taken by a number of so-called developing countries,
although those concerned would be the last to admit it.
I do not think that, in addressing such an enlightened audience as
meets here today, I need plead very strongly the case for squarely facing
up to the challenge of modernization nor for the importance of economic
development as a means of closing the gap between the rich developed
nations and the poor underdeveloped nations. We all accept that
ignorance and poverty are evils in themselves and should be abolished
within the shortest possible time. In addition to this, the existing
inequality in wealth between nations brings with it inequality in power.
So long as Afro-Asian nations remain poor and economically weak,
they are in serious danger of being prey to the stronger and wealthier
nations, whose predatory instincts have been so strongly demonstrated
in recent history. Even today, the large Asian nations with modern
defence forces are almost completely dependent on foreign sources of
supply for their armaments. In this manner, true independence or non-
alignment is very difficult to maintain.
While we accept that countries in Afro-Asia should do their
utmost to secure speedy economic development, it is by no means
certain how this is to be achieved. Five years ago, people were more
sanguine about this subject and, indeed, a historical meeting of the
United Nations Assembly passed in 1960 a resolution proclaiming the
1960s as the "Decade of Development". It was believed that this decade
will see events of far-reaching proportions in developing countries which
will set them firmly on the road to self-sustaining economic growth. We
are half-way through this decade and, at any rate in south and Southeast
Asia, the results have been generally disappointing. The monster of

84 The Economics of Modernization
stagnation and poverty which economic plans were supposed to conquer
proved a more tenacious adversary than was thought. What went wrong?
How was it that 20 years after the conclusion of World War II, the per
capita national income of nearly all developing countries is not
significantly higher?
I think we can get some guidance in our search for a solution from
the experience of two countries that were defeated in World War II,
I refer, of course, to the celebrated cases of Germany and Japan. Twenty
years ago, these countries lay prostrate before the victorious Allied
nations. Their cities were reduced to ashes, their industries pulverized,
and their communications systems utterly destroyed. Their populations
were reduced to a standard of living lower than that in any developing
nation at that time. Yet within a generation, both Germany and Japan
achieved what we call the "economic miracle". In the economic field
they have surpassed, in many respects, many of the nations that defeated
them. How did this happen? What did they do that developing nations
did not do? What did they have that developing nations did not have?
The answers to these questions turn out to be surprisingly simple.
Germany and Japan had two things which developing countries did not
have 20 years ago and still do not have in sufficient degree today. The
first of these is a high level of scientific knowledge diffused over the
entire population. The second is a set of social relations which had
begun developing, in the case of Japan since the overthrow of the
Tokugawa Shogunate in the 19th century, and in Germany since the
time the Industrial Revolution began there. It is this set of social relations
which makes it possible for modern systems of production to be organized
very rapidly.
While the Allied nations were able to bomb their cities out of
existence and destroy the factories and communications systems, these
two sets of factors — scientific knowledge and modern social relationships
— survived all the aerial bombardment and war destruction, as they
must survive unless the entire population is destroyed. It is these two
factors that enabled Germany and Japan to perform their economic
miracles. And it is similarly the absence of these factors either totally
or to an adequate degree in underdeveloped countries that has been
the reason for their lack of progress.
I referred a moment ago to modern social relationships which
existed in these two countries and which enabled them to stage a
spectacular economic recovery. I would like to attempt a more precise
definition of these terms, without, however, being unduly pedantic. By

Workers in Developing Countries 85
social relationships, I include the social values which motivate the
people of modern societies. For example, respect for law and order as the
basis of social discipline is an item in this set of values. Awareness of
rights and obligations, and institutions that are required to resolve any
disputes over the exercise of such rights, form another important element
of modern society. In addition, we must include attitudes towards work,
willingness to endure the disciplines of the wage system, eagerness for
advancement in education, and, at a higher level, insatiable intellectual
curiosity and abounding business enterprise. These are the intangibles
of the modern society. But they exert a decisive influence on the
modernization process and on economic growth. Without them, the
injection of foreign capital, no matter how massive, will fail to achieve
the purpose of generating economic growth.
Perhaps an analogy drawn from the field of my new profession may
make my point clearer. A modern army in its external appearance
consists of men dressed in uniforms and equipped with modern weapons.
From this, the uninitiated may believe that if you get a large number
of men, dress them in uniforms and hand them modern weapons, you
have got a modern army. Anyone of us can see that this is an absurdity,
and that such an assembly of persons, far from constituting a modern
army, would in fact be a completely undisciplined rabble group
whose only function in war would be to deliver their weapons to the
enemy. The strength of the modern army lies in the intangibles, the
training and discipline of the troops, and the courage, skill and experience
of their commanders as well as in material factors such as modern
weapons.
And so it is that in a modern society, one does not build a modern
economy merely by ordering the construction of steel mills, the erection
of power generators, the laying of railway lines and the like. The real
elements of a modern society lie in the intangibles which, as we saw in
the case of Germany and Japan, enabled these two countries to achieve
spectacular progress, while other countries without these intangibles
have failed to achieve self-sustaining economic growth despite the massive
foreign aid which many had received.
I believe the intangibles to be at the root of the matter. In other
words, economic growth is something that involves far more basic
elements than economic factors such as capital investment, the
infrastructure of social overheads and the like. I believe that most developing
countries have been misled by economists as to the importance of
economic factors. I will be the last, being by training an economist

86 The Economics of Modernization
myself, to deny the importance of economic factors, but the process of
development and modernization does not begin and end with economic
factors. It is necessary that we should pay due regard to them, but it is
not sufficient merely to do so.
There have been instances in the experience of developing
countries where neglect of non-economic intangibles have resulted in
the failure of development projects. There are documented case histories
of such failures. Large sums of money and immense effort have been
devoted to the construction of irrigation dams. These, however, led to
very limited benefits because the subsidiary network of irrigation channels
which had to be constructed by the efforts of the peasants themselves
had failed to materialize. Similarly, in attempts at community
development, the introduction of new and better seeds and of scientific
processes and farm techniques failed to find adequate response because
of resistance by peasants. Such resistance has, at its root, conservative
social habits and customs. In addition to such social inertia is the
prevailing attitude that these projects must be carried out by the
government itself, and that their role is to be restricted to that of
recipients of benefits and not of participants in the project.
What has all this to do with the worker? Here may I take you
back to the initial generalizations which I made in regard to Afro-
Asian societies. These are, first, that the widening of the economic and
political power gap between rich and poor nations must be arrested.
Second, though the peasantry forms the majority of the population in
most Afro-Asian countries, the workers in fact belong to the modern
sector and, therefore, form the vanguard of the movement of social
change. In other words, the workers belong to the movement of
modernizing the whole society as a means of accelerating economic
development whereby developing countries can catch up with the
Western nations.
I am in entire agreement with the National Trades Union Congress
of Singapore in their stand that it will be wrong in developing countries
for leaders of workers to take a narrow and restrictive view of their role
in society. Such a position may be acceptable in developed nations,
where the question is no longer that of initiating or sustaining economic
growth but a fairer division of the fruits of labour. But a restrictive role
in developing countries would be harmful to the modernization process
of society which we sometimes term the social revolution. The worker,
being in the vanguard of social change, must accept responsibilities in
regard to the control over the direction and pace of change. If he

Workers in Developing Countries 87
relinquishes this responsibility, he must not be in any way surprised if
he turns out in the end to be the loser.
It was Karl Marx who first foresaw the role of the industrial
proletariat as the vanguard of social revolution. It was the city and the
workers' movement in the city that was to conquer the countryside. By
a curious irony of history, in the developing nations of Asia, the Marxist
doctrine of proletarian revolution had come to be completely reversed
by another revolutionary leader and thinker. Mao Zedong, while
accepting the method of dialectical materialism as a means of analysing
historical and social processes, arrived at the strategy of the countryside
enveloping and conquering the cities. The dispossessed peasant, and
not the exploited industrial worker, was to be the instrument of
revolutionary change.
It is not my purpose here to be involved in the unending controversy
in which Marxists of different schools engage. I make reference to these
matters in order to show how fundamental these matters are in the time
perspective of history.
Accorded then, either by historical destiny or by philosophical
doctrine, a vital mission to perform in developing nations, how are the
workers to accomplish their task? It is here that we arrive at a sharp
distinction between those who seek to achieve their objectives through
the establishment of an authoritarian regime and those who wish to
preserve individual liberty in the process of modernization. In the first
group, we have, as the most distinctive representatives, the Communists.
For them the path is quite clear. Marx, Lenin and subsequent thinkers,
including Mao Zedong, have laid down not only the broad strategic
concepts, but also a great deal of the tactical doctrines of revolutionary
struggle. No one who has made a study of the subject can fail to be
moved by the passion with which the revolutionaries have expressed
themselves, or by the heroism with which they have carried out their
tasks. However, what can be doubted is the applicability of their
doctrine to each and every distinct situation found in the countries
of Asia and Africa.
Here, the second group of socialists — those who believe in the
establishment of a political system which respects individual freedom —
are diffident about laying down strategic doctrines and tactical principles
intended for general application. They prefer a more empirical approach,
taking into account the special circumstances in which each developing
nation finds itself at any given moment. It is, therefore, for this reason
that I hesitate to express any prescription to the distinguished trade

88 The Economics of Modernization
union leaders from the countries of Afro-Asia, I am certain that they are
more capable than any one of us in Singapore of thinking out solutions
to their own problems.
Regardless of the differences in special circumstances, I believe
that we are agreed not only on objectives but also, in great measure, on
the methods. First, when we advocate a democratic solution to a problem,
this presupposes that such a solution is feasible, that is to say, a political
movement based on working-class support can either win an election
victory to form the government or be sufficiently strong to influence
government policy in significant measure. Where this is not possible as,
for instance, when power is vested in, say, a military dictatorship or in a
reactionary ruling class that does not allow democratic processes, then
of course a resort to violent revolution cannot be avoided.
In Singapore, we are fortunate that democratic processes are
available. It is our hope that our experience in this small island-state in
carrying out a social revolution in a political movement in which the
workers occupy a strategic position would be of interest and value to
our comrades from Asia and Africa.

Speech delivered on 18 November 1969 at the National Trades Union Congress
(NTJJC) delegates seminar on "Modernization of the Labour Movement" at the
Singapore Conference Hall.
It has been evident for some time that the labour movement has been
in a state of depression if not demoralization. No doubt the passing of
the new Employment Act, and by a socialist government which has
enjoyed the support of the broad labour movement, has come as a
disappointment to the rank and file membership and possibly even to
some in the leadership. The Employment Act enjoins upon the labour
movement more discipline, restraint in wage negotiation and, generally,
a greater awareness of the social responsibility of organized labour in
the larger framework of the national interest.
It is to its credit that organized labour has accepted both the spirit
and the letter of the Employment Act. Considering the somewhat
hectic past of the trade union movement, this may come somewhat as a
surprise to observers. In the early history of the trade union movement
in the post-war years — when influence of the Communist Party of
Malaya was dominant — the standard of excellence by which a union
was judged was militancy of its membership. The labour movement
became an important arm of the political struggle for independence.
Further, when the boss is, as in many instances, a citizen of the imperial
country, bashing him is not only a rewarding activity, it is also a
patriotic one.
We all agree that all this is part of the past. And yet in the new
situation facing the movement, it is curious how the old instinctive
responses survive. No doubt many of the old vanguard will ask the

90 The Economics of Modernization
question: "If bashing the boss is to be foregone, what is there left for
the labour movement to do?" And the answer provided by the organizers
of this seminar is: "Quite a lot."
I wish to congratulate the NTUC and all those who took part in
preparing for this seminar, particularly those who produced the excellent
series of study papers, on facing up to the challenges of the times
squarely and not ducking the issues. Without a doubt, the labour
movement is now at the crossroads. It can take a new direction, develop
new fields of endeavour and thereby grow from strength to strength. Or
it can take the other turning, sulk away in resentment and despondency,
and then be cast into the limbo of history. I would like to think that
the labour movement will take the positive road — the road to greater,
more meaningful and, possibly, more difficult means of participation in
the national life of the Republic.
I would like to take this opportunity not to discuss history and
philosophy appropriate to the labour movement, important though these
subjects are in their context. I would like to discuss certain practical
problems which the labour movement would encounter should it take
the positive road which I hope it would.
I want to confine my discussion to a relatively narrow field,
namely, how organized labour can develop the co-operative movement
in the Republic, to its own advantage as well as to the national advantage.
An excellent background paper has been prepared for the seminar and
I would like to supplement this paper by suggesting a practical approach,
a correct strategy if you like, whereby the co-operative movement in the
Republic, now in very rudimentary form, can develop as an important
element of the broad socialist movement.
There are, as a paper noted, several forms of co-operatives —
consumer co-operatives, rural co-operatives, industrial co-operatives,
co-operatives for housing, credit, insurance, investment and so on. In
my view, the potential for growth of the co-operative movement, if
supported and sustained by organized labour, is excellent, provided the
right strategy and the right methods are employed.
But before I go on to suggest the growth strategy for the
cooperative movement, let me first lay down certain principles under
which such a movement will have to operate in the Republic.
The first principle is that the co-operative must be fully competitive
with private enterprise. It cannot expect privileged treatment by the
Government. We want sturdy co-operative units and the extension of
preferences to the movement will result in weak structures and not

Labour and the Co-operative Movement in Singapore 91
robust growth, I underline this point because anxiety has been expressed
both privately and in public by businessmen in the Republic that the
Government intends to extend privileged treatment to enterprises in
which it has a financial interest. Such fears are completely without
foundation. It has not been and will not be the policy of the Government
to single out individual enterprises for favoured treatment. This also
applies to co-operative ventures which the labour movement may sponsor
in future.
The second principle, which derives logically from the first, is that
the labour movement should engage in co-operative enterprises in those
fields in which it has a natural built-in advantage. In so doing, it will be
easier for the co-operatives to compete successfully with private enterprise.
The third principle is that the highest standards of integrity must
be established and maintained. This would imply, in our stage of
development, that there must be one central authority which supervises
co-operative enterprises by trade unions and will have the power to
take remedial action where weaknesses in this respect are detected.
Such authority, I believe, rightly belongs to the NTUC,
The fourth principle is that the co-operative must have effective
management, I will elaborate on this point at a later stage,
I will now propose a strategy of development which, if these four
principles are observed with fidelity, will ensure successful and rapid
growth of the co-operative movement. Let us first take a lesson from the
experience of co-operatives in other countries. These have not grown up
purely as a result of ideology or dogma, nor because people believe in
socialist principles, but in order to fill practical needs. Second, growth
has been slow and often painful and difficult. But eventually, co-operatives
grew to very substantial size, not because of any feather-bedding by the
Government, but by the strength developed by the movement itself.
In Singapore, however, we would like to avoid if we can, slow,
difficult and painful growth. Just as we have to develop industries in a
hurry, so must we achieve, in co-operative development, in years
what others took decades. To do this, I believe that it is essential the
co-operative movement should start with a firm and solid financial base.
In our industrialization programme, if we had not started up the Economic
Development Board with a fund of $100 million, it is unlikely that
we would have achieved the industrial growth we did.
Now let me immediately disabuse your mind of any prospect of a
similar bonanza to start up the co-operative movement. The labour
movement must find the money itself, without any financial assistance

92 The Economics of Modernization
from the Government. The first step in our strategy, therefore, is to solve
the problem of how to build this financial base.
One possibility for building the financial base could be to start a
co-operative bank or a workers' bank or something like that. I would,
however, advise against this. People will not have confidence in the
bank unless they have confidence in those who are starting it. Unless
the co-operative movement has already behind it a string of successful
enterprises, it is unlikely that people will put money in a co-operative
bank, except perhaps the small group of loyal and faithful members.
Regrettably, these are seldom people of substantial means.
I suggest that the financial base could be built upon a life insurance
co-operative. The insurance co-operative should not, at any rate in the
initial stages, move into other fields of insurance such as fire, marine,
motor and general insurance. There is no advantage that a co-operative
enterprise enjoys in these fields over private enterprise. It is otherwise
in respect of life insurance.
Private enterprise life insurance business depends on a large corps
of salesmen, in return for whose services substantial commissions and
rebates are paid. In the special multiracial and multilingual society of
the Republic, an insurance sales canvasser, unless he is an exceptionally
gifted and versatile person, is restricted in his field of activity by virtue
of language, education and class.
As compared with this, the labour movement straddles all barriers
of community and language, and even, to some extent, of class. There is
a widespread network of contacts which extends through many strata
and sections of our community and which has no counterpart in private
enterprise. This network is formalized in structures such as individual
trade unions, their branches, shop stewards and so on. For the purpose of
publicity, mass education on the benefits of life insurance, sales of
policies, this network provides the life insurance co-operative with a
clear advantage over private enterprise.
For instance, individual unions as well as the branches may benefit
financially from the activities of the insurance co-operative as they may
legitimately retain the commissions or rebates which normally would go
to the insurance canvassers. Competitions can be arranged between
unions and branches in the spirit of socialist emulation. I need not
elaborate on these possibilities, but I would urge that if unions were
allowed to retain commissions and rebates, these should be vested in a
separate fund usable only for co-operative development.
But there is another aspect to this. And this is the question of

Labour and the Co-operative Movement in Singapore 93
whether a life insurance co-op would be fulfilling a genuine social need.
Unless this is so, there is no reason to expect that it will be successful.
In my opinion, there is a genuine need for members of the working class
to take out life insurance policies. If the need is not fulfilled, it is because
private enterprise cannot reach these strata of society or the workers
themselves do not understand the value and benefits of taking out
such policies.
Because social security in Singapore is in an extremely rudimentary
form, the death of a wage-earner almost invariably results in a harsh and
cruel fate for the widow and surviving children. They often are reduced
to immediate and appalling destitution. Life insurance taken out by
workers would alleviate such hardships. Further, even if the risk against
which the worker is insured, that is, of premature death, does not
eventuate as would be the case for most of the insured, premiums paid
on life insurance policies and annual bonuses received will accumulate
as a valuable form of savings for these people for their old age.
To the labour movement as a whole, a co-operative life insurance
enterprise would provide a good financial base. For instance, if no more
than a quarter of trade union registered members took up policies
with premiums averaging, say, $1501 a year, this will mean a cash flow
of some $5 million a year. With an annual cash flow of $5 million, it
should be possible to accumulate a fund of a respectable size within a
few years. Of course, there is no reason why actual performance could
not be considerably better than $5 million a year. The potential market
is not restricted to union members; it can extend to all employees as well
as to small businessmen, hawkers and taxi-drivers and others who
work on their own account. The outcome depends largely on the intensity
of intelligent effort put in.
The next type of co-operative which I would recommend for early
growth is the consumer co-operative. Experience of the labour movement
in other countries shows that, given sustained effort and dedicated
leadership, this kind of co-operative is not too difficult to establish and
can take permanent roots in society. In Singapore, a co-operative
consumer society was established in the early post-war years when there
was a shortage of consumer goods. The co-operative, however, died
when shortages disappeared. The lesson here is that it is necessary to
propagate the principles of the co-operative movement so as to ensure
membership loyalty.
1 Unless otherwise stated, monetary figures are cited in Singapore dollars throughout.

94 The Economics of Modernization
The best way to start a co-operative is probably to select a good
locality in one of the major housing estates where a good number of
trade union members live. Possibly some part of Queenstown may be
suitable. Jurong may offer some possibilities; one of the larger firms
there is running a thriving co-operative for its members.
The first consumer co-op should be started as a pilot project. If
the top union leadership were to lavish care and attention to its
growth, the consumer co-op should succeed. After some time, the
leadership would have valuable experience which can be used to good
effect in starting up co-operatives in other housing estates. Once a
network of co-operative shops has been established and the advantages
of consumer co-ops made apparent to all members, the movement
could develop its own momentum of growth with the growth of
population, improvements in standards of education and increases in
personal incomes and wages.
But I should sound a word of warning. There is little gravy in the
retail business in Singapore and much effort, dedication and an enormous
amount of ingenuity and skill will be needed if the consumer co-operative
is to succeed.
Housing co-operatives also offer a promising field of development.
It is, however, very specialized work and you will need a good band of
workers with professional qualifications, experience, zeal and dedication.
It is better to wait until the life insurance co-operative has accumulated
sufficient funds. At that stage, the insurance co-op will no doubt want
to invest some money in real estate and that will be the time when it
may be willing to finance a housing co-operative.
I may mention here that government employees, through their
housing co-operative, are able to own houses of their own on reasonable
terms. The Government assists this society by extending loans to meet
the cost of such houses. The insurance co-operative will perform this
function for the housing co-op.
The co-operative bank I regard as an essential element in the
later stage of co-operative development. If and when the insurance
co-operative has established itself on a sound basis, with accumulated
funds of $20 to $25 million, and when the co-operative movement has
established a string of consumer co-operatives, and when the housing
co-operative has got off to a good start, the time may come to consider
setting up a co-operative bank. By that time, I expect the broad base of
the co-operative movement led by the trade union movement would
have won the confidence and participation of a sizeable part of Singapore's

Labour and the Co-operative Movement in Singapore 95
population. It would have behind it several major successes. It would
have experience in the management of financial and business affairs.
That would be the time to think of starting a co-operative bank.
As regards other types of co-operatives, the NTUC study paper
mentions producers' co-operatives and notes the fact that the
Ex-Detainees' Association has succeeded in establishing a producers'
co-operative engaged in the production of shoes. In this enterprise, the
Government advances the money in the form of a loan to pay, not
only for the training expenses of the ex-detainees, but also for the
purchase of machinery and equipment. Though still in its infancy, the
co-operative shows every sign of promising growth.
Another producers' co-operative consisting of members who were
formerly political detainees has been launched. This is in the field of
ornamental ceramics. A group of eight are undergoing training.
The second co-operative undoubtedly faces more formidable
challenges than the shoe co-op. They are mainly concerned in making
souvenirs for the tourist trade and clearly there are difficult matters of
design of product which have to be solved, as well as of the marketing
of their output. However, with the assistance of the Tourist Promotion
Board, we hope that these problems can be solved.
I make this point to show that producers' co-operatives are quite
a tricky business. This explains why, under a system of free enterprise,
there have not been many successful instances of producer co-operatives.
Where these have emerged and survived, as in Israel for instance, they
are the result of special historical circumstances.
So far as producers' co-operatives are concerned, I suggest that the
matter be treated realistically. It is easy enough to produce study papers
to show that this or that kind of producers' co-operative has a potential.
But unless you have the people who are willing to put in the effort and
sustain it over a long period, you are not likely to achieve much. The ex-
detainees are good material for producers' co-operative because they
have been unemployed a long time and some local employers, enlightened
in other ways, are somewhat chary about giving them employment for
reasons which we can understand but not sympathize with. So unless
there are union members who are highly motivated, for one reason or
other, with the desire to start up a producers' co-operative in a trade in
which they have the necessary basic skills, I suggest that you do not
give much further thought to this.
As for the other forms of co-operatives, agricultural co-operatives,
investment co-operatives and so on, I see no special advantage which

96 The Economics of Modernization
the co-operative movement can enjoy in these fields and suggest that
such time and energy as people can spare be better directed elsewhere.
But whatever type of co-operative you decide to establish, whether
it fails or whether it succeeds depends as much on one factor alone as
on all the others combined. And this is the factor of management. If you
have good, keen, effective management, then any kind of co-operatives
that you establish, even the producers' or the agricultural co-operatives,
will succeed. On the other hand, if you have a lazy, fumbling, ignorant,
indecisive kind of management, even the most promising project will
fall apart in your hands.
This is not the place to expound the principles of business
management. However, I think both the NTUC leadership and the
trade unions will have to adhere to certain principles very strictly, if
the co-operatives they establish are to have any chances of survival. The
first principle is that the staff of the co-operative, be it the top executive
or the general run of employees, should be recruited entirely on the
basis of merit. The co-operative should not be made the dumping
ground of loyal and aged union members who are tired of their present
employment and believe that they deserve a more congenial occupation
at better rates of pay. Nor should appointments and promotions to any
position in the co-operatives be subject to political pressures or influence.
Merit and performance must be the only criterion. Staff recruited on
unsound principles cannot be properly disciplined and trained.
Favouritism, intrigue and, eventually, complete demoralization will set
in and reduce the organization to a moribund condition.
The second principle to be observed is that while it is proper that
the professional staff of the co-operative be held responsible to a
committee, board of directors, or whatever the governing body be called,
it should be given considerable scope for the exercise of initiative,
judgement and enterprise. The committee or board should not interfere
in the day-to-day management of the co-operative. Its duty is one of
laying down policies and guidelines, and general supervision of affairs
of the co-operative.
There are other principles of good management, such as staff
training programmes, effective audit and accounting systems, but these
are of a specialist nature and I will not deal with them here.
These then are some of the opportunities, as I see them, whereby
the trade union movement can move into new and productive fields of
endeavour. The Government, while it cannot extend direct financial
assistance in launching any of these co-operative enterprises, would be

Labour and the Co-operative Movement in Singapore 97
willing to assist in whatever other ways it can, such as in giving technical
assistance in the formation of the co-operatives. But the principal task
must be faced by the trade union movement itself.
The movement is faced with an unprecedented challenge created
in the new situation where the simple traditional virtues of militancy
and struggle are of little relevance. It must seek a new role in society
and in seeking, and eventually performing, the new role, it will need to
adapt to the changing environment.

1 Differences in Economic Development
Problems as between Singapore
and Other Asian Countries
Article published in Commerce, journal of the Commerce Society, Nanyang
University, Vol. I No. 4, November 1961.
In recent years, there has been any number of books written about
underdeveloped countries. While the wealthier countries of the world
are getting richer and richer, the underdeveloped countries of Asia are
not keeping pace. The result is that the gap between rich and poor
nations, instead of decreasing, continues to increase. So, many economists
turn their attention to the problem of underdeveloped countries. They
try to find reasons why their economies fail to expand. They then try to
recommend policies which will bring about sustained economic growth
in underdeveloped countries.
In studying the analyses as well as the recommendations of these
economists, we in Singapore must take into account several factors.
First, the economy of Singapore is basically different from that of the
typical underdeveloped Asian country. Thus, the analyses and specific
remedies found in these economic textbooks are often not applicable to
our situation. However, this does not mean the basic principles of
economic development underlying their analyses are wrong. These are
simple enough. Economic development, in simple terms, is no more
than the extensive application of modern techniques of production in
an economy based mainly on traditional methods. But the application of
modern techniques requires three things which are difficult to get,
especially in underdeveloped countries where they are most wanted.
The first is capital. Capital is accumulated through savings out of
current income. Just as a rich man can save more than a poor man, so a
wealthier country can save a larger part of its national income than a
98

Differences in Economic Development Problems 99
poor country, and this is one of the reasons why the disparity between
wealthier and poorer countries continues to increase. The rich have
more capital at hand because they are richer and can save more. The
poor find it difficult to save even the same proportion of income as the
rich. For instance, Western industrial countries may save anything
between 17 to 25 per cent of their national income and invest it for the
expansion of their economy. Asian countries are rarely able to save more
than 8 per cent out of a much lower per capita national income.
The second vital requirement is know-how. This is not merely a
matter of engaging a few experts; if it were as simple as this, then the
question of economic development can be solved very easily. It means
raising the general education standards of the whole population. It
means also the establishment of technical institutions, training centres
and other facilities on a massive scale. This is a costly and long process.
The third essential is to have large numbers of men capable of
establishing and managing new economic organizations. These
organizations may be industrial plants, railways, agricultural co-operatives,
power stations or any of the varied activities needed for economic
growth. Economic textbooks call such men "entrepreneurs". They are
men with initiative and organizational ability. It is they who put to use
accumulated capital into new ventures for the expansion of the economy.
So far as they go, these general principles apply equally to Singapore
as to other Asian countries. But because the economic structure of
Singapore differs from those of other Asian countries, the way in which
these principles can be implemented differs.
Let us consider just a few of the major differences between the
economy of Singapore and that of other Asian countries. When one
talks of an Asian country, one is confronted with a wide variety. A
territorially dispersed country such as Indonesia is different from, say, a
compact land mass such as India. The rice-producing economy such as
Thailand differs from, say, that of Malaya which derives much of her
wealth from two or three export industries. But there are certain common
features in the economies of most Asian countries. The first is that, with
a few exceptions, of which Singapore and Malaya can be cited as
examples, Asian countries are primarily grain-producing countries. More
specifically, most of the people in Asia are engaged in growing rice.
About 80 per cent of the population are engaged in agriculture. Asian
countries have large populations. China, India and Pakistan between
them contain about half of mankind. A distinctive feature of the grain-
producing economies of Asia is the high density of population in areas

100 The Economics of Modernization
opened up to agriculture. This results in a scarcity of land relative to
labour, and because the average farmer has so little land he produces
little and remains poor.
There is another distinctive trait in Asian countries and that is
their long heritage of civilization and culture. This has tended to produce
traditional societies with somewhat rigid values. In many of these
traditional societies, we find a small but powerful class of landlord who
often stand in the way of economic progress. Very often, it is found that
the landlord does not have the spirit of innovation or the grasp of
modern management to be able to launch and manage the new enterprises
that are needed for economic development. The traditional landlord
is not an entrepreneur and hence the wealth he accumulates, often by
exploiting the peasantry, is not used for economic expansion.
There is one further significant economic feature of Asian grain-
producing countries which stands in the way of their economic growth.
And this is the lack of export goods from which they can earn foreign
exchange to pay for the import of capital goods required for economic
development. Only a few countries such as Indonesia and Malaya have
readily available substantial markets for export goods, for example, rubber,
tin and oil. Most of the other grain-producing countries have only a
small range of export goods, whose foreign exchange earnings therefore
are usually inadequate to finance imports of capital goods.
The general strategy of economic development in these Asian
countries is well known. It consists of a general advance in all sectors,
particular attention being paid, however, to increasing the output of
agriculture through improved techniques, for example fertilizer, better
seeds and improved irrigation. Increased agricultural output leads to
several desirable results. First, there could be a shift of labour from
agriculture to industry. Next, it would avoid a shortage of food which
otherwise would have to be met by imports of food from abroad thereby
using valuable foreign exchange resources. Further, as farmers earn more
income, they would provide a market for the products of industry.
Markets are not merely a matter of number of people. The buying
capacity of these people also has to be taken into account. A prosperous
farming community would provide a tremendous boost to industrial
expansion as recent experience in Japan shows.
As part of the general advance, it is necessary to create a new
class of persons with the necessary technical and managerial capacity
for directing enterprises. Where the social system does not throw out,
through free competition, men of directing ability, an effort must be

Differences in Economic Development Problems 101
made to produce such men. This is often more difficult than it
appears.
The problems which have been so briefly sketched here are, in
reality, immense in scale. Only in the last decade or so have Asian
countries turned their attention to economic progress. It will require
several generations to see the fruition of their endeavours only recently
started.
We may now discuss economic problems in Singapore and Malaya
against this general Asian background. As regards Singapore, two things
stand up. Our population is not large. We do not produce food grains;
our farmers produce only vegetables, fruits, poultry, eggs, and pigs,
mostly for consumption in Singapore and south Malaya.
Our economy is based on trade as Singapore serves as a supply and
distribution centre for south and east Malaya and much of Indonesia
and Borneo. Unlike most other Asian countries, we have a plentiful
supply of capital. Our national income per head is several times higher
than that of the grain-producing countries of Asia. Hence we can
accumulate capital with less effort than they can. We are not faced
with any difficulties over foreign exchange because the Government
has not resorted to deficit budgeting.
This being the case, the strategy is not to base the creation of new
modern industries on the surplus earned in agriculture, but rather on the
surplus earned in trade. Trade provides Singapore not only with capital
but with men capable of directing business organizations on a fairly
substantial scale. So far, such talent and energy has been directed
principally towards trade. Our problem is to induce them to divert
both their business skills and their capital to industrial expansion.
In this respect, we are more fortunate than most Asian countries.
We do not have to create a new director or entrepreneur class because
we already have one, though it is a class less skilled in industry than in
trade. Given, however, the incentives to create new industries, there is
no reason why they should not respond or be as successful in industry as
trade. The problem, therefore, is how to create conditions whereby they
could be induced to move into industry. Here, we are at a disadvantage
as against other Asian countries with large populations. For our small
population means a limited market. And new industries are more easily
established when there is a large and protected home market. Industrial
growth in Singapore could be more easily fostered if a protected market
could be established which goes beyond the boundaries of Singapore, for
example the Federation of Malaya in the first instance, and possibly the

102 The Economics of Modernization
whole of the Malaysia area eventually. This is the reason for the proposal
by Singapore to set up a common market with the Federation of Malaya
which could be extended, in due course, to cover a wider region.
Until the common market can be established, Singapore's
industrialization must be based on the present markets open to her. As
we serve as the supply base for much of Southeast Asia, there are
opportunities for supplying to her neighbours that which at present is
imported from overseas and re-exported to them.
This, however, means that such industries as we now establish
must be fully competitive right from the beginning. This somewhat
restricts the range of goods we can produce. Obviously, products which
can be produced economically only on a very large scale cannot be set
up in Singapore because the cost of production would be too high for
small outputs. For example, we can manufacture electric bulbs for the
whole of pan-Malayan markets. But the cost would be two to three times
that of imported bulbs, which are made in large plants overseas turning
out more than a hundred times the number required in Malaya.
We can take better advantage of our status as the largest port in
Asia by building up industries ancillary to the port. We can expand our
ship-repairing industry to take advantage of the large demand for such
services which cannot at present be fulfilled in Singapore. Other industries
such as ship-breaking are obviously advantageous to Singapore because
of the large volume of employment they generate.
The large Asian countries can afford to establish relatively
inefficient and high-cost industries, if the prospects are good that such
industries can improve themselves in due course. These industries can
be made to survive through import duties or even through prohibition
of imports. Such a course of action is not generally possible in Singapore
without placing a punitive burden on consumers, that is, the general
public.
To induce the flow of capital and skills from trade to industry,
certain positive measures by the state are needed. These can be supplied
in a number of ways. First, feasibility studies of new industries should be
undertaken to find out what new industries can be established under the
competitive conditions of Singapore. These studies can be undertaken
both by the Government as well as by private enterprise. A lot of this is
already going on. Next, new industries should be able to acquire capital,
especially working capital more easily and on better terms than are now
available. Then the basic essentials of industry, suitable factory sites,
power supplies, water, roads, communications, port facilities, should be

Differences in Economic Development Problems 103
made available abundantly and at reasonable prices. All this will help
to improve the competitive strength of our industries which have to
fight in the export markets of the world.
There is also need to improve labour-management relations
which in the past have not been, from the point of view of potential
investors, as advantageous as they could be. It is not only in the interest
of labour as well as management to see that proper relations are
maintained, but it is also in the interest of the whole country to ensure
that this is brought about. Otherwise, thousands of young men and
women looking for work each year will remain unemployed because
new industries are not set up.
The situation which faces Singapore today is as challenging as
that of any period in Singapore's past history. Our forefathers had
built Singapore from a swampy island into a flourishing trading centre
with one of the highest standards of living in Asia. It is the duty of the
present generation to see that the thrift, industry and skill which created
modern trading Singapore will be sustained in the years to come to
create an industrial Singapore of the future.

