What can Singapore

learn from other small

advanced economies?
David Skilling

Global-is-Asian, Lee Kuan Yew School of

Public Policy, Singapore
March 2015

Abstract
Singapore is now one of the richest countries in the world, and increasingly faces a range of policy issues
that are similar to other small advanced economies. It is these small countries that have been
operating successfully at the income frontier for some time that are most likely to offer Singapore
insight in terms of benchmarking its performance, understanding emerging challenges and
opportunities, and identifying high potential policy options and approaches. This paper provides an
assessment of how small advanced economies are relevant to Singapore, considers the similarities and
differences between Singapores policy approach and those of other small countries, and suggests some
areas in which Singapore can obtain strategic policy insights from other small advanced economies.

1. Introduction
Singapore has performed exceptionally well over the past several decades, moving rapidly from third
world to first. Singapore is now one of the richest countries in the world, and has also generated strong
outcomes on many other measures of development. But Singapores growth rates are moderating, and
citizens are increasingly demanding a broader range of outcomes. Policy challenges and trade-offs are
becoming more acute. In other words, Singapore is transitioning from a model of rapid, catch-up
growth, and now has many of the characteristics of normal advanced economies.
There is much debate about the best policy approach for Singapore. To what extent should the
historical Singapore policy model be changed or adapted? Can Singapore continue to successfully
engage in the global economy in this new environment? In approaching questions about the next stage
of Singapores development, this paper suggests that Singapore can learn from other small advanced
economies. Singapore should be looking to other small countries for ideas and insights about its
strategic policy options and choices.
Singapore has of course looked abroad for policy ideas and best practice for decades, investing heavily
in understanding what other governments are doing with a view to applying it in Singapore. This is
valuable, and Singapore should continue to seek out the best ideas wherever they are. But in addition
to identifying specific aspects of policy best practice, Singapore should be looking for strategic policy
insights from other countries. In addition to understanding, for example, the specific design features of
the Finnish education system or Danish labour market policy, it is also instructive to consider the big
strategic policy choices made by Finland and Denmark.
As a city state with no natural resources, Singapore is a distinctive country in many ways. And many of
its policy design features are also distinctive: from public housing and transport, to retirement income
and monetary policy. But these distinctive features do not mean that the experiences and approaches
of other countries are not relevant. In particular, there are important similarities between Singapore
and other small advanced economies that allow for practical insights to be obtained. Singapore is
exceptional in many ways, but a sense of exceptionalism can be a mental trap if it prevents active
consideration of other approaches. As I will describe below, these small countries face many of the

What can Singapore learn from other small advanced economies?

same strategic challenges and opportunities as Singapore and it is instructive to consider the strategic
policy choices that these countries have made in response.
This paper is structured as follows. Section 2 describes the characteristics of the group of small
advanced economies and benchmarks the similarities and differences with Singapore. Section 3 makes
some overall observations about the small country policy experience. Section 4 draws out some of the
broader policy insights and messages for Singapore. Section 5 concludes.

2. Benchmarking Singapore against other small advanced economies

I define small advanced economies as IMF advanced economies with populations of 10 million or less.
Exhibit 1 lists these countries, together with their populations and per capita incomes. There are
currently 35 IMF advanced economies of which 19 are small.
At one level this is a diverse group of countries, with clear differences in geography, economic structure,
and in some policy areas. Singapore looks clearly different from small countries like Denmark,
Switzerland, and New Zealand. And Singapore, Hong Kong and New Zealand are the only countries from
the Asia Pacific region; with the exception of Israel, all the other small advanced economies are from
Europe.
But although there are some obvious points of difference, there are many important similarities across
the small advanced economies on dimensions that are directly relevant to Singapore. To structure this
discussion, I will consider the similarities and differences across the small advanced economy group in
terms of three areas: outcomes; policy settings; and (more qualitatively) the nature of the policy
approach in these countries.
Outcomes
This discussion considers the similarities and differences between Singapore and other small advanced
economies across three types of economic outcomes: income levels and growth rates; openness to the
global economy; and the economic risk profile.

Income levels and growth rates

The first observation is that small advanced economies have generated strong economic outcomes.
They rank well in terms of levels of per capita income, with an average of US$46,800 for the small
advanced economy group versus US$37,500 for the large advanced economy group. Many small
advanced economies operate at the income frontier: 7 out of the top 10 advanced economies by per
capita income are small. Singapore is 7th on the per capita income ranking.
Small advanced economies have out-performed their larger counterparts over the past 30 years. The
average GDP growth rate for small advanced economies has been 3.2% versus 2.6% for the large
advanced economy group since 1980. There have been some exceptions in the small advanced economy

What can Singapore learn from other small advanced economies?

group, but this strong performance is widespread. One illustration of this performance is that the group
of small advanced economies have held their collective share of global GDP constant since 1980, at
about 6% of global GDP. In contrast, the major large advanced economies have gone backwards as a
share of global GDP (US, France, Germany, UK, Japan and so on).
Although Singapore is at the top of the growth rate rankings, with an average headline GDP growth rate
of over 8% for the 1970-2000 period, Singapores growth rates are now converging to those generated
by most other small advanced economies. While in catch up phase, countries like Singapore, Hong Kong
and South Korea, were able to sustain very high growth rates. But headline GDP growth rates at the
frontier are commonly in the 3% range, which is not far from what Singapore has generated over the
past few years (and the 2015 Budget suggested a range of 2-4% was likely into the future). Singapores
GDP growth performance has become much more like other small advanced economies, which is to be
expected given the similar level of GDP per capita (and the emerging constraints on input-led growth).

