DPM Heng Swee Keat at the Official Opening of 10th Singapore Economic Review Conference

Professor Euston Quah,
Editor of the Singapore Economic Review,

Professor Chia Ngee Choon, 
Co-Editor of the Singapore Economic Review,

Ladies and gentlemen,

Good morning. 

I am pleased to join you for the 10th Singapore Economic Review Conference, and to welcome our many speakers and participants from the region and around the world. 

Introduction

Prof Euston Quah has just spoken on the history of the Singapore Economic Review and its growing impact.  Let me start by congratulating Euston, Ngee Choon and the team at the journal, and thank you for deepening our understanding of economics and its application, especially in Asia. 

As Euston mentioned earlier, at its heart, economics is about designing institutions and markets, to incentivise economic actors, so as to make the best use of limited resources to meet the needs of individuals and society, and also to distribute the fruits of these cooperative endeavours equitably.

In Singapore, many Government policies are guided by the various branches of economics. 

This includes monetary and fiscal policy, which I used to oversee at the Monetary Authority of Singapore and the Ministry of Finance respectively. 

Over the next few days, you will discuss a broad range of topics across different economic areas. I will be speaking as a policy maker and practitioner – sharing my experience in some areas and highlighting other areas where your research may help me and other policy makers.

Globalisation and The Century of Asia?

Many renowned economists, including Nobel laureates Joseph Stiglitz and Michael Spence, have said that the 21st century will be the century of Asia. 

Asia is home to more than 60% of the world’s population. The middle class is estimated to grow to around 3 billion people by 2030, powered by strong economic growth and rising incomes.

We have moved up the technology ladder, with countries like South Korea, Japan and China at the forefront of technological advancements in electronics, robotics, advanced manufacturing, digital technologies, renewable energy etc. 

These are all tail winds for the region. The IMF projects growth this year and next in Asia is set to average around 4.5%, compared to around 1.8% in the Advanced Economies. Many parts of Asia are still in the catch-up stage of development.

My view is that while the future is promising, it is not pre-ordained. Whether we achieve the potential depends critically on the broader global environment and our responses to inevitable changes in the coming years.

Globalisation has been a major catalyst for economic development in Asia, particularly in the last three decades which were relatively peaceful and stable.

In Asia, Japan’s economy took off spectacularly, especially in the 1980s.  This was followed by the Asian Dragons, and then the Asian Tigers.

Deng Xiaoping’s policy of reform and opening up changed China’s economy trajectory, and its entry into the WTO reshaped trading relationships around the world. 

Deeper economic integration with global markets, have allowed many Asian economies to grow niches in the global supply chain. Thailand’s automotive industry, and Taiwan’s semiconductor industry are two examples. 

Singapore has similar developed industries, such as financial services, aviation and maritime transport to complement the region’s growth. 

A rules-based global trading system has been integral to this model of growth, particularly for small states like Singapore. 

It ensures that all countries, regardless of size or economic power, adhere to the same set of rules. In turn, businesses and investors enjoy better protections through the rule of law, and better business certainty. 

Singapore has therefore been a great believer of multilateralism. We have participated actively in the World Trade Organisation, and the United Nations, where we helped establish the Forum of Small States (FOSS). 

We have also pursued deeper economic integration within ASEAN, and a network of Free Trade Agreements, Digital Trade Agreements, and Green Economy Agreements with like-minded partners. But the globalisation as we have known is fast changing. 

Heightened geopolitical contestation threatens to fragment the global economy, with implications on the free flow of goods, investments and ideas between Asia and the rest of the world. 

Governments are also embracing more muscular industrial policies, such as tax breaks and subsidies, to develop strategically important industries like semiconductors and green energy. 

In response, businesses are re-organising themselves to account for tail risks, through measures such as on-shoring or near-shoring supply chains. 

Structural Changes to the Global Economy

Besides globalisation, other aspects of the growth economy are also facing significant structural changes.

They will affect traditional production factors like labour and technology, and in more recent times, carbon inputs. 

To adapt to them, we will need new economic policies to augment and enhance our supply side capabilities. 

Let me mention three of these. First, demographics change. 

In many parts of Asia, populations are ageing rapidly, especially in more developed countries like Japan, South Korea, China.

In Singapore, almost 1 in 5 Singaporeans are above 65 years old today, and this will grow to 1 in 4 by 2030.

At the same time, fertility rates are falling.

Last year, the total fertility rate (TFR) for Singapore residents hit a historic low of 0.97. We see similar trends in Korea (0.7), Japan (1.2) and China (1.1).