2 Regional Co-operation
in Southeast Asia
Speech delivered at the annual dinner of the University of Singapore Society on
24 January 1970.
I would like to discuss regional economic co-operation. I confess to
some trepidation in selecting it. Hardly a week passes by without
some conference on the subject. All proclaim the virtues, the necessity,
the benefits, and the inevitability of regional economic co-operation in
Southeast Asia.
It seems clear that regional co-operation is fast attaining the status
of a sacred cow. And yet in spite of the proliferation of conferences and
literature on the subject, it looks to me as if there has been precious little
clear thinking on it. To start with, what do we mean by the term
"regional economic co-operation"? Incredible as it may be, I have yet to
come across a sensible definition. What are the means by which such
co-operation is to be achieved? Again, apart from exhortations to
goodwill and the appointment of more committees of officials, nothing
much has emerged.
These are the indisputable facts. Yet, like people in the fable of
the naked emperor, everybody, with the honourable exception of my
colleague the Foreign Minister, makes a pretence that all is well while
they know the reverse is true. I confess to some hesitation in discussing
this subject. As a practitioner in the field, I cannot, like the university
academics, invoke the principle of freedom of expression and, indeed,
I feel that my position is somewhat analogous to that of an archbishop
in mediaeval Europe who questioned in public the doctrine of the
immaculate conception.
The trouble is that when people talk about regional economic

Regional Co-operation in Southeast Asia 105
co-operation, they talk as if this is something new. The truth is that, by
any reasonable definition of the term, regional co-operation has been
going on for more than a century, ever since the European imperialists
set foot in this part of the world and opened it for economic development.
What we are now doing is, in part, the outcome and the continuation
of this long historical process. Let me give you some concrete examples
of activities which I consider falling under regional economic
cooperation. What I say may startle some of the regular conference-goers.
Nevertheless, let me proceed to give this example. We eat rice from
Thailand and bananas from Malaysia. We do so not because of beneficent
feelings towards the Thai or the Malaysian peasants, or out of our
wish to co-operate with them. We do so simply because we get value
for money. In the same way, the Malaysians, the Indonesians and others
in Southeast Asia use our port to market some of their produce as well
as for some of their purchases. Again, they do this not because they love
us. They too get value for money for the services and goods which
we provide.
So in this way, Thai and Malaysian peasants get more money than
they otherwise would have, rubber estates in Johore and the east coast
of the peninsula market their products at a lower cost than otherwise
would be the case, Singapore consumers get the benefit of low food
prices, and Singapore businessmen get income from performing both
entrepot services. The trade that takes place between countries in the
ASEAN (Association of Southeast Asian Nations) group is much bigger
than most people believe. It comes to more than $5,000 million a year.
Without this trade, everybody would be much poorer and Singapore
would cease to exist.
With these preliminary observations on the nature of trade between
countries in the region, we can try a tentative preliminary definition of
regional economic co-operation. It is that there should be a division of
labour between countries of the region whereby each produces the goods
for which it is endowed with natural advantages to produce, and by
trading with each other, the total economic well-being of ^11 members
is increased. This definition, as any economist present here will
immediately recognize, is based on the classical doctrine of international
trade. It is as old as Adam Smith. It assumes that trade between countries
will move freely and without obstacle.
Of course, every schoolboy knows that the classical concepts of
free trade are hardly observed in their entirety in the real world, either
in Southeast Asia or elsewhere. In practice, import duties are levied

106 The Economics of Modernization
either to protect domestic industries or for revenue purposes. Quantitative
restrictions by way of quotas are a common occurrence. Then there are
exchange controls not only on transfers of capital but, in the case of
currencies in trouble, also on payments for current transactions. Over
and above all these, most countries in the world maintain pretty strict
controls on immigration.
All these restrictions on the free movement of goods, people and
money across national boundaries are tantamount to a reduction in the
scope and volume of regional co-operation between countries as well as
the diminution of economic well-being defined in the classical sense
of the word. It is therefore necessary when discussing policies of regional
co-operation to inquire into the reasons for such restrictions.
The principal reason for the substantial increase in recent years in
obstacles to free trade and free movement of capital and people in this
region is the attainment of independence by countries in the region. At
first sight, this may appear an unlikely outcome of independence. It
could be argued, for instance, that countries having thrown off their
colonial shackles would rush to embrace each other in friendship and
brotherhood and tear down the walls which imperial powers had erected
to divide and rule the diverse peoples of Southeast Asia. This is what
one might have expected to happen. But what actually did happen
was quite the reverse.
There was greater freedom of movement of goods, people and
capital during the colonial time than there is today. Let us take the
position of Singapore, Malaysia and Indonesia. In the pre-war years,
Singapore was the base of British imperial power in Southeast Asia. It
was also the base of British economic power. The great British agency
houses had their head offices in Singapore. From these head offices,
they extended their operations not only into the Malay peninsula, but
also into Borneo and into Indonesia. Thus the enormous expansion of
the rubber and tin industries in Malaya and the opening of large estates
in Sumatra and Borneo were, to a substantial extent, financed, directed,
managed and supplied by British agency houses operating in Singapore.
There were no restrictions of movements of population between
Singapore and the Malay peninsula such as those that exist today. There
was, for much of the time, no restriction on movements of population
and money between Singapore, Malaysia and Indonesia such as exists
today.
Malaya, as it was then known, achieved her independence in
1957, and the Malayan Government took immediate steps to reduce the

Regional Co-operation in Southeast Asia 107
dependence of the Malayan economy on Singapore. Agency houses
were induced to establish their head offices in Kuala Lumpur. Through
technical devices, such as valuation of imports for custom duty purposes,
imports from Singapore were placed at a disadvantage as compared with
imports through Penang or Port Swettenham. An energetic drive to
reduce dependence on imports of Singapore manufactures began and
firms producing in Singapore were given substantial inducements to
open up operations in Malaya.
Similarly, the Government of Indonesia undertook a deliberate
policy of encouraging direct shipments of her produce, much of which
used to be marketed to the countries of the West through Singapore.
However much our interests were adversely affected by these
measures, we must recognize that they were legitimate objectives of
independent sovereign states. The Malayan Government saw little
point in buying goods produced in Singapore when these same goods
could be produced in Malaya to the benefit of the Malayan economy by
way of employment and income. It was a simple enough matter to bring
about this result by placing tariffs on such goods and allowing inducements
by way of a tax holiday for their production in Malaya.
Such problems did not arise in the colonial era for the simple
reason that the colonial governments were not interested in establishing
manufacturing industries.
As regards control on movements of money and capital, we are
fortunate that none has so far been introduced between Singapore and
Malaysia. Both our currencies are strong and the Agreement on
Interchangeability of Currencies is working well. But where the currency
is weak, as is the case with some countries in the region, extensive
exchange control measures have had to be enforced. As regards movement
of populations across national boundaries, there was virtually complete
freedom of movement not only within the region, but also with the rest
of the world during the colonial era. The colonial governments wanted
to encourage exploitation of the wealth in their colonies through
plantations and mines. Since the resident populations, whose traditional
activities consisted mainly of self-employed peasant agriculture, were
reluctant to work in these plantations and mines, the colonial government
in Singapore and Malaya decided to import large numbers of labour
from south China and south India. There was also a substantial migration
of workers from Indonesia into Singapore and Malaya.
The Great Depression of the 1930s saw a reversal of this policy of
free migration. But with the advent of the independence of Malaya in

108 The Economics of Modernization
1957, further steps were taken to control the influx of workers from
outside in order to reduce the population pressures within national
boundaries. Since then, not only was there an increase in immigration
control, but a new innovation has been introduced recently, and this is
the requirement for employees to take out work permits, a technique
whereby citizens of a country can be given employment preference
over non-citizens. This innovation was introduced by Singapore and it
did not take long for these practices to spread beyond our borders.
It is against this dismal background of increasing and not
diminishing obstacles to division of labour between countries in the
region that we have to assess prospects for regional economic
cooperation. It is clear that co-operation, in the classical sense of allowing
specialization to develop through the free market mechanism, will remain
inhibited so long as these barriers are retained. This is why, nowadays,
when people talk about regional co-operation, they usually speak in
terms of deliberate and planned inter-governmental measures designed
to promote economic co-operation in some vague sense. I now turn to
this subject of co-operation between governments.
The most comprehensive and advanced technique of achieving
such co-operation is the establishment of a common market of one
variety or another. In the post-war years, we have seen in Europe the
Treaty of Rome giving birth to the European Economic Community.
This is one of the major reasons for the unprecedented prosperity
which the six countries concerned enjoyed in recent years. Some people
believe that something along these lines, possibly on a less ambitious
scale, should be attempted in this region.
I do not regard the Southeast Asian common market as a practical
proposition in the foreseeable future. There are too many disparities in
levels of development, technology, access to capital, infrastructure and
other factors. What is more important are the attitudes and policies of
individual governments in the region which have based their
industrialization programme principally on the basis of import
substitution. This term means simply to produce goods which one formerly
imported, and to make its production viable by imposing a high enough
import duty to shut out imports.
Import substitution is the easiest, indeed, the most obvious strategy
for industrialization. However, there are limits to industrial growth that
can be achieved in this way. These limits are set by both economic and
technical factors, and depending on how fast the pace of such
industrialization can proceed, the size of the domestic market and certain

Regional Co-operation in Southeast Asia 109
other factors, an industrialization programme based on import substitution
reaches its limit of growth when the list of possible substitutes of imported
goods runs out. In itself, import substitution does not provide the basis
for self-sustaining industrial growth, except possibly in large countries.
Because it is the most obvious and the easiest approach to industrial
growth, and because each government wants to get the benefits of such
growth for its own citizens, governments are unlikely to be attracted by
appeals based largely on abstract theoretical reasoning on the advantages
of common market arrangements. It is more likely to be concerned with
fears about the ability of its own industries to compete, especially if these
were established on the basis of high import duties. Governments calculate
on short-term possibilities and only take into account factors that can be
clearly seen, on tangible results that are readily achievable, and on
dangers that are felt to be imminent. Governments are seldom moved by
doctrines, principles, theoretical arguments and analyses which
academicians consider important.
If we can dismiss grandiose schemes such as the regional common
market as a chimera, then what are the projects which lend themselves
to co-operation between governments? I think the answer is provided by
looking at what regional co-operative efforts have already been mounted
in the post-independence era, and which are successfully being
implemented. To my knowledge, there are only two of such projects
which are of any significance. The first is the production and buffer
stock arrangements in the tin-mining industry that have been established,
and in which three governments in the region, namely Malaysia,
Indonesia and Thailand, are involved. Second are the arrangements for
the pooling of passenger rights between the main airline companies of
the region. Anyone who has travelled, say, between Bangkok and
Singapore, will know that he cannot board, for instance, a BOAC or
Qantas plane to Singapore. Such passenger traffic is reserved for Thai
Airways, MSA (Malaysia-Singapore Airlines) and other regional airlines.
These two examples have certain unique common characteristics.
The first is that they are concerned with the modern sector of the
economies of the region in which the dominant business units are large
and heavily capitalized, which operate on modern systems of management,
and which are engaged in some aspect of international trade. The
second feature is that both these attempts at regional co-operation
intended to protect the market and increase the profits of enterprises
engaged in them. The third feature is that the number of business units
concerned is relatively small. The schemes do not involve the typical

110 The Economics of Modernization
economic units of the region, which consists largely of peasant farmers,
small-scale producers, independent petty traders and shopkeepers, and
such types.
If past effort is any indication, the most likely fields for future
regional economic co-operation between governments are likely to be
limited to those sectors of the economy which have the characteristics
I mentioned. If you want concrete examples, those which spring to
the mind include shipping — more particularly the carriage of goods
between destinations within the region — and the travel and the
tourist industry.
In my view, this is all that we can expect by way of
intergovernmental co-operation on regional economic affairs in the foreseeable
future. It does not hold out exciting prospects for bold, imaginative
plans for economic upliftment. I think this is the reason why the voice
of Singapore, when heard in ministerial conferences on the subject, has
always been one of moderation and realism. It is not that we are against
regional schemes of co-operation, trade liberalization, common market
or whatever; on the contrary, we stand to benefit enormously if these
things could be successfully brought about. Our reservations rest on
our doubts about the will and the capacity of other parties concerned
to make complex plans and, more important, to implement these
complex plans.
What, then, are the consequences for Singapore in this kind of
limited situation? I believe there are four consequences. First, we must
plan our industrial growth principally on the basis of markets of developed
countries of the West, and in due course, of Japan when she liberalizes
her trade policies as she must do in course of time. We should not, of
course, miss any opportunities in regional markets, but past experience
has shown that, except for special products, our access to these markets
is likely to be temporary.
My second conclusion is that economic growth in every country
in the region is to our own economic advantage, and to the extent that
we are able to assist in such growth, we should do so. Such effort is more
effectively mounted through private enterprise channels. That is why
we encourage our own industrialists to invest in Indonesia and we offer
them substantial inducements to do so. Regional joint efforts by
governments are likely to have greater chances of success if each of their
economies is growing at a brisk rate. Under such circumstances, there is
more leeway and more scope for give and take, and these are the
essential prerequisites to successful negotiations between governments

Regional Co-operation in Southeast Asia 111
on regional projects. Where growth is slow or, worse still, where stagnation
takes place, every government will try to take as much as possible and
give away as little as possible. No realistic agreements can be reached
under these circumstances.
The third consequence is that we should make greater efforts in
co-operative endeavours between governments in non-economic fields.
Indeed, the present situation is one where governments co-operate
more successfully in these areas, such as, for instance, in the establishment
of educational, research and training institutions for common purposes.
So far as Singapore is concerned, we should be generous in providing
resources and staff for such ventures, whether they are sited in Singapore
or elsewhere in the region. Further, we should make available increasing
opportunities in our own national institutions of education to citizens
of other countries. Much has already been done in this respect under
the Colombo Plan and the ASEAN scholarships. I believe that we can
do much more.
Finally, as Singaporeans, we must know more about our neighbours.
What strikes me as very curious is that even though Singapore is one of
the great trading centres of the world, the average Singaporean is insular
in his outlook to an extraordinary degree. For instance, not only does
he know very little about the customs, the history, and the general way
of life of the enormously rich diversity of peoples in Southeast Asia,
but he has very little interest in finding out. I do not know the reason
for this state of affairs, but I think it is something which intelligent
people would want to have remedied as quickly as possible. I am sure
that an audience such as the one I am addressing tonight will readily
understand the need for this.

3 Foreign Big Business
in Singapore
* v *
■*&<"« *
Speech delivered to the Singapore International Chamber of Commerce at a
luncheon on 29 March 1968.
Since 1959, many remarkable developments have taken place in
Singapore. Much of it has been commented upon from time to time
by the international press, in monographs produced by scholars in
universities and even in books. But there is one feature which appears to
have escaped the notice of scholars, historians and newspaper
correspondents. And this is the quiet manner in which European business
has merged into the political and economic landscape of Singapore. The
whole thing happened as if it was the most natural occurrence. And yet
when we consider the post^independence experience of countries in
Asia and Africa, we find that the European businessman is often the
centre of acute tension and conflict. The absence of stress in Singapore,
the manner in which European financial and commercial interests have
continued their roles from the colonial era to the stage of independence,
is surely a remarkable phenomenon.
It certainly calls for explanation. One can think of three kinds
of explanation. The first, the simplest explanation, is that offered by
the Barisan Sosialis, that is, that we are living in a neo-colonial regime;
whatever this means, I won't waste time in refuting this view at a
gathering such as this.
The second explanation is more sophisticated. It is that as the
result of superior excellence in the way in which we have conducted our
affairs, yourselves as businessmen and ourselves as political leaders, we
have discovered a modus vivendi which has escaped less talented people
elsewhere. My feeling is that this explanation, however flattering to our
ego, must be rejected.
11?

Foreign Big Business in Singapore 113
There is a third explanation which I believe to be the genuine
one. This explanation has regard to the special circumstances of
Singapore, its historical development, and the special economic role
which it fulfils in this part of the world. The explanation is rather
complex and I would have to spend some time developing my thesis.
Let us first look at the post-independent era of the new states
of Asia and Africa. It is, of course, reckless to generalize about so
varied a collection of countries. But in so far as the generalization
is permissible, I believe the following is true. In most of these
countries, political leadership, both during the anti-colonial and post-
independence era, lay with the Western-educated elite. By training
and education, these elites have a natural desire to modernize their
states, to create modern industry, strengthen the economy, introduce a
progressive political system and so on. In their endeavours to do so, one
would have thought that they would have found Western business an
important adjunct to their economy. But, in fact, certain underlying
factors stood in the way of a working relationship between modern
business from the West and the new political elites. Part of the difficulty
had origins in the type of education which new elites received in the
West. Many of them were educated during the inter-war years when
a reactionary brand of socialism received widespread acceptance as a
result of the economic dislocations caused by the Great Depression
of the 1930s.
But apart from this, the modernizing elites came across other
difficulties which, in the event, turned out to be insuperable. Here we
can distinguish between those countries which are heirs to ancient
civilizations, and those countries which do not enjoy such a cultural
heritage. In countries with ancient civilizations, the modernizing elites
found themselves confronted with the pervasive influence of tradition.
There was the hold of age-long religion on the teeming masses living in
the countryside. Not only was this a matter of customary beliefs,
superstitions and practices, but often leadership at ground level was
institutionalized to give great weight of power to those occupying
traditional posts, either in the social hierarchy or in religious institutions
or both.
It is because they were unwilling to risk the breakup of a society
integrated by means of traditional values and traditional institutions
that the modernizing processes in these countries were halted. Invariably,
this affected the pace of economic development and, given the
expectations of a better life in these countries, the consequence was

114 The Economics of Modernization
often acute political tension, which aggravated economic difficulties.
All this is familiar to those of us who study the affairs of these new states.
In the countries without a background of civilized history, the
modernization process broke down simply because of the absence of a
governing apparatus. You cannot have a modern system of government
without an effective civil service, and where one does not exist and
cannot be created, you get a Congo-type situation.
When the newly independent states run into trouble of one kind
or other, very often the first victim is the foreign businessman. He is a
convenient target to which to deflect popular discontent. The apparent
wealth which he owns presents a tempting target for expropriation.
The fact that he is usually of the same nationality as the former
imperial power makes him even more vulnerable.
In Singapore, these things have not taken place. Why? First, we
have no traditionalist power group to block progress. Singapore is really
an artificial creation and our population comprises either migrants or
descendants of recent migrants. The choice in Singapore today is between
us, who are the modernizers and the rationalists, and the rest of the field
composed mainly of eccentrics of one variety or another. It is regrettable
that an alternative government in the form of a party in opposition
does not exist. I do not, however, expect this situation to continue
indefinitely.
But even when there was a strong and coherent opposition, as
during the years 1961-63, the confrontation was not one of a modernizing
group and a traditionalist group. All contenders claim to be progressive
and modernist. And so a different kind of polarization of political forces
occurred, with Barisan Sosialis representing the dogmatic revolutionary
left, and ourselves as socialists of the pragmatic type. We joined issues on
a large number of subjects but the abolition of European business was
not one of them. This is surely an astonishing omission, but I have yet
to read a historical narrative of events of those stirring days that
drew attention to it.
Was this omission an accidental, perhaps unintended, oversight
by the contenders preoccupied with other matters? Or was there a
rationale behind it all? How was it that a party like the Barisan Sosialis
with such radical aims and possessed, at that time, of a fervent following
among the young, did not campaign against the iniquities of foreign
monopoly capitalism in line with Marxist textbook prescriptions?
Elsewhere, even the most respectable socialists would feel constrained
from time to time to make appropriate noises and strike heroic postures

Foreign Big Business in Singapore 115
over foreign big business. Here, the whole subject was just ignored,
even by the revolutionary left!
Now, I know why my party did not make an issue of foreign big
business, but I can only guess at why the others did not. Perhaps it was
an oversight, but more probably it was because it was not an issue that
would excite many people. Of course, there were strikes by employees of
European firms and sometimes feelings ran high. But they subsided
when the strikes were settled. I am not saying that in the years
preceding Singapore's self-government there wasn't strong feeling
against Europeans. There was. But it was directed against the continuation
of British political power and not against their business interests. You
could get people to act against the first but not the second, except of
course in individual cases of industrial disputes.
You may say that it takes an electorate of some sophistication to
make a distinction between the two and I'll accept this as a valid point.
At the same time I will add that the special role which Singapore plays
in the region, of which most people are undoubtedly aware, helps to
make it easier to see this distinction. Let me dwell at some length on
this role.
Singapore has been, and still is, the entrepot centre of Southeast
Asia. In the post-war years, many observers believed that when
countries in the region achieved their independence, much of the
entrepot trade would be lost as these new nations establish direct
trade relations with the outside world.
Prophecies of this kind are nothing new in the history of Singapore.
May I quote from Makepeace's One Hundred Years of Singapore published
in 1919.
At this time there were misgivings as to the future of our trade; the
acquisition of Hong Kong and the opening up of commerce with
China were expected to affect our interests injuriously; it was thought
that the zenith of Singapore's prosperity had been reached. Later,
when Labuan was ceded to us, many were the evil prognostications
in circulation. And so on down the century we have always had from
time to time these gloomy forebodings. In our own time, most of us
can call to mind doleful prophecies that Singapore's supremacy must
decline in these advanced days of communication and direct shipment.
In much of the 19th century, commercial rivalry between the British
and the Dutch was centred around the entrepot trade of Singapore
which the Dutch resented and wanted to bypass. The odd thing was that

116 The Economics of Modernization
very often, Singapore was successfully bypassed and yet trade grew by
leaps and bounds.
How did this happen? Successful bypassing of Singapore was not
so much the result of trade controls by foreign governments as the result
of improvements in transport and of economic growth in the region
leading to the building of new ports elsewhere. The loss of the entrepot
trade in China tea as a result of the tea-clippers sailing direct from
Britain to China is an example of the first. But superior transport
systems, while bringing diversion of trade in some commodities, opened
new trade opportunities in other lines. The building of new ports in
the region, while diverting some trade, increased general prosperity in
the region which, in turn, was reflected in more trade for Singapore.
We seem to have enjoyed the best of all worlds. In a sense this is
true, but what should not be forgotten is that we earned this good
fortune. We earned it by taking advantage of our central geographical
position, our natural harbour, and, above all, by providing the most
efficient service at the lowest possible cost. Only in this way can we
maintain our pre-eminent trading position. And it goes without saying
that to secure this level of efficiency, we must have an open competitive
system. At least, I know no other way of achieving efficiency. We cannot
allow business success to depend on, for instance, access to political
influence — a situation not unfamiliar in other countries. Once we
resort to dubious practices of this kind, our economic decline will
soon set in.
The open competitive system not only makes for efficiency. It also
explains why foreign big business in Singapore has not become a politically
sensitive issue. This would not have been the case if their operations
were based on privileged positions protected and licensed by the colonial
government. It also explains why a rational elected government of
Singapore refrains from taking measures designed to make structural
changes in our trading practices.
And in all this we see the vindication of the great vision Stamford
Raffles had 149 years ago of the miraculous manner in which liberal
economic principles would transform a small fishing village into a
great city.

Singapore's Monetary
System, 1969
Speech delivered at the 13th anniversary dinner of the Economic Society of
Singapore on 20 September 1969.
Since I shall be leaving Singapore next week to attend the Annual
Conference of the World Bank and the International Monetary
Fund, a sense of occasion would dictate that I talk about money. At first
I was sorely tempted to give my views on the present state of the
international monetary system. However, on reflection, I resisted this
temptation for two reasons. The first is that it would be prudent for
a country like Singapore not to give unnecessary offence to the great.
The state of the international monetary system being what it is, this is
best achieved by withholding comment. The second and more immediate
reason is that one should not go to a meeting of cardinals reeking of
heresy. I have therefore decided to talk to you about more parochial
matters, namely our own monetary system, a subject which gives less
scope for impious or irreverent thoughts.
When we left the Federation of Malaysia on the 9th of August,
1965, we were faced with urgent decisions about the kind of monetary
system we should establish for the new Republic. The urgency was
caused not merely by the fact of independence but by the previous
notice given by the Government of Malaysia to the Board of Currency
Commissioners of Malaya to terminate the old Currency Agreement
which had provided for a common currency between the states of
Malaya, Singapore and the Borneo territories. This meant that by the
1 lth day of December 1966, Malaysia would have its own currency and
the old currency notes would be replaced and eventually demonetized
after that date.

118 The Economics of Modernization
What the Government had to decide was, first, whether to establish
its own currency or to have a common currency with the Federation of
Malaysia. Secondly, to decide on the nature of the new monetary
authority, whether it should take the form of a central bank, or the
old-fashioned currency board or some other form.
These were novel and challenging problems. We had no experience
in managing our own currency and, accordingly, decided to engage
experts to advise us. Further, there was little time left for making the
physical arrangements on note and coin issue. Even after more than two
years of independence, we were virtually without any new coins when
sterling devaluation occurred. It was necessary to rush emergency measures
at great cost, airlifting 180 tons of coins in 10 plane-loads of chartered
aircraft at a cost of nearly a million dollars between 5 and 25 December
1967.
The currency problem was kept under close and continuous
study by the Cabinet. No less than seven cabinet memoranda were
prepared and discussed at length between 21 November 1965, when
the subject was first brought up, and 23 July 1966, when the final
decision was made.
Having a common currency with Malaysia at that time had great
attraction for many members of the Cabinet. To have a joint currency
would mean greater combined total reserves and hence a stronger currency
than two separate currencies. Secondly, by established custom, Singapore
has had a common currency with the states of Malaysia for several years.
The introduction of a new currency may well produce difficulties
over confidence and acceptability. Finally, there was a fair amount of
external pressure to retain, as far as possible, existing economic ties with
Malaysia and it was thought that splitting the currency would be a
retrograde step.
In spite of its attractions, the Cabinet recognized that certain
complex problems arise in sharing a currency with another state. There
are, of course, precedents in other parts of the world. For instance, the
principality of Monaco uses the French franc, and in another principality,
that of Liechtenstein, the Swiss franc circulates as currency. But
Singapore stands in a somewhat different relationship with Malaysia,
and matters of ownership and control of reserve assets which do not
arise in these two principalities are matters of importance for us. To have
our own currency might mean smaller reserves and hence a weaker
currency. It would sever an important tie with Malaysia. Having a
common currency avoids these but creates problems over ownership and

Singapore s Monetary System, 1969 119
control of reserves. It was a complex and intricate problem. The Cabinet
finally arrived at a decision in the way human beings are prone to when
faced with complex and difficult choices. It decided to have its cake
and eat it too.
Without going into technical details, the proposal was to have
currency notes of the same design but run on different serial numbers,
each country to have its own series. The external assets will accrue to
the respective monetary authority according to redemption of the old
note issue and will be kept in two separate accounts. Nominally Bank
Negara Malaysia would present a combined account; the Singapore
Authority would maintain its own accounts but would keep Bank
Negara informed of all changes in reserve assets.
It was an extraordinary compromise and, with the assistance of
experts to help out in negotiations between the two Governments,
nearly all technical problems were solved to the satisfaction of both
parties. However, finally, in respect of one detail, some legal technicality
on ownership, agreement was not reached and negotiations broke
down on this point. Singapore then decided to have its own currency.
As regards the type of monetary authority, whether it should take
the form of a central bank or a currency board, a decision was reached
without much difficulty. The test the Cabinet decided to apply here was
which type of institution would inspire more confidence in the new
currency? There is little doubt that the currency board would fulfil this
requirement better than a monetary authority of the central bank type.
I think the Cabinet reached the right decisions on both these
issues. My personal position was to support a separate currency right
from the beginning as I did not believe that joint currency arrangements
could work in practice. These are bound to lead to long and tiresome
arguments between the parties concerned and, in the interest of good
relations between the two Governments, I thought it wiser they should
go their separate ways. But I supported the compromise that was reached
in Cabinet though without any confidence that agreement was possible.
Somewhat to my surprise, negotiations made more progress and lasted
much longer than I had expected.
Once the two Governments decided to go their separate ways,
they both recognized that their two currencies and, indeed, their
banking systems stood in special relationship with each other as against
the rest of the world. Accordingly, it was decided that this relationship
should be enshrined in some kind of agreement to give special status of
the currency of one in the territory of the other. The Interchangeability

120 The Economics of Modernization
Agreement, which spelt out this relationship, was formalized in an
exchange of letters. It is working well and is serving its intended function.
It has survived the sterling devaluation crisis and all the other numerous
crises which have plagued the international monetary system in the
past three years.
When the Cabinet decided to establish a currency board instead
of a monetary authority such as a central bank, the reasons were, as
I described before, short term. As such, the subject of establishing a
central bank will no doubt have to be seriously considered at some
time in the future. There are, of course, many advocates of a central
bank both in academic and other circles. But I think that the reasons
they advance have limited relevance in an economy such as Singapore's.
Take, for instance, monetary policy. A central bank, as against a
currency board with its automatic mechanism and a legally prescribed
minimum reserve cover for the currency issue, is believed to have the
virtue of flexibility in respect of control over monetary supply. It was
thought that by means of credit creation during a downturn of the
economy and credit restriction in an upturn, fluctuations of economic
activity could be levelled out and more stability introduced in the
system. There is one snag to this argument, and that is the question of
import leakages. Anyone in the slightest doubt as to the seriousness
of this problem would have his doubt quickly dispelled by a reference to
Table 13.3 of the Yearbook of Statistics. In 1968, of an estimated
private consumption expenditure on goods of $2,047 million, no less
than $1,230 million or 60 per cent consists of expenditure on imports.
The percentage varies between class of goods, being around 75 per
cent in recreational goods, durable goods and clothing, and personal
effects. Even as regards food, $493 million out of $880 million, or 56 per
cent, was imported. When some 60 per cent of expenditure on goods
leaks abroad, the effect of the Keynesian multiplier, which provides
the raison d'etre for an expansionary credit policy during periods of
low economic activity, is subject to severe constraints in its operations.
If during a slump, Singapore decides to expand credit as a means of
counteracting the recession, the result could be to compound our
difficulties. An economic downturn is likely to be accompanied by a
run-down of our external reserves. When credit is expanded with
the object of increasing expenditure, the result would be to accelerate
the loss of reserves. Sooner or later, we will be landed with the need
to mount strict foreign exchange and import controls. A seaport
like Singapore, with a wide open economy, is a Controller's nightmare

Singapore's Monetary System, 1969 111
and the final result of financial miscalculations could be more
traumatic than would be the case with other countries.
As a consequence of this, there is for Singapore no easy way out.
The way to stabilize the economy would lie less in monetary than in
fiscal measures. During a downturn, it would be possible to mitigate the
harsher effects of a recession if the Government were to run budget
deficits financed not by central bank credit creation, but by spending
accumulated overseas assets or proceeds of foreign loans raised on the
collateral of these assets. But this would imply the accumulation of
such funds during good times. This is what we are doing and for this we
don't need a central bank, as the instrument for such measures of
stabilization would be the normal government budget. But even here,
the efficacy of a stabilization programme through fiscal policy is subject
to the same constraints as monetary policy. The advantage is that these
limitations are more immediately apparent, and the risk of overplaying
one's hand is accordingly less.
So I am afraid the solution is prosaic and unglamorous. For us in
Singapore, the road to greater wealth is through thrift, enterprise and
hard work. The road to stability lies in prudence and foresight in
prosperity, and patience and fortitude in adversity. In the swinging age of
the new economics, all this sounds old-fashioned and Victorian. No
doubt it is, but I think it is unrealistic to expect that doctrines worked
out for developed economies, where foreign trade forms a relatively
small part of the GNP, would apply in their entirety to the exceptional
situation that is ours.
I would like to give you a brief outline of how our present monetary
system works. There are some misconceptions about this. Some are
inclined to think that our monetary system on the Government side
consists of the Currency Board and no more. Others find distasteful the
idea of the Accountant-General performing certain functions of the
central bank, such as lender of last resort. The present position is quite
complex and no less than 10 government departments or authorities
are involved.
There is first, of course, the Currency Board of Singapore whose
function is determined by the Currency Board Ordinance and the
automatic mechanism of its operations is known to all. Then there is the
Exchange Control Department. This is a shadow of its former self in
the immediate post-war years when exchange control within the sterling
area was a powerful instrument of policy. Because it operates under
sterling area rules which are becoming increasingly irrelevant to

122 The Economics of Modernization
Singapore, the Control wears an increasingly Byzantine aspect. However,
we are still in the sterling area and we must observe the sterling area
rules.
Then there is the Accountant-General's Department. I should
mention in passing that the Accountant-General is the Deputy Chairman
of the Currency Board as well as the Deputy Controller of Foreign
Exchange. The Accountant-General comes into the monetary picture
as he keeps the deposits which banks have to maintain with the
Government under the Banking Ordinance. He also issues Treasury Bills
on tap to banks. In a limited sense, he is lender of last resort in the
banking system.
The fourth component of our monetary system is the Commissioner
of Banking. He enforces the Banking Ordinance which is intended to
see that banks keep sufficient liquid funds, engage in sound banking
practices, whatever this means. I have always thought that for a
government official to tell banks what they should do is like teaching
one's grandmother how to suck eggs, but the experts assure me that this
is not the case and that it is necessary to keep banks under constant
surveillance. Then there is the Registrar of Loans who is really the
Accountant-General wearing yet another cap. He has just floated, as
you know, a loan of $187 million, a record in the Republic's history.
I suppose we should include the Registrar of Companies as he is
concerned with the processing of applications for Stock Exchange listings.
I should certainly include the Clearing House by which inter-bank
settlements of cheques are effected twice daily. The Clearing House is
managed by none other than the Accountant-General. Then there is
the Commissioner for Finance Companies who is really the Commissioner
of Banking administering a different ordinance. An important element
in the system is the Department of Overseas Investments. This used to
be the alter ego of that versatile public official, the Accountant-General.
The need to set up a separate department to look after our overseas
assets became increasingly urgent as a result of the exceptionally fast
rate at which these were increasing. Last reported at $2,200 million,
they are now heading for the $2,400 million mark.
Finally, there is the Ministry of Finance itself which directs and
co-ordinates the activities of these 10 separate authorities and
departments. It is an untidy system, consisting of units that grew up
ad hoc in course of time in response to urgent requirements. In the
aggregate, they can be said to perform central banking functions in the
Republic. The task of co-ordinating and directing the policies of these

Singapore's Monetary System, 1969 123
10 departments is not a simple one. It cannot be done entirely by
conventional methods of government procedures, that is, by writing
minutes to one another. A system was then developed in the Ministry of
weekly conferences whereby staff in various departments meet me early
on Monday morning. Reports and study papers are circulated the previous
Saturday for weekend reading. During periods when the financial
centres go through a crisis of one kind or another, I hold an additional
staff meeting on Friday, and during periods of acute tension, on
Thursday as well.
How has this system been performing? A recent assessment made
in the London Times, which published a Singapore supplement on
9 September this year, goes as follows:
In the financial area too there is an atmosphere of optimism and
confidence in the future. The currency is strong... Money is easy,
with interest rates among the lowest in the world. The budget is
balanced, there is no inflation, and no balance of payments problems
or restrictions on credit.
In sum, the system is doing well. I would add a word of caution,
for the Singaporean is apt to attribute his good fortune to some superior
merit or high virtue which only he possesses. In this instance, there are
some favourable technical factors of a temporary nature. With luck,
these may persist till the middle of next year. Be that as it may, I now
pose the question which is the subject of my talk: Should Singapore
have a central bank? The answer, in my opinion, is: Yes.
Some of you who have been following my arguments closely may
say that this is a complete non sequitur, but this view really misses the
point which I am trying to establish. This is that we do not need a
central bank for the purposes of credit creation or flexible control over
money supply. Even without a central bank, we have the means whereby
credit can be created through the Accountant-General's operations,
though some ingenuity has to be exercised for this purpose. Similarly,
control over the supply of bank money can be exercised through the
Commissioner of Banking. It is doubtful, though, whether open market
operations would be the efficacious instrument that they are in countries
with a well-developed money market. Having or not having a central
bank makes no practical difference in this respect.
The case for establishing a central bank in Singapore rests on
other grounds. First, the untidy scatter of elements making up the

124 The Economics of Modernization
government structure of the monetary system can be collected together
in one house. Apart from administrative tidiness, itself by no means a
derisory consideration, the assemblage of these units into a coherent
structure would give the organization a sense of purpose and direction
which is now lacking and which is only partially supplied by the
Monday morning meetings. Only in this way can we develop a high
level of professional expertise which is needed in the conduct of
monetary affairs.
I would add two provisos as regards the timing. Firstly, the
move to a fully-fledged central bank should be taken in two steps. The
first step could be to collect the disparate units into a central monetary
authority which will work closely under the direction of the Ministry of
Finance. In course of time, with the growth of professionalism and the
development of appropriate financial doctrine, a proper central bank
will emerge from this authority. In this way, we can have a central
bank worthy of its status as an independent monetary institution.
My second proviso is that it will certainly be necessary to wait
until the present reforms contemplated for the international monetary
system have proved their worth, and the financial world has moved
into a period of tranquillity. In the meantime, I fear, there is no substitute
for the inordinate amount of time and effort which my staff and I devote
to the study of current monetary developments.
There is another more sophisticated reason for establishing a
central bank. Perhaps I can best describe this by analogy. It is related to
the way in which man makes his decisions in the face of difficult
situations. The most difficult decisions to make, I expect, are those
connected with the conduct of wars when decisions have to be made
under stress, in the face of imponderables and on the basis of imperfectly
known data. It is instructive to see how man has tried to escape from the
horns of dilemma. Let us take the Roman generals. When they find
themselves in a state of extreme perplexity, they kill a sheep and examine
its entrails. On the basis of portents which they read from the condition
and configuration of the sheep's entrails, they often reach their most
fateful decisions. We moderns of the 20th century find such procedures
laughable. So we have generals of modern states arriving at their
decisions with the assistance of systems engineers and electronic
computers. I suppose that it can be said that this method of
decisionmaking is more rational than the Roman system. And yet I wonder if it
results in more correct decisions or whether generals equipped with
computers can always beat the daylights out of generals who don't have

Singapore s Monetary System, 1969 125
computers. I doubt if this is the case, for if it were so, the Vietnam
conflict would have been resolved long ago.
The point of this incursion into the esoteric field of military
decision-making is that if you have to make mistakes, it is best to do so
by the most modern scientific method. To me, this is an unanswerable
argument for setting up a central bank in Singapore. And it has the
advantage of many distinguished precedents. But I must not pursue this
line of thought for reasons I gave at the beginning of my talk.

i ;
_ Education Reform
Speech delivered at the Angh-Chinese School's 81st Founders Day reunion
dinner on 1 March 1967.
In recent months, there has been increasing attention paid in the
Singapore Cabinet to educational matters. The first phase of the
Government's education policy has come to an end. In this phase,
the aim was to provide a place in school for every child of school age.
There was an enormous backlog to be caught up with, and the emphasis
was just on quantity — producing enough schools and turning out
enough teachers to give education to every child. This aim has been
achieved and today, there are more than enough places in schools and
we are moving to a second phase.
In this phase, the aim is to improve the quality of education. How
can we achieve this? We have to do some thinking on many basic
problems and go beyond the purely professional aspects of education.
That is to say, the content and syllabus of teaching, teaching methods
and that kind of thing. For, when reshaping the whole education system,
you have to be very clear in your mind what is the type of product you
want to turn out. To answer this question, we must have some idea of
what type of future citizen of our Republic we want the education system
to produce. It is the model citizen of the future that we think the
Republic should have which will decide what changes we have to make
in our school system.
Every minister probably has his own views on this subject and
I will give mine. I do not say that my colleagues agree with me on every
detail. But for what it is worth, this is what I think on the subject.
In reforming an education system, we must build on what already
Mfs

Education Reform 127
exists rather than demolish the present structure and try to restart
from the ruins. If we were Mao Zedong and we had a million Red
Guards in Singapore, we might be tempted to do this in a moment of
insanity. But the proper thing would be to take advantage of what we
have and improve upon it. I therefore want to speak only about the
improvements that can be made. First, I think that there has been far
too much emphasis on academic performance. The Higher School
Certificate contains too many subjects and the number of subjects can
be reduced to advantage. At present, the general complaint is that the
young have to spend so much time in studying that they have very
little time to do anything else, such as playing games. An education that
lays too much stress on the academic as against the physical and moral
side of life is unbalanced and lopsided.
I think this obsession with getting outstanding results in the
Cambridge examinations is a very bad thing. After all, much of what a
boy or girl learns in school — history, geography, mathematics or
chemistry — will be forgotten in 10 years' time. What is the point,
therefore, of all this effort? The real purpose is to distinguish the bright
and clever boys and girls from the less bright and clever. A classification
of this kind is necessary for purposes of university entrance and maybe,
eventually, for selection of candidates in the Civil Service and other
occupations. If this is the purpose of examinations, then obviously you
can discriminate between excellent, good, fair and mediocre on the basis
of, say, three or four subjects as you can on a larger number. Further, you
can take into account other activities of the students, such as sports,
participation in extra-curricular activities, leadership potential and so
on. In fact, this is what we should do and what people in advanced
countries are doing. The preoccupation in Singapore with examination
results is unnatural and unhealthy, and we should bring it to an end as
early as possible. After all, good performance in examinations only
proves one thing — ability to answer examination questions. This
ability is, presumably, related in some way to intelligence. It is also
related to the possession of good examination techniques. And it does
not tell us a lot of other things about a person, for instance, his integrity,
his character and so on, which are just as important as intelligence and
more important than the mastering of examination technique.
Going back to the reforms in the education system, apart from
greater stress on the physical side of education, I think there are three
matters or aspects of education which have been neglected in Singapore,
possibly as a result of overemphasis on examinations. These three

128 The Economics of Modernization
aspects are (1) creative imagination, (2) character, (3) moral values. I do
not say that the present system does not try to instil moral values or
develop character or cultivate creative imagination. What I am saying is
that the effort is not sufficient and must be greatly improved upon. At
any rate, this is my impression, judging by the products of schools. Let
me deal with each of these three points.
By creative imagination, I mean the ability to think independently
and find solutions to problems without reference to the textbooks and
without instructions from others. Imaginative thinking is, for instance,
cultivated in playing an intellectual game like chess. It is encouraged in
certain types of physical activities like outward-bound training courses.
It is inhibited by parrot-like teaching of textbooks, and I hope that
abominations of this kind will cease in all our schools.
It is only when a person can think creatively that he is capable of
initiative, that he can form his own judgements on matters and that he
can be entrusted with great responsibility. These are the qualities which
we want to inculcate in the young.
The second point is character. The psychologists say that character
and intelligence are independent attributes. An intelligent person can
have no character; that is, he may be weak and irresolute. Conversely,
persons of lesser intelligence can show a high degree of courage and
tenacity when placed in trying or adverse conditions. I think I am right
in saying that the development of character in this sense has not received
the importance it deserves. In the British public school system, there has
been a very great stress on character-building and I think this is an
admirable example which we would do well to follow.
Now I come to moral values. Imagination and character are
necessary but not sufficient in themselves to produce a desirable type
of citizen. For instance, the most successful leaders of pirates, brigands
and gangsters have imagination and' character in ample proportions
but they, of course, are sadly lacking in moral stature. This part of
education is receiving due attention in a school like the Anglo-Chinese
School which, as an institution founded by religious missionaries, naturally
puts high priority on training in moral values. This, of course, is a good
thing and I hope that it will be extended to all schools, particularly
government schools. The importance of moral values to good citizenship
is obvious. We want people who have a sense of social responsibility,
who are able to overcome their innate instincts of greed, personal vanity
and other human weaknesses in the interest of the common good.
Without a widely accepted code of moral values, Singapore will remain

Education Reform 129
what it is now — a community which is basically self-centred and
selfish. Such a community may be all right if it is governed by others, but
it will not survive for long as an independent democratic national state
if the more successful citizens continue to place their self-interest before
the interest of the community. This point is obvious, I do not think
I need labour it.
Now, why do we want to turn out citizens of this kind, that is, with
creative imagination, stout character and a sound sense of moral values?
I believe that without this kind of citizen, there is no guarantee that we
can maintain a continuing basis for our survival and prosperity. As an
island-republic in the centre of a turbulent region, our society needs to
be resourceful and adaptive. We should be able to seize every advantage
which the current situation offers us. We must be prepared to innovate,
to strike out into new lines of activity whenever these are necessary for
our well-being. Without creative imagination there can be no innovation,
and without innovation, we will not succeed in adapting ourselves to
circumstances as they change.
As for character and resolution, these are always necessary in
adversity. At present, we have a community which tends to be complacent
and arrogant when successful. At the first signs of coming troubles, our
people are liable to panic. There is no guarantee that in future decades,
all will be smooth sailing all the time. So, without some iron in the soul,
without a strong backbone, a debacle can be brought about should we
be confronted with a sustained series of misfortunes. Once people lose
their confidence and decide to pack up, Singapore can quickly revert
to the jungle swamp that Stamford Raffles first saw in 1819, for we have
no natural wealth to fall back on.
These, then, are the qualities which I see as necessary in the future
citizen, and indeed, in ourselves. The present thinking of the Government
on the reforms in our school system will, I hope, stimulate public debate
and public thinking on the subject. Both the professionals — school
principals and teachers — and the laymen — community leaders and
others — have an important contribution to make in the reshaping of
our education system. First we have to decide what kind of product we
want to turn out. This is something which concerns all of us. Once this
is decided, then we can leave it to the professionals to say how we go
about achieving what we want. I hope that the Anglo-Chinese School
will play a leading role in this process and that the Old Boys' Association
will also have valuable ideas to contribute.