Global economic engagement

An important driver of this strong economic performance by small countries has been the intense
engagement of small advanced economies in the global economy, through exporting, outward direct
investment, and so on. Active engagement in the global economy allows firms from small economies to
grow into larger markets and obtain the benefits of scale and specialisation.
Exhibits 3 and 4 describe the much higher levels of exports and ODI (outward direct investment) from
small advanced economies: an average small country export share of 82% of GDP relative to 42% for
larger advanced economies; and 68% versus 54% for ODI/GDP for small and large advanced economy
groups respectively. Singapores level of exports and ODI, at about 190% and 175% of GDP respectively,
is high even among the small country group. This is largely because Singapore acts as a base for
outwardly oriented MNCs, and is an important regional hub. But high levels of external economic
exposure are a common feature across small advanced economies.
The export and ODI shares of small countries have increased strongly over the past 20 years (much more
so than large countries), as small countries have actively engaged in the process of globalisation
(Exhibits 5 and 6). However, the growth rate in Singapores exports/GDP ratio over the past decade is
roughly in line with other small advanced economies: again suggesting a process of convergence
between Singapore and other successful small advanced economies.

Economic risk

The external exposures faced by small advanced economies generate additional volatility in the GDP
growth path (as measured by the standard deviation of annual GDP growth). Small countries are acutely
exposed to shocks and turbulence in the global economy, and have becoming more exposed to global
economic fluctuations over the past few decades. For example, the global financial crisis affected small
advanced economies more significantly than larger economies; the immediate GDP reduction was
sharper for small countries than for larger countries. Singapores GDP reduced by about 10% (before
recovering rapidly), and many other small countries also experienced substantial reductions in GDP.

What can Singapore learn from other small advanced economies?

Along with Hong Kong, Singapore has a high level of economic volatility even among small countries
(Exhibit 7). But this economic volatility is much more similar to other small countries than to larger
countries. Because of this exposure, small advanced economies need to take issues of economic risk
and resilience seriously; Singapore is not the only small country to regard itself as economically
vulnerable.
In sum, small advanced economies share with Singapore a track-record of strong economic
performance, intense engagement with globalisation, and a more volatile economic trajectory. This
means that policy choices and debates proceed from a similar frame of reference.
General policy approach
This shared context of high performing small economies, operating at the income frontier, and highly
open to the global economy leads to similarities across the small advanced economy group in terms of
the strategic design of economic policy; the policy debates and objectives are recognisable across
countries. Small countries tend to see the world in similar ways.
In particular, the acute global exposures that small countries have mean that they face a strong
competitive discipline, with an accompanying sense that they need to be distinctive in order to compete
with other, larger economies. Small countries think and act on the basis that they are price takers,
operating with little room for policy error, and need to adapt themselves to the realities of the external
economic and political environment.
This leads many small advanced economies to a shared approach to economic policy. Much more so
than larger advanced economies that can rely more heavily on the domestic market, small advanced
economies frequently develop a deliberate policy strategy to position themselves in the global
economy. The exact nature of this strategy will vary according to the specifics of the local context, but
examples include FDI attraction (Ireland, Singapore), R&D and innovation-led strategies (Finland, Israel,
Switzerland), and the exploitation of natural resource-based comparative advantage (New Zealand,
Norway).
But irrespective of the specifics, there is consistently an integrated, coherent policy approach in small
advanced economies: a deliberate approach to economic policy that is designed to position the country
is much more of a focus than macro policy. Singapore is a distinctive example of this structured
approach to economic policy, but this is also a characteristic of many other successful small advanced
economies.
Specific policy settings
This shared perspective leads to some common policy settings. Although casual observation shows that
there is significant variation in specific policy settings across small advanced economies, these
differences should not be over-stated. There are some features of small country policy settings that are
common, and that are relatively distinct from the large country group. This discussion considers some
of these similarities in terms of both microeconomic and macroeconomic policy.

What can Singapore learn from other small advanced economies?

