Political Economy Models of Singapore and Sweden

2795 words (11 pages) Business Assignment

2nd Jun 2020 Business Assignment Reference this

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Introduction

Political economy model is the study of trade, production and how the relation between business and government works. I personally feel that mixed political economy model such as free market with aspects of both capitalism and socialism which grants economic freedom in the consumption of capital but also lets the government to intervene in economic activities in order to accomplish social goals which are necessary to achieve economic prosperity and citizen well-being.

What is pragmatic model? (Singapore model)

Pragmatic model is one of the political economy model utilized by Singapore, they have no fixed ideology and the key is they look to the world as their market. Effective governance is the key to any country’s success. it plays a major role in the social welfare of families and individuals rather than on the state. Singapore is a glimpse into the future of Asia. Free trade and free capital flows are the chief factors for the economic growth. The country follows multi party political system and practices liberal capitalism. People’s action party (PAP) is the longest ruling party in Singapore. After its independence in the year 1965 the country started to build factories here made goods and exported abroad, then in turn they gained revenue because of which there was employment opportunities, they build homes, school and hospitals which helped in progression. Singapore has egalitarian society and a capitalist economy. After the east Asian economic crisis in 1998, the government agreed to implement neo-liberal economic policies with the intention to increase its share in the global market and gain confidence of MNEs.

For instance, the savings of individuals and firms are used in the social security system of Singapore which is controlled and invested by the central provident fund (CPR). This in turn delivers income securities to the retirees in their post working years without any burden on the state. As per the societies and economies mature the government adopt the mixture of interventionist and free market strategies. It is evident that political, social and economic changes may differ, so according to that the government adopt a hybrid economic approach of mixing free-market with interventionist strategies.

Singapore’s economic prospect is based on the highly skilled workforce. Higher education is considered to be highly subsidized and in terms of finding and management involvement of private sector remains low. Singapore has experienced rapid transformation in the last 40 years. It is known for manufacturing and is the financial hub for all businesses in east Asia. The host country’s primary imports are electronics, machinery, crude oil, food and beverages, and iron and steel. (Richardson, 1994). Export oriented strategies played a major role in booming the economies of east Asia. Trade is considered as the major source of income and accounts for almost one third of GDP in Singapore. As a part of its diversified economy Singapore also promotes tourism. According to world bank Singapore is listed under “high income economies”. It highly focuses on “welfare capitalism” which comprises of growth oriented state and subordination of all characteristics of state policy that contain social policy and economic/industrial objectives. Singapore provides economic security, infrastructure and it has a large influence of Western-educated workforce. Singapore’s economy is highly developed free market economy, along with intervention of the government. The allocation of Land, labour and capital resources are all regulated by the government and The country levies no tariffs and there are very few restrictions on the investment along with flat tax rates. The people action party (PAP) rules the country. The regulation of supply and demand controls the labour and production. for instance, companies sell goods and services at utmost price, for which consumers are willing to pay, meanwhile workers earn the highest wages, for which companies pay for their services.

The government of Singapore constantly looked for opportunities in the western market and inspired the local investors to participate it attracted foreign investors by offering them quality infrastructure, skilled labour and good incentives Krugman, (1994). During the mid-1960s the country felt short of capital to invest in the infrastructure and economies. It was a time when the country had lesser amount of educated workforce, and high levels of unemployment and along with poor natural resources which resulted in limited development option (Shin,2005) thus, it was considered a wise step to bring in foreign capital to fill this gap. In the late 1960s Singapore took a significant step to export manufactured goods which were labour intensive. The economy boomed with the importance of service sector, which involved transports, business and communications. Now   Singapore’s economy is considered to be one of the most stable economy in the world, without any foreign debt and high government revenue as it is a hub for exports and is known to be the world’s busiest cargo seaport. In 1980s the country took a step forward by becoming international financial centre which was essential for the economic well-being. Singapore transformed itself from a low income country to high income country as manufacturing goods and exports are considered to be the main pillars which aids in adding value to the economy. In the year 1992 manufacturing contributed 27.6% of the total GDP and was responsible for 27.5% of employment. The host country originates most of its revenue from the foreign trade. The main export product is machinery and equipment. The government believed that in order to match the labour of foreign talent, the local workers must match up and be able to compete with the global standards, this is the reason why the government focuses more on training and education and gives emphasis to technological innovation.