1 \J Population Control
Speech delivered on 1 October 1969 at the International Monetary Fundi
International Bank for Reconstruction and Development Annual Meetings in
Washington.
Last year, Mr McNamara made out a powerful case for population
control as a paramount item of policy of developing nations in their
quest of increasing economic welfare of their inhabitants. In his address
last Monday, he has reinforced these arguments with force and clarity.
The experience of my own country, Singapore, in this field may be of
interest to the conference. For a short period of 11 years, we have
reduced the annual rate of population increase from a horrendous 4-4
per cent in 1957 to a manageable 1.5 per cent in 1968. Distinguished
delegates may be interested to know how this rapid decline in the rate
of increase was achieved.
It would be pleasant if I could ascribe this result to far-sighted
attempts by my Government to introduce a rational population policy as
a consequence of undertaking a cost-benefit analysis in depth of the
economic value of new babies. It would be pleasant, but it would not be
true. The actual sequence of events which led to declining birth rates
followed a different course and I may perhaps be allowed to relate some
of the more important events.
In 1959, my Government was elected to office on a platform
which included, inter alia, free universal primary education. If regard had
been taken to the demographic trends of the previous two decades, the
Party might perhaps have hesitated to make this electoral promise. But
demographers are seldom consulted in the drafting of election manifestos.
A crash programme soon started to build new schools — soon one
no

Population Control 131
school was completed every six weeks — and to recruit and train
teachers by the thousands each year. Expenditure on education grew at
an annual rate of nearly 30 per cent, thereby putting severe strains on
the budget.
In February 1963,1 was idly going through routine papers, among
them the preliminary 1962 report of the Registrar of Births and Deaths.
It contained a remarkable statistic — the total number of births in 1962
was reported to be just under 59,000. I recognized at once that an
extraordinary event had occurred as births in the previous 15 years had
increased from 20,000 a year to more than 60,000. Clearly the matter
called for close examination as to the reasons why the previously
burgeoning number of births had apparently levelled off.
The government statisticians got to work on this and reported
that since 1957, there had been a steady and continuous decline in the
age specific fertility rates for all age groups. That is to say, birth rates
were going down for women of all child-bearing ages. The levelling of
births was therefore not due to changes in age and sex composition
of the population, as for instance could result from the small numbers of
girl babies born during World War II and coming of age, or to defective
birth registration, or for other reasons. Unknown to me at that time,
the University of Singapore demographers had independently come to
the same conclusion on the basis of their own research. This was a
discovery of profound importance for it meant that it was possible to
expand education expenditure without dreading that the inevitable
outcome would be to flood the labour market with unemployable educated
school-leavers, as had happened in so many other developing nations.
Further, there was hope of a levelling off of expenditure on education in
six or seven years' time. The problem had assumed a finite dimension,
and it was possible to proceed with development planning with the hope
that the resulting increment in GNP will not be eaten up by uncontrolled
population increase.
The reason for declining fertility was obviously related to family
planning. This was started in Singapore by a voluntary group of private
enthusiasts way back in 1952. The only support given by the Singapore
Government was a derisory annual grant of US$33,000 or two cents per
head of population. The decline in fertility rates continued as the
activities of the Singapore Planning Association met with increasing
response. By 1965, it became clear that the scope of work was beyond
the capacity of this voluntary organization to handle and the Government
established an official agency under an Act of Parliament, the Singapore

132 The Economics of Modernization
Family Planning and Population Board, to augment family planning
efforts. The annual subsidy was increased to three and a half cents per
head of population.
By virtue of improved planning, execution, more personnel and
greater promotion work, a substantial increase in converts to family
planning was achieved. In 1965, the number of new cases was just
under 10,000. In 1966, it trebled to 30,000. The effect was a sharp drop
in the birth rate for 1967 and 1968. Between 1957 and 1965, there was
an average annual decline of 3.7 per cent in the age specific fertility
rates. Between 1966 and 1968, the decline averaged 8.6 per cent a year.
During the whole period under review, that is 1957 to 1968, the
crude birth rate fell from 42.7 per thousand to 23.8 per thousand. The
rate of natural increase, that is excess of births over deaths, fell from
35.3 per thousand to 18.2 per thousand. The difference between these
figures and the ones I quoted earlier is due to migration, which was
positive in 1957 and negative in 1968.
What lessons can we draw from the Singapore experience? I will
make the following points somewhat tentatively for our experience is
recent, and much research is still going on with only some of the results
available.
The first point which emerges is that the initial fall in the birth
rate was not the result of Government policy or action and, in fact, had
been taking place for several years before the Government became
aware of it.
Second, once acceptance of family limitation had taken root in a
significant part of the population, an accelerated decline was achieved
by Government effort through improved methods of dissemination of
information and advice, contraceptive supply and so on.
Third, on a technical point, the intra-uterine device on which
many people had placed high hopes proved a failure in Singapore. So did
sterilization. By far the most popular technique was oral contraceptives.
Two-thirds of new converts use the pill.
Fourth, family planning penetrated all ethnic, cultural and religious
groups, though at different rates. Even the Muslim and Hindu
communities, hitherto believed to be traditionally hidebound, have
taken to family planning and have shown continuous decline in fertility
rates over the years.
Fifth, the initial experience was that mothers took to family
limitation only after a large number of children had been born. In recent
years, the evidence is many take to family planning soon after marriage.

Population Control 133
What caused the population to take to family planning in increasing
measure? First, it should be remembered that Singapore's population is
essentially urban. Mass media are varied, efficient and effective if the
message put across fills a need felt by the population. But this still begs
the question why people desire to limit their families. Is there one factor
more important than others?
Here I can only hazard a guess for field research has yet to shed
light on many unknowns. My own guess is that the population of
Singapore took to family limitation for much the same reasons as
other societies did. But the rapid results achieved may have some causes
rather specific to Singapore. One of these is probably the rapid
improvement in the status of women in recent years — their access on
a rapidly increasing scale to free education and to paid employment,
their rights to property, the abolition of polygamy, punishment of husbands
for deserting wives, and other rights under the Women's Charter passed
by Parliament in 1962. This was soon followed by introduction of
equal pay in the Civil Service. Once women begin to achieve a status
of dignity in society, the rest is a matter of technique.
In conclusion, it is a matter of satisfaction for Singapore that
the Chairman of the Singapore Family Planning and Population Board,
and concurrently Singapore's Deputy Director of Medical Services,
Dr K. Kanagaretnam, will soon join the staff of the World Bank as Chief
of the Bank's Population Projects Department. This is a brain drain
which Singapore does not grudge. It is our hope that other developing
countries will be able to have the benefit of our experience though, of
course, their social, economic and cultural background being different,
no doubt different methods and approaches will need to be used.

Voluntary Social Work
Speech delivered at the First Plenary Session of the People's Association Conference
on 8 January 1966.
There are two ways in which a modern society provides services for
its citizens. The first is by government action, the second is by
voluntary effort of private citizens.
There are certain services which only the government can provide.
For instance, in no well-ordered society do private citizens carry out the
functions of the army, police, the prisons and the law courts. These
functions are properly carried out by the government. On the other
hand, there are certain activities which governments usually do not
wish to be engaged in. Other than in Communist countries and in
underdeveloped countries in the last stages of economic ruin, governments
do not engage in wholesale and retail trade. Generally, most economic
activities are also carried out by private enterprise.
There is a considerable field where services may be provided both
by governments and by private citizens. In Singapore, water, electricity
and telephones are run by government bodies. The Port of Singapore is
also run by a government agency. In other countries, these services are
sometimes managed by private business. It is in the field of social
services that there is a considerable overlap. In education, we have some
schools run by private citizens and others by the government. Similarly,
we have government hospitals and medical clinics as well as private
ones. We have private social welfare institutions as well as government
social welfare institutions looking after children, old people and other
socially handicapped persons.
What is the proper criterion by which to judge whether a service
114

Voluntary Social Work 135
should be provided by the government or should be carried out by free
private initiative? The answer to this question is that there are no
universally accepted principles to go by. What happens in any country is
very much the result of its own historical experience. Sometimes you
have among the citizens, men of philanthropic disposition who create
and provide these welfare services for their less fortunate fellow-citizens.
Then the private effort will be larger than the state effort. Sometimes
you have a government that is energetic in these matters and you get the
reverse situation. Where both government and citizens are lazy and
indifferent to the public good, then a sad state of affairs exists. Sometimes
you have religious or other missionary bodies from abroad who set up
these establishments in the country. The present mixture is the result
of past experience, as is the case both in Singapore and elsewhere.
There is, however, one development in most modern societies,
particularly democratic societies, which has given rise to concern among
thinking citizens. This is the trend towards what some people consider
"excessive government". The government, instead of encouraging private
initiative to work out solutions for the community, moves in under
one pretext or another to provide for these services whether or not they
are really wanted, and whether or not they do any good. For instance,
I have often wondered whether there is any point in spending money
in improving medical services in a poor and over-populated country.
Similarly in a country where jobs are scarce and unemployment rife,
why do we want to achieve universal free secondary education?
I said a moment ago that this danger is prevalent in democratic
societies. The reason is not far to seek. The Americans have coined a
phrase which explains it very well — "the pork barrel". This refers to the
practice in American states and cities whereby the elected state or city
government makes use of public money for vote-catching purposes. No
elected government is free from this danger.
What I find remarkable is that the citizens actually encourage
governments in this kind of activity. Somehow, when a government
builds a road in a kampong or provides it with electricity or water supply,
the notion is accepted that the government is providing something
valuable free of charge to that community. In a sense, of course, it is, in
that the persons enjoying the benefit of the road or the street light or the
water mains are not called upon to pay directly for the cost of establishing
these services. But in a real sense, this notion is quite illusory. Nothing
is free, because it has to be paid for out of taxes which are collected from
the citizens of the whole country. So, if the citizens want more and

136 The Economics of Modernization
better services, they should be prepared to pay more taxes and at higher
rates. But if any project were to be put bluntly in these terms, quite a
great deal of the appeal of the pork barrel will have gone.
There is another cause for this trend towards excessive government.
The rich countries of the West have been able to provide such social
services because they are rich. Welfare state concepts have been
transmitted to underdeveloped countries, including our own, through
higher education, books, films, travel abroad, etc. All these require
governments to provide additional state services in the interests of the
citizens.
I do not wish to exaggerate the dangers of excessive government
in Singapore. Matters are worse in certain other countries than they are
here, for we have basically a population with a strong tradition of private
initiative. The pioneering spirit of our ancestors has not, as yet, been
vanquished by the new ideas of the welfare state. Before I pursue this
line of argument, I want to make it clear that I am not against the
welfare state. All modern societies, whether based on private enterprise
or on the Communist system, move towards the welfare state in their
advanced stages of development. What I am opposed to is the belief
that the good things of life can be got without sustained effort, and that
it is the duty of a good government to act as the "universal provider". In
our present stage of development in Singapore, we are not rich enough
to be able to set up the welfare state. Our first preoccupation should
therefore be the accumulation of wealth through economic growth,
rather than a more equal distribution of existing wealth and a proliferation
of state welfare services.
Under these circumstances, the scope open to private effort in
providing community services is very large and, accordingly, every
encouragement should be given to voluntary effort. It is necessary not
only to maintain voluntary effort at its present level, but also to expand
it into new fields.
What are the new community activities which can be developed
in Singapore? I want to discuss this subject not only in relation to what
is possible in community centres, but also against a larger background.
I intend to take up a number of concrete proposals for the consideration
of the Conference. There may be other proposals which may be just as
worthy of the attention of the Conference, but obviously in a subject
like this, it is not possible to discuss all of them.
My first proposal relates to the care of old people. We all have
often heard it said that we are a young population with more than half

Voluntary Social Work 137
our people under 21 years of age. All this is quite true. Yet, for quite
a long time, there has been an acute social problem of old people, a
problem which has not received the attention that it deserves. I believe
this problem to be peculiar to the immigrant communities in Southeast
Asia.
Who are these old people and what is their problem? Why is it
that they cannot be looked after by their children just as old people in
most Asian communities are looked after? The answer is simple. These
are the people who first came to Singapore, mostly from China, but
some also from India and Indonesia, some 30 or 40 years ago. They have
never married here and have not brought their families with them.
Consequently, in their old age, they have no relatives to look after
them and they live in utter destitution. Further, since the Central
Provident Fund was introduced some 10 years ago, when they were near
or past the age limit for contribution, this source does not provide them
with much money.
In due course, of course, all these people will die and the problem
then solves itself. But I do not think it can be a credit to our society to
solve the problem in this way. There are several thousands of them,
between 10,000 to 15,000, both men and women, mostly 65 years or
older. They are incapable of work and are dependent on public assistance
from the Social Welfare Department. Most of them would like to live
in a home for old people. There are five such homes now — three run
by the Government and two by private institutions, but their combined
capacity amounts to only a fraction of the need.
Those who are not looked after in homes for the aged live under
pretty miserable conditions. Should the entire responsibility of decent
care for these old people rest on the shoulders of the Government, or
should private citizens also share in this responsibility? It is no use
building large numbers of homes for the aged because, as I said, when
these immigrants die, then it would be necessary to close down most
of these homes. It seems to me that organized private effort, working in
co-operation with the Government, can reduce the extensive suffering
and destitution now being experienced by the old. For instance, the
Government can encourage donations from local citizens towards the
establishment and maintenance of a ward in a home for the aged for
substantial donors, or even a bed for those with limited means. A sum of
$3,000 to $5,000 may be adequate to see an old person in decent
comfort the rest of his or her life. Those of you who have personal
experience of the living conditions of these old people would know how

138 The Economics of Modernization
urgent the problem is. What is needed here is a joint effort by voluntary
leaders and the Government to produce a practical solution.
My next field for voluntary social effort lies in traffic accidents. If,
each week, three or four persons are eaten by tigers in Singapore or
struck dead by lightning, there is bound to be a public outcry and a
demand for action to put an end to it. Yet when the same number of
people are killed by motor cars, buses, taxis and lorries, nobody feels
that anything unusual has occurred, nor is there any feeling that the
community must do something about it. The result is that the slaughter
on the roads continues, inflicting much avoidable pain and suffering on
hundreds of families each year.
Why do we get this state of affairs? Is it because the Singapore
citizen is a selfish and unfeeling brute, caring only for himself? I do not
think this is the answer, for we have many examples of selfless voluntary
effort in so many fields. I think the real reason is ignorance of the size of
the problem. One does not see an accident every day, and on the
occasions when one does come across street accidents, the mangled
body has usually been removed. So the number of people killed or
maimed on the roads remains only a statistical entity.
We will not be able to reduce traffic deaths and injuries until
the whole population is made aware of how serious the matter is.
This requires a sustained programme of public education through all
the media of publicity at our disposal. Voluntary leaders obviously
have an important role to play in a public education programme of
this kind.
My next example relates to an activity closely connected with the
community centres, namely, the Vigilante Corps. The Vigilante Corps
was formed last year following the two riots. Response to the call was
excellent and the number enrolled into the Vigilante Corps comes to
10,000. Attendance at functions, patrols mounted each night have all
helped the police in the maintenance of law and order. It is necessary
that the keenness of the Vigilante Corps should be maintained and their
organization and training strengthened. Members of Management
Committees can play an important role in these matters in encouraging
and supporting the Vigilante Corps. The police is working out a
programme of training and reorganization of the Vigilante Corps, whose
services have been a matter of great pride to the country.
On examining the working methods of the Vigilante Corps, I find
that items such as coffee, sugar and torchlight batteries have still to be
supplied by the Government. It seems to me that these are properly

Voluntary Social Work 139
functions which the Management Committees of community centres
can very well take upon themselves.
My last example is how to make Singapore a clean city. The main
work of removing refuse is, of course, the responsibility of the
Government. The Ministry of Health will soon increase the number of
street cleaners employed, so that we shall have a city that is tidier than
it is today. But whatever the number of street cleaners the Ministry of
Health employs, the private citizen has a responsibility. This responsibility
is of two kinds. The first is to desist from dirtying the city by dropping
litter on the streets or in the parks, spitting in public places, and
indulging in acts of vandalism, like writing on walls, bus shelters, lifts
and so on. This is a negative responsibility which most citizens will
surely not find too difficult a task to perform. The second one requires
some positive action, and that is to prevent careless, untidy or unruly
people from dirtying the city. Those who do so should be cautioned and,
if the offence is serious, such as acts involving damage to private or
public property, then the culprits should be apprehended and brought
to book.
The general conduct of Singapore citizens in this matter is probably
no better or no worse than citizens of most other countries, but there is
an irresponsible minority which has to be disciplined. Obviously, this is
not a matter for the police force, which is concerned only with more
serious crimes, but for the citizens themselves. By expressing public
disapproval and censure on the guilty parties, we would have a quick
and effective method of checking the menace. Here again, a campaign
of public education is called for, and this can be carried out only if we
have large numbers of voluntary leaders who are prepared to put in
the effort.
I now come to my last and most important point: Why should any
person want to provide the voluntary leadership in community activities?
These are unpaid activities and the person is no worse off materially if
he does not come forward. What then is the motivation?
I think the answer is that voluntary leaders take some pride in our
city and our nation. We are citizens of no mean city and our historical
past, though brief, has shown that we are capable of great achievement
if we put in the effort. It is therefore pride in our city and pride in our
fellow-citizens that motivate the more responsible of our citizens to
provide the leadership in voluntary community effort. So long as we
in Singapore have many people of this calibre, we can have confidence
in meeting the challenge before us. The Government has asked the

140 The Economics of Modernization
voluntary leaders to come forward to assume the responsibility for the
management of community centres. The response has been enthusiastic
and encouraging. What is now needed is not so much more effort and
more enthusiasm, for there is plenty of these. What we need is more
reflection, more analysis on how best such leadership and effort can be
mounted so that Singapore shall be a better, a more decent and a more
cultured and civilized place to live in.

18
ISO Years of Singapore
*./**»*V *WV^iV*^?*i«f'•^fc** '^i^^sh^.*
Speech delivered at the opening of the "J 50 Years of Development" Exhibition at
Elizabeth Walk on 1 August 1969.
One of the more notable character traits of the Singaporean is his
unconcern for the history of his country. One would have thought
that in the year when we are celebrating the 150th anniversary of the
foundation of Singapore, there would be a kindling of interest in
Singapore's past. I myself have been moved the last fortnight to borrow
from the National Library copies of the works of Munshi Abdullah —
The Hikayat and The Voyage of Abdullah. But I'm afraid I'm a solitary
exception to the general disregard for our past history.
Let me make a plea on behalf of history. When I was a civil
servant, I used to spend many fascinating hours in the official archives,
a practice which, regrettably, I can no longer afford. But perhaps I may
be able to induce some of you to do so by recounting some interesting
episodes. How many people, for instance, know that when the Post
Office decided to monopolize the postal business in Singapore in the
year 1876, this step was greeted in Singapore by several days of bloody
rioting? Apparently our forebears firmly believed that this was an
unwarranted intrusion into a preserve of private enterprise. And they
responded with the vigour characteristic of Singaporeans. Let me read
out to you excerpts from their manifesto.
We know that since the English Barbarians established
themselves in Singapore, their rules have for a long time been very
beneficial to the people, not like some of our Chinese, one or two of
whom are "red rats", degenerate fellows of a completely oppressive
nature, reckless without any regard to the right. Their only rule is

142 The Economics of Modernization
making money; they boldly intrigued and worked on the prince of
Singapore and secretly with cunning formed a conspiracy to farm the
Post Office monopoly This truly is a course that will prevent us from
having any good fortune. This will injure and destroy the living of
the people and produce misery beyond description. Alas for our
coolies, with their toils, labour and miserable condition!
Now we must clearly awake to this vicious and delusive
system, so as to clear ourselves from a guilt which cannot be prayed for.
As for you who wish to establish this Post Office, may your wife and
daughter, dressed in their finery, be placed at the door for men to buy
and deride and for the use of every lustful person. If not this, then let
them die at once.
The manifesto ends with this exhortation:
If any honest virtuous man will cut off the heads of the Post Office
Farmers, he will be rewarded with one hundred taels.
Compare this ringing denunciation of iniquity and its rousing call to
action with the turgid prose of present-day Barisan Sosialis political
tracts and one cannot but regret the decline over the decades in the
standard of polemics. But lest some of you think that the views of our
ancestors on economic policy were quaintly Victorian, let me remind
you that, today, no less an authority than Professor Milton Friedman
of the University of Chicago is a staunch protagonist of the view that
the American Post Office should be handed over to private enterprise.
In 1964, when rioting broke out with tragic loss of life in Singapore,
many people could hardly believe that such things could happen in
Singapore. However, if they read their history, they would have found
that riots are a regular feature, and what happened in 1964 was kids' stuff
compared to what our forebears mounted, for instance, in May 1854.
That year, the Governor was a colonel called Butterworth. He must
have been a pompous disciplinarian — his subordinates gave him the
nickname "Butterpot". Be that as it may, savage rioting broke out in that
year between the Hokkiens and the Teochews. Against the advice of his
Commissioner of Police, Colonel Butterworth decided to restore law
and order by the sheer force of his magnetic presence. He mounted a
white charger and set forth from Government House towards the riot
area.
His arrival was greeted by incredibility at first on the part of the
rioters. When they had recovered from their surprise, they agreed on a

150 Years of Singapore 143
temporary truce and turned upon the good Colonel, who then had to
leave with more haste and less dignity than when he arrived.
Rioting quickly spread from the city to all parts of the island. The
police force numbering some 300, reinforced by the military and a
detachment of marines, were unable to contain the situation. European
civilians formed themselves into a special constabulary; their contribution
too was minimal, for rioting and looting went on unabated for 10 or
12 days. Apparently, violence in rural Singapore exceeded that in the
city. The Chief Justice who tried some culprits remarked on the rural
population as consisting of men "who live in a state of secluded semi-
barbarism in the jungle with little or no idea of what law or order is ...
the rural districts were the scene of the most lamentable outrages."
There was no exact count of casualties; estimates of the dead vary from
400 to over 600.
There are many other interesting titbits you can collect from the
documents. For instance, let me read to you this excerpt from The
Hikayat.
Every day without ceasing, murders took place along the road to
Kampong Glam. There were policemen on duty here and there but
they themselves were often murdered.
Little does our Foreign Minister know what a disreputable past his
constituency has to live down.
As late as the 1890s, a man was eaten up by a tiger along Balestier
Road. This was the last occasion this happened, but if my memory does
not fail me, a tiger was found in one of the public rooms in Raffles Hotel
after the turn of the century. In the early years of settlement, the growing
of gambier was apparently a popular though illegal business undertaking.
The official records talk as darkly about gambier growers as they do now
about pirate taxi drivers. I suspect that both belong to the sturdy breed
of men whose contribution to the national economy hardly merited the
official strictures passed upon them.
There must be some reason underlying the lack of interest in his
past history on the part of the Singaporean. I have a theory about this.
It is a long and complicated one and I will therefore not take this
occasion to inflict it upon you. Instead, I would like to turn towards the
future, and in this respect Singaporeans show an avid and healthy
interest. This occasion is probably as appropriate as any other to discuss
Singapore's future for we have in the departments and agencies within

144 The Economics of Modernization
the portfolio of the Ministry of National Development all the key
elements which provide for the planning and the construction effort
which have produced such spectacular changes to the Singapore landscape
in the last decade.
Quite the most momentous event going on in Singapore is the
building of a new city on the site of the old. We are knocking down slum
dwellings and building in their place better-designed high-rise dwellings
and shopping complexes. We have already seen the beginnings of the
effort in Crawford, Havelock and Sepoy Lines, on the site of the former
Outram Prison, the People's Park area, and on Mount Emily.
A high-powered team, staffed by both United Nations and
Singapore experts, are working on planning, design and technical studies
of urban renewal. It is a vast and complex undertaking. Building a new
city on the shambles of the old is not merely a matter of knocking
down old buildings and erecting new ones.
There are problems of transportation, traffic flows, mass transit
systems, location of shopping, entertainment and cultural centres,
forecasting future population size and composition, defining a meaningful
and productive relationship between private capital and government
development expenditure.
I cannot hope even to summarize the main issues, let alone deal
with them with any adequacy. But I would like to comment on three
aspects of this great enterprise.
The first is the existence of eyesores, often in places where they
should not be. For instance, if you leave the Port Authority area by the
main gate, that is Gate No. 2, you will be greeted by the sight of
buildings of incredible squalor and dilapidation. At the corner of
Philip Street and Chulia Street is a building obviously on its last legs.
It must have received its last coat of paint before the Pacific War.
Similar sights can be seen everywhere in the main business and financial
area of Singapore. I suppose we have been so conditioned through
familiarity that they have ceased to shock and appal. While we are
trying to make Singapore a clean garden city, it is extraordinary that we
allow these scandalous and squalid relics to continue. It will be a long
time before urban renewal overtakes all of them. In the meantime,
I suggest that some urgent action is needed to remedy the present
unsatisfactory situation.
My second comment is that we have to draw a balance between
what is ideally desirable and what is economically realistic. In a certain
Latin American state which shall remain unnamed, the Government

150 Years of Singapore 145
once decided to engage the foremost architects in the world and build a
capital city worthy of a great nation. They built it 500 miles away from
the nearest human habitation on the theory that this would stimulate
the development of a new frontier. Every bag of cement and every bar
of construction steel was flown, I repeat, flown by airplane to the new
site. A noble city embodying the most advanced ideas of town planning
and modern architectural design grew up. During parliamentary sessions,
the buildings were inhabited by notables connected with the Government
establishment, but most of the non-official population lived in a shanty
town nearby. The cost of the effort proved so ruinous to the economy
that eventually, the civilian Government was overthrown by the
army and a military dictatorship took over.
I am not suggesting that we are in any danger of emulating this
particular Latin American republic. I think our architects have both feet
planted firmly on the ground. The Housing Board flats have been
designed to severely utilitarian standards, and their popularity with the
lower-income groups has shown that Singapore has avoided the main
defect which has overtaken housing projects in many developing
countries, that is, building houses for better-off people and neglecting
those who are in the most dire need of better accommodation.
And yet if we look ahead 50 years or more, standards of living
then will be substantially higher than what they are today. Housing
standards which people consider adequate in 1969 will be considered
substandard by the turn of the century. I can well imagine some wretched
PhD student in the Social Studies Department of the University
commenting acidly on the parsimony and inhumanity of the PAP
Government which voters unwisely elected to office in the 1960s. But
for us, there is no complete escape from this dilemma, and I expect that
this is a problem which is constantly exercising the minds of the Ministry.
All this brings me to my last comment. And that is the need for
greater public awareness of both the general and the specific problems of
urban renewal. I would put it this way. We are now engaged in an
exciting historic enterprise of rebuilding our city. Every Singaporean
should want to know what kind of new city it is we are creating, how it
will look in 1975, in 1980 and 1990 and so on. We want to know not
only the physical appearance of the city, but the many problems which
the experts are now trying to solve in the field of traffic and
communications, in the provision of social amenities, the layout of
business, shopping and other facilities that are needed in any great city.
Much has already been done to make the public aware of these in the

146 The Economics of Modernization
way of TV and radio forums. I hope more will be done in future in these
and other ways as well.
I should like to end as I began, by exhorting Singaporeans to take
more interest in the history of their country — its founding, development
and progress. They will then realize the magnitude of the problems that
have had to be faced, and the great achievements that have been
accomplished. I hope that this exhibition will help to kindle such
interest. The organizers of the exhibition have put in months of thought
and hard work; if they succeed in arousing historical interest and a sense
of national pride, their efforts would have been amply rewarded.

' •■>» W*J
Jurong Bird Park
Speech delivered at the opening of Jurong Bird Park on 4 January 1971.
Your Excellencies, ladies and gentlemen, since Mr Woon Wah Siang
has revealed, doubtless with the best intentions in the world, my
involvement in this project, some words of explanation from me seem
to be called for, perhaps even some words in exculpation. For in the
history of mankind, there have, from time to time, risen to eminence
men of high principle and staunch moral character who are prone to
regard aviaries and bird parks as unworthy frivolities.
The Confucian scholar Mr Ni Ruoshui was one such person. He
lived during the time of the great T'ang Emperor, Xuan Zong, whose
reign from AD 712 to 756 witnessed the apogee of the dynasty's cultural
brilliance. In the year 716, Emperor Xuan Zong decided to build a
bird park in the imperial garden and dispatched collection parties to
the four corners of his realm.
Mr Ni objected to this enterprise and addressed the Emperor as
follows:
Though farms and mulberries are in a critical state just now, collection
parties capture birds and wild fowl in their nets to supply frivolities
for garden and pond. From far beyond the river and mountain passes,
these are transferred under escort by water and land and fed with
millet and meat, so that passers-by cannot but conclude that Your
Majesty esteems birds while despising men.
It is difficult to follow the logic of this complaint. Apart from the
elementary point that one can esteem both birds and men, birds, unlike
predatory animals like tigers and leopards, do not eat much and impose

148 The Economics of Modernization
no strain on the nation's food supply. However, this was preparatory to
the main argument to come and Mr Ni continued: "To Your Imperial
Majesty, a phoenix must surely be an ordinary bird and a unicorn an
ordinary beast."
This was hitting below the belt for Mr Ni knew that Xuan Zong
could not contest this proposition without serious damage to the dignity
of his office. Then came the telling blow: "If so, how much more
ordinary is a pond heron or tufted duck? In what way are they so worthy
of esteemr Thus cornered, Xuan Zong was obliged to disband the
collection parties and release the birds. He then presented Mr Ni with
40 pieces of rich cloth. I suspect that this is in subtle revenge. Though
the history books did not record it, this present to the austere Mr Ni
must have led to a rupture of domestic peace between him and his wife
as to what to do with it.
It is more than possible that there may be people in Singapore
who question the propriety of building the Jurong Bird Park at a time
when the Republic is assailed by so many problems. I will justify the
project on four grounds.
First, its origin is impeccable, its conception immaculate. The idea
first occurred to me while attending the World Bank meeting in
September 1967 in Rio de Janeiro when, during a free moment, I visited
the Rio Aviary. I was confirmed of the soundness of the idea when
attending an ECAFE meeting in Bangkok the following year. The
authorities managing the Bangkok Aviary, which I made a point to
visit, assured me their main problem was what to do with the millions
of bahts they had accumulated over the years.
My second line of defence is that this enterprise should be self-
supporting, though it may not be in the same money-spinning class as
the Bangkok Aviary because of its much higher capitalization.
The third justification is that, unlike the aviaries of the Emperor
Xuan Zong, this one will be open to all people and at all times, albeit
for a modest fee.
And finally, the purpose of the Bird Park. Here one should be
careful not to overstate one's case. It is as well to concede at the outset
that the Bird Park will not make our society more rugged, certainly not
with the train service Mr Woon is providing. It will have negligible
effect on the productivity of workers in the Republic. Its efficacy as a
means of tightening national cohesion is also open to doubt, as is its
contribution to raising cultural or education standards of the population.
I am afraid that the Bird Park will achieve none of these admirable ends.

Jurcmg Bird Park 149
But it will add to the enjoyment of our citizens, especially our children.
At the risk of appearing less than God-fearing, I give this as my final
justification.
The Bird Park is incomplete in one respect. I had originally
planned to introduce falconry displays as part of the Bird Park's activities.
The valley next to this seems well suited for this purpose. We approached
the British Services for an adviser in the belief that among these versatile
and intrepid people can be found experts in any of the more esoteric
pursuits of man. However, it turned out that this royal sport had died
a long time ago, most likely a sad victim of the great egalitarian
movement of recent history.
I do not know whether any of the Ambassadors and High
Commissioners gathered here represent a country where this noble
sport is still practised. I am not optimistic about the modern industrial
nations. But perhaps in some quiet corner of the world, in some last
refuge of reaction and obscurantism, people still happily engage in
falconry without let or hindrance from tiresome moralizers. If one of
Your Excellencies represents such a 20th-century Ruritania, may I suggest
that our respective Governments immediately enter into a Bilateral
Technical Assistance Agreement for the Promotion of Falconry in
Singapore.