First, consider small advanced economies in terms of microeconomic or structural policy. At a summary
level, small countries notably Switzerland, Singapore, and the Nordics routinely rank at or near the
top of the various global competitiveness rankings. This is because of their commitment to growthfriendly policies. Although these policy packages come in different shapes and sizes, resources are
generally allowed to flow flexibly and efficiently in response to changing conditions, and costs and other
distortions are relatively well controlled.
To be more specific, one common feature across small advanced economies is a commitment to
investing in innovation and human capital. Small country R&D spending is markedly higher than in large
countries, with respective averages of 2.5% of GDP and 2.1% of GDP. Small countries like Finland and
Israel invest about 4% of GDP. Notably, small country R&D spending has increased strongly over the
past 15 years which has contributed to the transformation of the export structures of many small
countries and strengthened their growth potential. Singapore is similar to these countries with a
substantially increased R&D commitment over the past decade (total R&D spending is about 2.2% of
GDP). Investing in innovation and human capital is central to economic strategy in Singapore and most
other successful small advanced economies.
In terms of macroeconomic policy, there is a strong tendency for small advanced economies to have
prudent fiscal policy settings. Although many small countries (such as the Nordics) are noted for their
high levels of government spending, small countries are conservative on fiscal balance with low levels of
public debt and regular fiscal surpluses (or small deficits). The average structural fiscal deficit for small
countries is 1.5% of GDP versus 3.4% of GDP for large advanced economies (Exhibit 8); and average net
public debt is 10% of GDP in small advanced economies relative to 75% for larger advanced economies.
Singapores fiscal outcomes have been particularly strong, with sustained large fiscal surpluses.
The conservative fiscal stance is partly because small countries have fewer degrees of freedom than
large countries in terms of deficit-funded government spending: small countries face strong discipline
from capital markets, and a solid financial position is an important element of economic resilience.
Singapores strong record of fiscal discipline is shared with many small advanced economies. Indeed, a
key feature of the small country policy response to the global financial crisis was a commitment to fiscal
consolidation.
One marked difference between Singapore and most other small advanced economies is the level of
government spending (and tax revenue): average government spending across the small country group
is about 42% of GDP compared to about 15% of GDP in Singapore in 2013 (Exhibit 9). This substantial
difference is partly the result of classification: Singapore, for example, relies on compulsory savings for
retirement income, medical insurance, and so on, which in many other developed countries would be
run through the tax system. And so the differences in the levels of expenditure on health and
retirement income between Singapore and other small advanced economies are not as substantial as
may first be thought.

What can Singapore learn from other small advanced economies?

Overall
The purpose of this discussion has been to describe the extent of commonality between Singapore and
other small countries, and to establish the group of successful small advanced economies as a useful
peer group for Singapore. Singapore shares many characteristics with the group of small advanced
economies. Indeed, over the past decade, Singapore has become more like other small countries in
terms of economic outcomes like income levels and growth rates, as well as in the approach to
economic policy (such as greater spending on R&D and social insurance).
Because of these increasing similarities, there is more that Singapore can learn from other small
countries. Singapore has been exceptional in its GDP growth and the speed of the transition into the
high income group, but many of Singapores characteristics look less exceptional when compared to
other small advanced economies. Other Asian growth economies like Japan and South Korea are often
used as benchmarks for Singapore, and there are insights from these countries but there are some
particular similarities between Singapore and other small advanced economies, which makes small
countries a particularly useful peer group.

3. Observations of the small country experience

Given the similarities described above, this section considers the specific policy lessons and insights that
Singapore can take from other small advanced economies. In particular, how have small advanced
economies been able to sustain leading, competitive positions at the income frontier? This section
describes three key elements of their policy experience and thinking that are relevant to current
Singapore policy debates in this regard:

Productivity-based growth models

The allocation of risk in the economy
An emphasis on bottom-up innovation

These three policy areas capture deliberate policy choices made by successful small advanced
economies, in which there are clear differences with Singapores current policy approach. Although
there is not a best practice small country model that Singapore should simply replicate, there is value in
understanding why other successful small advanced economies have made different strategic policy
choices and which elements of this experience may be instructive for Singapore.
Productivity-based growth
A productivity-driven growth model is the only sustainable way for advanced economies to grow. Small
advanced economies need to compete on the basis of knowledge and innovation to overcome the high
cost structures that they have and to extract full value from the factors of production they have
available. At various times, many small countries have benefited from favourable demographics and

What can Singapore learn from other small advanced economies?

