The secret of Singapore's success under Lee Kuan Yew

What was the secret of Singapore’s amazing growth under Lee Kuan Yew? The most important reason was a high rate of savings, which resulted in high investment (see chart). The sharp contrast between Indian and Singaporean rates of savings and investment is obvious.

Is it folly to compare tiny Singapore with a subcontinent like India? It surely is, on many counts, but at the same time, it’s worth noting that China, which is even larger than India, has savings and investment rates that are higher than Singapore’s. Ultimately, growth boils down to rapid capital accumulation, for which higher savings are absolutely necessary.

There is no secret ingredient. In fact, the story of the rise of East Asia is mostly a tale of higher savings and investment rates. Lee knew this very well and the high rates for provident fund contributions he put in place in Singapore were one way of raising savings.

Lee achieved the extraordinary feat of making Singapore a developed country within a single generation. One measure of his achievement is the rise in Singapore’s per capita income (in constant 2005 dollars) from $2,529 in 1960 to $36,897 in 2013, according to World Bank indicators. It means Singapore’s per capita income grew 14.5 times in real terms between 1960 and 2013.

Over the same period, India’s per capita income (again in constant 2005 dollars) grew from $228 to $1,165, or five times. But here’s what is truly wonderful: China’s per capita income in 1960 was a mere $121, much lower than India’s, and it was $3,583 in 2013, or a growth of 29.5 times in real terms, much higher than Singapore’s.

The great hope from the Narendra Modi government is that it will put in place the conditions for Singapore-like and China-like rates of savings and investment, which is the only sauce needed for rapid economic growth.