0™.
Speech delivered at the sixth anniversary dinner and dance of the Democratic
Socialist Club on 25 October 1970.
From time to time, community leaders in Singapore voice their anxiety
about the spread of hippie culture among young Singaporeans and
about the dangers of drug addiction, and the spread of permissiveness.
Last September, there was an uproar in the press when it was discovered
that some schoolgirls, belonging to a convent school of all institutions,
had been buying pills from drug pedlars. This was taken as another
piece of evidence confirming that the deep malaise now afflicting so
many modern nations has now descended upon us.
Just how serious is this threat? Are our youths on the road to
perdition? Is there a generation gap developing in Singapore as there
allegedly has been in nearly all the nations of the West?
To give sensible answers to these questions, one should try to
understand some of the essential features of youthful dissidence in Western
countries. Here I cannot but give a very brief sketch, for it is impossible
to do justice to the subject in the time at my disposal. The main
difficulty is that this phenomenon of youthful dissent and alienation has
not been completely understood even by the most perceptive observers
in Western countries. No one can yet say whether this is a temporary
phase or whether its roots go deep into the nature of Western civilization.
At one time it was thought, for instance, that the Vietnam War was the
principal reason for trouble in the campuses of American universities.
Now we know better that this was just an issue, a tactical rallying point,
for dissenting students in their assault on university authority, on the
government establishment, and on society generally. Nor could it be
isn

The Hippie Threat 151
said that the troubles were due to the machinations of a small
conspiratorial group. No group of conspirators can succeed in mounting
campaigns of such widespread dimensions unless the ground situation is
ripe for mass action.
It is dangerous to make generalizations about this phenomenon.
Not only does the situation vary from country to country, but even
within one country, the movement covers a wide spectrum of people and
organizations, each with different attitudes and motivations. At one end
of respectability, we have the liberal intellectuals, critical of modern
society in general and of the government establishment in particular. At
the disreputable end of the spectrum, there is the anarchist lunatic
fringe whose members regard the Communist Parties of their countries
as softies and reactionaries.
Despite the wide variation in political positions of the dissident
movement, certain common values are held though with varying intensity.
First, they are against the established values of society, regarding them
as hypocritical and, in instances, evil. Needless to say, they are against
the policy of the government establishment, which they feel is dominated
by the military-industrial complex. They are against war of any kind.
Because they reject the traditional social values of their parents, they
cease to strive for status and position in society for which their
education qualifies them, but which they despise. They have opted out
of the rat race.
The dissident movement contains at least two well-defined types.
There are, of course, many other types, but these two are especially
interesting. First, there are the children of well-to-do families. They are
disenchanted by the society in which they find themselves with its
evident inequalities, injustices and cruelties. It is this diametrically
opposite attitude of parents and children that creates the generation
gap. The second type consists of people who have lost hope of achieving
a satisfactory status in society because they believe that they have been
discriminated against as a group, or because they do not have the
intellect or character to make the grade.
From attitudes of these kinds emerge external manifestations of
the dissident movement. These are as varied as the attitudes themselves.
The activists, often penetrated by the lunatic fringe, resort to violence
either by isolated acts or by instigating, organizing and leading others
in protest movements and public demonstrations. The reaction of
authority to these and its attempts to maintain law and order often

152 The Economics of Modernization
misfire as a result of inept handling of an inflamed situation, thereby
strengthening the influence of the dissidents.
Violence is but one part, perhaps the least important, of the
general movement. The taking of drugs, the craze for psychedelic music,
the practice of sexual promiscuity, bizarre styles in dress are other
manifestations. These are the inevitable consequences of people who
have decided not to strive and achieve in a society whose values they
reject as pernicious. Once they reject established values, once they
consider conventional ethical codes as a hypocritical cover for unjust
practices, then the door is wide open for uninhibited hedonistic
practices of all kinds. This is the basis of the hippie culture.
I do not know whether what we are seeing today is a passing phase
or whether it is here to stay. If it takes permanent root and on a wide
scale, I doubt whether the complex industrial economy which is sustaining
the high living standards of the West can survive. But this is not our
problem and I shall say no more about it.
I turn to the position in Singapore. I think I can most vividly
depict the situation we are in by relating an episode in which I was
personally involved. Earlier this year, when I was making preparations
for my transfer to the Ministry of Defence, I interviewed a number of
engineering graduates. I wanted some top-class engineers in the Defence
Ministry to strengthen the scientific and technical personnel there. The
graduates I saw were Colombo Plan scholars who had recently returned
from universities abroad — in Britain, Australia, New Zealand and
Canada. They had distinguished academic records — all had first-class
honours — most of them topping their classes each year and winning
all available academic awards.
The most outstanding common feature about these engineers was
their humble family origins. Among their fathers were a cook, a taxi-
driver, a laundryman, a clerk and such similar occupations. The most
affluent father was a small contractor in Sabah. None came from what
we might call the professional middle-class family. Their fathers were
migrants from China. I have little doubt that they were men of great
ability; otherwise they would not have passed on such terrific genes to
their children. But the colonial society in which they grew up did not
give them opportunity to develop their potential. Their children, however,
were able to make the grade through our educational system, despite the
handicap of a difficult childhood environment.
The road to affluence in our society, the rise from the grind of
poverty to comfort, security and decent living, is open to anyone who

The Hippie Threat 153
has the brains to get into a university and the perseverence to apply
himself to his studies.
The generation gap in Singapore is not to be defined in terms of
acceptance and rejection of ethical codes. It is the difference between
the standard of living of a cook, taxi-driver or laundryman, and that of
an engineer or an administrative officer in the Civil Service. It is the
difference between going by bus to the office, and being able to do so in
a Mercedes. If you succeed, it is the difference between taking your
girlfriend out on the pillion of a Suzuki, or in the comfort and style of
a Jaguar.
Of course, not all university students are gifted and ambitious
children from working-class families. Children with professional family
backgrounds, whether they are in school or in the university, are under
constant pressure from their parents to perform well. They are given
every care and attention, including private tuition and surreptitious
coaching. Many parents want to send their children to schools abroad
in the belief — probably not without justification — that our school
system could be improved. This is the position in Singapore.
Ours is a harshly competitive society with good rewards for the
successful. But competition is fair and open. Everybody knows that
influence counts for nothing in appointments to the Civil Service and
very little in business careers. Advancement depends on merit and
performance, not on birth, social class or political connections. There is
no sympathy for the underdog and those who do not make the grade
are just passed over and forgotten.
This is hardly an environment which favours hippie activity,
drug-taking and opting out of society. To be sure, some young
Singaporeans have taken to some of the external trappings such as
manner of dress, musical tastes, if that is the word for it, even hair-styles.
But all these, to my mind, are timid self-conscious imitations of the
West. As is usual when the Singaporean apes the West, he goes for
the froth and the frills and not for the substance. In this instance, it is
as well that this is so and that the result has been that the hippie threat
to Singapore is largely an illusion.
While we may congratulate ourselves that we have avoided the
traumatic experience of Europe and America, this has not been an
unmixed blessing. Because a student s future is so heavily dependent on
his examination results, in school and in university, his striving after
good grades in Higher School Certificates and university degrees has
resulted in a stultification of intellectual development. The university is %

154 The Economics of Modernization
regarded as a means to securing a good degree and thence to a good job.
The idea of education as a search for truth, the excitement of intellectual
inquiry and speculation — all these are given lip service and little else.
And so we have in Singapore intellectual conformity in place of
intellectual inquisitiveness. And the sum total of it all adds up to a
depressing climate of intellectual sterility.
If we are honest with ourselves, I think we can detect in
contemporary Singapore a strange but striking similarity of intellectual
climate and social values with Victorian England, together with much
of the hypocrisies and cruelties of that age.
What can be done about this? First, I want to dispose of a facile
solution which may come to those who believe that the Government is
to blame for everything, including intellectual timidity in the university.
There are some students who believe — and I am told they quite
honestly believe this — that the Government maintains a large corps of
Special Branch agents to identify and root out heresy among the student
body. These people flatter themselves. The number of students with pro-
Communist inclinations at the University of Singapore is pathetically
small, and their quality poor. Other forms of intellectual heresy we are
not interested in.
You may say that the Prime Minister, Mr Lee Kuan Yew, on his
visits to the campus acts as an intellectual depressant. Mr Lee is a much
misunderstood man in spite of Mr Alex Josey s efforts, possibly because
of them. I know of his intense desire that our university should be the
centre of bold and creative thinking about the manifold problems
facing the Republic. But each time he goes to the campus, he finds
himself confronted by evidence that neither the student body nor some
members of the staff have the slightest inkling of the problems that
we face, much less about their possible solutions. His reaction to
disappointments of this kind has been characteristically vigorous as
some of you would have personally witnessed.
I am not the first or only person to have commented upon the
intellectual sterility of our society. Other people have, but none have
offered any workable solution. My friend, Mr Gerald de Cruz, the other
day was reported to have pleaded for the emergence of what he termed
"a heroic intellectual" to discover the social values of Singapore and
presumably to campaign for their general acceptance. I doubt whether a
heroic intellectual will do much good. Certainly he will not be listened
to. Nor is our situation one which breeds heroic intellectuals.
For thinkers of this kind we need a leisured class, people of

The Hippie Threat 155
independent means who do not have to work for a living. Many of the
great thinkers of England, such as the Russells and the Haldanes, came
from aristocratic families. But let us get our perspective right. If we do
not produce the Russells and the Haldanes, there are many countries
in the world larger and richer than we are who also do not.
The scope of intellectual inquiry in Singapore must necessarily be
on a modest scale and of limited range. What we should try to do is to
build up a respectable research effort in various disciplines of learning.
This means strengthening the position of postgraduate studies in the
university. It also means establishing full-time professional research
institutes.
In this respect, some progress has already been achieved in
Singapore and, in course of time, I have little doubt that we shall reach
higher levels of achievement. Postgraduate studies should be encouraged
in our universities and not merely for those who intend to follow
academic careers. For instance, it may not be a bad idea for the
Government to allow senior civil servants to do a years sabbatical at
the university. This interchange between the practitioners and the
academicians cannot be but good for both. It is along these lines that
I envisage gradual but progressive improvement in Singapore's intellectual
climate. I am fairly optimistic that this will happen. As standards of
education go up and as increasing numbers of the population receive
tertiary education, they will be increasingly dissatisfied with the slick
slogan or facile verbalization that passes for analysis.
To correct the impression that I am being over-critical of the
shortcomings of our society, I want to conclude my talk with a defence
of our own social values. It will be an exaggeration to say that Singapore
is motivated solely by a gross form of materialism, and I hope I have not
led you to this conclusion. It is true that in the colonial era, all that
mattered was a fat bank balance and cordial relations with the powers
that be which were necessary to sustain such bank balances. I think we
have moved some way from that position. We are no longer a collection
of individuals each solely concerned with his personal well-being. There
is an awareness of collective problems. There is a growing pride in being
citizens of a Republic which has registered achievements in housing,
industry and education. But more than this, even in regard to the rat
race, I found from personal experience that while the size of the monthly
pay-cheque is important, it is by no means the sole consideration.
In my 10 years' experience as a minister, I have had occasion to
work with civil servants and others both in the Government and in the

156 The Economics of Modernization
statutory authorities. There were the executives who carried out great
projects which have made Singapore renowned as a centre of dynamic
progress. These people could have walked out of their jobs to the private
sector and earn salaries three to five times what we paid them. They
have not done so and I believe the reason is that they find satisfaction
and fulfilment in their work. Beyond a certain income level, a man finds
that being able to satisfy his creative impulses, having the opportunity to
take part in great undertakings which will leave a noble mark in the
history of Singapore — all these give him a sense of achievement which
no bank balance can produce. If we continue to have in the public
services talented people with motivations of this kind, as I believe we
will, Singapore can look forward to continuing growth and prosperity.
I began my talk with girls of the convent school and I will end
with a final reference to that episode. What these schoolgirls bought
from the shady characters were not marijuana, LSD or such types
of hallucinogens. The pills seized by the police were sent to the
government chemist for analysis. They were found to be anti-malaria
tablets, calcium tablets, and vitamin B2 tablets. The most dangerous
pills in the collection were some tranquillizers.
Why these schoolgirls want to buy calcium, vitamin or anti-
malaria tablets, I do not know. Maybe it was just for kicks and they
thought they were getting something more potent. Maybe it was to
find out at first hand what all this fuss about hippies and hallucinogens
was about. If this was so, this incident, which must have caused much
distress to the Mother Superior, at least held one crumb of comfort
for us. It is that intellectual curiosity among our young still survives.

Government and Society
Opening speech delivered at a seminar on "Democracy and Communism" sponsored
by the Ministry of Education for pre-university students, at the Singapore
Conference Hall from 24-29 April 1971.
Some time ago, an Israeli general on a visit to Singapore asked me
this question: "Why is it that you use the term 'society' and not
'nation'? In Israel we talk of the Jewish nation, not Jewish society." This
was on the first morning of his visit and he had only read the morning
papers. Yet this perceptive question puts in a nutshell our basic political
problem. We are not a nation, we are a community, a society, a group of
people living in the island of Singapore. And this fact is recognized by
the title given to me to address you on, "Government and Society", not
"Government and Nation".
There are two ways for me to handle the subject. The first is to
take the analytical approach. This means defining the concepts of
government, society and nation, explaining their structure and functions
as they exist in a modern state, examining the interrelations between
the various aspects of these functions, and then finally studying these
conditions as they exist in Singapore, and how they differ from accepted
concepts and practices elsewhere. This is the analytical approach. I will
not adopt it for two reasons. First, to do justice to this method would
require more time for reading and research than is available to me.
Second, even if I had the time, I doubt whether you will be able to
understand much of what I would have to say. It is not only that the
subject is abstruse, more to the point, the branches of learning involved,
namely political science and sociology, are still in their early stages
of development.

158 The Economics of Modern/zat/on
There seems to be an advantage in the other approach, in which
I will describe, in general terms rather than in analytical concepts, what
this business is about — government and society more especially as it
concerns young people.
It would shed more light if I were to discuss these ideas in relation
to the real world as it is today. In other words, I will try to compare the
position of the young, people like yourselves, in the modern states of
the West, that is, America and Western Europe, on the one hand, and
the young in the developing nations of Asia on the other. Secondly,
I will touch on the differences between the younger and older
generations in Singapore itself. In this way, we may be able to see some
of the special features which confront the young in Singapore. As I shall
show, we have special problems that are rather unique to us, a fact which
one would have thought to be obvious. And yet this has escaped the
attention of many people in Singapore who should have known better.
Let me begin with the young in the West. The matter is of some
importance to us because we are exposed to influences from the West
through films, television, newspapers, magazines, books, university
education, and in so many other ways. As a result, we sometimes follow
their fashions for good or for ill. We sometimes even think, especially
the English-educated, that their problems and misfortunes are also ours!
Nothing could be further from the truth.
Many of you probably know that in the past three or four years,
there has been a great ferment of new ideas among European and
American youths, an upsurge of radical, even revolutionary, attitudes
among them. The young appear to have rejected the values, the morality,
the standards of behaviour which had been established and accepted
in their countries. There have been protests and demonstrations in
university campuses. The younger and the older generations hold such
widely different views that people begin to talk of the "generation gap".
Now, what is all this about? We are probably too close to events to
be able to speak with confidence on the real significance of the youthful
revolt in the West. It is still going on and has yet to work out its course.
Let me give you my own interpretation. At the heart of the matter,
I believe that the young in the West are disenchanted with the world
as they see it. On the one hand, they see dazzling achievements of
science and technology in the ability of men to conquer space and
reach the moon. Yet, this great effort and the vast industries that result
from modern technology produce societies which are unsatisfactory in
many respects.

Government and Society 159
The great industries have produced dilapidated slums, traffic
congestion, pollution of the air, the rivers and the lakes; in their own
societies, they see manifest injustices and inequalities. In America, the
idealistic young are aggrieved by racial problems — the indignities
which Negroes have to suffer. Above all, many young Americans see
the Vietnam War as cruel, senseless, unjust and unnecessary slaughter
and destruction. And they blame their Government and what they term
the "military-industrial complex" for the horrors of Vietnam. They
think that there is a better way to order human society and to take
advantage of technology to produce general happiness.
Because they are disaffected or "alienated", to use their jargon,
they are opposed generally to all authority, not only that of the
Government, but in many instances, the authority of whoever is in
direct control of them, such as the authority of the university if they
are university students. Many of them think it pointless to strive and
to achieve in a society whose values they reject. So they do not study
hard in school or university. They do not believe what older people tell
them. They aim for an easier, more relaxed personal way of life. Many try
to find the good life in free sexual relationships, in drugs and in the
pursuit of personal happiness through enjoyment. In extreme form, they
become hippies, or if they are more active types of people, they take to
violence and try to overthrow the established order through revolution.
In very broad outline, this is what is happening in the West. But
I do not want to give you the impression that all or even most young
Europeans or Americans are hippies or anarchists. These are the extreme
types. Those I am talking about are the trend-setters, people who set a
new style, articulate their opinions and provide the leadership which
many of the others follow in greater or lesser degree.
Now, what about the young in the newly emergent states of Asia?
In many of these countries, youthful discontent and dissent also exist.
But they are of a different kind and have taken even more dangerous
forms. As you know, there is now in Ceylon an armed uprising which is
believed to be led by the large numbers of university graduates who
cannot find employment. In the Philippines, you have read of student
violence and riots from time to time. Nearer home, the young too have
their problems, but I will not dwell on them; what I have to say may
strain relationships with governments with whom we are trying to keep
on good terms.
But you will note that the troubles of the young in Asian states are
the result of frustration and poverty, the lack of decent career opportunities

160 The Economics of Modernization
after they leave school or university. Theirs are deeply personal problems
of earning a living. Only to a lesser extent are the young troubled, as
they are in the West, with larger political and social problems. In the
West, they are not concerned with finding a job or finding a worthwhile
career in life. In fact, many reject the idea of working within the system,
which they find unacceptable and inadequate in so many respects. The
discontent of the young in the West is related to the affluence of their
countries. Indeed, many of the youthful dissenters come from well-to-do
and even rich families. In Asian countries, the young are discontented
principally because the economies of their countries have failed to
develop.
You can see at once how different our situation is from both the
advanced and the emergent nations. We have not reached the state of
affluence of the West when we can take for granted our future progress.
I think it is fair to say that the young in Singapore believe that if they
have the talent and make the effort, they can succeed in securing for
themselves a good livelihood in the professions, in the Government
or in private business. Far from being disenchanted at such prospects,
the young believe that the effort is worth making.
In this respect, we differ also from the unfortunate masses of
unemployed university graduates in Asian countries. Here, regardless of
the effort that they make, very few will succeed in getting good jobs.
And even these few will need to have the support of the rich or the
powerful. In Singapore, you do not need this. All you need is a good
brain and the willingness to work. This is what we mean when we say
that we are a meritocracy. Even for those who do not reach the very top
— for not all of us are geniuses — there are for Higher School Certificate
and university graduates, a wide variety of interesting and well-paid
careers to choose from.
Let me now turn to the second comparison I am making, that is,
between the generations in Singapore. Let us consider, to start with, the
differences between yourselves and your parents. As a general observation,
I think it is true to say that you are better educated than your parents
were. There may be some of you from families of professionals of
whom this may not hold true. But most of you now in the pre-university
classes have fathers or mothers whose education has not reached that
level. That is one important difference.
This difference leads to another: you will probably work in better-
paid occupations than your parents. In a rapidly growing economy such
as ours, this development is to be expected.

Government and Society 161
There is yet another difference: many of your parents were not
born in Singapore. Some came from China, others from India, others
from Malaysia or Indonesia or elsewhere. As they are not born in
Singapore, their attachment or loyalty or commitment to Singapore is
not a natural one. It is acquired. They have adopted Singapore as their
permanent home. They have taken on Singapore citizenship and they
are likely to remain here for the rest of their lives. But in their childhood,
and even in their adult years, they knew of another country, their own
birthplace. For you, this is the only place you know as your homeland.
Your attachment to Singapore is therefore undivided and natural.
There is yet another difference between your parents and yourselves.
Many of your parents have lived their adult years under several political
regimes, the British colonial government, the pre-PAP government of
the Labour Front, and the present PAP Government. Most of your
parents were in Singapore during the brief period of Japanese military
occupation, and they know what terrible years those were.
Several consequences follow from this. The first and most obvious
is that having lived under different political regimes, they could make
comparisons from personal experience. This you are unable to do.
But more important than this, very few of your parents would
have had much involvement in the political development of Singapore
except for voting during general or by-elections. For the most part, they
were content to leave the work of government to other people while
they attended to their own personal and business affairs. If they belong
to my generation, it is unlikely that many of them would have political
ambitions to be, for instance, a prime minister or a cabinet minister.
Such an ambition will probably be regarded as quite unrealistic. With
you and your generation, it is quite different. By the time you come to
my age, my colleagues and I would have long departed from the political
scene, probably from this world also. The cabinet ministers of that age
will be from your generation, probably even from some of you present
at this seminar today.
It is for this reason that politics, which basically is the way in
which a society chooses its government, is a matter of direct and practical
relevance to you, which it is not to your parents. While most of my
generation for the rest of their working lives may be content to leave
this business of governing Singapore to my colleagues and myself, this
option is not open to you.
What does this mean? First, it means that you have to take politics
more seriously than your parents do. Why is this so? You may say that,

162 The Economics of Modernization
after all, there are only 58 seats in Parliament and a dozen or so cabinet
ministers. Why then should the thousands and thousands of pre-university
students who leave school each year bother about political affairs,
since only a very small fraction of them can hope to be members of
parliament and an even smaller number cabinet ministers?
I can answer this question in two stages. First, in a country like
Singapore which has no natural resources, the type of government
that is elected to power is probably the most important single determinant
of whether the country prospers or declines. This subject will no
doubt be discussed in further detail in the closing address which will be
delivered by the Prime Minister. I will, therefore, not expand on it.
If you accept the first part of my argument, that the type and the
quality of government is crucial to all Singaporeans, then it is in your
interest to ensure that the country is not foisted with mediocrities or,
worse still, adventurers and crooks as members of parliament and
ministers. If you read the newspapers and magazines dealing with world
affairs, you will be aware of the fate suffered by many Asian countries
whose electorates have allowed themselves to be deceived by political
adventurers and opportunists. Why did this happen there? Is it possible
for this to happen in Singapore?
There are many reasons why the electorates return poor quality
governments. To simplify a complex subject, perhaps one could say that
the basic reason is either that the electorate is poorly educated, as is
the case in some countries, or that, where education standards are high,
the better educated have not made their opinions felt. In other words,
they have remained indifferent to political affairs; as a result, they have
lost by default. And they themselves are the people who suffer as a result
of government mismanagement or corruption, or both.
In a democratic system such as ours, political stability in the short
term can be produced by strong, effective and efficient government. At
the risk of appearing immodest, I suggest that this is the situation in
Singapore. However, in the long run, since all men are mortal, political
stability cannot be allowed to depend on a few men. What is needed is
an influential and cohesive social class that will ensure a high standard
of performance among political parties contending for support among
the electorate. That kind of political climate can be produced only if
the great majority of those who have received higher education take a
personal interest in the affairs of the country, make an effort to understand
these issues, and are willing to provide leadership in the formation of
public opinion. Only under such circumstances can a democratic society

Government and Society 163
ensure high standards of government, irrespective of which contending
parties win the general elections and form the government of the day.
When we achieve this in Singapore, we would have achieved long-term
political stability.
Therefore, your future role in Singapore is in providing leadership
in the formation of enlightened public opinion. Too many people regard
political ideas not as serious matters affecting their lives, but as topics for
idle discussion. These people never try to put to the test of practicality
the ideas they toss around. Nor do they ask of themselves what is the
relevance of these notions to the situation in Singapore, today, tomorrow,
and in the next decade. It is for these reasons that a great deal of
political commentary in Singapore, when this is inspired by contemporary
ideas fashionable in the universities of the West, has little meaning or
relevance. I hope that in your time, when you go to the university and
address your minds to these matters, you will remember to apply this
stringent test of relevance and practicality to the many ideas, ideals and
principles which you will learn there. It will be good for you and it will
be good also for the university.
Why do I emphasize the need to talk and think about relevant
and practical matters? I believe that if intelligent and informed people
apply their minds to the real problems and actual difficulties facing
Singapore, they will reach a large measure of agreement on what should
be done. They may differ about how to do it, and honest differences
of opinion will emerge and will give rise to public debate.
However, when people talk about ideas, values and ideals which
are trivial or irrelevant to our situation, what you get is not consensus
but a babel of noises, a lot of posturing, a habit of opposition for the
sake of opposing — in other words, a lot of hot air generated by
chatterboxes. Some people in Singapore labour under the illusion that
this is democracy. The experience in Asian states where such practice
flourishes shows that democracy dies quickly when the educated dissipate
their energies this way. It is your responsibility and it is in your interest
when you grow up to see that this does not happen in Singapore.

Industrial Growth
1 J and Political Stability
Speech delivered at the third graduation day ceremony of the Singapore Polytechnic
in August J963.
I have always regarded the pursuit of knowledge as the noblest and the
most rewarding activity of mankind. This is particularly so in the
so-called underdeveloped countries of the world today. Much has been
said, by experts and laymen alike, on the subject of bringing about
economic growth in backward societies and literally thousands of
books have been written on the subject. Indeed it is a subject of
widespread and profound interest among all governments of the world
today, both of the advanced and underdeveloped countries.
If I were asked what is the most important single criterion by
which to judge the prospects of any underdeveloped country in achieving
self-sustaining economic growth, I would have no hesitation in saying
that it is its attitude towards education. Where there is an abounding
enthusiasm for education, where the demand for education appears
insatiable, then I say that particular country is well on the road to
economic progress. On the other hand, where there is apathy in this
field, you can pour in all the foreign capital, foreign aid and foreign
experts into that country and you can be certain that all this will go
down the drain. This is a point which, unfortunately, has not been
fully appreciated by many governments and international agencies
engaged in promoting aid programmes in underdeveloped regions. Happily
for us, Singapore belongs to the first category. Here the desire of our
people for all forms of education knows no bounds, and all our institutions
of higher education are bulging to capacity, with an overflow of several
thousands into universities abroad.

Industrial Growth and Political Stability 165
It seems to me that on an occasion such as this, the third graduation
day of the Singapore Polytechnic, it would be appropriate to say something
about the products of the higher education we are providing our citizens.
More specifically, what is the future of Polytechnic graduates? How
would they fit into the future scheme of things? What rewards can they
expect from society in the way of interesting and rewarding careers?
What are their responsibilities to the society that has nurtured them
in their youth?
Let me first set down a few basic facts of our present situation
and our possible future developments. We in Singapore, that is both the
people and the Government, are deeply aware that to maintain and
improve our standard of living we must build new industries. This
follows the fact that there is no other major outlet for absorbing our
growing population in useful employment other than new industries.
We have made a start and we have laid down extensive basic industrial
facilities to encourage the rapid growth of our new industries by extending
our power supplies, enlarging our port facilities, building roads, railways,
industrial estates, communications and transport facilities.
Industrial growth depends only partially on how much the
Government does to provide these basic facilities. It depends to an even
greater degree on how people respond and take advantage of the facilities
that the Government provides. Where people as a whole sit back and
expect new industries to grow up like mushrooms or drop from heaven
like the biblical manna, then, of course, all the money we have put
into Jurong would be completely wasted. We would have done no more
than created the largest white elephant in the history of our state.
Happily, the response has been good and it is growing. And the
response has been good from all strata of society — the businessmen,
the professional class and the workers. First, the businessmen: these are
the people with capital, experience and know-how who have to plan,
build and run the new industries. Starting a new industry is a very
practical affair. It is not an academic business of thinking about economic
concepts. It means working out concrete details on what goods to
produce, how to do it, and how to sell them. It means working out
estimates of future markets, estimates of competition from within and
from abroad, the expected cost of production, the different types of
technical processes to use, the sort of men to employ at expert managerial
and supervisory levels, and a multitude of such practical problems.
These then are the ones who make the important decisions on these

166 The Economics of Modernization
matters, and on the correctness of their judgement depends the success
or failure of the new enterprise.
Then there is the response from the managerial and technical
staff. The best of managing directors would be helpless unless he is able
to recruit an efficient staff who, if they do not have the experience in the
new venture, have at least the capacity to learn. In this respect, Singapore
is fortunately well endowed with potential talent, and indeed it is one
of the major functions of your Polytechnic to produce the future
managerial and technical personnel of our growing industries.
The third response comes from workers. It is a matter of whether
they can learn the skills and provide efficient work so as to enable the
new enterprise to succeed in competition with others.
We are not concerned here either with the industrialists or with
the workers. In both these fields there are special problems, but these
need not concern us today. Our interest today is in the body of technical
and managerial personnel who will man the key posts in our future
industries.
Obviously, if the rate of industrial growth is fast, then the
opportunities for useful careers for graduates of this institution will be all
the greater. The growth of industry and supply of technical personnel are
in fact interrelated. Without the supply of technical personnel, we
cannot expect industry to grow. And without the growth of industry,
there will be no supply of technical personnel because nobody wants
to undergo a long and expensive education without prospects of a career.
In Singapore, we decided to do both together, to increase the supply of
technical personnel and accelerate the growth of industries. Obviously
in the early stages, when one is not certain exactly what type of industries
will be developed in, say, the next 10 years, maladjustments in particular
lines may well happen. There could be, for example, a shortage of, say,
electrical engineers while at the same time a glut of mechanical engineers
or architects has developed. It is not possible to plan every detail of the
long-term growth of industry and then arrange to fit the supply of
your technicians into this detailed plan. It is in the nature of things that
such an exercise is not possible. But so long as growth is taking place, it
does not matter if there is maladjustment in particular lines for sooner
or later, increasing demand will catch up on any temporary over-supply
in particular lines.
So the conclusion that we come to is that the faster the rate of
growth of industries, the more opportunities there will be for graduates
of the Polytechnic to find useful employment. I think that this is a self-

Industrial Growth and Political Stability 167
evident proposition. But from this, we can proceed to a more interesting
question and that is: What do we have to do to foster the most rapid rate
of industrial growth? Now there are two approaches to this question.
The first is the narrow technical one of government policy. This will
embrace questions of economic policy such as setting up of the common
market, the provision of adequate industrial infrastructure, mobilization
of domestic capital and so forth. But these technical policy considerations
are really secondary to a larger and broader issue. The larger aspect of
the problem is to create a permanent and enduring social environment
under which rapid industrial progress can take place. Let me say a few
words on what I mean by a permanent social environment favourable
to industrial growth.
When a man puts in, say, $10 million in a new venture, he must
be sure not only that the immediate economic factors, such as production
cost, market price of his product, would be favourable, but he must also
be reasonably certain of the years ahead. He must be confident that
there will be no radical change of government policy. In other words,
there must be expectation of political stability in the foreseeable future.
The reasons are obvious. The capital invested in an industrial venture
will take many years to recover. Unless he can make a confident forecast
of stability for the foreseeable future, he will not establish a new plant.
There is also another important element in this social environment,
or social climate as some people call it, and that is the expectation of
fair treatment. Every industrialist hopes that he will get favourable
treatment as against his competitors, but he does not mind if he does not
get such a privilege. But he wants to be certain that he is not unfairly
treated or discriminated against. Then, again, not only he, but his staff
also, want fairness and justice so that the ablest can rise to the top.
Favouritism in one form or other is most damaging to industrial growth.
There are other elements in the social climate but these two are
the most basic ones. So long as there is confidence in stability and fair
treatment in the foreseeable future, we can expect to get as fast a rate of
industrial growth as the objective economic factors warrant. There is
also another reason why the social values of stability and fair treatment
are important. Building new industries and running them require the
highest powers of intellect and character that man possesses. It is a
creative and absorbing endeavour in which only the best will ultimately
succeed. The experience of successful industrial nations shows this.
Therefore we must have a system whereby the ablest and most energetic
of our citizens have the opportunity to rise, in free and fair competition

168 The Economics of Modernization
against all others, to the topmost positions in industries. This will ensure
that not only do we have many industries but that we have good and
strong ones.
To many of you, what I have said about the social environment
favourable to industrial growth may appear commonplace. If this is so,
the reason may be, I suggest, that in Singapore, this largely describes the
situation as we have it today. But can we be sure that it will continue in
the future? Within a matter of weeks we shall be part of an independent
nation of Malaysia.1 Will the purpose and drive behind our plan of
industrialization endure after Malaysia? Is this purely a matter for the
Government? Or has the ordinary citizen a responsibility and a role to
perform? In particular, has the professional and technical class a special
duty to carry out?
Before I answer this question, it may be profitable to look outside
Malaysia and see the experience of our neighbours who have achieved
independence long before we did. I do not think I am uncharitable in
my judgement if I were to say that the picture is one of woeful confusion.
In one country after another, we have seen a decline of standards of
government, a deterioration of standards of living, and a running-down
of the economy. The countries which 15 years ago embarked on their
own national independence with all the enthusiasm and idealism have
today lost the drive and the purpose which then inspired them. Will
the same thing happen to us? We can get an answer if we examine the
reasons for the decline of these newly independent countries of
Southeast Asia. I do not have the time here to go into a detailed
historical review of the underlying factors contributing to this decline.
But one element stands out as being of paramount importance. And that
is the failure of the educated elite in these countries to make an effective
contribution to the leadership of opinion in their countries. This has
allowed a decay in standards of conduct and morality in public affairs.
They have left the field open to adventurous demagogues, crooks and
fanatics until ultimately the army takes over the country.
The net result of the decline in these countries is that the educated
elite themselves were the first to suffer. They suffer directly from the
repressive measures, from monetary inflation reducing the value of their
1 Singapore became part of Malaysia when it was created in September 1963, but separated from it
in August 1965.

Industrial Growth and Political Stability 169
earnings, and from the lack of opportunities for useful careers following
upon economic decline.
It may be harsh of us to pass judgement on the educated elite of
other countries. In some countries, there were too few of them. In other
countries, they were too absorbed in their personal careers to care much
for national affairs. But, whatever the reason, they have not escaped the
sufferings that followed upon the running-down of these countries.
What lesson can we draw from that experience? The first is that it
is important that the highest standards of integrity of conduct be
maintained in public affairs. What I have said about the creation of a
favourable social climate to promote industrial growth really means no
more than that we must have an honest and effective government,
uncorrupted and incorruptible. The moment any government relaxes
in these matters, it takes the first step down a long and slippery path
to disaster.
The second lesson is that the response of our own educated elite
must be more positive and effective than that of the elite in neighbouring
countries which have suffered misfortune. The system of parliamentary
democracy has no built-in guarantees that it will automatically survive
and endure in Malaysia or in any other part of the world. It is a delicate
and complicated system of checks and balances which will work only if
there is a broad stratum of intelligent leadership to give purpose and
direction in public affairs. It is singularly vulnerable to abuse on the one
hand and subversion on the other where there is widespread ignorance
of and apathy to the workings of the democratic system. In such a
situation, the demagogue or a well-disciplined minority organization
can easily take over power through political manoeuvres and tactics.
In Singapore, and indeed in Malaysia, the democratic state is still
a tender plant. It has to be nurtured and nourished and protected from
those who wish to destroy it. Its workings are still not fully understood
by many who, because they have not lent much thought to it, believe
that its capacity for endurance is greater than it actually is.
So my message to you is this. The great things we are trying to
achieve in Singapore will come to fruition only if the democratic system
survives and endures. To ensure this, our educated elite must avoid the
fatal mistake which their counterparts in other countries have made —
the fatal error of withdrawal from leadership of opinion. Our own
educated elite today show every sign that they will commit this same
error of omission by their inability or unwillingness to lead public
opinion on national affairs. Hence their aversion to what they call

170 The Economics of Modernization
indulging in politics. A French politician once said that war is too
serious a business to be left to the generals. If I may parody him, politics
is too serious a business to be left to the politicians.
Well, I am not unhopeful that we will learn our lesson in good
time to avoid the disasters that have overtaken other countries. If we
succeed in building a stable and enduring structure within which the
talent and energies of our people can find useful and creative exercise,
we can face the future with every confidence. Those who are graduating
today will, I trust, meet the challenge that is facing them and fulfil
their obligations to the society that has equipped them with their
specialized education.