inward migration to drive strong growth. But per capita income growth driven by productivity is now at
the core of their growth strategies rather than headline GDP growth driven by inputs.
The importance of productivity-driven growth is true for all advanced economies, large and small. But
small countries provide a useful productivity benchmark for Singapore because of the various
constraints on generating high levels of productivity in a small market.
Exhibit 10 shows the distribution of labour productivity across advanced economies in 2013, as
measured by GDP per hour worked. The US tops the international ranking at $41/hour worked, but
small advanced economies perform strongly, with countries like the Nordics and Ireland above $30/hour
worked. However, there is a significant gap between Singapores level of labour productivity and those
of other successful small advanced economies. Indeed Singapores labour productivity level is one of
the lowest among the small advanced economy group at $21/hour worked (just below New Zealand at
$22/hour worked). On this score, Singapore has more in common with the European transition
economies than with its peers at the top of the per capita income rankings.
This benchmarking gives a sense of the scale of the productivity challenge for Singapore in order for it to
stay at the income frontier with more normal labour market behaviour. Although the productivity levels
of South Korea and Japan are often cited in the Singapore debate, it is the small advanced economies
(and particularly those without significant natural resource endowments) that are the relevant
productivity peer group for Singapore. There is a 40-50% gap between the productivity levels of leading
small advanced economies and Singapore, a much bigger gap than the 10-20% productivity gap with
respect to countries like Japan and South Korea.
Singapore is at the income frontier despite relatively low levels of labour productivity because of the
size of its labour input. A simple decomposition of GDP per capita into hours worked per capita and GDP
per hour worked (Exhibit 11) shows clearly that Singapore is an outlier among its small country peers in
terms of both low labour productivity ($21/hours worked, 78% of the small country average) and high
hours worked (1473 hours/person, 167% of the small country average). Different models can be seen in
countries like Sweden, Denmark and Ireland, with above average labour productivity levels and below
average hours worked.
There has been no meaningful convergence towards the productivity frontier by Singapore over the
recent past. Singapores labour productivity growth over the past decade has been about average
across the small country group (and indeed, reported productivity growth has been negative or flat since
2011). Singapores recent growth has come almost entirely from growth in hours worked.
Given the emerging domestic constraints on inputs (such as land and labour) in Singapore, there is a
need to converge to the productivity levels of other small advanced economies in order to remain at the
income frontier. Of course, Singapore is aware of this and is attempting to rotate its economy in this
direction although with little apparent success to date. So in addition to using the small country group
as a good benchmark, it is useful to look at other small countries to see what they have done to

What can Singapore learn from other small advanced economies?

generate high levels of productivity. Although there is no precise list of factors that matter, there are
some suggestive differences between other small countries and Singapore.
To structure this discussion, I draw a distinction between internationally-exposed and domesticallyfacing sectors of the economy. In most countries and Singapore is no exception sectors that are
exposed to global competition have significantly higher levels of productivity than domestic sectors.
Firms that export or invest abroad have to be operating at high levels of productivity in order to
compete successfully in international markets. And inward FDI by MNCs often leads to improved
productivity as those firms bring scale and specialisation, as well as leading technologies and
management practices.
Singapore, as with other small countries like Ireland, has imported productivity growth through MNCs.
But to generate higher levels of productivity, the focus needs to be broadened out so that more
Singapore firms are expanding into international markets. In many small countries, supporting
internationalisation by firms is a key part of the productivity agenda. A strong pipeline of firms growing
into international markets is a strong contributor to high labour productivity levels and growth rates.
Small country firms need to access international markets to get the required scale and specialisation for
sustained productivity growth. Singapore has done many things in this regard; substantial investments
in human capital and R&D as well as encouraging firms to invest in technology and other productive
capital. But the international experience suggests that an even stronger focus on outward expansion of
Singapore firms may be warranted, including actions deliberately aimed at removing firm-level
constraints on international expansion.
In addition, it is also important to increase productivity across the non-tradables sector. The nontradables sector is an important input into internationally engaged sectors, and it is also a substantial
part of overall GDP. This requires ongoing work across a myriad of areas, to remove costs and
distortions from the economy and to ensure that incentives exist for the efficient allocation of
resources. One key aspect is ensuring that intensity of competition is encouraged. In small countries
competition is often less intense than in large markets because of the smaller market size and a smaller
number of large firms: a small number of dominant firms may lead to slower rates of innovation and
productivity growth.
Productivity growth is an active topic of current conversation across many small advanced economies.
There is concern about declining productivity growth rates and a view that this needs to be addressed
with urgency. Productivity Commissions in Denmark and New Zealand have been established over the
past several years, with a particular focus on identifying areas for productivity improvement in parts of
the non-tradables sector (retail, construction, and so on).
Singapores current policy approach of providing financial incentives to firms to upgrade and reducing
supply of cheap inputs adds value to the productivity drive. But the experience of other small
countries suggests that additional actions are also likely to add value to the productivity agenda. In
particular, a focus on outward expansion; and a particular focus on improving the efficiency and
flexibility of domestically focused sectors are vital.

What can Singapore learn from other small advanced economies?

