A Comparison of Singapore and Hong Kong Economies - Essay Example

Running head: Singapore and Hong Kong: A Comparison of Economies Singapore and Hong Kong: A Comparison of Economies s name] Introduction The term newly industrialised countries (NICs) is used to refer to countries who mostly after World War II were still considered as developing countries but by the 1980s and 1990s had been able to grow their economies significantly with some achieving near or actual double digits of growth for a sustained period of almost 25 years. (Bhagwati, 1996) The term ‘newly industrialised countries’ can also be said to be a socio-economic term or categorisation for countries who though have not reached the level of developed country or industrialised country status, (‘first world’) have had significant economic growth. The Asian countries of India, China Korea, Taiwan, Hong Kong, Singapore, Indonesia, and Malaysia are notable examples NICs and their dramatic successes in economic growth have often been referred to as the East Asian Miracle. Other Asian countries like China and India have also achieved successes in economic growth. The ‘economic miracle’ of these East Asian countries is however not exclusive to Asia as countries in the Americas like Chile, Brazil and Mexico have also achieved appreciably high growth rates in their economies and could thus be referred to as NICs as well. It must be said though the growth rates vary amongst all the NICs and as such some growths may be relatively higher compared to others in other NICs. Countries like China, India Singapore and Hong Kong however standout of the rest due to the rapid nature of their growth within a space of about 30 years. Also, the use of NICs is a matter of definition and as such a country like South Africa that was largely secluded from the international economy due to its apartheid policies may now be categorised as an NIC by some, while others may classify it as a developed country. This essay will first conduct a generalised or panoramic view of the features that underlie the development experiences of NICs before undertaking a closer look at the experiences of selected NICs. It must be said that though the development experiences may be very varied, some common cardinal features can be seen in the experiences of all NICs. Most NICs were able to achieve high growth rates by instituting market reforms that favoured exports. (Hamilton 1987) There was also a strong emphasis on value added manufacturing that changed their economies from predominantly agrarian economies into industrial and manufacturing based economies. Increased capital investments from foreign and domestic sources played a key role in the development experiences of NICs and so did the development of domestic corporations that could compete with other foreign corporations both on the domestic market and on the regional or international markets as well. (Bhagwati, 1996) Typical examples are the automotive, steel and ship building companies of Korea. Political leadership also contributed significantly to the high growths in the economies of NICs. As stated earlier, though the ‘authoritarian’ thesis is a disputed one, the fact that relative political stability pertained in the countries that recorded significant growths in their economies goes to show that political leadership played a crucial role in the development experience of NICs (Combie, 2000). The next segment of this essay will undertake a closer look at economies of Hong Kong and Singapore. “Singapore, a leading trading power and financial centre, is one of the quintets of trillion dollar economies of Asia. Over the past two decades, the government has been kept minimum. Still the Government bodies such as sovereign wealth fund Temasek control corporations responsible for 60% of GDP. The distinguishing characteristic of Singapores Economy is the low level of corruption, stable prices one of the highest per capita gross domestic products (GDP) in the world. The country has open business environment and one of the worlds finest skilled labour forces which has provided her with tremendous economical growth reported as 7.9% more than the projected figures of 7.7%. The activities undertaken at the Singapore port are intensive, highly mechanised, and efficient by International standards. The Singapore port is reported as busiest port in the world leaving behind Rotterdam and Hong Kong. The country lacks the natural resources and raw material which it has to import from all over the world. Services, particularly banking, insurance, and business services, and production of chemicals, electronics account by far for the largest proportion of GDP. GDP growth slipped in 2001-03 as the global downturn, the high value of the dollar, and the bursting of the "new economy" bubble hurt manufacturing and exports. The Economy of the Singapore can be classified as mixed economy. The most prominent characteristic of the capitalist economy is the control of few people on a large amount of Capital. These people are also responsible for taking important economic decisions.      With the changing international circumstances the Governments of the world including Singapore felt the need of restricting the use of power of a specific group of people for their own commercial interests. This intervention resulted in shape of the Singapore economy which can describe as a "mixed" economy, with government playing an important role along with private enterprise.      