23
Parasite States
Speech delivered to the Public Services International Second Asian Regional
Conference, jointly sponsored with the Amalgamated Union of Public Employees,
at Victoria Hall on 11 November 1968.
The times in which we live has a number of unique characteristics
compared with other periods of history. One of these characteristics
is the very large and growing scope of government intervention in the
affairs of the nation. Traditionally, that is to say, before the Industrial
Revolution, the functions of the government were restricted to that of
keeping the king's peace, that is, maintaining internal law and order,
and the protection of the nation's boundaries against foreign invasion.
But today, government activities are complex and far-ranging, and the
state budget of a modern nation consumes up to 25 per cent or more
of the gross national product.
This extension of state activity is true not only of modern industrial
states, but also of developing countries. This is a phenomenon which we
shall have to go into in some detail. In the meantime, I refer to another
characteristic of our age. This is the well-known gap between rich and
poor nations, a gap which is increasing in the course of time as a result
of accelerating growth of the economies of modern industrial states
and relative stagnation in poor countries. This constitutes a vexatious
problem which is a source of concern to both rich and poor nations.
The third feature of our time is the state of uncertainty into which
both governments and societies have been plunged. We are no longer
sure of ourselves. Established codes of conduct sanctioned by religion,
custom or usage are being challenged on an increasing scale. The ethical
principles which appeared secure in past generations are being rejected

172 The Economics of Modernization
while no new values are being established in their place. Even the
mightiest or the wealthiest of nation states are today undergoing this
experience. It does not take a man of deep perception to come to the
conclusion that this is an age of momentous change.
I shall approach my subject in a somewhat indirect way. Instead of
plunging into the problems and troubles of contemporary society, I will
choose to go back to the remote past and consider the political system
of another age and another society. I intend to discuss at some length the
essential features of the Chinese imperial civil service. I doubt whether
many of the civil servants gathered here from European or even Asian
countries are well versed in this somewhat esoteric subject. But a
comparison of the problems and functions of 20th-century public services
with those of ancient China will not only afford some relief from the
perplexities which confront us, but may shed some light, for it may give
some perspective to our problems.
The doctrines and principles on which the Chinese imperial civil
service was eventually established were propounded some 500 years
before the birth of Christ by Confucius. Confucius was disturbed by the
troubles of his times, particularly by the misgovernment of the feudal
states into which China had been divided — each state governed
under the absolute authority of a king.
Confucius never saw his principles adopted in his lifetime, and it
was not until several centuries later when the country was unified under
the first of the Han emperors, that the doctrines of Confucius prevailed
over doctrines propounded by other schools of thought as a solution
to China^s problems.
The evolution of the Chinese civil service from the rudimentary
system established in the early Han dynasty to the complex organization
of later times need not concern us. I only need to draw attention to
certain important and enduring features of the service. The first was
that entrance into the civil service was determined by written
examinations. These examinations were held at three levels: the district
level for the first degree, the provincial capital examinations for the
second degree, and the imperial examinations in the capital for
the highest degree. The examination system was basic to the structure
of the Chinese civil service and contained many unique features which
we shall examine later. The second feature of the civil service was its
attachment to the ethical principles propounded by Confucius and
developed by his disciples and subsequent scholars. These set out the
rules of personal conduct, the relationship and obligations between

Parasite States 173
members of society, and the proper conduct of enlightened government.
The third feature is this: imperial China was an absolute monarchy and
the civil service was an instrument of government of the emperor, an
extension, so to speak, of the imperial will.
The civil service examinations had, as I said before, a number of
unique features. The first is that the subjects on which candidates were
examined belong to what we today call the humanities, and they include
historiography, literary criticism, calligraphy, and poetry. The text on
which candidates were examined were mainly the Confucian classics
and commentaries on them.
One extraordinary feature of the examination system, that is, the
three-tier level corresponding roughly to our bachelor, master, and
doctorate degrees, was the very small number of candidates who passed
at each level. So far as records are available, in recent historical times,
that is, over the last 500 years before the establishment of the republic
in China, the percentage of candidates who passed at each level each
year remained steady at about 1 per cent, that is, 99 per cent failed. If
you compound this at three levels, it means that on the average, one
in ten thousand candidates sitting for examinations at one level or
the other got the final degree which qualified them for admission into
the civil service. But because of the enormous prestige which degree
holders enjoyed, every man of talent with financial support spent many
years, even a whole lifetime, in full-time study for these examinations. It
was estimated that in a normal year, more than a million adults would be
studying for these examinations. It was not unusual for grandfather,
father, and son to be sitting for these examinations at the same time.
People have wondered how this extraordinary state of affairs could
have lasted for so long. The Han dynasty was established about 250 years
before Christ, and the last dynasty (Ch'ing) was overthrown in
AD 1911. So for more than 2,000 years, this bizarre system was practised
continuously except for brief interruptions during civil wars between
the overthrow of one dynasty and the establishment of another.
Modern scholars have come to the conclusion that the imperial
examination system served at least two purposes, both of great importance
for preserving the unity of the state and for preserving continuity of
internal order. First, the system has been described as an ingenious cost-
free method of self-indoctrination. The government spent very little by
way of state propaganda as the cost and the effort of absorbing the
orthodox doctrine were borne by the candidates. Where the best brains
and the natural leadership were indoctrinated into a uniform mould, you

174 The Economics of Modernization
get a degree of social cohesion and unity which makes the government
of a large population less difficult. Secondly, some modern scholars have
come to the conclusion that by keeping the ablest and most ambitious
men continuously occupied in studying the Confucian classics, internal
order was preserved as these men might otherwise turn their thoughts
and energies towards rebellion.
But wherever the truth may lie, there is no doubt that the system
introduced a form of meritocracy in a regime which was otherwise one
of absolute authoritarianism. The system enabled people of humbler
birth to rise to the top ranks in the administration; it also enabled the
monarch to be independent of feudal princes as a means of maintaining
domestic peace.
There is a third function which the civil service undoubtedly
performed. This is to keep within tolerable limits the excesses of absolute
monarchy. Indeed if one looks at Chinese history from a very broad
view, one can detect a cycle repeating itself from the rise of a dynasty,
its maturity and decline, and its replacement by another dynasty after
a rebellion.
New dynasties observed both in form and spirit the ethical precepts
of Confucius. Emperors and officials lived frugally. Corruption and
other malpractices were sternly punished. But in course of time,
puritanical zeal waned; court and official life became more comfortable,
more refined and more sophisticated. Literature and the arts flourished.
Confucian precepts began to be observed more in form than in spirit.
The seeds of corruption and decay were sown. Cynicism increased with
sophistication and refinement declined into luxury and licentiousness.
The size of the emperor's harem was a useful indicator of the state of
the realm. In periods of decline, eunuchs who managed these harems
became increasingly influential as they had the ear of a profligate
monarch. Protest against malpractices from honest officials only
brought upon themselves retribution.
Court extravagance on an increasing scale resulted in increased
taxation, and this in turn resulted in increasing discontent and eventual
rebellion and the replacement of the old dynasty by a new one. Austere
living again becomes the order of the day, and the cycle begins anew.
The length of a cycle of the greater dynasties such as Tang, Ming and
Ch'ing comes to about three and a half centuries.
It is noteworthy that in spite of its great cultural and literary
achievements, ancient China never developed modern science and
technology as we know it today. No doubt this was partly due to the rigid

Parasite States 175
social conformity produced by the Confucian ethic and the intellectual
strait-jacket into which the best minds of the country was put by the
examination system. For the development of scientific thinking has, as
its basis, a respect for free intellectual speculation and also opportunities
for creative innovation. These ran contrary to the spirit of the Confucian
system. With China concerned largely with the past, and with intense
indoctrination in the orthodoxy, mankind's escape from stagnation
was to be realized in the societies in a different part of the world,
namely Europe.
Europe never achieved the degree of centralization of power
attained in China. Even so, the tendency within the shifting boundaries
of national states was for power to be concentrated in the king at the
expense of the feudal chieftains. But as a result of the continued existence
of many kings, dukedoms, baronies, principalities, and with dynastic
families constantly warring against each other, European history took a
more complex course than Chinese history. Nor did European monarchs
succeed in creating the professional civil service based on entry by
competitive examinations, although one American scholar claimed
that some elements of the Chinese system of bureaucratic government
was introduced into Europe from China through the Arabs to the court
of King Roger II of Sicily around the year AD 1140. This looks rather
far-fetched.
The problem of limiting the tyrannies and excesses inherent in an
absolute monarchy was handled by Europe by means other than civil
service government. In part, it resulted from the balance between the
king as the central authority and the barons occupying positions of some
independence in the king's domain. In some countries, ecclesiastical
power limited the authority of kings. Many institutions, such as the
establishment of parliaments and free cities, served the same purpose.
The practice differed from country to country and from period to period.
Whether kings were restrained by a bureaucracy as in China or
through more ad hoc arrangements as was the case in Europe, the
functions of government were very limited. The Chinese bureaucracy
and the European kingdoms were basically concerned with domestic
peace within the realm and defence against external military threats.
Under both systems, levies of money or by way of labour or military
service were exacted from the populace for this purpose as well as to
maintain the rulers in varying degrees of comfort, splendour and luxury.
Where the power of the government was not restrained, one
notices an almost inevitable trend towards excessive luxury. Such

176 The Economics of Modernization
governments can be considered "parasite" governments in that they
consumed far more of the wealth of the country than what they earned.
Since technology was virtually stagnant throughout the history of
mankind until the Industrial Revolution, increased enjoyment by
members of the government elite, the king and his court, or the emperor
and his civil service, could only be obtained by increasing exactions
from the rest of the population. We have seen how in China the
dynastic cycle moves inexorably in this direction despite Confucius and
the civil service. In Europe — to judge by the number, size and elegance
of palaces and castles which kings, dukes and their retinues had left
behind — extravagance of this parasitic nature was not completely
absent.
The Industrial Revolution brought about a profound change to
all this. The use of machines in producing goods came about in gradual
stages over many decades. The significance of machines was not at first
grasped by thinkers of the day and it was Karl Marx, a thinker of great
originality and power, who first saw the real long-term effects of the
Industrial Revolution. He realized that mankind, for the first time in
history, had within its grasp the ability to achieve standards of living far
beyond that possible under the system of subsistence agriculture which
had hitherto been the main occupation of the majority of the human
race. Marx understood this, while the others were complaining of the
"dark satanic mills". Marx saw the basis of progress in the surplus value
created by the application of labour to machines, the surplus production
that is available after the worker is given sufficient means to keep
himself alive.
Marx thought that if the surplus value were to be shared by
everyone, then eventually human society would attain such a stage of
abundance that the conquest of poverty would be achieved. He saw
these possibilities while virtually all his contemporaries, under the
influence of Malthus, believed that the vast majority of human society
was doomed to perpetual and abject poverty because the increase in
population always exceeded that of food supply. But, as you know, Marx
thought that mankinds advance to universal happiness was hindered
by the bourgeoisie, that is, the owners of capital who, instead of sharing
the surplus value with everybody, took the whole lot for themselves. It
is, of course, easy for us to denigrate Marx today as, in the event, history
has proved him wrong on this point. But at the time in which he lived,
he had strong justification for his belief.

Parasite States 111
The Industrial Revolution gathered full strength in Western Europe
in the 19th century, and so the bases were laid there for the growth
of modern industrial systems. It saw not only the accumulation of wealth
on a vast scale, but also the growth of large cities, factories and the
introduction of new processes and products. It also brought about
social upheaval on an unprecedented scale.
It was in response to the problems created by the Industrial
Revolution that the government's functions grew in scope and complexity,
and the nature of government itself changed. Industrial growth under a
completely free enterprise system treated with great harshness people
who could not adjust to it. Unemployment during slumps required
positive action by the government, as the unemployed had no rural
refuge to return to. Further, it was quickly perceived that industrial
growth required new skills and this could best be attained by taking over
the education system from its traditional handlers. The governments
were involved in the education and training of its population on a scale
never experienced before; similarly in many other fields like health,
communications. All this is familiar in recent history.
The rise of industrial societies in Europe put an end to parasitic
governments in that continent. Even before the Industrial Revolution
went into full swing, the liberal ideas which preceded it brought about
the downfall of a number of monarchies in Europe and produced a
chastening effect on the survivors. More important than the effect of
ideas was the rise of two new social classes — the industrialists, that is,
the owner of the new wealth created through the Industrial Revolution,
and the large industrial working class employed in the cities and the
factories. They demanded and obtained a form of representative
government in which right's of the individual, the rule of law, and
sanctity of contracts were enforced, thus bringing about the abolition
of arbitrary government.
Power in the government no longer lay in the hands of hereditary
kings, but in the hands of elected governments. Because of the complex
scope of government operations, an entirely new professional civil service
had to be engaged to implement the policies of the elected government.
However, the end of parasite government did not necessarily
mean the end of all trouble for the people of Europe. For the disunity
of the European peoples resulted in, as I have said, rival kingdoms with
many of them inheriting strong militarist traditions. And the major
European powers had a long historical involvement in national rivalries.

178 The Economics of Modernization
With the new technology produced by the Industrial Revolution, wars
became far more disastrous in terms of human casualties, and involved
entire populations in tragic losses when they occurred.
Let us consider the conditions of developing states against the
background of the celestial empire and the modern states created in
Europe following upon the Industrial Revolution. It is clear that the
economy and political systems of newly emergent countries of Asia
and Africa possess a number of features found in both the modern age
and in antiquity. It is the coexistence of these incongruous elements
which lie at the root of much of the troubles now facing them. Let us
examine some of these.
In most of the developing countries, the traditional society such as
existed in medieval or even pre-medieval times continues to function
untouched by modern science and modern technology. In so far as these
countries depend on peasant agriculture, as is the case with most of
them, the strength of these traditional societies is very great. Regrettably,
they remain largely obscurantist and opposed to change and progress.
At the same time, developing countries have taken over wholesale
the political institutions and systems of governments from the industrial
states. They have elected legislatures (or appointed ones when the
constitutional government is abolished), professional civil services,
standing armies, judicial codes, development plans, and all the formal
paraphernalia of a modern state. In most countries, strong elements
of modernity have existed in the cities. These include modern means
of communications (railways, seaports and air terminals), manufacturing
industries, radio, television, newspapers, universities, and so on.
Unfortunately, behind the paraphernalia of a modern state, there
has not been built up in many of these countries the underpinning to
the political system which was successfully realized in Europe. One can
proclaim a modern constitution quite easily, since lawyers can be engaged
to draft one. But without a solid base of support from a mature citizenry,
and without the checks and balances against government abuse which
developed in Europe out of the powerful new classes, the industrialist
and organized labour, there could be no secure guarantee against the
return to parasitical tendencies which has plagued the governments
of so many societies in the past. Universal franchise, though of some
value, has proved to be ineffective where the majority of the electorate
are peasants.
It may well be that the institutional support which developed in
Europe will also be created in the states of Asia and Africa in course of

Parasite States 179
time. It could be argued that political development in Europe to its
mature form of today required more than two centuries, whereas it was
barely two decades since the independence of most of the new states.
Such an argument is of little value as it gives no indication of how to
meet the practical difficulties of the day in the face of the urgent need
to achieve fast progress.
In the immediate post-independence years, men in these new
states were inspired by the vision of rapid and continuous progress, the
conquest of age-old poverty which had afflicted most of their population,
and the transformation of backward populations into modern societies.
It is becoming clear today that the original hopes are not being fulfilled.
It is not merely a matter of progress being slower than expected, though
the ability to reach the goal eventually is not doubted. Doubts are being
felt on this basic point. This loss of confidence is the result not merely
of dismal annual statistics on balance of payments or of economic
growth rates. To many people, these are incomprehensible in any case.
What is distressing is that the loss of confidence has been the result
mainly of the lowering of standards of public service, both among the
professionals and among the political leadership.
The general picture is one that can give no reason for complacency.
In many poor countries, civil service standards are seriously jeopardized
by political patronage, that is to say, the appointment into the civil
service not on merit but by virtue of political connection. Concurrently
with the growth of the spoils system, we have seen the rise of graft and
corruption on an increasing scale.
All these are symptoms of the parasitic tendencies of government
to which I have referred. Unlike the traditional monarch of antiquity,
the mayor of a city or an elected minister or a civil servant cannot lay
claim to an exceptional standard of opulence and luxury by invoking
the doctrine of divine right. If he wants to achieve such exalted standards
of living, he must do so by surreptitious means, that is, by graft.
It is this decline in the standards of administration and in the
standards of public service that is at the root of economic stagnation.
Opportunities for parasitic activities are much more numerous and
profitable in emergent countries of today than they were in traditional
societies. The modern sector which has been established in most
new countries produces a surplus value through the application of
technology, and it is this surplus value which the parasites in government
prey upon.
There are many economists, I regret to say, who believe that

180 The Economics of Modernization
economic development in poor countries is possible in spite of corruption.
In theory, they may be right. But they assume that human avarice can be
kept within tolerable limits and this is contrary to the experience of
history. Corruption may be tolerated in a country so rich in resources
that the pocketing of a few millions here and there will not have much
effect on the economy. But not all the poor countries have oil fields
in abundance, and those who have a superpower to serve as universal
aunt are not many. In fact, most countries are in a tight situation, and
the filching of surplus value by corrupt politicians and civil servants
would mean the transfer of resources from capital formation either
into a Swiss bank or into conspicuous consumption. In either case, the
effect on development is bad. But such technical economic effects are
minor compared with the demoralization which corruption spreads
throughout the whole of society. The formation of new skills, the
development of new attitudes of thrift, enterprise, integrity, which are
so necessary in running the institutions of a modern state — all these
are totally subverted, and their effect is far more damaging than the
short-term economic effects of resource diversion.
It seems to me that in discussions on economic development,
there has been too much emphasis on the purely technical aspects of the
development process to the neglect of social and political questions.
Where a society is governed by what is basically a parasite government,
no amount of foreign capital inflow or technical assistance can make for
enduring change and bring about the upsurge of production necessary
for self-sustaining growth. As a result of overemphasis on the technical
aspects of economic development, people have forgotten that the basic
ideas are really simple. First, we must accept that what took Europe two
centuries to achieve cannot be done in Asia or Africa in a few years. But
it can be done in less than two centuries. Second, progress cannot be
achieved when society is confused, bewildered and demoralized. The
effort needed to create a modern industrial system is immense and would
require a strong national sense of single-minded purpose if it is to be
achieved in a short space of time, say, over three generations. If for this
period, the underdeveloped country can enjoy enlightened government
of integrity, the transformation of backward society can be accomplished
in stages through education and by application of science and technology
to all forms of production. The knowledge and techniques to do all
this are known and only need to be absorbed and applied. Where the
whole of the increased output produced by modern technology is returned

Parasite States 181
to the system to create new wealth, then we look with confidence to
self-sustaining growth.
The case of Japan underlines the point which I am trying to make,
that is, it is necessary to have a firm and durable political structure under
a leadership continuously committed to the drive to modernity. The
Meiji Restoration in the last century provided the Japanese with this
opportunity, and under the institutions which they developed, sometimes
borrowed from the West but essentially adapted to the needs of
Japanese society, they have become the first and, today, the only
nation in Asia to equal the West.
In contrast with this, the poor countries in Asia and Africa, with
very few exceptions, have failed to establish durable and firm political
institutions which can propel their societies into the 20th century and
beyond. In too many countries, we have seen imported constitutions
complete with elections, legislatures and so on winding up as total
failures. With their collapse, men with the gun have taken over.
What amazes me about the whole situation is that there has been
very little thinking of substance done on these basic problems. It will be
wrong to say that no thinking of any kind is done. Indeed, there is a
profusion of books, conferences, and papers on problems of poor countries.
But these are mostly on technical minutiae and not on the essentials.
Our countries are in many ways in a situation similar to that of China
in the times of Confucius and of the Hellenic world of the same age. In
China, there was vigorous intellectual debate about the nature of society
and government, and many schools of thought contended. In addition
to Confucius, we had the Taoists, the Legalists, the Moists, the Logicians
and many others. The intellectual ferment in the Hellenic world is
better known to all of us. But in developing states, we have nothing
equivalent to this, even though our problems are equally pressing and
our opportunities much greater.
This being a meeting of members of unions affiliated to Public
Services International, I would suggest that the arguments which I have
put forward before you in this address may be worthy of consideration,
if not at this meeting, at least on some other occasion.

Socialism in Singapore
Speech delivered at the combined annual dinner of the Singapore Manufacturers
Association and the 9th Pioneer Certificate presentation ceremony on 13 June
1969.
This occasion, the combined annual dinner of the Singapore
Manufacturers' Association and the ninth Pioneer Certificate
presentation ceremony, is both an important and an auspicious one. It
would not be inappropriate for me to go beyond mere courtesies and
formalities and make some statements of policy significance.
Today is a happy occasion when leaders of the People's Action
Party Government and the leading industrialists of the Republic celebrate
an important event. But let me take you back exactly 10 years and
10 days when my Government first assumed office on 3 June 1959.
Businessmen and industrialists, far from hailing this event as a happy
augury for the future, felt for the most part that the end of the world was
around the corner. The stock market collapsed and there was a flight of
capital out of Singapore. Several people fled the country. In a short time
of 10 years, we brought about a transformation of the business climate.
This transformation is by no means an unqualified blessing to
us, the Government leaders belonging to a radical socialist party such
as the PAP is. There is a story — probably apocryphal — that the
eminent Swedish economist Professor Gunnar Myrdal, after a visit to
socialist Singapore, told his academic colleagues that the way to make
capitalism work in Asia is for the people to elect a socialist government.
My colleagues who have attended international conferences of socialist
parties can hardly escape some feelings of embarrassment when fellow
socialists from other parts of the world gently deprecate us for the
indulgence that Singapore socialists extend to the class enemy.
1R7

Socialism in Singapore 183
What I want to do first tonight is to give an account of facts and
figures to suggest that the PAP Government are good socialists
notwithstanding our genial relations with the capitalists. It is one of
the fundamental tenets of socialism that the state should own a good
part of the national wealth, particularly what is called the means
of production. In this regard, that is state ownership of the means of
production, it is my submission that the socialist state of Singapore is
not lagging behind the achievements of socialist governments in other
parts of the world, probably ahead of most of them. In parenthesis,
may I say when I use the term "socialist" I exclude Communist states.
Let me now present the facts and figures. To start with, the
Singapore Government is by far the biggest and most successful landlord
in the Republic. The achievements of the Housing and Development
Board hardly need any commendation from me; I merely want to present
the figures. Excluding the properties they inherited from the former
Singapore Improvement Trust, the Housing and Development Board
have built 93,300 flats up to 31 December 1968. The value of these flats
and the land on which they are built, valued at cost and not at market
price, plus granite quarries and various machinery and other assets,
amounts to $380 million. Some $49 million have been spent on
reclaiming land in Kallang Basin and off East Coast Road. A conservative
estimate of the market value of the land would be twice the expenditure.
This gives a total of $478 million.
The value of the assets belonging to the Jurong Town Corporation,
which has properties in 13 industrial estates, amounts to $341 million.
In addition, the Government has inherited equities taken over
from the Economic Development Board on the formation of the
Development Bank of Singapore. These equities have an original cost
of $37.3 million and a current market value of $88.3 million.
In addition, the Government owns, as you know, half the shares
of the Development Bank. It also has established the Neptune Orient
Lines, an international trading company, INTRACO, and owns a
substantial part of the Malaysia-Singapore Airlines. The value of these
assets comes to $178 million. If we add these totals, which is the
Governments ownership of properties and business, we get an aggregate
of $1,085 million. It should be noted that this figure excludes the value
of our holdings of Keppel Shipyard and Sembawang Shipyard. It does
not take into account the assets belonging to the Port of Singapore
Authority, the Public Utilities Board, the Singapore Telephone Board
and other minor statutory authorities.

184 The Economics of Modernization
To the state ownership of $1,085 million in real estate and business
in the Republic of Singapore itself, we have to add another $2,200
million worth of overseas assets. This gives a total of $3,285 million
or $3.3 billion for short. In 1959, my Government inherited from
our predecessor overseas assets worth $362 million. So you can see that
in 10 years' time, the socialist Government of Singapore has created
nearly $3,000 million worth of new wealth. I therefore hope that my
colleagues, when they attend the next international conference of
socialists, will be less apologetic about our performance as socialists.
They may even make the point that unlike other socialist governments,
when we invest in industry, we make a substantial profit on our
investments. Further, my colleagues can claim in complete honesty
that this creation of new wealth was achieved entirely by the exertions
of the people and Government of Singapore. We did not receive one
cent of foreign aid in the enterprises I described.
The creation of new wealth in the public sector has been matched
by equally successful performance in the private sector, particularly in
the manufacturing industry. The growth of membership of the
Singapore Manufacturers' Association, the number of pioneer certificates
awarded, and the large number and high morale of present company
testify to this more vividly than any array of statistics can.
The present state of affairs suggests that the view that you can
make quick profits on trade, that is buying and selling, while returns in
the manufacturing industry are slow, is not true. I will rebut this point of
view by taking one or two concrete examples. If, five years ago in 1964,
any Singaporean had sufficient foresight to put in $150,000 in National
Iron and Steel, he would today be a millionaire. I wonder if it is possible
to increase your capital by seven times in five years in any other line
of trade? There are other instances — to name a few, Pan-Electric
Industries, Sheng Huo, Prima Flour Mills, Jurong Shipyard. Jurong
Shipyard had difficulty at the beginning in getting capital from people,
many of whom thought the whole idea was quite crazy. I exerted
persuasion on a close friend of mine and, just to do me a favour, he
agreed to put in a quarter million dollars into this venture. If Jurong
Shipyard goes public today, his shares will be worth much more than
a million dollars. So you see, it is not true that you can't get rich quick
in manufacturing.
This brings me to the question of the stock exchange, because it
is the appreciation of the capital values of your investments in the stock

Socialism in Singapore 185
exchange that enables you to multiply the value of your initial investment.
We have a good stock exchange in the Republic.
A good stock exchange is a great asset to an industrializing country.
It is an effective way of mobilizing domestic capital and, more important,
the opportunities for capital appreciation on good performance is one
of the great incentives to industrialization.
A stock exchange, in this country or elsewhere, is a valuable
instrument of capital formation only if it enjoys and retains public
confidence. This requires, on the part of members of the stock
exchange, both wise judgement and ethical conduct. Otherwise failures
of some issues would undermine public confidence and would damage
and possibly destroy the viability of the stock exchange. This has
happened in several underdeveloped countries as a result of unwise or
unethical practices.
There is a rush by various companies to seek listings on the Stock
Exchange. A good number have already obtained listing this year and
many more are in the pipeline. There is an arrangement between the
Stock Exchange and the Finance Ministry whereby initial vetting is
done by the Ministry. I would have preferred the Stock Exchange to
exercise final judgment on whether an application for listing should
or should not be approved. Members of the Exchange, however, are
reluctant to take on this responsibility, presumably because the
Management Committee does not like to turn down the applications
sponsored by another member of the Exchange, I suppose on the
principle that dog does not eat dog. So they accept the assessment of the
Ministry of Finance. In practice, this means that my Permanent Secretary,
Mr Joe Pillay, and myself become a two-man capital issues committee.
We have recently refused three applications. This does not reflect upon
the adequacy, integrity or effectiveness of the businessmen concerned.
We refused to recommend listing because we were not satisfied that
they could achieve a satisfactory rate of profits on the capital structure
proposed.
Neither Mr Pillay nor myself relish performing the role of final
arbiter on stock exchange listing. We are human beings and, as such, not
infallible in our judgment. I don't know what the final solution should
be and, because of this, I have asked for an expert from the United States
through the International Executive Service Corps to look into the
workings of the Stock Exchange and to make recommendations to me.
But I want to stress that whatever I have said about the Stock Exchange

186 The Economics of Modernization
today is in no way intended to denigrate the efforts and achievements
of its members. They have performed yeoman services in the past and
no doubt will continue to do so in the future.
While we are talking about how to make fortunes on the stock
exchange, it is as well to remind ourselves of the labour theory of value,
to which, as socialists, my colleagues and I subscribe. I make this point
because some businessmen, delighted at the discipline imposed on
wage labour by the new Employment Act, believe that now is the time
to put the worker in his proper place and to extract the maximum blood
and sweat out of him. This attitude is wholly to be condemned. The
new Employment Act not only imposes discipline and responsibility
upon the worker, it does so even to a greater extent on the employer.
I have received complaints from the National Trades Union Congress
of alleged malpractices by certain employers. These are being investigated
and if verified, the employers concerned will find themselves in very
deep trouble. Let them be under no misapprehension about the sanctions
available to the Government to bring them to heel. This type of
unthinking and unenlightened employer pushes his labour force around
and acts in a high-handed manner. When the labourers have reached
their limit of tolerance, they take collective action and, in the subsequent
confrontation, it is invariably the employer who succumbs, giving way
to one demand after another, however outrageous and unreasonable
these demands may be. I have seen too many of such instances and
I intend to put a stop to this. Irresponsibility in one quarter breeds
irresponsibility as a response, and the result is to endanger the entire
stability of the wage structure of the Republic. Happily, it is only a very
small minority of employers who stand in default and thus it is easier
to deal with them.
Let me set out once again the background thinking of the
Government which moved us to pass this new Employment Act. The
basic object is to mop up the large pool of unemployed young men and
women looking for their first jobs in the labour market. And this must
be done under two adverse conditions. First, a small domestic market is
of little value to much of modern industrial processes. Second is the fact
that Singapore must compete with low-wage countries like Taiwan and
South Korea for investment capital and know-how. We cannot afford
an undisciplined labour force, nor can we afford a wage spiral. That is
why we have the new Employment Act.
But let us not forget that the ultimate object of this whole exercise
of industrialization is not to provide fortunes for a fortunate few, but to

Socialism in Singapore 187
raise the standard of living of the entire working class- This must be the
credo of a socialist government. At present, it is possible for some
industries which have got over their teething troubles to afford a steady
and reasonable increase of wages to their labour force. Such increases
should be linked with increases in productivity. My colleague
Mr Rajaratnam and I are holding discussions with the NTUC on how
this can be achieved without reducing our competitive edge as a good
centre of industrial investment. I am also holding discussions with
leaders of the Singapore Manufacturers' Association on how temporary
shortages of labour in particular categories can be overcome by relaxation
of immigration requirements, work permits and such-like administrative
measures.
What I have said so far this evening underlines one important
principle which has been said in the past, but which is worth repeating.
This is that there must be willing and intelligent co-operation between
the three parties who are vitally interested in achieving economic growth
— namely, the Government, the businessman and the labour movement.
If we continue to work together towards this common purpose, I am
confident that the successes that we will achieve in the years ahead will
be even greater than those we have left behind us. The Singapore
Manufacturers' Association has always extended maximum co-operation
to the Government, which is greatly appreciated, and I am sure we all
look forward to the furtherance of good relations between the
Government and industry.
Finally, let me offer my heartiest congratulations to the 43
companies who have been awarded Pioneer Certificates this evening.
I wish them every success in their endeavours.

5 The Nature and Appeals of
Communism in Non-Communist
Asian Countries
Address given in Canberra to the Australian Institute of Political Science on
28 January 1967. First published in 1967 in Communism in Asia: A Threat
to Australia?, Angus and Robertson Ltd.
Those who in private life behave well towards their parents and elder
brothers, in public life seldom show a disposition to resist the authority
of their superiors. And as for such men starting a revolution, no
instance of it has ever occurred.
(The Analects of Confucius, Waley edition, Book I, Verse 2.)
The Elite Combat Party
There is a widely held misconception about the nature and appeals of
communism in backward countries. Communist appeal and Communist
strength are sometimes believed to be the result of poverty, oppressive
domestic government or frustrated nationalism. I think this pays the
Communist movement an undeserved compliment, placing it in the
role of a Galahad in shining armour, defending the exploited peasant
against the landlord, or fighting imperialists on behalf of oppressed
subject peoples. It is easy to cite examples from contemporary history in
refutation of this view. For instance, when it went Communist, Cuba
was one of the most literate Latin-American countries with a standard
of living much higher than the average. The State of Kerala in India,
where the Communist appeal is strongest, enjoys the highest rate of
literacy in India. Singapore is considerably richer than the State of
Trengganu in the east coast of Malaya. There is a well-developed
Communist underground in Singapore, but nothing of significance in
Trengganu. The Indian nationalists have been frustrated for decades

The Nature and Appeals of Communism in Non-Communist Asian Countries 189
prior to the achievement of independence, but Communist influence
during the struggle for independence was not of consequence. On the
other hand, Ceylon got her independence the easy way, and communism
there exerts more influence than in India. In the new African states, no
Communist Party worthy of the name emerged, despite a long tradition
of frustration. But in the Republic of Haiti, where there is degrading
poverty, extensive ignorance and an atrociously oppressive regime, these
conditions have not produced a Communist movement. All these
examples do not prove or disprove that there is some relationship
between poverty, nationalism and misgovernment and the rise of
communism. I believe that a relationship exists, but it is not a direct one
and operates in a subtle and complex manner.
A valuable starting point in the process of understanding this
relationship is to study the nature of the Communist Party, the way it
operates, the type of people who work for it, and the different kinds
of appeals it holds out to different people. It is important to realize that
the Communist Party is a special type of organization and that the
Communist is not an ordinary person. The Communist Party in any
country has only one purpose — the revolutionary capture of state power.
To achieve this objective, the Communist Party has at its disposal,
standard doctrines and ideologies which have grown out of the thinking
and experience of Communists in many countries for more than a century.
To understand the appeals of communism in Asian countries — or
elsewhere — we must take into account the Communist ideology. The
ideology itself has no appeal to the general public and is probably
incomprehensible to the ordinary citizen. The Communists never attempt
to direct their ideology for public consumption in countries in which
they have not assumed power. But the ideology sets out very clearly the
nature and objectives of the movement, its operational techniques,
the types of persons it recruits, how it trains them, and how they should
be deployed over a broad front to create a situation favourable to a
Communist revolution.
The ideology itself can be classified under two categories. The first
consists of that part of their belief which relates to the interpretation
of historical development of human society. This part of the ideology
I shall call the Communist theology. The second part consists of
principles underlying their organizational and operational methods.
I shall call this the doctrine and, in fact, its meaning is very similar to
the term as used by the military.

190 The Economics of Modernization
First, the theology. This was expounded by Marx and Engels in
the great classics of the 19th century, and can be labelled as dialectical
materialism. The theology envisages the development of human
society in a series of quantum changes, as society is transformed from
one system to another rather like a chick emerging from the eggshell
The propelling force behind these changes is antagonism between
social classes. At any stage of the development of human society, a
new social class emerges and grows in strength and reaches a point
where it overwhelms the existing social order and transforms it into a
new one. In the new society, the emergent class forms the dominant
power. Thus capitalism has, within it, its own seeds of destruction
through the growth of large numbers of factory and industrial workers.
In the course of the development of capitalism, two processes take place
— the concentration of capital in fewer and fewer hands, and the
increasing impoverishment of the general population. The workers
finally overthrow the system and establish a classless society in which,
presumably, the dialectics of history cease to operate.
All this is old-fashioned stuff familiar to most people. This theology
— Marxism as it is commonly known — might well have died a natural
death and be relegated to the limbo of history, just like other 19th-
century philosophical protests against the Industrial Revolution, such as
Utopian socialism, guild socialism, syndicalism, anarchism and others.
But Lenin and the fortuitous circumstances of World War I produced
conditions favourable to the capture of power by Communists in Russia
by the methods advocated and developed by Lenin.
Lenin's contribution to Communist doctrine was the result of the
activities of the tsarist secret police, the Okhrana, in arresting and
detaining Communists, activists and sympathizers, and banishing them
to the frozen wastes of Siberia. While the rapidly expanding working
class in imperial Russia provided great opportunities for the Communist
movement to exploit, their activities were continually disrupted by
the tsar's secret police.
Lenin saw the solution to this problem in the creation of a party
of professional revolutionaries working as a secret organization. "Give
us a party of professional revolutionaries," said Lenin, "and we will
overturn the whole of Russia."1 Without this, no movement could
1 VI. Lenin, What is to be Done7 first published in 1902 in Stuttgart, reprinted in Moscow by Foreign
Language Press, 1947, p. 142.

The Nature and Appeals of Communism in Non-Communist Asian Countries 191
endure as there would be no stable leadership to maintain continuity,
"When we have detachments of specially trained working class
revolutionaries who have gone through long years of preparation, no
political police in the world will be able to contend against them, for
these detachments of men, absolutely devoted and loyal to the revolution,
will themselves enjoy the absolute confidence and devotion of the broad
masses of the workers,"2 The control over these revolutionaries was to
be vested in a centralized leadership which would secretly deploy them
to the great mass organizations whose key leaders should be either
Communists or those amenable to Communist influence.
These mass organizations should be ruthlessly utilized for the
revolution. Lenin said this of trade union penetration: "It is necessary
to be able to withstand all this, to agree to any and every sacrifice and
even, if needs be, to resort to all sorts of stratagems, or manoeuvres, and
illegal methods, to evasions and subterfuges, in order to penetrate trade
unions, to remain in them and to carry on Communist work in them
at all costs."3
Lenin developed both the general idea of the revolutionary
vanguard party as well as the tactical and strategic principles underlying
the quest of power. The ultimate objact is to undermine, through civil
disturbances and political crises, the will of the ruling class to govern
and, at the critical point, to take over state power through a well^
planned and ably directed insurrection. The cutting edge of the
insurrection was to be the industrial working class led and directed by
the Communist Party.
From the victory of Lenin's Bolsheviks in Russia in 1917 till the
rise of Mao Zedong in China in 1935, the Leninist type of party became
the model for all Communist Parties to emulate. But the Chinese
Communists battling the Kuomintang in China found that the Leninist
type of party and tactics did not work. The urban insurrections which
they mounted between 1928 and 1930 failed and only resulted in
weakening the Communist movement.
Mao's contribution to Communist doctrine lay in the recognition
that in backward countries, where some 80 per cent of the population
live in the countryside, the industrial working class was too small a base
2 Lenin, op. cit., p. 149.
3 VI. Lenin, "Should Revolutionaries Work in Reactionary Trade Unions?" in Selected Works,
Vol. 10, London, Lawrence & Wishart, 1938, p. 95.