The allocation of risk in the economy

One of the key differences between Singapore and other small advanced economies is in terms of the
level of government spending. But given the extent of the required private provision of retirement
income, health insurance, and so on in Singapore (which are quasi-tax in nature), the better way to think
about the difference between Singapore and other small advanced economies is in terms of the
allocation of risk between governments and individuals/households. In particular, there is a significantly
higher level of risk pooling in other small advanced economies than is the case in Singapore.
This view that it is important (and efficient) for individuals and households to manage and bear these
risks rather than relying on the broader community to assist has been a cornerstone of Singapore policy
for some time. Moral hazard is taken very seriously, with a concern that creating an expectation of risk
pooling will cause people to manage risks less effectively and to rely more on others.
It is instructive to consider Singapores approach in the context of the experience of other small
advanced economies. As noted above, small, open economies are more subject to fluctuations and
shocks in the global economy, as well as to firm and sector-specific shocks due to changes in technology,
global competition. These economic risks translate into volatility in household income streams and in
many cases, these risks are hard for households to efficiently insure against.
A key policy priority for small advanced economies (even more so than for larger advanced economies)
is to efficiently manage these risks. Some of this occurs through macroeconomic policy settings, such as
conservative fiscal policy and managing the external balance, which serves to provide a buffer against
economic shocks. And several small advanced economies manage cross-border capital flows through
exchange rate policy, and more recently, through macro-prudential policy measures (particularly with
regard to the real estate sector).
In addition, many successful small advanced economies have also developed policies to manage and
allocate risk at a microeconomic level. For example, employment insurance programmes that provide
assistance to retrain and to look for other employment are a response to the increasing pace of
technological and other change. Similarly, the risk pooling element of public pensions recognises the
risks associated with an individuals lifetime income not all of which can be managed or insured by the
individual. For this reason, the pension amount is often linked to the average wage rather than an
individuals lifetime income.
Singapores policy approach is very much in line with small country practice on macro policy, with
conservative fiscal policy and strong macroeconomic risk management (including more recently, the
introduction of macro-prudential policy to cool asset prices). But at a microeconomic level, there is little
explicit risk sharing across the population for some of these economic risks. The Singapore approach
emphasises sharp incentives and that it is best for risk to be managed by individuals and households as
opposed to providing risk pooling and social insurance against risk.
In contrast, the view in many successful small advanced economies is that risk pooling leads to a more
efficient allocation of risk as otherwise individuals have very limited ability to reduce or appropriately

What can Singapore learn from other small advanced economies?

manage the risk. This leads to welfare gains, but is also thought to contribute to better economic
outcomes; for example, improved labour force participation, as well as improved productivity as people
are prepared to take additional risks and to make investments in specific skills. There is also a political
economy dimension: providing a buffer against income shocks at a household level is thought to reduce
the likelihood that public sentiment turns against an open, market-based economy.
That is, ensuring that economic risk is substantially borne by individuals and households is not
necessarily the most efficient solution. An analogy is to institutions such as bankruptcy or limited
liability, both of which are thought to be efficient and growth enhancing because they allocate risk in a
way that (generally) encourages productive risk taking.
Of course, there are some costs to providing social insurance (for example, a higher tax burden). But the
small country experience seems to suggest that these costs can be managed. Many of the small
countries with the highest levels of government spending (notably the Nordics) have been able to
sustain strong economic performance. But care is taken to manage the distortions and costs, and to
ensure that the fiscal costs are sustainable over time. Where this is pushed too far, fiscal consolidation
is required as is underway in several small advanced economies at the moment.
In addition, many small countries are thoughtful about how they provide social insurance without
distorting incentives: for example, the flexicurity model in the Nordics, which combines employment
protection and unemployment insurance, with strong incentives to work. And the tax system in many
small advanced economies is designed to raise revenue in an efficient way: for example, heavy reliance
on consumption taxes, and low levels of corporation tax, because small countries are particularly
exposed to cross-border mobility of firms and capital.
As economic volatility increases, as citizen expectations change, and as the type of investments and
behaviours required to drive growth also change, Singapore will need to think hard about how risk is
allocated within the economy so that it supports productivity and economic transformation. And the
small country experience suggests that this can be done without inevitably incurring fiscal costs that
compromise economic growth.
Bottom-up innovation model
Small advanced economies perform well when they get two things right. First, at a macro level, a
deliberate top-down policy strategy that positions the country in the global economy through a
coherent policy approach. And second, at a micro level, strong firm-level performance that generates
productivity and innovation by creating value on a sustained basis. A strong strategy without a robust,
private sector-led foundation is unlikely to work effectively for countries at the income frontier. And
similarly, strong firms operating in the absence of a coherent, supportive national policy strategy leads
to an economy that is vulnerable to shocks and undershoots its potential.
Singapore, along with many other successful small advanced economies, has a well-developed national
economic strategy. But there are some differences between Singapore and other small countries in
terms of the extent to which this is supported by an innovative private sector. This discussion describes

What can Singapore learn from other small advanced economies?