Ageing populations will have significant economic impact in various areas, including on long term growth. 

For instance, as the proportion of working-age individuals decline, labour force growth will slow. And as our working lifespans increase, there will be higher risks of skills obsolescence and labour mismatches. 

The structure of the economy may also change, as demand shifts towards sectors such as healthcare and eldercare services. 

To address these challenges, we will need to incentivise longer careers, redesign jobs, upskill and reskill our existing workforce, as well as augment our workforce with inflows from abroad.  

Demographics change will also affect fiscal sustainability. Unlike Japan, parts of Asia will grow old before they grow rich. 

Retirement adequacy will be a challenge as pension schemes face higher costs and lower contributions.

Public finances will be strained by increased healthcare costs.

In Singapore, healthcare has replaced education as the largest component of our social spending – more than doubling over the last decade to reach nearly $17 billion last year. 

Such fiscal challenges may increase scarcity of capital for investing in human capital, and for tackling structural issues, thereby affecting long term growth potential. 

Investing in science and technology, and human capital, is important if we are to ride successfully on a second structural change – the rapid developments in science and technology. 

COVID-19 accelerated the digitalisation of our economies.  

Emerging technologies including generative AI, autonomous robots, quantum computing, genetics and biotechnology, and renewable energy, will either uplift or disrupt a wide range of sectors, depending on how we respond.

Already, many economists are regarding AI as a general-purpose technology that will have pervasive effects on the world. 

We will need robust guard rails to guide safe and responsible innovation, such as cyber safety and AI governance, and to make good use of this new technology for the common good.

To remain competitive in a tech-driven world, Asia must adopt economic policies that promote innovation, competition, and inclusive and sustainable growth. 

We will need to optimise investments in R&D and education to foster innovation across our economy, including supporting innovative startups with new, disruptive business models. 

Companies across various sectors, will need to learn and use technology well, to raise productivity and offset the effects of demographic changes.  

The government can accelerate this through policies that promote technology adoption and diffusion. But the objective of Government is not to promote growth for growth’s sake. Rather, it is to ensure that their citizens benefit from growth.  

Hence, our growth with regards to technology must enable a broad base of workers and citizens to share the upsides of technology. Many related policy measures will be needed.

For instance, students will need foundational skills to seize new job opportunities in a tech-driven economy – including a good understanding of STEM, and workers need incentives to upskill and reskill over a longer career, and to help them transition smoothly between jobs.

The third structural shift is climate change, which Euston mentioned. 

As global efforts to limit climate change gain traction, companies and economies will increasingly face carbon constraints. 

This will be especially challenging in Asia, given our expected population growth, urbanisation, and development needs. 

Policymakers will need to size the costs of climate change, and correctly price environmental externalities to nudge companies and individuals to produce and consume sustainably. 

We will need to finance the investments needed for the transition away from fossil fuels through a mix of public financing, and market-based solutions to help crowd in patient capital and channel private investments.

While Asia has good potential for solar, wind, and hydroelectric power, large investments in renewable energy infrastructure like electric grids will be needed to unlock them. 

But thankfully, sustainability is not just costs and constraints. It can also be a source of strength!

As economies face carbon constraints, demand for greener solutions such as electric vehicles, batteries and solar panels will increase. 

But every industry will also need to decarbonise – from manufacturing, to transport, to buildings and data centres.

Many nations in Asia have set out their climate commitments. To realise the promise of sustainable growth in Asia, we must do our best to pursue innovation towards green solutions.

Partnerships for Restructuring and Transformation

The changes I have spoken about today – in globalisation, demographics, technology and climate – will significantly reshape the global economy. 

Globalisation, while bringing benefits to many in our society, will also impose costs on some segments.

To sustain support for globalisation in our societies, we must provide our businesses and workers with the opportunity to benefit from growth and an open economy. 

At the same time, we must strive for an open and interconnected external environment.

For larger economies, the options to re-negotiate the rules and to impose measures to protect their workers and industries are viable, at least in the short run. 

So even if their leaders recognise the importance of adapting and changing in the longer-term, short term economic and political stresses make protectionist measures appealing. 

Small, open economies like Singapore are price-takers in the global economy. For us, we have no option but to adapt or perish. So, we need to stay ahead of the curve by making structural changes to our economy and mobilising our stakeholders on this journey. 

Over the last eight years, we conveyed the Committee on the Future Economy, where Government, businesses, and our labour unions came together to formulate Industry Transformation Maps (ITMs) – which covered 23 sectors of the economy accounting for around 80% of our GDP. Our approach was not to pick winning sectors, but to pursue broad-based changes in a holistic, integrated way.