192 The Economics of Modernization
on which to mount a revolution. Seeing that China s industrial proletariat
proper amounted to no more than 5 per cent of the population, one
would have thought the point to be self-evident. Nevertheless, it
constituted a basic departure from the Leninist doctrine of proletarian
revolution and it was Mao who formalized the new doctrine. The security
of the leadership and the movement could not be achieved merely
through resort to underground professional revolutionaries working in
an urban industrial environment in the thick of the enemy. Instead,
Mao advocated the establishment of a rural sanctuary which was
physically separate from the enemy, and which was defended by an
armed force. From this rural base, the Party sought to extend its power
and influence outwards. Instead of working class support, the revolution
had to depend on the peasants. Instead of the swift insurrection, there
was to be the protracted war. But though it was recognized that
political power grew out of the barrel of a gun, the supremacy of the
Party over the armed forces was upheld as an absolute principle.
Let us see how theology and the doctrine operate in practice. The
Communists have constantly laid stress on the importance of what they
term "ideological consciousness" and "doctrinal purity". And they are
quite right. But theology and doctrine are not studied as academic
pursuits but for their value in practical work, which is considerable in
the hands of a skilled operator.
For instance, in the recruitment of new members, the theology
has a great appeal value in that it provides the puzzled initiate an
understanding of the modern world. In the new Asian states, it is strange
but true that nobody bothers to advance an intellectually satisfying
account of the modern world — how it came into being, the type of
rational thinking demanded of a society based on a complex technology,
and suchlike matters. So in the absence of a competing Weltanschauung,
the Communists very often win by default of others. For the young man
trying to make sense of the profoundly disturbing state of affairs in
his society, the theology can well provide what appears to him a
tremendous insight into the perplexities confronting him.
The second function of the theology is to act as a filter to
discriminate between suitable and unsuitable material for the revolution.
For instance, those who are unconcerned with public affairs will not be
attracted by it, whereas those who are concerned will constitute more
promising recruit material. The theology also selects the types who are
disaffected by society and who have a desire to improve it. These types

The Nature and Appeals of Communism in Non-Communist Asian Countries 193
are naturally prevalent in societies which are in the process of rapid
transition, as those of most Asian states today.
As regards the value of the doctrine and theology in revolutionary
work, the contribution is enormous. The theology guarantees the
inevitability of victory thus helping to maintain high morale, especially
in adversity. Both theology and doctrine act as intellectual tools whereby
the Communist can assess the situation confronting him, on the basis of
which he can formulate his plan of action. They enable him clearly to
distinguish between friend, foe and neutral. The United Front doctrine
teaches the Party operator how to manipulate neutrals and sympathizers
against the main enemy, in fact how to identify the main enemy. Where
the Party exists as an underground organization, its members must be
able to operate independently and correctly implement the occasional
general directive from superior Party authority. Without proper training
in the doctrine, he can hardly do this. Organizational principles and
practices serve to isolate the Party worker in a hothouse environment
where a high tempo of activity goes on all the time, absorbing all his
interest, giving meaning to his existence, and maintaining a high state
of morale. In this manner, the Communists establish and maintain a
band of disciplined and dedicated persons who have surrendered their
loyalties to a larger and impersonal cause. Communists generally observe
a higher standard of conduct than their rivals, and when this happens,
it can plainly be seen by those for whose loyalty they are competing.
In the process of his conversion from a raw recruit to a hardened
revolutionary, the good Communist learns a number of valuable lessons.
For instance, as a trade union leader, he knows that what he should
strive after is not the best possible terms for the workers, but just enough
to increase the prestige of their pro-Communist leaders and not enough
to make them complacent or to weaken their militancy. Too good a
settlement will not only do this, but may give the lie to the Communist
dogma that the worker's livelihood can find no fundamental solution
in the capitalist system.
The good Communist has a keen nose to scent out various kinds
of social dissatisfaction. His training in doctrine and his experience
enable him to judge which of these present the most promising issues on
which to mount agitation, given the resources and personnel at his
disposal. When an issue has been selected — or even created, as can be
done given adequate organizational support — the real purpose is not
the declared one, that is to get a solution to these problems and difficulties,

194 The Economics of Modernization
be they high food prices, oppressive land rents, etc. The first aim is to
bring discredit upon the powers that be, weaken people's confidence in
them, and add to the general climate of discontent. Next, the operation
serves as an organizational exercise and helps to identify capable
leadership which may emerge in the campaign and to provide experience
to everyone engaged in it. Finally, if successful, it demonstrates the
strength of the Communists or, where the party is illegal, that of
the Open Front organizations. In this manner, they hope to convince
the people that ultimate victory is on their side, a consideration which
no politician will dismiss as unimportant.
The good Communist at a higher level of leadership will know
how to direct combined operations with other political and social groups
without losing the identity of his movement. At the same time, he must
be adept at deception, for it is often necessary that certain campaigns
must appear to be untainted by Communist involvement so as to attract
a larger following. The mature Communist will also learn how to evade
police surveillance, how to avoid arrest, how to establish secure
communications on delicate subjects, how to arrange "safe houses" and
do other practices of relevance to clandestine activity.
In the Maoist type of revolution, when guerrilla war has taken
place, the Party cadre has to be even more versatile. He must be able to
command military formations in accordance with his Party rank. More
important, he must be able to secure the political allegiance of the
villagers on whom the armed forces depend for supplies and recruits. In
the process of the revolution, he will have to do a number of unpleasant
things, such as the identification and execution of government officials
and agents.
What emerges from this account of how Communists operate is
that the appeals of communism fall into two distinct categories. First,
the appeal to potential Party recruits, future members of the elite combat
party. This mainly takes the form of the theology and doctrine we
discussed. In the new Asian states, this appeal is addressed mainly to the
intelligentsia, not only in domestic institutions of learning, but also in
foreign universities attended by them. The foreign Communist net can
be relied upon to make attempts to cultivate these students. The response
to this appeal varies with the circumstances of the intelligentsia of the
Asian country as well as with the character of the individual. In general,
response is likely to be good when prospects of a meaningful career are
poor, when the person is able and ambitious, when traditional cultural

The Nature and Appeals of Communism in Non-Communist Asian Countries 195
restraints have broken down, and when the intelligentsia is confronted
with manifest injustice of which no other methods of redress seem
feasible.
The other type of appeal is addressed to what is called the "masses",
that is, the general public or a specific segment of it. This consists of the
exploitation of specific grievances or of general discontent. It is the
party apparatus that selects and defines the issues, plans the campaign of
agitation and directs the Open Front organizations which carry it out. It
is important to realize that the expression of social discontent in this
form is not a spontaneous social process, but a planned and organized
political effort. That is why a good Communist Party establishes a wide
variety of front organizations to cater for every conceivable interest and
exploit any promising situation. Trade unions are a natural target of
penetration and control. So are organizations of youth, women, farmers,
students. Cultural organizations can lend weight and respectability.
In a thriving Communist movement, there is constant and growing
interaction between the leaders and the mass organizations, strengthening
each other in a cumulative way, both in terms of political influence and
organizational strength. It is in the mass organization that non-
intelligentsia leaders are detected, cultivated and recruited into the
Party, providing proletarian stiffening to the intellectual elite. This
stiffening remains a minority group; for instance, among Ho Chi Minh's
Communists in 1953, less than 28 per cent were of peasant or working
class origin.4
In a well-ordered society, the ordinary citizen does not contemplate
engaging in the horrendous activities which the Communist Party
member will have to do in the line of duty at one time or another in his
revolutionary career. And yet in the countries we are studying, over the
last two or three decades, large numbers of young men and women with
fine intellect, admirable character and often of impeccable family
background have been drawn into doing this. How and why has this
happened? We may find some tentative answers to these questions if we
examine the experience of Communist Parties in these countries,
particularly during World War II and after.
4 John C. Donnell, "North Vietnam: A Qualified Pro-Chinese Position", in Robert A. Scalapino
(ed.), The Communist Revolution in Asia- Tactics, Goals and Achievements, Englewood Cliffs, N.J.,
Prentice Hall, 1965, p. 142.

196 The Economics of Modernization
The Southeast Asian Experience
The Communists in Indonesia did not emerge in the immediate post-
war period as a clearly identifiable group. There was a little uncertainty
as to who were the Nationalists and who were the Communists, and
many of the emerging leaders subscribed to both Marxism and Indonesian
nationalism. In the military and political campaigns against the Dutch,
until the return in 1948 of Musso, a legendary Comintern leader, the
Communists formed part of the left-wing (Sajap Kiri) of the Indonesian
Nationalist movement. When the chips came down in 1948, many
members of Sajap Kiri who were thought to be Socialists or Nationalists
announced themselves as Communists. These were members of a returned
student group from Holland.
Musso sought to give the Communists in Indonesia a distinct
identity and to capture the leadership of the revolution through the
Communist Party of Indonesia (PKI). His efforts were brief and
stillborn. A revolt by some Communists irregular detachments broke
out in Madiun in September 1948 and Musso immediately threw in the
support of PKI leaders around him to the rebellion. This was easily
crushed by Nationalist troops. Not only did the revolt fail, but it incurred
for the PKI the odium of national betrayal, as it occurred at the time
when the Dutch were expected to launch one of their pacification
drives against the Indonesians.
The Madiun rebellion had profound effects on the subsequent
policies of the Indonesian Communist Party. Because large sections of
the Communist movement opposed the Madiun rebellion, it was possible
for the Communists to return to legitimate activity fairly soon, and by
1951, they appeared to be in full swing and had engineered an extensive
series of strikes. As a result of this, large numbers of Communists were
arrested and detained by the Sukiman Government and the Party was
crippled.
It was after these experiences that the leadership changed hands,
and Aidit and his colleagues obtained ascendancy in the Party. Aidit
reversed the previous policies of the PKI which got them into such
disrepute. Instead of unqualified hostility towards the Government and
the general nationalist movement, Aidit adopted a flexible policy of
conditional support for the government in power, attempting to win
over the more traditionalist Muslim Party, the Masjumi.
At the same time, Aidit advocated enthusiastic support for
Soekarno and, in particular, encouraged the President towards extremist

The Nature and Appeals of Communism in Non-Communist Asian Countries 197
nationalist postures involving a strident anti-imperialist and anti-Western
advocacy. As regards Party organization, Aidit decided to enlarge the
membership of the PKL It was apparently thought that the elite nature
of the PKI (which numbered only 7,910 in March 1952) was responsible
for its vulnerability to mass arrests. By converting the PKI into a mass
party, Aidit had abandoned the basic Leninist principle of a conspiratorial
vanguard party of professional revolutionaries.
Possibly, the PKI leaders had decided that the Leninist type of
revolutionary work merely served to isolate them from the mainstream
of Indonesian nationalism. As such, they probably decided that it would
be better to work towards a re-entry into the mainstream of the Nationalist
movement than to oppose it. The quest of legitimacy rather than the
pursuit of revolution became the principal object of the PKI.
The flexible strategy of Aidit's leadership appeared to pay off as
the Party membership rapidly expanded to some 2l/2 million. The scope
of its United Front organizations increased in width and in depth,
covering virtually all strata of Indonesian society from workers in SOBSI
trade unions, peasants in the Barisan Tani Indonesia (Indonesian Peasant
Front), women in the GERWANI, students, professionals, etc. The
membership of United Front organizations was believed to run to between
15 to 20 million.
This kind of Communist strategy is unique, and if the PKI had
succeeded in winning power, they would have made an original
contribution to Communist theory. This strategy made sense only if the
PKI sought to gain power by presenting itself as the only salvation
available to Indonesia in the midst of growing chaos, mounting frustration
and widespread decay.5 And from external appearances, events in the
decade preceding the September coup appeared to support the soundness
of the PKI political line. Competing parties were either banned and
dissolved following the outer island rebellions of 1958, as happened to
the Masjumi and the Socialist Party, or if they assumed power or
participated in the Government, their mass popularity declined as a
result of mismanagement corruption and mounting economic troubles.
5 See Guy J. Pauker, "Communist Prospects in Indonesia", RAND Corporation Memorandum
RM'4135-PR, November 1964, and also published in Robert A. Scalapino (ed.), The Communist
Revolution in Asia- Tactics, Goals and Achievements, Englewood Cliffs, N.J., Prentice Hall, 1965,
pp. 256-89.

198 The Economics of Modernization
Yet all the apparent success of the PKI concealed a deep and
disturbing vulnerability. Security against their arch enemy, the Indonesian
Army, depended not on a Leninist secret organization of cadres nor on
a Maoist rural sanctuary, but on the goodwill of President Soekarno.
One way in which the PKI could assume power was through the liberal
institutions of parliamentary democracy. Yet these were the institutions
which had been condemned as mvIndonesian under President Soekarno's
concept of guided democracy. So, despite the PKPs burgeoning
membership and political influence, its position resembled that of a
squirrel on a treadmill, that is, running very hard but staying in the same
spot.6
It might have been the realization of PKFs intrinsically weak
position that induced Aidit and his colleagues to mount the 30th
September coup when rumours of Soekarno's impending death were rife
in Djakarta. The coup as a means of capturing state power has always
been condemned in Communist doctrine as a manifestation of petit
bourgeois weakness and lumpenproletariat destructiveness and contrary
to Leninism. The failure of this desperate resort to violence, the third in
PKFs history, has shattered, for the time being, PKFs chances of winning
power.
If the PKI had converted itself into a mass party along good social
democratic lines, the Communist Party of Malaya (CPM) maintained
its Leninist purity. At the end of World War II, the prestige and power
of the CPM reached unprecedented heights. It had a significant armed
force which grew during the Pacific War as a resistance movement
against the Japanese. It enjoyed high prestige among the Chinese
population in Malaya and Singapore. It operated as a legal party from
the end of the war in 1945 till its rebellion in 1948. The Communists
worked hard at building a Malay mass base and succeeded in obtaining
the support of some Malay leaders who eventually attained national
stature. Whether the CPM could have obtained Malay support without
the active intervention on its behalf by the PKI is doubtful. After the
fateful Calcutta Conference in early 1948, the CPM decided on armed
revolution before they had made much progress among the Malays.
6 For a remarkably perceptive assessment of PKFs inherent weakness beneath its apparent strength,
see Ruth T. McVey, "Indonesian Communism and Guided Democracy" in A. Doak Barnett (ed.),
Communist Strategies in Asia: A Comparative Analysis of Governments and Parties, New York, Praeger,
1963, pp. 148-9.

The Nature and Appeals of Communism in Non-Communist Asian Countries 199
The revolt itself, though it lasted a long time and demanded the
deployment of troops, static guards and armed police in a ratio of nearly
a hundred to one, never had any real chances of success. There were
three main reasons. First, Malay opposition to what was identifiable as a
Chinese party. The Malays provided the large bulk of police and security
guards, numbering at its height more than a quarter million. It was
beyond the power of the CPM to subvert these forces.
Second, the Chinese peasants, on whom the Communist guerrillas
had to depend for supplies, were not rice farmers but cultivated vegetables,
fruit or rubber. Food supply became an acute problem to the Communists
in the jungle. They could not obtain their supply from Malay rice-
growers. They virtually had to depend on the village grocer for their
food supplies and, in the face of strict control measures, the amount
forthcoming, even with the most strenuous exertions of their village
political net, could not maintain more than a small detachment in the
adjacent jungle. The result was the fragmentation of their guerrilla
army into small scattered units, and their failure to establish a compact
guerrilla base which a rice-growing area might have supported.
The third reason was intelligent British anti-guerrilla strategy
which concentrated on the interdiction of their food supply lines — the
Achilles' heel of the Communist guerrilla revolt.
The CPM's method of recruitment, as practised today in Singapore
(and doubtless also in Malaysia), may be worthy of notice. They believe
in getting their recruits young and, in fact, commence their talent-
spotting among secondary school students in Chinese-language schools.
In some of these schools, they have established a self-perpetuating net
of student cells. Promising students are approached to join these study
cells. At first, their activities are innocent enough and consist mainly
of coaching to improve academic standards. At some stage, the student
is introduced to literature, the nature of which is phased in stages. The
first stage consists of stirring tales of Chinese heroes of past imperial
dynasties. Next, the student is introduced to tales of heroism in
China's war of resistance against Japan. Then accounts of the feats of
reconstruction in Communist China are introduced to the novitiate
and his or her attention is drawn to the achievements of Communist
society as against the defects of the actual society of Singapore. Needless
to say, Singapore suffers badly by comparison with an idealized
Chinese Communist society even though the facts are that her per
capita income is about five times larger than China's.
Indoctrination material, of course, comes from adults outside the

200 The Economics of Modernization
school, but all activities are carried out by students themselves under the
guidance of a student leader in a deliberately fostered conspiratorial
atmosphere. At some stage in this process of indoctrination, the student
is committed more and more to activities of the United Front. This
begins with fairly innocuous actions, such as attending political rallies,
but eventually progresses to more dangerous activities such as participation
in street demonstrations, pasting big character posters, supporting
strikes of workers, beating up teachers, etc.
This accent on China in their indoctrination effort is at once a
source of strength and weakness to the CPM. While it draws on the
strong motivational force of Chinese pride in their history and culture,
it also serves to isolate the movement from the non-Chinese. After
nearly 40 years of revolutionary effort, non-Chinese involvement in
the CPM and front activities remains peripheral, notwithstanding the
occasional Malay or Indian show-piece leader sometimes put up.
I do not intend to deal at length with the position in Vietnam.
There are, however, a number of unique features in Vietnamese experience
which have accounted for the success of the Communist revolution
there. First, unlike the plural societies of Indonesia and Malaya, the
Vietnamese people, apart from hill tribes, form a culturally homogeneous
society with a strong awareness of their past history as an independent
nation. Second, contiguity with China introduces some elements which
are missing in Malayan and Indonesian experience. For instance, during
World War II, the Kuomintang armies were training and equipping
Ho Chi Minh's Communists in exchange for military intelligence about
the Japanese. Ho Chi Minh's cadres moved into Vietnam during the
war to create a political network in the countryside. In contrast,
Vietnamese proteges of the Kuomintang stayed in China to await VJ
Day. When that day came, it was obvious who were in the stronger
position.
The common border with China was important not only during
the Pacific War, but also in the war against the French. When Chinese
Communist troops reached this border in 1949, Ho Chi Minh's troops
could depend on friendly support for war supplies as well as for military
and political training on a massive scale. The use of field artillery
supplied by the Chinese proved decisive in the battle of Dien Bien Phu.
This pattern, that is, the availability of outside supplies and support,
has repeated itself in the present war in South Vietnam.
While Mao and his guerrilla armies had to fight both the
Kuomintang and the Japanese unaided for the most part by outside

The Nature and Appeals of Communism in Non-Communist Asian Countries 201
supplies, the Vietminh were able to enjoy this important advantage.
But, on the other hand, whereas Mao Zedong's armies had the whole
vast area of China in which to manoeuvre, the area in Vietnam is more
constricted. Further, whereas China's remote rural areas were innocent
of administration, the French had established an administrative presence
in every village. The Vietminh contribution to the theory of guerrilla
war consisted of the destruction of the government administrative
network by the simple expediency of assassinating village officials. In
this way, they achieved the security which distance and remoteness
provided to Mao's guerrillas. Only then could they carry out Mao
Zedong's precept to "make the enemy blind and deaf and drive his
commanders to distraction by creating confusion in their minds".7
I think it is this consideration rather than, as some scholars allege, an
innate or war-induced brutality of the Vietminh and the Vietcong,
that accounts for these killings.8
Counter-Measures
I now come to the counter-measures which need to be taken to prevent
the growth of Communist power. I propose to leave out of consideration
counter-measures against a Communist guerrilla war. I have never
fought an anti-guerrilla war and I am well advised not to offer gratuitous
advice to those who are engaged in one. I will deal with matters in
which I have some experience, that is, the methods of combating
Communist political subversion before it has developed into armed
revolt. This is the position in Singapore and Malaysia today, and it will
doubtless be the position, before very long, in Indonesia when the PKI
revives as a clandestine movement along sound Leninist lines.
The first and most important of the prerequisites to success is,
I regret to say, an efficient secret police, or "Special Branch", to use the
delicate British colonial term for it. The object is not so much to capture
the secret Communist underground, for without very severe totalitarian
controls, this cannot be easily achieved. The main function of the
7 Mao Zedong, "On Protracted War", a series of lectures delivered in Yenan, May-June 1938, and
included in Selected Military Wntings of Mao Tse-tung, Peking, Foreign Languages Press, 1966, p. 240.
8 See, for instance, George Modelski, "The Viet Minh Complex", in Cyril E. Black and Thomas P.
Thornton (eds.), Communism and Revolution The Strategic Uses of Political Violence, Princeton, N.J.,
Princeton University Press, 1964, pp. 209-10.

202 The Economics of Modernization
secret police is the penetration of all Communist Open Front mass
organizations. Since the membership and overt leadership of these
organizations are by their nature open and not secret, penetration should
not present difficulty to technically competent police personnel. The
object is to identify the principal leaders, assess their character and
capability, and find out the current intentions and plans of these
organizations. Without such knowledge available to the government,
counter-measures against the Communists may well prove
counterproductive. With such knowledge, we can, to quote Mao, "await the
enemy's assaults with ease and poise".
The second function of the secret police is to arrest and detain key
United Front leaders at suitable times. When this occurs, it is important
to make explanation in terms understood and acceptable to the public.
It is, of course, regrettable that the due process of law cannot be applied
here. There are three reasons for this. First, the evidence to satisfy the
requirements of legal procedure will blow the cover of police agents who
have penetrated Communist Open Front organizations. Second, the
possibility of prosecution assumes that participation in Communist
conspiratorial activities is a legal offence, which it is not in most countries.
Third, to wait for the Communist activists to engage in overtly illegal
action, for example, riots and other acts of violence, before prosecution,
will give them a political advantage which few governments of the
new states of Asia can afford. For by then, the political situation would
have deteriorated to a state of acute instability, which in turn would
probably have caused economic decline due to loss of confidence. Should
political instability become endemic, serious doubts will creep into
men's minds as to who would emerge the winner. This can make the
problem of control of subversion, for which public confidence and
co-operation are important, a very acute one.
The power of arrest and detention without trial is, therefore, a
necessary weapon in the fight against the Communists in the newly
established Asian states. It is, however, of the utmost importance that
the highest standards of conduct on the part of the secret police are
maintained. There should be checks, in the form of review committees
consisting of lawyers and professional men, on the actions of the police.
These checks should be real and not perfunctory measures. Nothing
would be more favourable to the growth of Communist influence than
extensive and indiscriminate use of the powers of detention. For this
will generate widespread resentment against the authorities, which
the Communists underground can use to stoke the fires of revolution.

The Nature and Appeals of Communism in Non-Communist Asian Countries 203
Further, it is important that police action be limited to really worthwhile
targets — the thinkers and the planners, the able propagandists and the
organization men. Ninety-nine per cent of those who engage in
Communist Open Front activities are not worth detaining, not even the
second echelon activists and the muscle-men on whom the Communists
depend to discipline their followers. They are the expendables and can
be replaced without much difficulty, unlike the thinker and the plotter,
and their detention serves no purpose beyond creating unnecessary
disaffection among their families.
The second prerequisite to effective counter-measures against
communism is the proper treatment of social discontent. Asian societies
are, as I said earlier, in a stage of rapid transition from traditional forms
to those more consistent with the 20th century. It is unavoidable in the
process of change that uncertainty and discontent arise as a result of
social and economic friction and dislocation. The comforting security
afforded by the traditional order, where everyone knows his proper
place, is eroded in the modernization process. Discontent may be trivial
— for example, grumbling over TV programmes, traffic jams — or
serious, such as over bad housing or unemployment. It is no use sweeping
discontent under the rug as, for instance, a military dictatorship can well
do. This does not dispose of resentment and may indeed aggravate it.
Social discontent can hardly be avoided and its expression is good and
healthy, for it identifies the faults in the social system and the points
of maladjustment in the transitional process.
The Communists, of course, can be expected to capitalize on
social discontent, and with the apparatus at their disposal, they can be
expected to make a good showing. Where the grievances are legitimate,
such as a strike which has industrial and not political origins, or unjust
terms of resettlement of farmers, it will be a grave error to use special
police powers against the Communists. To do so would only confirm in
mens minds the role of the Communists as champions of the dispossessed.
Just as the Communists are discriminating in the selection of issues on
which to mount agitation, so must the government be discerning in
choosing issues on which to arrest and detain them. It is also important
that non-Communist expressions of discontent and all forms of legitimate
political dissent should be clearly distinguished from Communist-
manipulated political campaigns and allowed the fullest freedom within
the law. The irony of the situation is that only with an efficient secret
police can this distinction be made with confidence, thereby enabling
the scope of civil liberties to be extended.

204 The Economics of Modernization
It is necessary that social discontent should be dealt with through
adequately institutionalized channels. In this respect, the democratic
system is superior to an authoritarian one. Elected members of
parliament can always be counted upon to be at the receiving end of
social discontent! It goes without saying that the government should
take effective remedial measures, particularly in sensitive areas open to
Communist exploitation. These measures may not be completely
successful, but at least if it can be demonstrated to those concerned
that the government does care for the peoples welfare, the battle
against Communist exploitation of social discontent can be won.
The third prerequisite is the absorption of the country's
intelligentsia in meaningful occupations. In at least three of the countries
we have studied, namely Vietnam, Malaya and Singapore, failure to
absorb the intelligentsia or an important section of it, was one reason
for successful Communist appeals in these countries. Under French
colonial rule, large numbers of Vietnamese had access to modern
education to the highest level. Yet, the absorption of these educated
products in the Indochinese Civil Service was inadequate; top posts and
even middle-ranking posts were occupied largely by Frenchmen. The
pay of a Vietnamese professor was less than that of a French janitor in
the same university.9 This is really looking for trouble. In Malaya and
Singapore, the students who went through the Chinese-language schools
were faced with an occupational blind alley on completion of their
studies and their gravitation towards communism was not unnatural.
In Singapore, one of the first steps taken by my Government on election
to office in 1959 was to defuse this dangerous position by throwing
open to them career opportunities in the Civil Service.
On this question, one cannot but view with concern the enormously
rapid expansion of secondary and university education in so many
new countries of Asia, usually aided and abetted by well-meaning friends
in Western countries. Unless this expansion is related to available
economic opportunities, the large sums of money spent will only create
immense problems for the future from which the Communists can
probably profit.
It is important that, if there are more highly educated people than
opportunities available for their useful employment, the best of them
9 Bernards B. Fall, The Two Vietnams- A Political and Military Analysis, rev. ed., New York, Praeger,
1964, pp. 32-3.

The Nature and Appeals of Communism in bJ on-Communist Asian Countries 205
be absorbed in available posts in government and in industry. In other
words, some form of meritocracy should be established; political and
other forms of patronage cannot but be harmful. If the best brains and
character are absorbed in the system while the mediocrities become
dissident, the position can probably be held; but if the mediocrities are
absorbed in the system while the ablest join the Communists, calamity
cannot be long postponed.
There are other matters of relevance. To mention only two: there
is need for government contact and public confidence at grass-root
level, and for exemplary conduct on the part of government leaders. But
these really belong to the general attributes of good government which
are desirable in themselves and not for the sake of their utility as
counter-measures against communism. If I leave these out of discussion,
it is for this reason and not because they are unimportant in combating
Communist subversion. Indeed, in the final analysis, the only secure and
enduring safeguard against Communist revolution is good government.

Aftercare of Ex-Detainees
Speech delivered at the inauguration of the Detainees Aftercare Committee at
the Singapore Conference Hall on 28 August 1966.
On this occasion when the Detainees Aftercare Committee makes
its public bow, it may be appropriate for me to give an account of
the background thinking which has led to the formation of the
Committee.
In the turbulent years between June 1961 and September 1963,
the Communist United Front was in full cry. Their hold on the
trade union movement, on a section of students, farmers, old boys'
association, cultural groups and the like was widespread and tenacious.
The combined activities of these groups posed a grave threat to the
security of the state.
During that period, however, the PAP Government decided to
give them complete freedom of organization and agitation. We came to
the conclusion that the correct strategy was to meet them on their own
ground and fight them on the political battlefield. So between June
1961 and September 1963, the Communist United Front and the
Government were locked in continuous and unrelenting combat — in
the trade union field, in schools, the People's Association and other
mass organizations. We considered — and from the hindsight of history,
our decision proved correct — that it was a tactical error to resort to
suppressive measures even though we had the power and, possibly, the
justification to do so. But politically, it would have had serious and
damaging consequences, and it was likely that had repression been
resorted to in the heat of the fight, the Communist United Front
might have won in the end.
in/;

Aftercare of Ex-detainees 207
It was not until the pro-Communists were beaten in the 1963
referendum on terms of merger with Malaysia, and Singapore's entry
into Malaysia was assured, that repressive action was taken.
One extraordinary fact about the action that was taken in 1963
was the small number of persons that needed to be detained to ensure
the collapse of the huge organizational structure which had been built
up in the Communist United Front. About a hundred persons were
detained in the operations. The impact was great because the targets
were carefully selected. Careful and accurate target selection is of the
greatest importance for two reasons. The first, the positive one, is the
removal of key men in their organizations which immediately reduces
their working efficiency. The second reason, the negative one, is that
indiscriminate arrests of useless targets would be counter-productive in
that they would result in extensive public resentment and more support
for anti-government agitation.
The prophylactic action we took was effective and resulted in
no adverse public reaction against the Government. This might not
have been the case if it had been taken before the referendum had
been won. It was possible to achieve an accurate selection of targets
because of the extensive and thorough penetration by our intelligence
service of all organizations connected with the Communist United
Front. There is no information about their activities or their thinking,
even at the highest level, which we cannot find out if we so desire.
And there is no United Front organization that is invulnerable to
penetration by our intelligence service. It is a tribute to the efficacy of
our intelligence service that we were able to break up the Communist
United Front organization in 1963 with the detention of so few people.
The removal of key men from control positions in the Communist
United Front organizations has resulted in a marked deterioration in
the present quality of their strategic and tactical direction. Things
have now reached such a pass for them that 95 per cent of the activities
that they now undertake are totally irrelevant to the political reality
of Singapore. It is the duty of my Ministry to ensure that this will
always be so.
After a person has been detained, it is the Government's desire
that he should be released as early as possible. It gives nobody any
pleasure to see active and energetic young men and women incarcerated
for one moment longer than is necessary.
At the same time, we would be guilty of grave dereliction of duty
if we were to release detainees before we are assured of their sincere

208 The Economics of Modernization
repentance and of their willingness to make a clean break with their
past. It is for this reason that we require of them a public statement
of their stand. We also require, as a condition of release, that they
make a full statement of their past activities and associations. These
statements are made in every case and each of them amounts to a
considerable document, sometimes up to 90 typewritten foolscap
pages, single spacing.
Once a detainee is released, the Government bears no malice
towards him. On the contrary, it is our earnest desire that he devotes his
talents — and in many cases these are men of considerable talent —
towards constructive purposes in helping us build a new and better
society. In the past, in an informal sort of way, we have helped them to
find useful employment either in government service or in private
business.
But now we have reached the stage where informal efforts of this
sort will no longer suffice. The number of persons released has been
very large. For instance, in the last two and a half years, no less than
156 detainees have been released and the rate of release is increasing as
those detained come to realize the futility of the pro-Communist cause.
The problem in ensuring that every released detainee gets useful
and rewarding employment cannot now be left to chance. A system
must be built and new institutions created to ensure that they and their
families are well provided for on their release. Hence there has been
established the Ex-Detainees Association and now the Detainees
Aftercare Committee. It will be their responsibility, together with a staff
of professional aftercare workers who have been recruited, to ensure that
those who have turned over a new leaf will be re-absorbed as honourable
members of our democratic society.
In this way, we can instil in them a new pride and a positive,
forward-looking outlook. We do not want them to be haunted by the
misery of their past activities or to have any feelings of guilt over their
act of disassociation with their former handlers of the Communist United
Front, or with the undercover agents of the Communist Party of Malaya.
I believe that in Singapore, the tide is moving against the Communists
and their supporters. Over the last three years their active espousal of
anti-people and anti-nationalist causes has been so blatant that it will
not be forgotten by the people of Singapore for a very long time.
To those who still remain in detention, I have this to say. There is
no hope of any rescue operations being mounted by their colleagues
outside the prison walls, for Barisan Sosialis does not have the capability

Aftercare of Ex-detainees 209
of winning power whether through democratic elections or through
armed revolt. With the destruction of the once powerful Communist
Party of Indonesia, their release from jail through external intervention
is also no longer a possibility they can depend upon. They should
consider these matters carefully and decide whether or not they should
join the ever-increasing stream of those who are forsaking the pro-
Communist cause for the more positive and dynamic cause of democratic
socialism. If they decide to join us, they can obtain their release at very
short notice. But if they persist in their obduracy and decide to engage
in a game of patience with the Government, then I say that we are quite
prepared to play this game as long as they wish. They will find our
patience unlimited and inexhaustible.
Finally, it remains for me to thank the public-spirited citizens who
have agreed to serve on the Detainees Aftercare Committee. They come
from all communities of our multiracial society and they represent all
walks of life. It will be their responsibility to assist ex-detainees to solve
their problems of livelihood, their personal or family worries, and to
render all possible material and moral assistance. I am personally most
gratified that a very distinguished citizen of Singapore, a leading authority
in his own profession, Professor Yeoh Ghim Seng, has so kindly agreed
to serve as Chairman of the Detainees Aftercare Committee. I am sure
that the people of Singapore will support them in their endeavours.

I Creating an Officer Corps
Speech delivered at the first Instructors Course graduation ceremony at the
Singapore Armed Forces Training Institute on 7 May J 966.
Some three months ago, I first had the honour of initiating the course
of instruction which has now been completed. So fast has time
passed since then that that occasion seemed to be only a few days ago.
But in these three months, the school has carried out its training
programme. I have been informed that the training has been rigorous
and is designed to make the maximum demands on your physical
endurance. I am glad to note that all of you have risen to the occasion
and have completed the course to the satisfaction of your instructors.
This reflects credit all round, both on the staff of the school and on
the participants.
It is hardly necessary for me to repeat what I said on the previous
occasion — that is, the historical pioneering role which you will perform
in creating the new defence forces of the Republic of Singapore. In a
month's time, you will receive the first class of trainees and it will be
your mission to turn them into capable army commanders. During this
course, you have been equipped with the technical know-how needed
to carry out this mission. In creating a new army, it is necessary that
we employ the best and most up-to-date combat techniques and
develop suitable military doctrines which will enable our defence forces
to successfully carry out the roles which the country assigns to them.
Army commanders have to be equipped not only with technical
knowledge, but they have also to develop the necessary character traits
which will enable them to be courageous and aggressive leaders of men
under their command. To put the matter more simply, it is necessary that
710

Creating an Officer Corps 111
the entire officer corps of our Army should be imbued with fighting
spirit. How does one go about it? No doubt this is a subject which has
been occupying the attention of your instructors and yourselves as it
has occupied mine.
I do not pretend to be able to offer to you a definite solution or a
ready-made system. But I think it is worthwhile reflecting upon the
problem which is as old as mankind. Different societies in different ages
and at different stages of development have produced their own solutions.
Let us consider some of these.
We can start with the primitive societies which are organized in
savage tribes, very often warring upon each other. Primitive tribal warriors
generate fighting spirit by engaging in war dances through which they
work themselves up to a high pitch of frenzy, at which stage they fling
themselves upon the enemy.
As civilization develops, armies and combat techniques grow in
complexity and this method of generating war-like attitudes fell into
disrepute. The first Chinese theoretician of war, Sun Zi, who wrote his
treatise some 2,400 years ago, was probably the first person systematically
to address his mind to the subject. In passing, I may say that no less an
authority than Liddle Hart, in comparing Sun Zi with Clausewitz,
pronounced that Sun Zi had "clearer vision, more profound insight and
eternal freshness". So what he says on this subject is worth listening to.
Sun Zi believes that courageous commanders will be found in an army in
which punishment and rewards are properly regulated. Those who flee
from battle and those who are remiss in their duties will be punished,
while those who have accomplished acts of valour are rewarded.
This method will obviously have limited application in modern
armies. To start with, Treasury approval will be required in the granting
of material awards. Nor is it possible to inflict upon offenders the
fearsome punishments which were in practice in the ancient Chinese
armies. So, both in terms of deterrent and inducement, what is possible
in modern societies is much restricted as compared with Sun Zi's times.
Sun Zi himself considered the subject of courageous commanders
not to be of great importance, as proper regulation of rewards and
punishment would produce the desired result. Further, he observed that
courage and cowardice are relative terms, for in favourable circumstances,
cowards become brave, whereas in a disastrous rout, even the bravest
men will tremble. Accordingly, Sun Zi devoted his main thought to
how, by good generalship, an army can always remain in a favourable
position.

212 The Economics of Modernization
There are, of course, other ways of producing brave army officers
than by the regulation of rewards and punishment. In modern times we
have seen how men, when motivated by certain ideas or ideologies,
conduct themselves with the utmost courage and take on a vastly better-
equipped enemy. The Vietcong Army gives us one example of courage
produced by ideological motivation. The army of the Chinese People's
Government provides another example. Let me quote what General
Xiao Hua of the People's Liberation Army said on the subject: "In the
end, victory or defeat in combat depends on the courage of man, his
awareness and his willingness to sacrifice." And he goes on to say:
"To develop a force with strong combat powers, it is necessary for the
cadres to profoundly learn the thinking of Comrade Mao on people's
war and to be guided by the thinking of Comrade Mao in all activities."
You are doubtless all aware of the system of political commissars
which is adopted in the Chinese Communist Army. It is also in force in
the Russian Army, although here, in recent years, technical and
professional competence has risen in importance as compared with
political indoctrination.
The institution of the political commissar is probably no
innovation, and it is likely that the armies of Mohammed and Cromwell
had within their ranks a similar institution. The point that I want to
establish is that it is possible to produce a high level of morale and
resolute leadership in any army by the method of political indoctrination.
On my appointment as Minister of Defence, many well-wishers,
some of whom have seen service in the Chinese armies, advised me to
introduce political indoctrination in our own Army to secure this
objective. But I am afraid this easy method is not available to us. For
ours is an open democratic society in which the government of the day
can make no claim to divine revelation or infallibility of judgement
on the basis of which it would be possible to enforce one kind of
ideology or another. Enforcement of an ideology means the repression of
competing ideologies, the establishment of thought control, the
suppression of dissent, liquidation of unbelievers, and the introduction
of all the paraphernalia of the police state. I am sure that none of us
who are gathered here today want to pay this price merely in order to
obtain brave army commanders.
So we must set our faces resolutely against the Chinese solution.
There are still others to consider. Now, we all know that the German
and the Japanese armies produce commanders of very high calibre. The
Japanese Army is probably the only one that literally never surrendered,

Creating an Officer Corps 213
on the battlefield anyway. Nearly 25 years ago, we were at the receiving
end of this Army and knew from personal experience the great fighting
qualities of the Japanese soldier. How was this achieved?
The Japanese people had, for more than a thousand years of their
history, been governed through violence. Local feudal barons established
hegemony over tracts of territory. These barons, the daimios, derived
their power from a warrior class known as the samurai, each daimio with
his own following of samurai. The Meiji Restoration in 1868 put an end
to the depredations of the daimios and samurai upon the civilian
population and brought Japan into the orbit of modern nations.
Unfortunately, in the process of modernization, Japan did what other
modern nations were then doing, carving out empires and extending
their spheres of influence on the basis of military power. The samurai,
dispossessed after the Meiji Restoration, quickly came back to his own,
but respectably disguised as a professional army officer. By the 1930s,
they had obtained such supremacy that the country was virtually ruled
by the military. A creed of exaggerated aggressive nationalism was
propagated in all sectors of society and the doctrine of Japan's manifest
destiny was advanced. What followed is recent history.
The Japanese experience again is not for us to follow. I do not
think any of us would want to have in Singapore a militarist society,
nor indeed can such a society survive for long if, by chance, it is
somehow brought about.
So we have to turn to other examples. And I think we should look
around for examples in countries which have a political system similar
to ours. The most obvious example is that of Britain.
It is not easy to find out just exactly how the British produce
capable and courageous officers. Like their constitution, which is
unwritten, their methods in this respect evolved through their history
and are not to be seen in their Army regulations nor in any written
document.
We all know how British officers develop comradeship and esprit
de corps around the institution of the regimental mess. In addition to
this, I suspect there are other contributory factors, of which probably
two are important.
The first is the supply of British army officers from a certain class
of British society, at any rate up to the First World War. The families
who traditionally provided the Army with their officers in the course
of time developed a tradition of martial valour, which helps to sustain
high standards of conduct in war.

214 The Economics of Modernization
Another important element is no doubt the unique sense of
mission that pervaded the entire British nation during the Victorian era
when it acquired an empire that surpassed in size and population any
previous empires built by men. So we have the three elements — the
regimental mess, the aristocratic tradition, and the sense of historic
mission — which helped to shape the fighting qualities of the British
army officer. These three elements in combination have created an
elite so convinced of their own intrinsic qualities that they regarded
exhibitions of chest-thumping or ostentatious military posturing not
only as tedious and unnecessary, but also in bad taste.
In the other great democratic society, that of the United States,
we find at once that the means available to the British do not exist in
America, which has neither the aristocratic tradition nor the sense of
historic mission nor even experience in state-craft. I am not certain
what the American Army does by way of morale-raising techniques. I
am told, however, that they have produced a written code of honour
which the American army officer repeats to himself from time to time.
It would be interesting to find out what the Australians are doing in this
respect and with what success.
Now I make this cursory examination of the practice and rituals
in other armies and societies, not under any pretence of being conclusive,
but to underline the point that there are many ways which human
societies have devised in achieving the objective of producing brave
army commanders. We have to do our own thinking and find our
own methods which will suit the style of our people and the social
environment in which the army lives. I do not think that we can adopt
in its entirety the system which has been found successful in one country
or another. We may find a synthesis derived from different elements
which I have briefly described, or we may strike out on a novel path
of our own. I do not know. But I would recommend this important
subject for the serious study of the school and indeed of the entire
officer corps.

h4 J Hard and Soft Armies
Speech delivered at the ceremonial opening of the Singapore Armed Forces
Training Institute on 18 June 1966.
On an occasion like this — the ceremonial opening of the Singapore
Armed Forces Training Institute — it would be proper to address
our minds to some fundamental questions concerning the Armed Forces.
The question which I would like to discuss today is: What kind of Army
do we want? By this I do not mean the technical characteristics of the
Army, such as its weapons, establishment, combat doctrines, command
structure and so on. These are not matters on which I am qualified to
express an opinion and I am happy to leave them to the professionals.
What I want to discuss is a broader subject — the general fighting
qualities of the Army.
In man's long history, the armies which he has raised can be
placed under two headings — (a) hard armies, (b) soft armies. I am using
these terms for the sake of convenience. There is, in practice, no sharp
dividing line between the two categories, as there are varying shades
and gradations of hardness and softness. Nevertheless, certain types of
armies have emerged in the history of man which can be classified
clearly into one or the other of these categories.
A discussion of this subject must, of course, begin with Sparta.
Spartan society is probably unique in the history of mankind in that
the entire adult male population of military age were members of the
Army. Nobody worked for a living, and the necessities of life for
the Spartans were provided by the helots or slaves, who tilled the fields,
grew food, built houses and did all the jobs and provided all the services
needed by the Spartans. Spartans were the military aristocracy and
each Spartan held powers of life and death over his slaves.