10

some of the differences, and suggests some areas in which Singapore might be able to learn from other
small advanced economies.
To do this, it is instructive to look at various measures of business-level innovation and sophistication in
small advanced economies. Most small advanced economies score well in terms of commitment to
policy foundations and a good business environment, as well as enabling factors such as human capital,
infrastructure and publicly-funded R&D. This is true for Singapore as well, which routinely scores near
the top of the various global rankings.
But measures of firm-level competitiveness reveal (as in the World Economic Forums Global
Competitiveness Reports) that there are gaps between Singapore and other small advanced economies.
Singapore ranks 19th in business sophistication, with poor scores for dimensions internal to the firm
(such as extent of marketing, production process sophistication) as well as external to the firm (supplier
networks). This contrasts markedly with higher-performing countries like Switzerland and the Nordics.
Small advanced economies are notable for producing large numbers of successful global firms. Indeed,
small countries tend to have a relatively high number of large MNCs per head of population (with some
exceptions such as Israel and New Zealand). For example, Switzerland (Credit Suisse UBS, Novartis,
Nestle); Denmark (Maersk, Carlsberg, Novo-Nordisk); Finland (Nokia, Kone); and the Netherlands
(Unilever, Philips, Shell). Singapore, of course, has large firms like Singapore Airlines, DBS, Keppel, and
so on. But many of Singapores large companies are government-linked, and retain formal and informal
networks with the government. They operate on a commercial basis, but it is a different context from
many other small countries.
In terms of innovation, Singapore has a lower level of business R&D spending than other small advanced
economies like Denmark, Finland, and Israel. Publicly-funded R&D is high and growing, but this is less
the case for business-funded R&D. There are also various measures of the efficiency of R&D spending,
which capture the relationship between the investments in overall R&D and a range of metrics in terms
of innovation output. Singapore performs poorly on these measures. This may be a timing issue, as R&D
spending has ramped up quickly over the past decade. But it suggests that there are challenges in
Singapore with respect to translating research and innovation into commercial outcomes.
Encouraging start-ups and other entrepreneurial activity has been a common focus across many small
(and large) advanced economies. However, with the notable exception of Israel, most small countries
have struggled to develop this part of the economy. Indeed, small advanced economies tend to face
particular challenges in capturing value from high growth firms: often these firms gravitate towards
larger markets and sources of growth capital.
Singapores focus on encouraging start-up activity (through VC support, incubators, and so on) is
consistent with small country practice. But expectations should be limited as to the scale of the direct
contribution of the start-up sector of the economy: innovation and entrepreneurial activity needs to be
broadly based across the economy (including in large firms) rather than just focused on small, young
firms.

What can Singapore learn from other small advanced economies?

11

Many of the policy measures used in other small advanced economies to boost productivity will help
with encouraging bottom-up innovation (such as raising competitive intensity, strengthening the focus
on internationalisation of firms, and so on). Singapore has some of these measures on the table at the
moment. The other insight is from countries that rely on FDI in a similar way as Singapore: countries like
Ireland are actively working to better capture spillovers and ensure that the MNCs that base in Ireland
help to strengthen domestic firm capacity and that they not distort the economy by disproportionately
attracting factors of production away from local enterprise.
In the Singapore context, this suggests that a rebalancing might be appropriate to ensure that MNCs
and GLCs do not assume an overly dominant position in the Singapore economy, making it more
difficult for local firms to attract the talent and resources they need to grow aggressively. The
prominent role for FDI and for GLCs may be more appropriate in catch-up phase, and some recalibration
may be appropriate now that Singapore is at the income frontier so that there is more space for more
bottom-up innovation.

4. General insights for Singapore

In addition to the policy insights from other small advanced economies for Singapore described in the
previous section, there are also insights from the experience and policy debates in other small countries.
The similar strategic context between Singapore and other small advanced economies means that these
policy debates proceed from a relatively common starting point. I identify three general insights from
current policy debates that are relevant to Singapore.
Avoid complacency: adapt to a changing world
To sustain success, small countries have to adapt to a changing world. Small countries are price takers,
and a key objective of policy is to position themselves effectively in their external operating
environment. Flexibility and agility are important attributes of success, both in terms of medium-term
strategic direction as well as in terms of responding to shocks. Sometimes this is ongoing adaptation on
the margin, and sometimes it requires more fundamental reform. For example, there were structural
policy changes in many small advanced economies in the 1980s and 1990s relating to fiscal
consolidation, structural reform, and major investments in innovation and human capital in response to
the competitive pressures of a changing global economy. The way in which small countries need to
position themselves will change over time.
In this respect, one of the biggest risks to successful small advanced economies is complacency a sense
that the strong performance enjoyed by small countries is intrinsic to the existing policy and institutional
model and that ongoing success can be expected. Exactly because small advanced economies have
been successful over the past few decades, this is a risk to be actively managed. The competitive
discipline provided by acute exposure to the global economy is helpful in this regard, but small country
policy-makers need to ensure that they avoid the public sector equivalent of the Innovators Dilemma;

What can Singapore learn from other small advanced economies?

