Learning from the Late Lee Kuan Yew's Proving Protectionist-Driven Economists Wrong About Multinational Corporations

Reading the book From Third World to First is really a must. The late Lee Kuan Yew was faced with the mentality of the development economists of his day. Here's an excerpt from "Chapter 4--Surviving Without a Hinterland" which I'd like to share from Pages 57-58:

After several years of disheartening trial and error, we concluded that Singapore's best hope lay with the American multinational corporations (MNCs). When the Taiwanese and Hong Kong entrepreneurs came in the 1960s, they brought low technology such as textile and toy manufacturing, labor-intensive but not large-scale. American MNCs brought higher technology in large-scale operations, creating many jobs. They had weight and confidence. They believed that their government was going to stay in Southeast Asia and their businesses were safe from confiscation or war loss.

I gradually crystallized my thoughts and settled on a two-pronged strategy to overcome our disadvantages. The first was to leapfrog the region, as the Israelis had done. This idea sprang from a discussion I had with a UNDP expert who visited Singapore in 1962. In 1964, while on a tour of Africa, I met him again in Malawi. He described to me how the Israelis, faced with a more hostile environment than ours, had found a way around their difficulties by leaping over their Arab neighbors who boycotted them, to trade with Europe and America. Since our neighbors were out to reduce their ties with us, we had to link up with the developed world-America, Europe, and Japan-and attract their manufacturers to produce in Singapore and export their products to the developed countries.

The accepted wisdom of development economists at the time was that MNCs were exploiters of cheap land, labor, and raw materials. This "dependency school" of economists argued that MNCs continued the colonial pattern of exploitation that left the developing countries selling raw materials to and buying consumer goods from the advanced countries. MNCs controlled technology and consumer preferences and formed alliances with their host governments to exploit the people and keep them down. Third World leaders believed this theory of neocolonialist exploitation, but Keng Swee and I were not impressed. We had a real-life problem to solve and could not afford to be conscribed by any theory or dogma. Anyway, Singapore had no natural resources for MNCs to exploit. All it had were hard-working people, good basic infrastructure, and a government that was determined to be honest and competent. Our duty was to create a livelihood for 2 million Singaporeans. If MNCs could give our workers employment and teach them technical and engineering skills and management know-how, we should bring in the MNCs.

The book would be a very interesting read since it highlights much of the challenge of bringing Singapore from its third-world status back then to the first-world status it is in now. Lee Kuan Yew had to challenge the wisdom of the development economists of that time. The mentality was that foreign investors were supposedly all just exploiters. It was a common misconception, ironically, even among development economists of that day that the multinational corporations or MNCs were just exploiters and talked about "neocolonialist exploitation". Yet, Lee Kuan Yew decided to show that it doesn't work that way when he invited MNCs to create jobs for Singapore.

When Lee Kuan Yew knew a real development economist when he saw one

Another excerpt worth noting is Lee Kuan Yew's meeting with the late Albert Winsemius from a developed country. The Dutch economist had proven the notion of MNCs wrong. The economists of his day really should be questioned if they deserve to be called economists. Goh Kweng See and Lee Kuan Yew weren't impressed by what the development economists said. 

Instead, we can read this about Winsemius as a real economic adviser on Page 60:

Winsemius played a crucial role as economic adviser, serving for 23 years until 1984. He visited Singapore twice a year, each time for about three weeks. We paid for his air tickets and hotel bills in Singapore but for nothing else. To keep him up to date, Ngiam, his EDB liaison officer, sent him regular reports and daily copies of the Straits Times. His practice was to spend his first week in Singapore in discussions with our officials, the next with executives of MNCs and some Singapore companies, and also with NTUC (National Trades Union Congress) leaders. He would submit his report and recommendations to the minister of finance and to me. Then I would have a working lunch with him alone.

The top executives of the MNCs soon appreciated the value of his role and spoke freely to him of their problems: overregulation by the government, the rising value of the Singapore dollar, too much job-hopping, too restrictive a policy on employing foreign workers, and so on. Winsemius had a pragmatic, hands-on approach, a good head for figures, and a knack for getting to grips with the basic issues, ignoring the mass of details. Most of all he was wise and canny. I learned much from him especially about how European and American CEOs think and operate.