216 The Economics of Modernization
At an early age, the Spartan boy was removed from his family and
placed in what was virtually a training camp. His education consisted
mainly of exercise designed to strengthen his physical endurance to the
limit, to develop his capacity to endure hardship and pain, and to
stimulate courageous conduct. He was fed on a diet of plain, coarse food,
and was taught to hold in contempt luxurious and soft living.
When he came of age, the occasion was marked by a ceremony in
which the lad was publicly flogged. If he showed any signs of pain either
by crying or even by facial expression, he was instantly put to death.
Training along these lines produced, as we can well expect, a Spartan
Army which was virtually unconquerable. They could take on enemy
forces several times their size and put them to flight.
I will be the last to hold the Spartan Army as the model for us to
emulate. Spartan social life was coarse and brutal. Spartans made no
worthwhile contribution to human civilization unlike, for instance,
their military rivals, the Athenians. Further, Spartan generals, as one
might expect, were not towering intellectual giants. Accordingly, they
were not adept either in strategy or even tactical manoeuvres. Brute
force and brute courage are a source of strength when warfare consists
of close combat with swords. Being poorly educated by our standards
or by the standards of the Greek civilization of the time, the generals
showed all the weakness of men of low education: they were unable to
control their avarice. They were easily bribed and this became a serious
source of weakness of the Spartan Army. Poor Spartan generalship
was highlighted in the protracted Pelopponesian wars. Sparta failed to
defeat Athens despite the supremacy of the Spartan infantry until an
Athenian general, Alcibiades, defected to Sparta and told the Spartans
the right strategy.
If the Spartan Army gives us one example of the hard army, in
medieval Europe we find the other extreme. Armies from medieval
Europe were usually a motley collection of serfs, completely untrained
and poorly equipped and gathered around the banner of the lord of the
manor. They were little more than camp followers of the knights, who
were the predatory aristocracy of the time. Fighting between these
feudal barons, though frequent, can hardly be called wars, the general
principle being observed that dog does not eat dog. When they embarked
on a serious war, as for instance, the Crusades, the results were usually
disastrous. Among themselves, combat in medieval Europe was governed
by an elaborate code of chivalry.
The situation was not dissimilar from that of ancient China of

Hard and Soft Armies 217
the Spring and Autumn era. Here, we have very much the same structure
of feudal princes and barons. An account given of one battle in which
the Duke of Sung took part shows what absurdities could arise. The
Duke's enemy was crossing a river and when about half of the enemy's
force had crossed the river, the commander of the Dukes army requested
permission to attack. Permission was not given. When the entire enemy
force had crossed the river but had not formed their battle array, the
army commander again asked the Duke for permission to attack. The
Duke not only refused permission but rebuked the general. "A gentleman,"
said the Duke, "will not take advantage of the unprepared state of the
enemy. Let them complete their battle array and we can then engage
the €nemy."
It would be pleasant if history were to record that these noble
sentiments on the part of the Duke resulted in his victory. Unfortunately,
the reverse happened and the army of the Duke was routed. He himself
was severely though, fortunately, not fatally injured.
In course of time, as political rivalries between the kingdoms of
ancient China grew in intensity, so also fighting methods improved in
efficacy. The Spring and Autumn era of Chinese history passed and the
period of the Warring States was ushered in. Soft armies became hard,
and it was said of the period of the Warring States that very few generals
died of old age. It was during the century and a half of almost incessant
war that the great military thinkers emerged, such as Sun Zi and
Wu Qi, whose doctrines had profound influence both in China
and Japan for more than 2,000 years.
As in China, so in Europe. What began as gentle and courteous
rivalries between territorial barons or kingdoms developed into more
serious business. Soft armies again developed into hard armies in course
of time. The motley collection of serfs gave way to the institution
of professional standing armies.
In the history of the modern European army, Frederick the Great
of Prussia occupies a place of honour as the person who developed
methods of instruction and systems of discipline which were followed
in all European armies until very recently. Frederick the Great was an
extraordinary person by all accounts. As a youth, he showed such an
aversion for the army and such a liking for literature and the arts that
his father, King Frederick William of Prussia, a man of no cultural
distinction, nearly had him executed. When Frederick succeeded to
the throne, he proved a most able leader of men and an outstanding
statesman. He created a large standing army by method of the press

218 The Economics of Modernization
gang, which was commonly employed in those days. It was said that
his army was composed of the dregs and scum of the cities of
Germany and that given half a chance, three-quarters of them would
desert. They were, however, given no chance at all under the system of
iron discipline which Frederick imposed upon the army. His training
methods created not only technical proficiency and accuracy of
manoeuvre on the battlefield, it also imparted self-confidence and high
morale in the army. His military successes were due to the manner
in which he raised and trained the army. Yet in spite of his military
prowess, Frederick remained, throughout his life, a patron of the arts,
a friend of philosophers and scholars like Voltaire and D'Alembert.
Subsequently, other nations tried to imitate the methods of
Frederick the Great, sometimes with success, as in the case of Napoleon,
but often with conspicuous failure. The harshness of his discipline was
imitated without the understanding that this was a means and not an
end in itself. So too with the precision drill which the Prussian Army
practised.
It was said of the army of a European country which shall remain
unnamed that it became a thing of reviews, parades and inspections
in minute detail and great solemnity. Training was such as to make the
army forget its duty of preparation for war and to organize it for the
panoply of peace. There was an occasional sham battle before the ladies
and for the entertainment of the villagers. A comic opera incursion
into a neighbourhood state threw the entire army into utter confusion.
No one knew what to do. All notion of how to take the march or
collect provisions was lost.
What kind of Army do we want? I am sure that there is no one
present here today who wants to see established in our Republic the
type of army that I have just described. I am certain the officers, NCOs
(non-commissioned officers) and men who pass through this Institute
will bear more resemblance to the armies of Frederick the Great and
no resemblance whatsoever to those of his unsuccessful imitators.

**.'..*.
/ ; Singapore's First
^ / Decade of Development
Taken from the Budget Statement presented to Parliament on 9 March 1970.
This being the first budget statement of the new decade, it seems
appropriate on this occasion to do a review of our economic
performance during the past decade. This was the decade which the
United Nations christened the "Decade of Development". For us in
Singapore, it was a turbulent decade during which momentous changes
took place. Singapore entered the 1960s as a British colony with self-
governing powers in domestic affairs. We later achieved independence
as part of independent Malaysia, only to be expelled from the Federation
after two years. On 9 August 1965, the independent Republic of
Singapore was created.
I propose to confine my review of the decade to Singapore's
economic performance. I was engaged for most of the decade in a
ministry which was charged with the responsibility for economic
development and planning in Singapore. It is not altogether possible for
me to escape bias, either in treatment or emphasis, in this account of the
Republic's economic growth. No doubt some future economic historian
will cover the same ground and will probably see events in a somewhat
different light. He will also treat the subject more exhaustively than is
possible in a budget address.
I propose to conduct this review of Singapore's economic
development in the 1960s in two ways. The first is to compare the
positions as in 1959 and 1969, taking two snapshot pictures, so to speak,
of the main economic terrain. Secondly, 1 will try to trace developments
through the different phases of the decade in a kind of motion picture
presentation, if I may be permitted to extend the analogy.

220 The Economics of Modernization
First, the snapshot pictures. Singapore's gross domestic product
(GDP) in 1959 was $1,968 million. The gross domestic product is the
value of goods and services produced within the geographical area of the
Republic. They include the value of foodstuffs produced by our farmers,
the earnings of our traders and shipowners on the entrepot trade, the
value added in Singapore in the course of manufacturing operations, the
earnings of retail trade, the hotel business and other services, the value
of services provided by the Singapore Government, British military
expenditure, and the value of construction of new roads, houses, factories,
power-stations and so on. The gross domestic product is a close relative
of the GNP, or gross national product, and differs from it only in that the
gross national product includes earnings of Singapore citizens from
overseas sources and excludes earnings in Singapore accruing to persons
and corporations abroad. In this account, I shall use the gross domestic
product rather than the gross national product since calculation of the
latter is subject to greater uncertainty.
By 1969, the GDP had increased from $1,968 million by nearly
two and a half times to $4,833 million. This represents a compound rate
of increase through the decade of 9.4 per cent a year. We have therefore
surpassed the United Nations target for the "Decade of Development"
of 5 per cent annual growth. At the same time, our performance was
well below that of some other economies such as Japan, South Korea
in recent years, and Hong Kong.
The doubling of the GDP during the 1960s was not due to
discoveries of natural resources as these are virtually absent. It was the
result of the growth of trade on the one hand and the growth of industry
on the other, with tourist development providing a small but welcome
increment. In other words, it was largely the result of greater human
effort. Associated with growth of the GDP has been a much faster rate
of capital investment in the Republic. The accounting aggregate
representing capital investment — gross domestic capital formation in
the terminology recommended by statisticians of the United Nations —
increased from $150 million in 1959 to $919 million in 1969. Total
investment increased at more than twice the rate of the domestic product,
a compound annual rate of 19.8 per cent during the decade. In 1959,
total investment amounted to 7.6 per cent of the GDP and this increased
to 19 per cent 10 years later. Ploughing back an increasing part of our
domestic output is essential to sustaining our growth momentum and we
should continue to increase this percentage. We are still a long way
behind Japan, which invests more than 30 per cent of its income.

Singapore's First Decade of Development 221
Since much of investment was in industrial machinery and
equipment, industrial output naturally expanded. Industrial output is
sometimes defined as the output of the manufacturing, construction
and utilities sectors. Their combined output increased, as one would
expect, at a faster rate than the GDR The compound rate of growth of
1959-69 was 16.2 per cent as against 9.4 per cent, the overall economic
growth rate. Manufacturing industries grew at 17.1 per cent a year,
construction at 17.9 per cent, and public utilities at 10.2 per cent. In
value terms, the industrial sector's contribution to the GDP rose from
$256 million in 1959 to $1,154 million in 1969. Employment in the
manufacturing industry as determined in the annual census of
manufactures covering establishments employing 10 workers or more,
increased from 25,199 to 87,128. Of these latter, no less than 35,000
were employed in pioneer industries in 1969. There were, of course,
no pioneer industries in 1959.
Entrepot trade also seems to have flourished during the decade
though, as we shall see later, there were many ups and downs. There was
an increase in total cargo handled at the Port of Singapore from 14.2
million freight tons in 1959 to 37.7 million freight tons in 1969. The
number of ships increased from 9,584 to 16,531. Passenger arrivals at the
beginning of the decade totalled a mere 163,000 and increased to
546,000. Economic growth of these proportions must naturally be reflected
in the financial structure of the Republic. There was a substantial
expansion during the decade in the commercial bank deposits, from
$816 million to no less than $2,745 million. The Central Provident
Fund balances standing to the credit of members increased from
$120 million to $632 million. Government revenue benefited from
expansion, increasing in a decade from a paltry $275 million to $934
million. Despite expansion of output, volume of trade and total
investment, as well as money supply, there was a marked absence of
inflationary pressure. The consumer price index as at mid-1969 stood
at 110.9, with mid-1960 providing the base-mark of 100. In a world
where inflation plagues many countries, both rich and poor, an average
annual increase of 1 per cent in consumer prices over a decade is not
a common experience.
Economic growth has had beneficial effects on social conditions.
One of the results of improved standards of living has been a substantial
decline in the rate of population growth. Infantile mortality rates declined.
School enrolment and expenditure on education increased substantially.
Newspaper circulation nearly trebled. Housing Board flats and shops

222 The Economics of Modernization
Table 1 Basic Economic and Social Statistics, 1959 & 1969
1959 1969
$ 1,968m.
$150m.
$7,349m.
14.2m.
9,584
163,000
$170m.
$40m.
$46m.
25,199
Nil
$4,833m.
$919m.
$10,984m.
37.7m.
16,531
546,000
$827m.
$208m.
$120m.
87,128
35,000
National Economic Aggregates
Gross Domestic Product
Gross Domestic Capital Formation
Trade and Transportation
Total imports and exports
Cargo handled (freight tons)
No. of ships cleared
Passenger arrivals, sea and air
Industrial Sector
Manufacturing, value added
Construction
Utilities
No. employed in Manufacturing Industry
No. employed in Pioneer Industries
Labour Ministry returns of Workmen,
Clerks and Shop Assistants 166,747 239,452
Financial Statistics
Commercial Bank Deposits
Central Provident Fund
Official Overseas Assets
Consumer Price Index (mid-1960= 100)
Social Statistics
Population (at mid-year)
Annual Births
Infantile Mortality Rate (per thousand)
Rate of Annual Population Increase
School Enrolment
Expenditure on Education (including
capital expenditure)
Daily Newspaper Circulation
No. of Housing Board Flats and Shops
in existence year-end 23,019 106,418
No. of Armed Robbery and Housebreaking cases 3,125 2,010
$816m.
$120m.
$336m.
—
1.58m.
62,500
36.0
4.1%
305,000
$63m.
119,970
$2,745m.
$632m.
$2,445m.
110.9
2.02m.
44,700
21.0
1.5%
511,000
$175m.
311,500

Singapore s First Decade of Devefopment 223
increased from 23,019 to 106,418. Happily, increase in crime and
violence, a contemporary phenomenon in many cities in both the
developed and underdeveloped world, did not afflict us. Armed robbery
and housebreaking cases numbered 3,125 in 1959 compared with a
reduced figure of 2,010 in 1969.
For the convenience of Members, as well as for the record, I am
circulating statistical tables which set out in compact form the facts,
a narrative of which would be long, tedious and possibly
incomprehensible. Five of these tables relate to matters I raise in this
statement. The others cover the field in much greater detail and
provide the background data on which I base my main observations.
The first table summarizes the points of comparison I have been making.
In the nature of things, statistical information, which deals with
social and economic phenomena susceptible to enumeration, does not
and cannot describe the qualitative and non-numerical improvements
that have taken place in our society. There is greater social cohesion,
more social discipline and self-reliance, pride in performance and
achievement in the face of adversity. These are the intangible yet
supremely important factors for the progress of any society. By our
common endeavours and achievements, we are slowly acquiring an
identity of purpose, and in this way building up a sense of belonging
and nationhood. The rootless, migrant and parvenu values with each
out for himself, attitudes so prevalent at the beginning of the last
decade, are giving way to more positive group values of a self-reliant
people determined to build an enduring future for themselves in this
part of the world. In the final analysis, it is on the firm framework
of these values rather than on steel and concrete structures that
economic progress is to be achieved and sustained. Max Weber was the
first, but he will not be the last, to detect in particular societies the
close interaction between ethical systems and the modernizing process
which enables economic transformation.
I will now trace in outline the development of the economy
during the decade. Singapore's economic development can be
conveniently grouped in three periods — pre-Malaysia, during Malaysia,
and post-Malaysia. Since the most relevant economic statistics are given
in terms of calendar years, the three phases of Singapore's economic
development may be considered in calendar year periods as follows:
(i) 1959-63, (ii) 1964-65, (iii) 1966-69.
It should be remembered, however, that economic trends sometimes
transcend two or more periods. This results from anticipation of future

224 The Economics of Modernization
development, as for instance, in the years 1962 to 1963, when several
industrial projects were started in Singapore in anticipation of a common
market in Malaysia. Further, the lead time needed to see a project off
the ground — the interval between the moment a decision is taken and
the completion of the project — often occupies a period of several years
for large-scale projects.
Economic Development, 1959-63
The pre-Malaysia period was dominated by political events. Several of
the more discerning observers knew in 1959, when general election was
won by a People's Action Party, that behind the anti-colonial solidarity
was a deep ideological division between a democratic socialist faction
and a pro-Communist faction. It was a matter of time before the two
groups were forced to bring their differences into the open as they
contended for political supremacy. The policy of the Government, which
consisted of the democratic socialists, was determined more by the
immediate political necessities than by long-term needs of economic
development. The pro-Communists broke off from the PAP and their
United Front forces fought the PAP in the Anson by-election in July
of 1961. They joined issue on the Government's policy to negotiate a
merger with Malaya to form Malaysia. All this is familiar history. But
events of such traumatic impact inevitably leave their mark on the
economy as I shall shortly demonstrate.
Meanwhile, despite the political preoccupation of the Government,
the Economic Development Board was established in August 1961. It
was charged with the duty of promoting the growth of industries in
Singapore. At the same time, the former Singapore Improvement Trust
was absorbed in a more effective agency named the Housing and
Development Board. While the creation of new industries, by its nature
requiring a substantial lead time, could not show quick results,
Government action in improving the social services produced swift
and tangible benefits in the pre-Malaysia period.
Immediate action was taken to extend and improve the education
system. School enrolment both at primary and secondary stages increased
rapidly. Primary school enrolment increased from 266,625 to 336,163
between 1959 and 1963; secondary school enrolment from 48,723
to 84,425.
The Housing and Development Board suffered some initial troubles
under the former Mayor of Singapore. After his replacement, the Board

Singapore s First Decade of Development 225
soon got into stride and showed dramatic progress. The number of flats
and shops built each year was as follows:
1959 - 1,611
1960 - 1,682
1961 - 7,320
1962 - 12,230
1963 - 10,085
Because industries took a long time in getting started, and because
there was little expansion in entrepot trade earnings during this period
— the growth rate was a mere 4-5 per cent per year — the substantial
housing programme launched by the Housing Board undoubtedly helped
to sustain economic expansion during this period. The finance to pay for
this had to be obtained by civil service pay cuts and tax increases,
measures which did not increase the Government's popularity rating.
During this period, the gross domestic product increased from $1,968
million to $2,684 million. This represented a compound rate of 8.1 per
cent a year.
As a result of the Housing Board building programme, the
construction industry prospered in the second half of the period,
generating the following output:
1959 - $40.0 million
1960 - $41.9 million
1961 - $56.0 million
1962 - $70.0 million
1963 - $94.7 million
The construction industry during this period increased at 24 per cent
a year. The impetus came mainly from Government action in the
housing field. Increase of public sector investment during this period
was at a compound annual rate of 27.5 per cent. The present rate,
between 1965-69, has been 10.5 per cent growth a year, a more moderate
pace.
The political in-fighting between the Communist United Front
(CUF) and the PAP resulted in a large number of strikes called by the
CUF as part of its attempt to coerce the Government. The number of
man-days lost in strikes was as follows:

226 The Economics of Modernization
1960 - 152,005
1961 - 410,891
1962 - 164,936
1963 - 388,219
The defeat of the Communist United Front in the Referendum of
August 1962, followed by subsequent security action against them,
restored a measure of industrial peace. In 1964, strikes accounted for
loss of only 35,908 man-days. In 1969, the figure was 8,512.
During a period when unemployment was heavy, trade union
irresponsibility on such a massive scale was hardly conducive to industrial
investment. The following figures of employment in the manufacturing
industries, as recorded in the annual census of manufactures, shows that
the industrial sector was virtually stagnant between 1959 and 1962 and
registered only a small increase in 1963.
1960 - 26,697
1961 - 26,837
1962 - 27,924
1963 - 35,256
Employment in pioneer industries, the first of which began production
in 1961, rose from 241 workers to 2,654 in 1963.
It was not easy to get started. The domestic market was small, as
it still is today. Wages were then high compared to other Asian countries
such as Hong Kong, Taiwan and South Korea. On top of all this, a near-
endemic situation of management-labour conflict arose out of the
showdown between the democratic and pro-Communist forces. Despite
these handicaps, the Government proceeded with its development
plans with a confidence few believed justified. In September 1961,
earth-moving operations commenced when the first bulldozer moved
into Jurong. By the end of 1962, 1,100 acres of prepared land had
been levelled by cutting down hills and filling swamps. By the end of
1963, 1,800 acres had been prepared. A total of 24 million cubic yards
had been moved in the process. Jurong, as of December 1963, had
only two factories in production to show for this mountain of labour.
They were the National Iron and Steel Mills, and Pelican Textiles.
Between them, they employed 90 workers.

Singapore's First Decade of Development 227
Economic Development, 1964-65
Singapore's entry into the Federation of Malaysia in September 1963
was preceded by many months of negotiations. While the political
arrangements in the new Federation were agreed to without difficulty,
negotiations on financial arrangement and over the structure of the
common market proved unexpectedly long and difficult. In the end,
a compromise solution was found literally at the eleventh hour in
London. Our membership of the Malaysian Federation proved to be
short-lived. The reasons for the sudden separation of Singapore from
Malaysia are now past history, as are the events which led to it. So far as
Singapore's economic development is concerned, hopes for a Malaysian
common market had led to some anticipatory investment in 1963.
However, the proclamation of the new Federation was greeted by
unexpectedly strong reaction from the Soekarno regime of Indonesia.
Confrontation was declared, and with it the curtailment of our
entrepot trade with Indonesia.
The national economic aggregates show the results of the factors
I mentioned — Indonesian confrontation, the abortive common market
with Malaysia, the financial arrangement between the States and Federal
Government. Of the three periods in the 1960s, the years we spent in
Malaysia showed the lowest growth rates of gross domestic product, a
mere 6.5 per cent annual rate. This was due to the substantial decline
of our entrepot trade by some 16.8 per cent as trade relations with
Indonesia were severed. As a result, earnings on the entrepot trade
declined from $441 million in 1963 to $306 million in 1965. Further,
agriculture and fishing, never noted for rapid growth, showed a decline
of 2.5 per cent. This was the result of night curfews imposed in Singapore
waters for security reasons, which adversely affected the livelihood of
fishermen. On the other hand, there was a very large increase in the
value of military services, as one would expect. British military
expenditure increased by 27.7 per cent in 1964 and again by 25.9 per
cent in 1965. In absolute terms, this meant an annual increase from
$323 million in 1963 to $519 million in 1965. This was sufficient to
make good entrepot losses, taking two years together. But the year 1964
was a particularly bad year, the decline in entrepot earnings was much
greater than the increase in British military expenditure. Accordingly,
the gross domestic product for that year showed the least increase of the
decade, a mere 0.5 per cent. But for increased British military expenditure,
there would have been a substantial decline. The gross domestic product

228 The Economics of Modernization
for the two years we were in Malaysia were: 1964 - $2,700 million; 1965
- $3,043 million.
Despite Indonesian confrontation, total investments continued to
expand and at a brisk rate too. Gross capital formation increased at an
annual rate of 20.6 per cent, running at $421 million and $476 million
in 1964 and 1965 respectively. The manufacturing industry forged
ahead in spite of poor trading conditions and deteriorating relations
between the Singapore and Malaysian Governments. Manufacturing,
construction and utilities showed a combined average of 16.2 per cent
annual growth during Malaysia, as compared with 14.7 per cent in
pre-Malaysia. Employment in the manufacturing industry increased
moderately, some 14.2 per cent a year. The increase of employment
was about 10,000 over the two years, the 1965 census of manufactures
giving a total of 46,020 employees for 1965 as against 35,256 two
years earlier. The Labour Department work-force figures also showed an
increase of about the same amount, that in 1965 being 188,701 as
against 178,787 for 1963. It is apparent that the manufacturing industries
were providing the main new job opportunities. But these never reached
the proportions which would reduce unemployment significantly.
The onerous term of the financial agreement under which we
entered Malaysia resulted in a decline of our overseas assets for the
only time in the decade. Our overseas assets, which stood at $748.4
million at the end of 1963, were reduced to $631 million at the end
of 1965.
Economic Development, 1966-69
I now turn to the last period under review, the years as an independent
sovereign state. On the morning of 9 August 1965,1 was in my office in
Fullerton Building brooding over the enormous problems facing the
country and the Government. The problems of the future loomed in
awesome and intimidating proportions. There we were, an island trading
post with its economic hinterland in other countries, a vulnerable
arrangement as confrontation had shown. Our token defence forces
were manned mostly by citizens of another country. Even the water
we drank had mostly to be imported. We had no natural resources
other than a diligent and enterprising people. At 10am, news of the
separation was announced over the radio. It was greeted by the firing
of crackers in Chinatown. I thought this a light-hearted response to a
grave situation.

Singapore s First Decade ofDevefopment 229
Two years later, in my budget statement of December 1967,1 was
able to say: "After two years of independent existence, the Republic of
Singapore continues not only to survive but also to flourish, to the
surprise of many observers."
This account of the final period of the decade will describe how
our economy grew in the last four years and will attempt to give the
reasons for such growth.
In the post-Malaysia period, Singapore's gross domestic product
increased at a compound annual rate of 12.3 per cent as compared with
6.5 per cent during Malaysia, and 8.1 per cent pre-Malaysia. Trade,
industry and tourism provided the main thrust to our economic growth
in this period. The result of robust economic expansion on the
Government s finances was gratifying. Annual revenue increased from
$508 million to $934 million last year with but minor adjustments in
taxation rates.
The reasons for expansion during this period stemmed from external
as well as domestic sources. As regards the first, what undoubtedly
helped most was the strong position of the economies of the United
States, Europe and Japan. Notwithstanding recurring monetary crises
during the last three years of the decade, the 1960s saw what was
virtually a long sustained boom among the rich nations. One after
another, they reached conditions of full employment and had to depend
for further expansion either on imported labour, as happened in the
case of Germany and to a lesser extent Britain, or they had to move
some of their manufacturing operations abroad, as happened particularly
with the United States and, to a lesser extent, Japan.
We were also assisted by conditions in Hong Kong, Where, as a
result of growth at an extremely fast rate, tight employment conditions
became apparent in the last two or three years. Hong Kong, whose wage
levels used to be substantially below that of Singapore, ceased to be a
provider of labour to foreign investors at cheaper rates than Singapore.
Then, of course, the end of confrontation brought about a
resumption of Indonesian trade. This gave our first year on our own
the main impetus to economic growth.
Outside conditions were favourable. But this by itself did not
ensure our prosperity if we were unprepared to make the effort required
to take advantage of our opportunities. Fortunately, the institutions
which were established as early as 1961 had developed in experience
and expertise. I am, of course, referring to the Economic Development
Board, which was the Government's main agency for promoting industrial

230 The Economics of Modernization
growth. Industrial estates at Jurong and elsewhere had provided a wide
range of industrial sites to meet every conceivable demand of industry.
The Development Bank was amply supplied with funds, and the Economic
Development Board's overseas promotion officers improved in skill
and efficacy in their efforts to attract large corporations to the Republic.
Last but by no means least, the Employment Act passed in August
1968, with the support of the National Trades Union Congress, gave an
impressive demonstration of the will of the people to overcome all
obstacles to make temporary sacrifices the better to secure the future for
themselves. Perhaps more than anything else, the Employment Act
projected an image of Singapore among substantial potential foreign
investors of a disciplined and rational people upon whom they can
depend for the success of their investment enterprises.
With these favourable external and internal influences, except for
the year 1967, the economy moved ahead briskly. The gross domestic
product increased substantially, details of which are set out in Table 2.
Table 2 Gross Domestic Product at Factor Cost, 1966-69
1966
1967
1968
1969
($ million)
3,365
3,617
4,257
4,833
Increase %
10.6
7.5
17.7
13.5
The 1969 figure is based on preliminary estimates and it is likely that the
final estimates would show a larger figure.
Expansion in 1966 derived its impetus principally from a resumption
of trade with Indonesia as well as a general increase in world trade. In
absolute terms, the earnings of entrepot trade increased from $305.6
million to $377 million in 1966. The manufacturing industry provided
a useful gain of some $72 million in value added, from $4143 million
to $486.8 million.
The good start the Republic made in 1966 was not sustained the
following year, which registered an increase of only 7.5 per cent. The
principal reason for this was a temporary decline in world prosperity.
World trade, which before that year had been growing annually at
between 8.4 to 11.9 per cent in the previous four years, showed a growth
of only 5.4 per cent in 1967. Our entrepot earnings in 1967 showed a
very small increase, just over 1 per cent on the previous year. At the

Singapore s First Decade of Development 231
same time, there was a marked decline in British military expenditure
from $549.5 million to $489.9 million. The experience of 1967 is
pertinent because the two elements making for the slowing-down of
our growth — reduced military expenditure at the British bases and
levelling off of world trade — are prospects which face us in the next
few years.
The last two years of the decade were exceptionally good for
Singapore. The principal thrust was an unparalleled expansion of our
entrepot trade, earnings of which more than doubled. Buoyant world
trade conditions during 1968-69 helped sustain our own growth of
trade. World trade in these two years increased by 11 per cent and 14 per
cent. At the same time, earnings in the manufacturing industry showed
substantial increases — 19.2 per cent in 1968 and 22.9 per cent in 1969.
The contribution of the manufacturing industries to the gross domestic
product reached $827 million in 1969 compared to a mere $170 million
a decade ago. The effect of this expansion on employment will be
discussed later.
Expansion of trade and industry was more than enough to offset
the modest reduction in British military expenditure. In 1967, this
amounted to $489.9 million, and it was reduced to $415.4 million by
1969. We should remember that as from now, British military spending
will be reduced at a much faster rate. Between 1967 and 1969, quite
apart from expansion of manufacturing and trade, even the tourist trade
increased sufficiently fast to offset the reduced British military spending,
so that increased earnings on trade and industry actually formed net
additions to the domestic product.
Earlier I had referred to total investment which increased
throughout the decade not only in absolute terms, but also as a proportion
of the gross domestic product. The increase in total investment was
especially marked in the post-Malaysia era. The figures are given in
Table 3.
Table 3 Gross Domestic Capital Formation, 1966-69
Total Investment Percentage
($ million) of GDP
1966 473.3 14.1
1967 518.3 14.3
1968 735.9 17.3
1969 918.5 19.0

232 The Economics of Modernization
There are certain interesting features about the growth of
investment during this period quite apart from its size. The first is that
the faster increase occurred in the private sector. The figures between
public sector and private sector investment are given in Table 4-
Table 4 Public and Private Sector Investment, 1966-69
1966
1967
1968
1969
Public Sector
($ million)
239.6
224.9
300.9
322.4
Private Sector
($ million)
233.7
293.4
435.0
596.1
Total
($ million)
473.3
518.3
735.9
918.5
The increase during the period in private sector investment from
$234 million to $596 million, an increase of 156 per cent, compares with
$239 million to $323 million in the public sector, or a mere 35 per cent
growth in the public sector over three years. This is as it should be. It
reflects the response of private enterprise to the growing social maturity,
to the NTUC's success in promoting labour responsibility, and to the
Governments policy on wage stability and industrial incentives. All
these created a favourable general investment climate.
There was an interesting development in 1968 and 1969 which
calls for attention. The statistics on capital formation give separate
figures in respect of expenditure on machinery and equipment, transport
equipment, that is, ships, aircraft and vehicles mainly, and buildings and
works. The figures for the period under review are given in Table 5.
Table 5 Components of Gross Capital Formation, 1966-69
1966
1967
1968
1969
Machinery
& Equipment
($ million)
204.2
208.7
283.6
400.7
Transport
Equipment
($ million)
20.7
23.4
106.4
116.6
Buildings
& Works
($ million)
248.4
286.2
345.9
401.2
Total
($ million)
473.3
518.3
735.9
918.5
A striking feature about the table is the sharp increase in 1968 in
expenditure on transport equipment. The explanation lies in the

Singapore s First Decade of Development 233
substantial purchases of ships and aircraft in these two years. Purchases
of ships in 1968 amounted to $30,2 million, and in 1969 to $56,5
million. This development fits into the general picture of sharp increases
in entrepot trade during these two years against the background of
burgeoning world trade. In 1969, purchases of ships included the four
ships purchased by the Republic's newly established national shipping
line, the Neptune Orient Lines,
The ships accounted for in these figures did not include, as far as
could be ascertained, ships registered under the flag-of-convenience
terms provided for in the Merchant Shipping Ordinance which was
revised towards the end of last year. Future calculations of gross capital
formation would have to draw a distinction between Singapore-registered
ships whose beneficial owners are residents in the Republic, and those
registered for flag-of-convenience purposes. This distinction is by no
means easy to make in all instances.
As regards aircraft purchases, the Malaysia-Singapore Airline's
(MSA) aircraft renewal and expansion programmes commenced in 1968,
when deliveries of the new Boeings took place. New aircraft delivered in
1968 and placed in the Singapore Registry were valued at $59,4 million.
In 1969, $37,7 million worth of new aircraft were delivered. Half of the
new MSA fleet carry Malaysian registration and these were not included
in the above figures.
The other noteworthy feature of the investment process in these
four years was the large but regular increase in expenditure on buildings
and works. As against this, expenditure on machinery and equipment
remained level during 1966 and 1967 and took two large steps in 1968
and 1969. This reflects the recent increase in the rate of industrialization
with which most of us are familiar. This increase is also reflected in
employment figures, to which I now turn.
In the budget address of 5 December 1967, after quoting figures of
employment as reported in the annual census of manufactures, I made
the following observations: "It is a sobering thought that with all the
prodigious efforts put in, and the vast amounts of money and resources
which the Government had been channelling towards increasing the
growth of the manufacturing industries, all that has been achieved is
5,000 net increase in employment in these industries each year. The rate
of increase is clearly inadequate to meet our needs."
Happily, performance since then has improved, and I give the
following employment figures in the manufacturing industries from 1966
to 1969:

234 The Economics of Modernization
1966 - 51,272
1967 - 56,762
1968 - 72,603
1969 - 87,128
In the last two years, employment in the manufacturing industries has
been increasing at an annual rate of around 15,000.
This is more in keeping with what we need. In fact, taking into
account that the stepped-up employment in industry coincided with
the intake of national servicemen into the Armed Forces, the result has
been tight labour market, more especially in the professional and
skilled grades, where shortages in certain lines were acute.
Finally, I want to deal with the very rapid increase in our official
overseas assets, which grew from $631 million in 1965 to $2,445 million
at the end of 1969. An increase of this proportion, four times in four
years, is not a common occurrence in the monetary history of nations.
This growth in our overseas assets was not due to financial wizardry. It
was, firstly, the result of institutional changes in note issue arrangements
after independence; secondly, the consequence of the financial policies
we followed as an independent republic; and thirdly, the reflection
of the rapid economic growth just described.
There are three components to the increase of our overseas
assets. The first is the establishment of our own currency and the
transfer of assets from the old Malayan Currency Board to our own
Currency Board when the old notes were exchanged for new. The assets
of the Currency Board at the end of 1969 amounted to $645.37 million.
The second element is the large increase in commercial bank
deposits. As a result of economic expansion, favourable balance of
payments and, possibly, some inflow of "hot money", bank deposits
more than doubled since 1965, increasing from $1,222 million to
$2,745.3 million in 1969. The Government sold Treasury Bills to
commercial banks, and the holding of such bills at the end of 1969
was $500.13 million compared with $23.07 million at the end of
1965. As the proceeds of Treasury Bills were invested abroad, this
had the. effect of neutralizing a good part of the increase in bank
deposits, and in this way helped to avert possible inflationary
pressure. The remainder, some $696 million, represented the
accumulation of annual government surpluses since 1965 as well as
those of the statutory authorities to the extent that they invested
these in government securities.

Singapore's First Decade of Developmen
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ON

236 The Economics of Modernization
In ordinary circumstances, it is not necessary to hold such large
assets overseas, which is really tantamount to investing our money
abroad instead of investing it in the Republic itself. However, these
assets may come in useful when possible economic trends in the next
three years may require us to run down these assets from their present
rather high levels.
This seems the right note on which to end this narrative of the
decade. We started it with a grave and persisting problem of
unemployment fuelled each year by successive floods of post-war babies
coming of age. Our difficulties were compounded by irresponsible actions
of trade unions manipulated for political ends. We sought a solution in
a common market in Malaysia that proved a dead end. Throughout the
decade, there was a persistent search for practical solutions, a patient
building of institutions and infrastructure, a generous allocation of
funds, an accumulated collection of talented staff. In the end, it paid
off. It is imperative that we should never, either through extravagance
or carelessness, fritter away all that we had so laboriously built up. We
must build on the foundation of the accumulated experience of the
decade and ensure that progress and prosperity will continue to higher
levels of consolidation...
The Longer-term Perspective
I now turn to the longer-term prospects, looking to the mid-70s and
beyond. Unless the stability of the area is seriously upset, it is likely that
we can sustain and even increase the momentum of industrial growth
which we recently achieved. The Promotion Centres established by the
Economic Development Board in Europe and America and Japan have
gained good experience in the last few years. Unless we see a world
depression developing on some scale — and the consensus among the
experts is that this is an improbable eventuality — we shall see in the
next few years, the fruition of many industrial projects, some of them of
a size exceeding anything that we have hitherto attained. The activities
connected with offshore oil exploration in the waters of the archipelago
are likely to give rise to a number of interesting manufacturing and
service industries based in Singapore.
The problem we are likely to encounter between now and 1975,
barring a recession of course, is to provide the large numbers and wide
varieties of skills which the new industries will need. In this connection,
we have had the advantage of a recent study by Dr Albert Winsemius,

Singapore's First Decade of Development 237
who led the first United Nations mission in 1960 to Singapore to advise
on policies on industrial development, Dr Winsemius is an old friend
of Singapore; in 1967 he was awarded the Distinguished Service Medal
Dr Winsemius pays regular visits to the Republic, at our request, to
check on our economic health and to discern problems ahead and
suggest remedies.
He completed his last visit about a month ago. His prognosis is
that the shortages of skills, which we knew existed, will become
increasingly serious and more acute than we had believed. For instance,
his calculations indicate that despite the intention of the University
of Singapore to increase the annual output of engineers from 80 to 210
by 1974, the Republic will remain short of engineers over the next
five years by between 450 to 500 each year.
As regards management personnel, the output of accountants and
business management graduates will fall seriously short of requirements,
the shortage, in Dr Winsemius's estimate, coming to some 200 a year
over the next three years. As regards the demand for technicians, who
have to support the efforts of engineers, the position is even worse.
Taking into account the large requirements of technicians in the defence
forces, we are likely to be short of technicians by 1,500 to 2,000 each
year over the next two years.
These estimates are based on the assumption that industrial growth,
now running at between 15 to 20 per cent a year, will be sustained over
the next five years. There is no reason why this cannot be done. By
1974, the industrial work-force should increase to around 247,000.
Further, as much of the increases will accrue from the establishment
of large industrial units rather than a proliferation of small ones, the
demand for engineers, and management and technical personnel will be
of a different order of magnitude from what we have been accustomed
to. This, then, will be the principal difficulty which we have to overcome
— not so much to attract investment into the manufacturing industries
but to supply investors with skilled personnel of all grades, without
which modern industry cannot operate.
Since it takes four years for an engineering student to graduate
and several more years before he acquires sufficient experience to be
able to work effectively in an organization, clearly we cannot depend
on local supply to meet the demand in these fields. The problem is
similar in regard to management personnel and technical staff, though
here local supply, if stepped up immediately, may be able to fill the
gap earlier than is possible with engineers.