12

ignoring change, and staying with historically successful approaches, until it is too late to respond
effectively.
Small countries that have sustained success over time have adapted and changed course, and
understood that no single policy model lasts forever. For Singapore, the implication is that the policies
that have delivered strong outcomes in catch-up phase are unlikely to be exactly the same things
required to succeed at the income frontier. An important challenge is to understand how to transition
the model, and to make a series of hard choices.
The external environment is becoming more challenging for small countries
This ongoing need for change is particularly relevant at the moment. There is a shared sense across
small advanced economies that the international economic and political environment, which has
supported strong small country performance over the past few decades, is becoming increasingly
complex and challenging. Small countries need to respond to challenges including slower, more volatile
growth; weakening multilateral institutions, and changing rules of the game in the global economy; and
the increasing importance of geopolitics in shaping international relations.
Small countries will need to respond to these structural changes. Many are doing this in ways ranging
from developing new economic strategies that focus on strengthening productivity and
competitiveness; establishing new economic and political relationships, often in regional contexts; and
building up resilience against future turbulence. Indeed, in many ways, small advanced economies are
in the vanguard of policy innovation to respond to these changes: examples include the roll-out of
macro-prudential policy to the championing of new trade arrangements (like the TPP). Singapore is very
much part of this group and it is useful for Singapore to calibrate its policy actions against those of
other small countries, as they seek to adapt to new challenges.
At a high level, Singapores traditional sense of vulnerability is likely to be an asset. Small countries need
to be disciplined and thoughtful about their exposures to the emerging global environment, and to
invest in anticipating possible futures. These are areas in which Singapore has well-recognised
strengths. But it also important to learn from the responses of other small countries to these changes
the ways in which Singapore has responded to vulnerability in the past may not be fully appropriate in
the future. Uncertainty is not an argument for holding onto legacy policy positions.
Countries have real choices open to them
Countries have a wide range of choices in terms of how they respond to this increasingly challenging and
complex environment: the competitive pressures and disciplines that small countries face do not create
a straitjacket. Although small country policy-makers do face constraints, there are creative choices that
can be made, as many small countries have shown.
The variety of policy settings across successful small advanced economies shows clearly that small
countries can make policy choices. There are alternatives, and no single small country policy template.
Small countries can assemble a policy approach from a variety of policy options, in ways that fit their

What can Singapore learn from other small advanced economies?

13

context. As noted above, small countries vary significantly on a range of policy dimensions and
economic models do have differences in emphasis.

5. Concluding remarks
Singapores exceptional success over the past few decades now places it in the position where it is now
a normal small advanced economy, with more similarities to other advanced economies in terms of
income levels, policy challenges, and citizen expectations. This means that Singapore can learn more
from other countries that have been operating in a relatively similar context for some time, to
understand how they have approached the various decisions and trade-offs.
Although Singapore will have to chart its own policy course, to reflect its specific context and
preferences, this paper has suggested that it is instructive to consider the broader small country
experience: successful countries who are also highly exposed to the global economy, and who are
subject to the competitive disciplines and risks that the global economy brings. It is this group of
countries that provide particular insight and guidance for Singapore, both in terms of benchmarking
performance as well as in terms of policy options as it seeks to sustain strong economic performance at
the income frontier.
Many of the current policy priorities in Singapore (productivity, innovation, economic resilience, and so
on) are consistent with the experience of other small advanced economies. But the differences
between Singapore and other successful small advanced economies on a range of policy dimensions
suggests that there is value in thinking more expansively about the policy options that are open to
Singapore as it considers how to develop a strategy to sustain success at the income frontier. As this
process of policy debate continues, Singapore has much to learn from a deep understanding of the
policy decisions and debates in other small advanced economies.

What can Singapore learn from other small advanced economies?

14

About the author

Dr David Skilling is the founding Director of Landfall Strategy Group,
which was established in 2011. David advises governments,
companies, and financial institutions in several small countries, and
writes regularly on global economic and political trends from a small
country perspective. Previously, David was an Associate Principal with
McKinsey & Company in Singapore, as well as being a Senior Fellow
with the McKinsey Global Institute. Before joining McKinsey, David was
the founding Chief Executive of the New Zealand Institute, a privatelyfunded, non-partisan think-tank. Until 2003, David was a Principal
Advisor at the New Zealand Treasury. David has a Ph.D. in Public
Policy, and a Master in Public Policy degree, from Harvard University, as
well as a Master of Commerce degree in Economics from the University
of Auckland. David was named as a Young Global Leader by the World
Economic Forum in 2008.

About Landfall Strategy Group

Landfall Strategy Group is a Singapore-based research and advisory
firm that provides advice on global macro, globalisation and
geopolitical issues to governments, firms, and financial institutions,
particularly in small advanced economies. We provide distinctive
perspectives on emerging global trends from a small country point of
view, advising decision-makers on how to navigate a changing global
economic and political environment.

contact@landfallstrategy.com
www.landfallstrategy.com
twitter: @dskilling
Copyright 2015 Landfall Strategy Group Pte. Ltd.
(UEN 201109428E), Singapore. All Rights Reserved.