Each ITM brought together four aspects of transformation – productivity, innovation, jobs and skills, and internationalisation. Learning from our experiences during COVID-19, we added two more pillars in this effort, sustainability and resilience in ITM 2.0.

We have just released the report on “Transforming the Singapore Economy”, to document the efforts of the past 8 years and to draw lessons from it.

I am glad that the Singapore economy achieved real value-added growth of 2.8% per annum between 2016 and 2023. Over the same period, our labour productivity, measured in terms of real value added per hour worked, also grew by 2.1% annually. This is among the highest among countries with comparable population sizes and GDP levels.

And over the same period, the median income of full time Singapore residents registered a growth of 1.5% per annum. I am glad that our incomes also rose in tandem with economic and productivity growth, a sign that our transformation efforts have tangibly improved people's lives and a sign that our tripartite structure has allowed us to negotiate this outcome. 

Now, this transformation efforts have also kept Singapore among the world’s most competitive economies. Just last month, the International Institute for Management Development or IMD, ranked Singapore as the most competitive economy in the world.

But there is more that we need to do together in our next bound of industry transformation. 

First, we must continue to build on our tripartite framework and deepen the trust among labour, businesses, and the Government. For any change movement to succeed, trust is most critical.

A big part of maintaining this trust is to ensure that economic growth is inclusive, and that everyone will benefit from our industry transformation efforts. Quality education for all, continued skills development for our workforce, and support for small and medium enterprises to transform are important levers to achieve this. 

Second, we must build up the reservoir of science, technology, and innovation capabilities across all sectors of our economy. 

The Government has allocated S$28 billion for research, innovation and enterprise between 2021 to 2025, focusing on areas such as advanced manufacturing, health and human potential, digitalisation and AI, urban solutions, and sustainability. We are in the midst of reviewing our R&D plans for the next phase, from 2026 to 2030.

In our next bound of transformation, our goal is to apply these science and tech capabilities to industry, thereby enabling our companies to seize new economic opportunities by tackling real-world problems in the region and beyond.

Conclusion: Staying Open to the World

Professor Euston Quah opened the conference with the impact of the Singapore Economy Review, as measured by the Social Sciences Citation Index Impact factor. 

Indeed, as researchers, all of you aim to make an impact with your work. Whether by advancing the theory of economics, or applying it to help practitioners and policymakers like me make better decisions. 

I believe good policy must similarly be based on facts and evidence, and be backed by empirical tests. In other words – does it work, does it make an impact? 

The design and implementation of our Industry Transformation Maps is an example of impact. One made possible by the insights and experience of many stakeholders working together – businesses, labour unions, trade associations, academia, and Government. 

In the next phase of the transformation of the Singapore economy, I hope we can do better to promote innovation and entrepreneurship, help our industries embrace technology, reskill our workers, strengthen our social support systems, and decarbonise our economy to protect our planet.

At the same time, we must strive to sustain support for a better global division of labour, so that we can continue to improve the lives of our peoples, not just in Singapore but all over the world, even in the face of major demographic shifts and technological advancement. 

So with this gathering of so many eminent economists here, allow me to conclude by suggesting a few areas where as a policy maker I think your research can help us make better decisions. 

First, managing the significant demographic shifts in Asia and around the world. Some specific questions under this theme include: How should policy makers respond to the impact of ageing populations on long term growth? How can policy makers achieve fiscal sustainability in the face of demographics change?

Second, managing technology advancements in the coming years. Specific questions include: How can Asia remain competitive in a tech-driven global economy, particularly given our diverse economic structures and levels of development within Asia? What is the impact of technology, especially automation and artificial intelligence, on the future of jobs and skills? How can technology, especially automation and AI impact the future of jobs and skills, and how can we harness it to uplift a broad base of workers and citizens?

Now my third set of questions relate to how the economic impacts of climate change in Asia, and what strategies should we adopt to mitigate and adapt to climate change? Specific question include: How can we direct innovation towards green technologies, so that we can combat climate change without sacrificing long term growth? How can we better design the physical and market infrastructure in Asia for the green transition? You will hear from Professor Sandor later on this topic.

Fourth, amid greater geopolitical contestation, how can we ensure continued economic integration in Asia, and with the rest of the world, so that the global system allows for the free flow of goods, capital and ideas?

With that, I wish you a fruitful conference and many thought-provoking discussions ahead.

Thank you.