238 The Economics of Modernization
It is therefore necessary, as a matter of high priority, that we relax
our immigration and work permit restrictions on the inflow of personnel
belonging to the categories I have described. At present, these are given
entry and work permits, provided they are sponsored by an employer.
That is to say, they have to find work here before they are allowed the
necessary permits. It would be a clear advantage to liberalize the
conditions under which such people can come into Singapore, acquire
permanent residence and eventual citizenship. It would be useful, for
instance, if they could be allowed here for any length of time they wish
so that they can do the job-hunting and, in this way, fit into the best
slots available to them. This is a matter of great urgency, as it is well
known that a great amount of scrimping already takes place. Indeed,
the Technical Department of the Ministry of Education, which has to
train large numbers of artisans and craftsmen, is finding it difficult to
retain the engineers and technicians who have to do the training at
the Department's industrial training centres, vocational institutes and
secondary technical schools.
This discussion of the ways in which we should try to fill the gap
between demand and supply of engineers leads me to two related subjects.
The first relates to the levels of scientific knowledge and technological
know-how which our future industries are likely to demand. The second
concerns university development in Singapore in general, as well as the
output of scientists, engineers and technicians in particular.
In recent months, there has been increasing reference, in public as
well as private discussions, to the need for Singapore to develop "science-
based and technology-oriented industries". A well-known British financial
commentator recently said that whenever he hears the phrase "advanced
industrial technology", he reaches for his gun. Too often this catch-
phrase is used in an attempt to mulct the public purse of sizeable
subsidies to finance industrial research which has no hope of resulting in
commercially feasible products. I have a great deal of sympathy for this
position, but for different reasons. The term applied to our industries,
existing as well as potential, is often misleading. As an example, the
electronics industry in America works at the frontier of science and
technology; the electronic components we make in Singapore require
less skill than that required by barbers or cooks, involving mostly repetitive
manual operations. Let us not presume that at the comparative low
level of scientific and technological know-how that we find ourselves
today, it is our role to train scientists and engineers who will engage in
research at the frontiers of knowledge.

Singapore's First Decade of Development 239
Ours should be the practical, if more mundane, approach. In the
foreseeable future, we are likely to set up those industrial activities
which require assiduous application of engineering skills and workmanship
in welLdeveloped and well-known industrial processes, in which we
have a natural advantage by being able to produce or import engineers,
technicians, craftsmen and skilled workers capable of performing the
most exacting standards of work, but at a much lower cost than the
advanced countries could. Even so, the limitation here is that restrictions
may be imposed on the import of quite a number of these products by
industrialized nations to preserve the home market for their industries.
Further, not all countries would favour a policy whereby the techniques
which they evolved as a result of sustained and costly research and
development work are passed on to others. But within such limitations,
there could be a wide field to choose from.
The practical application, even at these modest levels of technology,
requires a substantial upgrading of skills at all levels — from research
scientists, engineers, technicians, skilled craftsmen — to standards beyond
anything we have achieved now. It is in this sense that we should try and
improve our reservoir of scientific and technological knowledge and
experience.
This leads me naturally to the development of our universities
which are institutions to provide the requisite people to perform these
tasks. It is one of the misfortunes of Singapore that the development
of our two universities has encountered difficulties in the past which
have stunted their growth. In the case of Nanyang University, the
deterioration of administration prior to 1964 had allowed the control
of the university virtually to pass into the hands of student activists
who were manipulated by the Communist United Front. Nanyang
virtually became a training ground for high echelon cadres of the
Communist United Front, Government intervention as a security
measure was inevitable. Since the restoration of the university's
administration to more normal standards, improvements have been
made and standards have been raised.
The case of the University of Singapore was different. Here, until
very recently, and perhaps not even then, there appeared to be a total
absence of meaningful dialogue between the university and the
Government. The university, particularly in certain departments in
the Faculty of Arts in which expatriate staff were dominant, viewed the
Government not as a possible source of support and encouragement, but
as a potential danger and a threat to its autonomy. Trivial incidents

240 The Economics of Modernization
which sometimes arose as a result of poor communications between the
two sides were inflated out of all proportions to their real importance.
Part of the trouble seems to stem from the attitudes of some expatriate
staff who have brought with them not merely a competence in their
field of specialization, but also contemporary styles and postures which
may be meaningful in the context of strident anti-establishment and
liberal postures. In part, these reflect trends towards permissiveness
and promiscuity in the societies from which these expatriates come and
to which they belong. But these are totally irrelevant to the situation
Singaporeans are facing.
The growth of student population as well as the increase in
expenditure of the two universities financed from government revenue
has failed to keep pace with the expansion of the economy. Enrolment
at the two universities plus the Polytechnic and Ngee Ann College
grew during the decade from 9,355 to 16,214, a 73 per cent increase
compared with a 146 per cent increase in the gross domestic product.
Matters had reached such a pass at the University of Singapore
that it was found necessary for a cabinet minister to be appointed its
Vice-Chancellor. And yet, it may be that the appointment of my
colleague, the Minister for Science and Technology, could be just the
step required to restore a relationship of confidence between the university
and the Government so that the university can develop into an institution
more in tune to the needs of the society which nurtures it. There is
welcome evidence that the student body, and a growing part of the
academic staff, are becoming aware of this.
Certainly without his appointment to the post of Vice-Chancellor,
it is unlikely that my colleagues and I would entertain the proposal to
move the university at enormous expense from its present constricted
campus at Bukit Timah to one of the most scenic sites in Singapore in
the range of hills known as Kent Ridge. Since his appointment as
Vice-Chancellor, it has also been increasingly apparent to the
Government that the university would need more funds not only to
expand existing faculties and establish new ones, but also to increase
the pay of academic staff to levels which will attract and retain the
keenest intellects produced in the Republic.
Improvements in similar measure are also necessary at the other
university, Nanyang University. Here, the problem will be, for some
considerable time to come, to recruit Chinese-speaking academic staff
of calibre into the university. While Nanyang graduates who have
returned from postgraduate studies abroad will grow in strength and

Singapore s First Decade of Development 241
numbers, there is a need to recruit senior staff in various disciplines. The
field of recruitment is much narrower than is the case with the Singapore
University. Further, many of the best Chinese-speaking scientists and
scholars available today outside of the People's Republic of China are
engaged in industrial research or academic teaching in the United
States of America. To attract them to Nanyang would be both a complex
and expensive exercise, but some method must be found of doing this
if Nanyang University is to develop in stature and repute as a centre
of scholarship and research.
I have dealt at some length on university education. The subject
arose out of current and projected shortages of engineers and management
personnel which proper university training programmes could, in course
of time, help to solve. But universities have a more crucial role in the
development process if one takes a long-term view of it. Let me set the
subject in its true perspective.
We have made long and strenuous efforts to attract foreign
investment into Singapore, but not because we need the money. The
high level of our overseas assets shows that we have more than we can
usefully spend in Singapore. We welcome foreign investors for the two
things they bring with them — technology and markets. If Singapore
were a large country with a population of, say, 100 million, and endowed
with a variety of natural resources, the open-door investment policy
we pursue may not be the best long-term development strategy. In
such a situation, we should develop an indigenous technology centred
initially around the exploitation of natural resources. But this would
take time and would constrain the economy to slow growth rates for
possibly several decades while universities and research institutions
need to build up staff and expertise. But the payoff would come in the
end and most of it would accrue to citizens of the country.
Our situation is the opposite to what I have described. An open-
door policy is one which at least ensures rapid growth right from the
initial stage. When foreign corporations bring their expertise, what we
experience as a developing nation is a brain drain in reverse. Naturally
we pay for this. We pay in the form of profits and know-how fees
remitted abroad, and high salaries to foreign management and technical
personnel.
This is the position we find ourselves in, and it is likely to persist
into the mid-70s and, in lesser extent, even after that. It would be wrong
for us to resent the inflow of management personnel, engineers and
technicians from abroad. On the contrary, we could regard them as

242 The Economics of Modernization
blazing the trail for the new industries which we do not have the
knowledge and technology to set up ourselves. We should also regard
them as presenting us not only opportunities for future graduates of our
universities and technical schools, but also as performing invaluable
services in giving firm indications as to the lines of science and industrial
technology which our universities and training institutions should
develop. Without such clear indications, Singapore might make the
mistake of other developing nations in producing large numbers of
university graduates who cannot find useful employment. Having said
this, I need also say that in the long term, the scientific know-how and
technological processes which we now borrow from abroad must, in
course of time, develop on an indigenous base at our institutions of
higher learning. This is the task which I see as deserving high priority
in the coming decade. We must make good the neglect of our
universities of the past decade, when, for the reasons I have explained,
they did not participate in the exciting transformation of Singapore
from colony to a state in a federation, and then to a republic.

Facing the Future
Opening address at the Adult Education Board forum on "Qualities required in
the Seventies" at the University of Singapore on 22 November 1970. Published by
courtesy of the Adult Education Board, Singapore.
When I was asked last month to deliver the opening address at this
forum, I willingly agreed without bothering too much to find out
what I was supposed to talk about. Later on when I got down to the job
of writing, I found myself in a quandary, for the subject given was
"Qualities Required in the Seventies".
I am singularly unsuited to talk on this subject. I expect I am
supposed to give a recital of the character traits which Singaporeans
should have in the seventies, such as courage, fortitude, unselfishness,
dedication, intelligence, industry and so on. I do not like doing this.
First, I do not believe exhorting people to virtue has the slightest effect
on them. Second, I am not an evangelist by profession or inclination,
and derive no pleasure from urging people to be virtuous. Third,
11 years' experience as a cabinet minister has convinced me that when
something difficult has to be done, it is not much use appealing to
peoples better nature. A more efficacious method is to set up the right
blend of incentives and deterrents.
I therefore intend to take liberties with the subject matter. What
I intend to do is to describe some of the qualities which we, as
Singaporeans, have today and how these relate to the more important
problems we have to face as a nation in the 1970s.
The first question I want to ask is: What sort of people are we?
For years, we have been engaged in nation-building and a question of
this kind is pivotal to its process. It is strange, but nevertheless true that
^Q^F ^Qm

244 The Economics of Modernization
no one has asked this question. We have any number of books and
articles written on the English character, the Slav soul, the Teutonic
mind by all kinds of people, often by citizens of the countries concerned.
Singaporeans, however, have seldom bothered to find out what they
are. They have little inclination to engage in what some developing
countries grandly call the search for their national identity.
In itself, this fact provides an important clue to one of the character
traits. It is that Singaporeans are not an introverted people. We prefer
doing things to thinking or talking about them. To us, this seems to be
quite natural, but having attended innumerable international conferences
and having visited many countries with opportunity to observe different
societies at close hand, I assure you not everybody is like us. There are
many people who take great delight in thinking and talking. They pass
solemn resolutions in conference chambers in the firm belief that they
have thereby solved the problems under discussion. I assure you that this
is not a caricature of what goes on in many parts of the world today.
The Singaporean, as I said, is a busy and active person. He is
happiest when he is engaged in doing something. Not being of a
philosophical bent, he seldom pauses for a moment to reflect whether
there is any point in doing it. Instead, he applies himself with zest and
energy, hoping to improve his skill or knowledge or to make money or
whatever may be the purpose.
It is this trait that makes the Singaporean a highly competitive
and individualistic person. This is at once a source of strength and
weakness. On the one hand, he is a sturdy, resourceful and self-reliant
person, excellent material for promoting economic growth. It is only
necessary to give him opportunities to educate himself and then
opportunities to find employment or do business, and he can look after
himself. On the other hand, the Singaporean often gives the impression
of putting his personal interests above those of the group or the nation.
It is difficult to say exactly where the truth lies. Certainly, in the
colonial era, there was little acceptance of responsibility to the
community. We had what was essentially a selfish and self-centred
people. In the aggregate, they amounted to no more than a rootless,
migrant, parvenu society.
I believe that attitudes are changing. Those who decry the
individualism which is still marked in present-day Singapore sometimes
fail to see signs of subtle, yet significant changes which indicate that
the Singaporean is developing a group consciousness, a national
consciousness, a collective will, call it what you may.

Facing the Future 245
I do not believe that a freely elected government will be able to
regiment and dragoon the Singaporean. He cannot be forced into a welU
drilled squad as a slogan-shouting automaton. He is poor material for
political indoctrination. Despite his short experience with democratic
processes, he takes his right of dissent very seriously. Sometimes he
exercises this right in odd situations. It is not unknown for an army
recruit, usually a university graduate, to assert his right of dissent
vis-a-vis his corporal, with immediate and disastrous consequences to
himself.
Despite rugged individualism of this kind, I believe we are no
longer, as a people, indifferent to our collective problems. Ten years ago,
nobody cared whether the streets were dirty, whether the air was being
polluted, whether there were sufficient public amenities for recreation,
whether the National Theatre was doing its job well, and the hundred
and one issues which are now matters of common public concern.
We no longer have a politically apathetic people. The growth of
a collective identity, or national consciousness, is not the result of
political indoctrination through compulsory propaganda sessions carried
out by PAP cadres. I do not deny that Government leadership has made
efforts, sometimes strenuous efforts, to develop what my colleagues often
termed "a national consciousness". But we do so not by enforcing set
beliefs and ideologies, but by explaining public issues as they affect the
average citizen and, more importantly, to secure the active participation
of citizens in worthwhile collective efforts.
In incalcating group loyalties or group consciousness, we have
avoided trying to stifle or inhibit the sturdy individualism which is so
strong a part of the Singaporeans character. Instead of this, we have
exploited this individualism by providing, as I said before, a judicious
mix of incentives and deterrents when these are necessary.
There is, of course, nothing normally wrong about this. It is a
normal function of government. However, we found out that, whatever
the rewards and the deterrents, we have to take certain safeguards. First,
we must secure the general acceptance of intended goals, and this is best
done only by open and clear explanation and by free debate. Next, the
application of policy must be carried out with manifest justice and
equity. Incentives should be open freely and fairly to whoever wishes to
make the effort. As regards deterrents, adequate safeguards must be
introduced against penalizing the innocent. Finally, the course of action
to be pursued must be seen by the people to be sensible and practical.
One result of the Singaporean's intense individualism is his sensitive

246 The Economics of Modernization
regard for fair play and equitable treatment. We can carry the people
with us, provided policy is fully explained and generally accepted, and
its implementation is impartial and non-discriminatory. Any hint of a
group enjoying special privileges usually results in a public outcry. This
is as it should be in a healthy democracy, though sometimes the
manifestation of this sentiment can take on bizzare forms. For instance,
the other day, someone wrote to the papers drawing attention to the
grave injustice caused by exempting women graduates from full-time
combat service. The writer went on to argue that women graduates
should either be enlisted in the same way as men or they should be
prevented from taking paid occupation for two and a half years. I cannot
think of any other country in the world where propositions like this
can be advanced in all seriousness.
This then is the Singaporean with his essential qualities as I see
them. How is he likely to fare in the seventies? What are the problems
that are likely to face us in this decade?
One can discover and define as many problems in this decade as
one's imagination or fancy is allowed free rein. It is, however, possible to
distinguish two types of problems. The first is technical, such as the
problems of creating a better living environment, improving the system
of education, getting better public transport services and so on. To say
that these are technical is not to decry their importance. The point is
that such problems yield to solutions by the application of know-how
and the allocation of sufficient effort and resources. To be sure, an
element of social choice exists and, to this extent, these are political
problems. But there is usually the little controversy about what is desirable.
We all want better education for our children, more efficient transport
services, a more beautiful city, better hospitals and so on. The main
problem is how to get these, at what cost, and how to allocate a finite
budget between competing claims.
The other problems are what I call national problems, for want of
a better term. They are those which face Singaporeans as a whole, and
how we go about meeting them depends partly on how people can be
persuaded or induced to make a combined effort. This sometimes involves
sacrifices, and sometimes the ends themselves are not clear. I intend to
select only two of these national-type problems. One is in the field of
international relations, and the other is a domestic social and economic
matter.
Any sensible discussion of problems of the seventies must relate
to what is likely to happen in the decade, not only in Singapore but also

Facing the Future 247
in the region around us, and indeed the whole world. However, human
beings are not blessed with occult powers and we can therefore never be
certain about the future. We can, I suppose, list all the likely courses of
development and see how we would fare under various permutations of
these. I do not propose to do this as the permutations can be so many
that one is soon lost in a morass.
Instead, I propose to consider a situation in which developments
are most favourable to Singapore. I shall consider our problems under
these optimum conditions. There are two such conditions. First, that
economic expansion will continue at the same rate as in the last few
years. Second, I shall assume that the stability of neighbouring
governments will not be seriously upset by domestic or external events
and that these governments will remain in the hands of sensible people
and not pass on to desperados.
Of course, I am not saying that this is an inevitable or even
probable state of affairs. But you will readily understand that I can hardly
speak freely about the converse situation as these are matters for
contingency planning in government ministries, not for public discussion
by ministers.
Under the optimum conditions I spelt out, our country will be
confronted with two important problems. Externally, how to find a
useful role for Singapore in Southeast Asia. In domestic affairs, how to
bring about a more equitable distribution of wealth.
During the sixties, we did not pay much attention to these problems.
We were too busy with our own domestic problems to worry about
relations with our neighbours and our position in Southeast Asia. As
regards fairer distribution of wealth, this took a back seat as our
main concern was to generate fast economic growth by any and every
possible means.
The problem of giving jobs to large numbers of teenagers looking
for work was perhaps the most important single problem facing the
Republic. If unequal distribution of income induced greater savings and
private investment, as I believe it did, then this must be accepted as the
price of fighting unemployment. Hence, we had the strange spectacle of
a socialist movement, and a radical one at that, giving every incentive
and encouragement to private enterprise, and trying to keep down the
level of wages and fringe benefits.
Let me first discuss external relations. I want to do so in a concrete
manner instead of dealing with principles and abstractions which surround
and confuse the subject. If we come down to brass tacks, this really

248 The Economics of Modernization
means getting on better terms with our two neighbours, Malaysia and
Indonesia, and establishing meaningful ties with other countries in the
region. You may say that this is a simple enough matter; let goodwill
and common sense prevail, and everything will be well because there
is really nothing that stands in the way of enduring and endearing
friendship between countries. Yet, in spite of many conferences and
meetings, in spite of lofty expressions of high principles and noble
sentiments, in spite of the universal acceptance of the benefits of regional
co-operation, in spite of all these, we all know that the position is far
from good. If we are not careful, it will get worse as the gap between
our standard of living and theirs widens in the course of the seventies.
There are two factors which complicate a difficult situation. The
first concerns communication between the government leadership and
the people on this subject. It is not possible for the Government to
explain every issue to the people as clearly and as candidly as we would
have liked. For this can cause adverse repercussions in other countries,
leading them to misconstrue our intentions, thereby leading to more
friction and rancour. An obvious case in point is Malaysia since 13 May
last year. Because of the sensitivity of some issues, we had to exercise the
greatest care even when discussing purely domestic issues if these have
implications which may be regarded as sensitive in Malaysia.
A more important source of difficulty stems from our economic
role as a trading centre of the region. Our businessmen, in the ordinary
course of work, have numerous dealings with government officials of
their countries. They have to obtain licences, concessions, contracts
and permits. Thus, the Singapore businessman, in the eyes of these
governments, performs the role of supplicant for favours. As our
businessmen often compete in their supplications, the image that this
creates of Singapore can well be imagined. It is not unnatural, I suppose,
for these governments to expect the Singapore Government to behave
in like manner.
Businessmen have never hesitated to give me free advice on how
to conduct foreign relations during the periodic rows we have had with
our neighbours. Unfortunately, they do not understand — and I am
afraid cannot understand — that in the nature of things, relations
between independent sovereign states cannot be conducted on the basis
of supplicant and overlord. The methods they found so successful in
business are not available to us as a government.
What is the solution to this problem? I would be a charlatan if
I were to try to give you the answer now. All I can say is that there are

Facing the Future 249
no soft options here, no easy way out, and no sure-fire solutions. It is,
however, a subject to which people should pay increasing attention,
and it is likely to be a major concern in the seventies.
I turn to the domestic scene, which forms the backdrop to my
second major theme. The subject of income distribution is partly a
technical one and partly political.
An economic policy which aims at a more equal distribution of
income in Singapore is subject to a number of technical economic
constraints. More equal distribution of income in our context means, in
simple words, increasing wages in relation to salaries and profits. Among
the more important constraints on the rate of increase of wages in
Singapore we note the following:
1. The rate of increase in wages in Hong Kong, Taiwan and South
Korea. These are our principal competitors for offshore
manufacturing operations financed and managed by major international
companies.
2. The ability of other developing countries in the region, principally
Malaysia and Indonesia, to provide the incentives, infrastructure,
policies and general environment conducive to industrial
investments such as those we are attracting now.
3. Our own ability to acquire working skills at higher levels of
technology.
In my view, the most important of these three is the last. My
comment about the character of the Singaporean, his willingness to
learn new skills and make sustained efforts at self-improvement indicates
that we can succeed in this provided we set up the proper types of
training institutions, both in schools and in non-academic institutions.
We are making a big effort at this and are trying various methods and
systems. It is still too early to say whether we are definitely on the
right track.
Technical education along correct lines is the surest, safest and
fastest method of increasing wages without damaging the attractiveness
of the Republic as a centre of international investment. As regards wage
rates in the three countries I have mentioned, this need not give us
cause for anxiety. Wages are increasing at a much faster pace than in
Singapore. Wage rates in Hong Kong used to be far below that of
Singapore; today they have outstripped ours. It will not be long before
wages in Taiwan and Korea approximate to our levels. Indeed in some
industries, this has already happened.
As regards Malaysia and Indonesia acquiring the means to attract

250 The Economics of Modernization
massive foreign industrial investment, far from fearing this, we should
welcome such a development. For this means that they would have
achieved that level of political stability and economic rationality which
will make the first problem I discussed earlier all the easier to achieve.
We need not fear their taking investment projects away from us. There
is plenty of gravy around. The successful take-off to self-sustaining
industrial growth by our neighbours is the best single guarantee of
peace and stability in Southeast Asia. We therefore have a vested
interest in their success.
On the whole, I am fairly optimistic that we shall succeed in
bringing about improved conditions for workers in Singapore. The rate
at which wages can increase without endangering economic expansion
and industrial growth is, in principle, calculable, having regard to the
three factors I have discussed. In practice, however, it is not always
possible to collect the necessary data with sufficient accuracy.
While wages will go up in the seventies, it is also necessary to
emphasize that at no time in the next decade can we afford to dismantle
the institutions or discard the attitudes that have helped to bring
about industrial expansion. It is here that the political issues arise. The
labour movement must continue to accept its share of responsibility for
orderly growth of the economy and the leadership must be prepared to
give guidance and enforce discipline when required. In this decade,
however, I expect this task is likely to be less demanding than it was
during the last. If all goes well, the capacity of our economy to provide
sweeteners to the labour movement will increase as we progress towards
higher levels of industrial technology. Trade union leaders will no longer
be the harassed persons they were in the sixties. The worker who had
borne the brunt of the economic disciplines that we had to impose in
the last decade should find fulfilment in this decade. He certainly
deserves it.
It is clear from what I said, and even more so from what I have
not, that we are in for an interesting time this decade. I hope we shall
meet the many challenges ahead with greater assurance of overcoming
them than in the last decade. Looking back at the stormy sixties, I can
recall many a cliff-hanging situation when disaster could well have
overwhelmed us. Indeed there were moments when it seemed that only
intervention by a divine providence could have saved the situation.
But we stuck it out and everything turned out all right in the end.
One way of improving our chances of success in the seventies is
to foresee, as far as one can, what the decade holds for us. This is what

Facing the Future 251
this series of discussions seeks to do, and it is a good practice that
should be encouraged. If I were asked to propose a slogan for our
citizens to guide them in their journey through the seventies, I can't
think of anything better than the familiar motto of the Boy Scouts:
"Be prepared!"

<*4*%
.. trim"
*- *€& **§" ^^' '' ' ., *i ? *- £ w ** "< * "
Index
<** ^ i<irt^ -
acculturation 5
agriculture 5, 7, 12, 37, 38, 48, 58, 60, 61, 64,
66, 67, 99,100,101,107,176, 178, 227
Aidit 196,197,198
ASEAN (Association of Southeast Asian
Nations) 105
Australians 214
balance of payments 8, 10, 28, 46, 53, 61, 123,
179,234
Bank Negara Malaysia 119
banks 122,234
Barisan Sosiqlis 112, 114, 142, 208
Boeke 63
Bolsheviks 21, 191
Borneo 101,106,117
Britain 29,31,116,152,213,229
British military expenditure 220, 227, 231
British 31,106,115, 128, 149, 161, 199, 201,
213,214,219,220,227,231,238
Burma 67
Butterworth 142
capital 4, 6, 7, 8, 19, 23, 28, 30, 31, 33, 34, 36,
39, 42, 46, 52, 55, 56, 58, 60, 61, 68, 69, 70,
78, 85, 98, 99, 100, 101,102, 106, 107, 108,
144, 145, 164, 165, 167, 172, 176, 180, 182,
184,185,186,190, 220, 228
Western 4, 6
foreign 85, 164, 180
capital-output ratio 34, 35, 46
capitalism 39, 114, 182,190
central bank 53,118-125
Ceylon 57,67,68,72,159,189
charisma 66
China 20, 21, 22, 23, 25, 31, 38, 62, 99, 107,
115, 116, 137, 152, 161, 172, 173, 174, 175,
176,181,191,199,200,201
Chinese Communist Party 21, 22
cities 4, 5, 6, 13, 14, 16, 17, 18, 19, 20, 21, 22,
24, 28, 58, 60, 62, 70, 82, 84, 87, 135,175,
177,178,218,223
civil servants 38, 155, 172, 180
Civil Service 133, 153
civil service 38, 114, 172, 173, 174, 175, 176,
177,179,225
Clausewitz 211
Colombo Plan 111,152
colonialism 11
colonies 4,5,12,57,107
colonization 4, 12
Comintern 196
common market 102, 108, 109, 110, 167, 224,
227, 236
communications 4, 5, 18, 19, 62, 66, 84, 102,
145,165,177,178,194,240
communism 25, 39, 188, 189, 194, 203, 204,
205
Communist countries 134
Communist Party of Indonesia (PKI) 196, 209
Communist Party of Malaya (CPM) 198, 208
Communist system 23, 136
Communist United Front (CUF) 206-208,
225-226,239
Communists 21, 22, 25, 87, 189, 190, 191, 192,
193, 194,195,196,198,199, 200, 202, 203,
204, 205, 208
Chinese 21,22,191
Confucius 15, 172, 174, 176, 181
consumer price index 221
countryside 5, 6, 13, 18, 20, 21, 22, 24, 25, 58,
59,60,62,65,70,87,113,191,200
Cruz, Gerald de 154
Cuba 188
"Culture System" 5
debt servicing 8
Decade of Development 27, 28, 65, 72, 83, 219,
220
demand 7, 9, 56, 61, 67, 102, 138, 164, 166,
186, 230, 237, 238
income elasticity of 67
democracy 25, 31, 40, 41, 63, 64, 163, 169, 198,
246
democratic system 25, 169, 204
Denmark 37, 76
Development Bank 183, 230
Dutch 60,115,196
Economic Development Board 91, 183, 224,
229, 236
economic growth 2, 4, 7, 10, 28, 29, 31, 33, 34,
35, 39, 41, 42, 43, 44, 47, 48, 50, 52, 54, 55,
57, 62, 64, 65, 66, 71-79, 83, 85, 86, 98, 99,
100, 110, 116,136,164, 179, 187, 219, 221,
229, 234, 244, 247

Index 253
education 4, 10, 14, 18, 22, 46, 47, 48, 51, 72,
77, 79,80,85,92,94,99, 111, 113,126-129,
130, 131, 133, 134, 136, 138, 139, 148, 151,
154, 155, 158, 160, 162, 164, 165, 166, 170,
177,180, 204, 216, 221, 224, 241, 246, 249
Employment Act 89, 186, 230
employment 7, 14, 20, 40, 41, 44, 82, 95, 96,
102, 107, 108, 133, 159, 165, 166, 204, 208,
226, 228, 229, 231, 233, 234, 242, 244
entrepreneurs 6, 44, 49, 50, 63, 68, 69, 99
Europe 3, 4, 13, 15, 17, 20, 28, 41, 62, 78, 82,
108, 153, 175-178, 216, 217, 229, 236
Western 29,30,31,73,158,176
European Economic Community 108
European impact 3
fiscal policies 11
foreign aid 55,61,85,164,184
foreign exchange 6, 8-11, 36, 100, 101, 120
Frederick the Great 217,218
free market competition 9
Friedman, Milton 142
Germany 84,85,218,229
Great Depression 107,113
gross domestic capital formation 33, 46, 220
gross domestic product (GDP) 54, 220-221,
227,229-231
gross national product (GNP) 8, 42, 53, 67, 68,
121,131,171
Hagen 64
Haiti 189
Hong Kong 12, 17, 20, 115, 220, 226, 229, 249
Housing and Development Board 183, 224
imperialism 12, 17, 18
import substitution 8, 9, 12, 68, 108, 109
income 33, 34, 35, 42, 43, 54, 55, 56, 61, 67, 79,
84, 94, 98, 99, 100, 101, 105, 107, 145, 156,
199, 220, 247, 249
distribution 55, 56
independence 6, 14, 19, 36, 37, 56, 57, 71, 83,
89, 106, 107, 112, 115, 117, 118,168, 175,
179,189,219,234
India 3, 31, 32, 37, 59, 62, 63, 67, 68, 69, 72,
99, 107,137, 161, 188, 189
Indonesia 3, 5, 43, 59, 60, 67, 68, 99, 100, 101,
106, 107, 109, 110, 137, 161, 196, 197, 200,
201, 209, 227, 230, 248, 249
Industrial Revolution 3, 29, 75, 78, 84, 171,
176, 177, 178, 190
industries 3, 4, 6, 7, 8, 9, 11, 24, 36, 38, 49, 58,
60, 61, 68, 69, 70, 75, 76, 84, 91, 99, 101,
102, 103, 106, 107, 109, 158, 159, 165,166,
167, 168, 178, 187, 221, 224, 225, 226, 228,
231, 233, 234, 236, 237, 238, 239, 242, 249
inflation 28,41,123, 168,221
infrastructure 4, 19, 52, 68, 108, 167, 236, 249
innovation 9, 38, 58, 61, 63, 69, 100, 108, 129,
175,212
institutions 4, 5, 12, 13, 14, 15, 28, 29, 30, 34,
35, 38, 52, 54, 62, 65, 68, 69, 70, 73, 74, 75,
76, 77, 78, 85, 99, 111, 113, 134, 137, 150,
164, 175, 178, 180, 181, 194, 198, 208, 229,
236, 239, 241, 242, 249, 250
Israel 95, 157
Japan 14, 23, 29, 30, 31, 36, 60, 84, 85, 100,
110, 181, 199, 213, 217, 220, 229, 236
Japanese 22, 26, 39, 70, 77, 161, 181, 198, 200,
212,213
Johore 105
Josey, Alex 154
Jurong 94,147, 148, 165, 183, 184, 226, 230
Keynes 35
Kuomintang 21, 22, 191, 200
labour 6, 9, 13, 31,47, 58, 59, 60, 61, 72, 75, 82,
86, 89, 90, 91, 92, 93, 100, 103, 105, 107,
108, 129, 131, 142, 163,175, 176, 178,186,
187, 226, 229, 232, 234, 250
landlord 23, 76, 82, 100, 183, 188
leading sector 7, 8, 9, 11, 24, 37
Lee Kuan Yew 154
Lenin 21,87,190,191
Malaya 31, 32, 38, 67, 68, 79, 89, 99, 100, 101,
102, 106, 107, 117, 188, 198, 200, 204, 224
Malays 39, 198, 199
Malaysia 6, 11, 19, 31, 38, 61, 68, 72, 102, 105,
106, 107, 109, 117, 118,119,161, 168, 169,
199, 201, 207, 219, 223, 224, 227, 228, 229,
236, 248, 249
Malthus 70,176
management 4, 7, 10, 19, 34, 38, 65, 69, 72, 73,
75, 76, 91, 95, 96, 100, 109, 140, 237, 241
manpower 53
manufactures 3, 5, 8, 57, 107, 221, 226, 228,
233
Mao Zedong 127,191
marginal cost 52
marginal propensity to consume 58, 60
multiplier 120
Munshi Abdullah 141

254 The Economics of Modernization
Musso 196
Myrdal 2, 13, 182
Nanyang University 46, 98, 239, 240, 241
nation-building 41, 42, 43, 44, 66, 243
National Trades Union Congress (NTUC) 89,
90,91,95,96,186,187,232
national income 98, 99, 101
nationalism 78, 188, 189, 196, 197, 213
New Zealand 29,37,76,152
Nurkse 58, 60, 64
Pakistan 67, 68, 99
People's Action Party (PAP) 224, 225, 245
Government 145, 161, 182, 183, 206
personnel 4, 9, 48, 73, 75, 78, 132, 152, 166,
193, 202, 237, 238, 241
Philippines 159
population 5, 6, 9, 16, 19, 29, 30, 31, 37, 48, 50,
58, 59, 61, 62, 63, 64, 66, 67, 72, 73, 76, 78,
81,82,84,86,94,95,99,101,106,108,114,
130, 131, 132, 133, 136, 138, 143, 144, 145,
148, 155,165, 174, 176, 177, 179, 190, 191,
192,198, 213,214, 215,221, 240, 241
primary produce 11, 56
private sector 33, 42, 69, 156, 184, 232
productivity 56, 58, 59, 63, 65, 66, 148, 187
profits 6, 42, 55, 56, 109, 184, 185, 241, 249
public health 5, 58
public sector 184, 225, 232
Renaissance 74
rubber 4, 6, 61, 67,100, 105, 106, 199
estates 6, 105
Russia 39, 75, 190, 191
savings 39, 54, 55, 56, 58, 60, 64, 93, 98, 247
shipping 19,20, 110,233
Singapore 1, 17, 19, 20, 31, 32, 38, 40-45, 50,
71, 79, 81, 82, 86, 88, 89, 91, 93, 94, 98, 99,
101-123, 125-145, 148, 149, 150, 152-158,
160-166, 168, 169, 182, 183, 186, 188, 198,
199, 201, 204, 206-210, 213, 215, 219, 220,
221, 224, 227-231, 233, 236-244, 246-250
Singapore Manufacturers' Association 182, 184,
187
Singapore Polytechnic 164,165
socialism 34, 50, 78, 113, 183, 190, 209
socialists 87, 114, 182, 183, 184, 186, 224
sociologists 2,31,39
Soekarno 43, 196, 198,227
South Korea 12, 186, 220, 226, 249
Southeast Asia 1, 38, 52, 65, 70, 83, 137, 168,
247,250
Soviet Union 21, 29, 30, 31, 64, 74, 76
Sparta 215,216
Stock Exchange 122, 185
Sukiman 196
SunZi 211
surplus value 6, 11, 14, 176, 179, 180
Taiwan 12,23,67,186,226,249
tax(es) 135, 136
technology 3, 4, 6, 7, 12, 14, 38, 41, 48, 58-61,
64,66,70,108,158,159,174,176,178,179,
180, 192, 238, 239, 241, 242, 249, 250
Thailand 99, 105, 109
tourism 20, 229
Tourist Promotion Board 20, 95
tourist trade 11,95, 231
Treasury Bills 122,234
Treaty of Rome 108
United Nations 28, 54, 59, 67, 71, 83, 144, 219,
220, 237
United States 29, 76, 185, 214, 229, 241
universities 4,6,18,22, 24, 25,41,52, 71, 79,80,
112, 150, 152, 155,163, 164, 178, 194, 239,
240,241,242
University of Singapore 1, 40, 71, 104, 131,
154, 239, 240, 243
urbanization 16, 17, 26
Vietcong 201,212
Vietminh 201
Vietnam 23, 125, 150, 159, 200, 201, 204
Vigilante Corps 138
Wages 226, 249
welfare state 30, 136
Western bloc 74
Western Europe 29, 30, 73, 177
workers 6, 44, 58, 60, 81, 82, 86, 87, 88, 92, 93,
94, 107, 108, 148, 165, 166, 190, 191, 193,
197,200,208,221,226,239,250
working class 21, 44, 93, 177, 187, 190, 191,
192, 195
World Bank 8,117,133,148
World War II 3, 6, 35, 71, 84, 131, 195, 198,
200
YeohGhimSeng 209