EXHIBITS

1. IMF advanced economies

Country
Iceland

Population

322,000

small country (< 10 million)

GDP/Cap (USD)

Country

Population

GDP/Cap (USD)

45,536

Sweden

9,635,000

57,909

Czech Republic

10,516,000

18,858

Malta

417,000

22,872

Luxembourg

542,000

110,424

Belgium

10,613,000

20,728

Cyprus

881,000

24,761

Portugal

11,063,000

21,857

11,162,000

45,384

Estonia

1,286,000

19,032

Greece

Latvia

2,036,000

15,205

Netherlands

16,795,000

47,634

Slovenia

2,059,000

22,756

Australia

23,207,000

64,863

23,374,000

20,930

New Zealand

4,479,000

40,481

Taiwan

Ireland

4,776,000

45,621

Canada

35,105,000

51,990

Norway

5,096,000

100,318

Spain

46,610,000

29,150

Singapore

5,399,000

54,776

Korea, South

50,220,000

24,329

Slovak Republic

5,411,000

17,706

Italy

59,685,000

34,715

Finland

5,451,000

47,129

United Kingdom

63,660,000

43,000

Denmark

5,591,000

59,191

France

64,087,000

39,567

Hong Kong SAR

7,244,000

37,777

Germany

80,800,000

44,999

Israel

7,871,000

37,035

Japan

127,341,000

38,491

Switzerland

8,003,000

81,324

United States

316,373,000

53,101

Austria

8,484,000

48,957

Source: IMF World Economic Outlook, April 2014

What can Singapore learn from other small advanced economies?

17

2. Small advanced economies have relatively high per capita

income levels; Singapore ranks 7th
Per capita GDP, USD, 2013
120000

100000

80000

60000

40000

20000

Source: IMF World Economic Outlook, April 2014

What can Singapore learn from other small advanced economies?

18

Portugal

Czech Republic

Korea

Greece

Italy

Spain

Japan

United Kingdom

France

Belgium

Germany

Canada

Netherlands

Australia

Latvia

Estonia

Slovak Republic

United States

Average large: 37,475

Taiwan Province of China

Average small: 46,780

Slovenia

Malta

Israel

Cyprus

New Zealand

Hong Kong SAR

Ireland

Iceland

Austria

Finland

Sweden

Singapore

Denmark

Switzerland

Norway

Luxembourg

3. Exports as a percent of GDP are significantly higher for small

advanced economies than for large advanced economies
Exports of goods & services, % GDP
250

200

150

100

50

Average: 82.0

Average: 41.9

Note: Data from latest year available (mainly 2013, but for some 2011 or 2012)
Source: World Bank, World Development Indicators

What can Singapore learn from other small advanced economies?

19

4. Small advanced economies have a significantly higher share of

outward direct investment than larger advanced economies
ODI stock, % GDP, 2012
250

200

150

100

50

Average: 67.6

Average: 53.5

Note: Excluding Hong Kong (474% of GDP) and Luxemburg (303% of GDP) as they are outliers
Source: UNCTAD

What can Singapore learn from other small advanced economies?

20

5. Export shares for small advanced economies have grown

strongly over the past 20 years
Change in exports 1990-2013, % GDP
120

100

80

60

40

20

-20

Average: 24.4

Average: 13.4

Note: Data from latest year available (mainly 2013, but for some 2011 or 2012)
Source: World Bank, World Development Indicators

What can Singapore learn from other small advanced economies?

21

6. The small country outward direct investment stock has

increased significantly over the past two decades
Change in ODI stock 1990-2012, % GDP
250

200

150

100

50

Average small: 82.3

Average large: 44.7

Note: Excluding Hong Kong (474% of GDP) and Luxemburg (303% of GDP)
Source: UNCTAD

What can Singapore learn from other small advanced economies?

22

7. Small advanced economies have higher levels of economic

volatility than large advanced economies
Standard deviation of annual GDP growth, 2003-2013, %
10
9
8
7
6
5
4
3
2
1
0

Average small: 3.71

Average large: 2.35

Source: World Bank, World Development Indicators

What can Singapore learn from other small advanced economies?

23

8. The structural fiscal balance of small advanced economies is

relatively strong
General government structural balance (% potential GDP), 2012
10
8
6
4
2
0
-2
-4
-6
-8
-10

Average small: -1.54

Average large: -3.40

Source: IMF World Economic Outlook

What can Singapore learn from other small advanced economies?

24

9. Singapore has the lowest level of government spending in the

advanced economy group
General government expenditure, % of GDP, 2013
70

60

50

40

30

20

10

Average: 42.2

Average: 43.0

Source: IMF World Economic Outlook, April 2014

What can Singapore learn from other small advanced economies?

25

10. Singapore has a low level of labour productivity

Labour productivity (GDP per hour worked), 2013 (in 1990 GK$)
45

40
35
30
25
20
15
10

5
0

Average: 26.2

Average: 27.4

Source: The Conference Board Total Economy Database, January 2014

What can Singapore learn from other small advanced economies?

26

11. Singapores growth model relies heavily on growth in the

labour input not labour productivity growth
Decomposition of per capita income, 2013, expressed as % of average of small advanced
economy group
Norway
Ireland
Denmark
Luxembourg
Sweden
Austria
Finland
Hong Kong
Iceland
Switzerland
Israel
New Zealand
Singapore

Hours worked
per capita
GDP per hour
worked

0.5

1.5

Source: The Conference Board Total Economy Database, January 2014

What can Singapore learn from other small advanced economies?

27