Singapore was no self-industrialized state

Now, for a big startling revelation from Lee Kuan Yew. Some say that Singapore was a protectionist state. Others say that Singapore became a global power via protectionism before allowing foreign companies. However, Lee Kuan Yew proved those statements wrong by these words on Page 66:

Our job was to plan the broad economic objectives and the target periods within which to achieve them. We reviewed these plans regularly and adjusted them as new realities changed the outlook. Infrastructure and the training and education of workers to meet the needs of employers had to be planned years in advance. We did not have a group of readymade entrepreneurs such as Hong Kong gained in the Chinese industrialists and bankers who came fleeing from Shanghai, Canton, and other cities when the communists took over. Had we waited for our traders to learn to be industrialists we would have starved. It is absurd for critics to suggest in the 1990s that had we grown our own entrepreneurs, we would have been less at the mercy of the rootless MNCs. Even with the experienced talent Hong Kong received in Chinese refugees, its manufacturing technology level is not in the same class as that of the MNCs in Singapore.

It should be very laughable how some are still opposed to economic liberalization. The very notion of letting the industries grow first before letting them in. Others still insist on letting 60-40 be the rule of foreigners doing business in the Philippines. Lee Kuan Yew's very own statement had proven that lies about foreign investments have been wrong such as that only they will get rich from doing so. The critics were either voicing out of ignorance or out of convenience. Singapore accepted foreign investments while it was still a third-world country to produce the jobs it badly needed.

This would be the conclusion from Pages 68-69 of the same chapter that showed the success of foreign investments in the country:

If I have to choose one word to explain why Singapore succeeded, it is confidence. This was what made foreign investors site their factories and refineries here. Within days of the oil crisis in October 1973, I decided to give a clear signal to the oil companies that we did not claim any special privilege over the stocks of oil they held in their Singapore refineries. If we blocked export from those stocks, we would have enough oil for our own consumption for two years, but we would have shown ourselves to be completely undependable. I met the CEOs or managing directors of all the oil refineries-Shell, Mobil, Esso, Singapore Petroleum, and British Petroleum on 10 November 1973. I assured them publicly that Singapore would share in any cuts they imposed on the rest of their customers, on the principle of equal misery. Their customers were in countries as far apart as Alaska, Australia, Japan, and New Zealand, besides those in the region.

This decision increased international confidence in the Singapore government, that it knew its long-term interest depended on being a reliable place for oil and other business. As a result, the oil industry confidently expanded into petrochemicals in the late 1970s. By the 1990s, with a total refining capacity of 1.2 million barrels per day, Singapore had become the world's third largest oil-refining center after Houston and Rotterdam, the third largest oil trading center after New York and London, and the largest fuel oil bunker market in volume terms. Singapore is also a major petrochemical producer.

To overcome the natural doubts of investors from advanced countries over the quality of our workers, I had asked the Japanese, Germans, French, and Dutch to set up centers in Singapore with their own instructors to train technicians. Some centers were government-financed, others were jointly formed with such corporations as Philips, Rollei, and Tata. After 4 to 6 months of training, these workers, who were trained in a factory-like environment, became familiar with the work systems and cultures of the different nations and were desirable employees. These training institutes became useful points of reference for investors from these countries to check how our workers compared with theirs. They validated the standards of Singapore workers.

The confidence of Singapore to do business was there. It didn't have the overly restrictive 60-40 which is a show of a lack of confidence. I believe that the implementation of the Public Service Act of 2022 would show the world that Filipinos are confident to do business. Easing the 60-40 restrictions throughout the years such as when the late former president Benigno Simeon Cojuangco Aquino and the recent economic amendments by President Rodrigo Roa Duterte would change the way things are done. Aquino's focus on certain sectors led to an economic boom. However, the country still suffered from a lack of quality in public services. Liberating the public utility sector should improve confidence between foreign investors with the Philippines. 60-40 is nothing more than a cowardly way out in trying to get much the gain fast by insisting that 60% should belong to local Filipino businessmen. Getting rid of that restriction will change the way things go for the Philippine business environment.