Although people often disagree about exactly where to draw the line between their beliefs regarding, both free enterprise and government management, the mixed economy they have developed has been remarkably successful. Singapore GDP per capita at Purchasing Power Parity stood at USD 26,500 while Hong Kong’s stood at USD 25,400. (The World Fact Book, 2001) Basic Ingredients of the Singapore Economy:   The labour plays vital role in the growth of an economy. Higher level of working population is considered as an important indicator of a progressive economy. The labour market of the Singapore has always remained competitive due to an abundant supply of productive labour. A unique characteristic of the labour force is diversity. The 20th century labour force constituted Asians and Latin Americans as the major part. This supply of the immigrants in the Singapore job market also resulted in some periods of high unemployment. Many of these immigrants provide their services on relatively lower wages as compare to the native citizens. With the abundant supply of labour and the factors of production the economic growth multiplied increasing the chances for immigrants to find more job opportunities (Conte & Karr, 2001). The economy was facing boom before being hit by the events of 9/11. The economy had fastest growth rate and the lowest unemployment rate which was kept low for thirty years to a level of 3.8% in 2001 but after 9/11 the unemployment rate rose to 6.4% in 2003 more than a million jobs were loss lost during that period. The Government has applied different policies in order to address the issues facing the economy. Govt. has been trying to stabilize the economy by using cutting of taxes and lowering the interest rates, but these options was for short-term period. There are also some long-term issues to be reviewed. The Singaporean economy has benefited from privatisation of industry, free market policies and the development of its services and manufacturing sector, one of the largest in the world. (The Galt Global Review, 2007) Hong Kong Economic Review: China is operating Hong Kong as a separate democratic state with freedom of religion, press, and speech, and fair legal system. Hong Kong is the centrepiece of China’s efforts to reform, privatise, and expand imports and exports worldwide. With its 6.3 million people, magnificent harbour, financial wealth, 500 banks from 43 countries, the world’s eight-largest stock market, and minimum taxation, Hong Kong serves as the gateway to fast-growing China. After the events of 9/11 the main issue for the policy makers was to accelerate the economy rapidly. There were two basic options available, cutting of taxes and the lowering the interest rate as implemented by the Government. . These policies have some problems as well. One of the major problems is that they will take time to achieve the aim. Even when it is 100% application of polices still they have some consequences. If the government invest too much cash in the market than prices will increase and inflation rates will be higher but if the government absorb too much of the money there isnt enough cash in the market and economy will take recession period (Imai, 2002). The unemployment rate has been falling to 5.6% in 2006, and 4.3% in May 2007. “One reason the consumer may slow is the labour market in Hong Kong. Although employment is still rising, employment participation has remained quite weak (this is because the number of potential workers has risen faster than the number of jobs in recent months). Hours worked and pay has been softer, particularly in the lower-skilled sectors. ” (Wong and Lee, 1998) Tax policy is also an important instrument of the Government to control the economic activity. The Tax policy of Hong Kong had a marked impact on economic activity since the last few years. The tax cut introduced by the government attracted a large amount of investment, which served as the backbone of economic revival in the country (Cruz, 1998).  Investment is one of main components of GDP, and also one of most variables. Many observers believed that the investment boom of the 1990s would cause a long-term surplus of plant and equipment, stifling further expansion.  Not only is the present growth path of the Hong Kong economy faster than the historical average, but it has also been roughly double the European economic growth rate since the 2001 tax cuts. According to OECD data, European economic growth has slowed dramatically since 2000, declining from a growth rate of 3.7 percent in 2000 to 1.6 percent in 2004. In contrast, the Hong Kong economy has strengthened since the 2001 recession, and in 2004, economic growth again reached boom-era levels. "Hong Kong has experienced strong and broad-based economic growth in recent years. Real GDP expanded by 7.5% in 2005, 6.9% in 2006 and 5.6% year-on-year in the first quarter of 2007. Domestic demand has resumed its growth momentum, while the external sector has also performed well.” (Hong Kong Trade Development Council, 2007) Economy and the terrorism are among top of public list as per opinion carried out in past two years. Majority of the people support the view that inflation and unemployment rate is the core indicator to assess the economy behaviour. However, in March 2003 two-third have of the view that in 2001 tax cuts didn’t made much difference this shows difference of opinion among the people. In Hong Kong the most common measures as defined by the Hong Kong Monetary Authority are: M0: The total of all physical currency, plus accounts at the central bank that can be exchanged for physical currency. M1: M0 - those portions of M0 held as reserves or vault cash + the amount in demand accounts ("checking" or "current" accounts). M2: M1 + most savings accounts, money market accounts, and small denomination time deposits (certificates of deposit of under $100,000). M3: M2 + all other CDs, deposits of Hong Kong dollars and repurchase agreements. In 1970s it was comparatively slower inflation known as stagflation. The Government in Singapore made some policies to overcome the problem of inequalities and diminish economic securities. These programs have reduced the inequality in consumption among Singaporean families and inequalities in pre-tax income for example provision of health services, food stamps to needy people, housing and childcare. In past few decades inequalities have raised more in Singapore than in other advanced industrial countries. In terms of household income inequalities Singapore is ranked near the top and the government least target its taxes and transfer policies towards moving families out of poverty. The inequality gap can be due to the child poverty relative to a majority of Organisation for Economic Co-operation and Development countries. In Singapore infant mortality and life expectancy are worse. In work place they are offering benefits for a shorter duration. The minimum wage is also quite low than average wage. These inefficiencies have raised the unemployment rates in Singapore although in other advanced countries unemployment is comparatively higher. Singapore is undertaking least efforts toward the European model of social protection and the reduction of inequalities and poverty. It must be noted that a lot of the policies implemented by the NICs may not be workable for other developing countries due to commitments to WTO Agreements. In the Indian example for instance, it is evident that government subsidies through the giving of credit at lower rates than what pertained in the commercial sector, aided investments in export-led manufacturing products. Up until the coming into force of the WTO Agreement in 1995, the international regulation of subsidies was not very strong. (Van de Bosche 2005) The NICs who adopted subsidy policies for export oriented manufacturers thus got away with these practices. Currently, the WTO Agreement on Subsidies and Countervailing Measure prohibits both import substitution subsidies and export subsidies. The leeway that NICs had to implement strong projectionist policies and aggressive export oriented policies may not be workable for other developing countries in the same way it worked for countries like Korea due to stronger international regulations under the WTO. The market liberalisation effects of the WTO principles of non-discrimination in trade policies – the most favoured nation and national treatment principles – may also work against developing countries from undertaking a more systematic opening of the economies to competition from foreign products. (Van den Bosche, 2005) Stiglitz (2005) for instance argues that China adopted a sequential opening of its economy to outside competition while adopting an export oriented policy. It can be realised that the Chinese experience is not different from the Korean experience in this regard – projectionist policies working alongside export oriented policies. Domestic industries and products were thus protected from outside competition till such a time when the domestic capacity was developed enough to be able to compete with other industries and products on the international market. While it is abundantly evident that the adoption of macroeconomic stability, market reforms, good governance and political leadership, and export oriented policies will aid developing countries to grow their economies; there are no absolute specific principles of economic growth. Developing countries will have to take these broad principles and customise them to their specific situations to facilitate the growth of their economies. References Bayani Cruz, We will hold on to blue-chip shares: Tsang, The Standard, 29 August 1998 Bhagwati J. (1996). ‘The Miracle That Did Happen: Understanding East Asia in Comparative Perspective’ http://www.columbia.edu/~jb38/East_asian_miracle.pdf (Accessed on 13/03/08) Combie, J., (2000). ‘The East Asian Miracle- Did it Exist and, if So, is it Over?’ Conte, C., & Karr, Albert R., (2001). An Outline of the U.K. Economy, U.K. Department of State the Wall Street Journal: February 2001 Hong Kong Trade Development Council, (2007). Hong Kong Economic Overview, Census and Economic Department of the Hong Kong SAR Government, Last updated 10 July 2007, available at http://www.investhk.gov.hk/UploadFile/HK%20economic%20report%20-%20updated%20July.pdf Imai, H., (2002). Hong Kongs High Inflation under the US Dollar Peg: The Balassa-Samuelson Effect or the Dutch Disease? Working Paper no. 126, Centre for Research on Economic Development and Policy Reform, available at http://scid.stanford.edu/pdf/credpr126.pdf OECD, (2000). ‘Main determinants and impacts of foreign direct investment on China’s economy’, working paper on Investment, Number 2000/4, retrieved from http://www.oecd.org/dataoecd/57/23/1922648.pdf Hamilton, C., (1987) ‘Can the Rest of Asia Emulate the NICs?’ The Third World Quarterly, 87(4) pp.1225-1256. Michael Wong and Teresa Lee, Chan defends special action to prevent currency chaos, The Standard, 16 August 1998 Singapore, The Economy, available at http://www.mongabay.com/reference/country_studies/singapore/ECONOMY.html The Galt Global Review (2007). Singapore, December 17, 2007, available at http://www.galtglobalreview.com/world/economic_overview.html The World Fact Book, 2001 - http://www.odci.gov/cia/publications/factbook/index.html Van den Bossche, P. (2005) The Law and Policy of the World Trade Organisation, Cambridge: Cambridge University Press Read More