Singapore is the known as the centre for world biggest multinational companies, which enticed bigger players in the market, boosting Singapore’s attractiveness. MNCs operating in Singapore enjoys the cost of savings and have the efficiency of leading business with a highly privileged Singaporean trade portal which connects to the key markets of the world. Singapore accounts in on the world’s top 15 trading states and ranked as one of the easiest place to do business.

Economic crisis won’t affect much in Singapore due to less problems with banks and they are not highly affected by the situation in America and Europe. After the economic crisis in mid 1980s the government founded government linked corporations (GLCs) which was owned by government or controlled by state in chief areas of the economy such as airlines and shipbuilding. People here are quick to realize that they have to make adjustments weather it means a salary reduction or finding another job. The problem with west is they are slow in adapting changes whereas people in Asian countries are trained and are quickly ready for the change.

Before gaining its independence people were living in unhygienic slums and only 9% were living in government flats. In mid 60s the housing situation was in deep catastrophe and the government made housing sector as a priority area of policy concern. The housing and development board came into action on 1 February 1960 and in less than three years the board build 54,000 flats by 1965 and today about 82% of Singaporeans live in public housing, it gives mortgage loans to purchase flats. The spending on education rose from $600,000 in 1960 to $10 million in 1963. The people’s action party (PAP) assured to provide free primary schooling as its first educational priority. Because of changing business environment now, the aim of government has shifted towards more capital skilled sector such as biotechnology sector. Economic development board has taken the step to lift pharmaceuticals, biomedical technology and healthcare services which in turn will create abundant job opportunities. The primary aim of the government is to prioritise housing, security, water and sanitation, health care and job opportunities. Clean water and sanitary facilities are given to every individual. The ruling PAP is committed to well-being of every citizen. Safeguarding the well-being of people mainly by providing full employment with sufficient housing and health care, was the main goal which was achieved through innovative and cost effective government policies. The literacy rate of Singaporeans stands for almost 96%

Only 15% of land is distributed to housing and 17 % is used for community needs. The transport system is so well organised and efficient which provides effortless access for the people to commute easily.

Comparison between Singapore and Swedish economic models

Singapore model Swedish model
Approach to socialism Productivist welfare capitalism Democratic socialism
Political philosophy Competitive authoritarianism with single party dominance Liberal democracy with single party dominance

Source: The China quarterly (Dec 2018)

Cooperative political economy model(Sweden)

The Nordic model

It is said that the Sweden model has been an object of fascination. All the Nordic countries like Sweden, Denmark, Finland, Norway, Iceland are not alike but have something in common and that is the way they govern the society. The Nordic model includes an economic policy focusing on high employment and its welfare system is based on the universal principle and organised labour market. This has yielded results not only in terms of growth employment and competitiveness but also equality, living conditions and open mindedness. The Nordic model is built on values and the primary aim is to give opportunities for everybody. It is a model for equality and freedom for the individual. The main pillars of Nordic model are an economic policy which focuses on full employment, a generous welfare system and an organised labour market.

The Swedish economy totally depends on trade and the Swedish export accounts for 50 % of total   GDP. The Nordic countries have relatively high employment rate of women they promote high level of gender equality which aids them in providing an effective economic growth. In 1913 the first public pension was introduced in Sweden followed by free healthcare and elderly care. The Nordic model believes that the state should not have a major role, labour relations should be a matter between trade unions on the one hand and employer’s organization on the other hand without any interference from the state. The major part of labour markets is regulated through national collective agreements between trade unions and employees. The system of minimum wage here depends on sector to sector, it is negotiated between the social partners, which means the conditions will not change if the government changes, it can only be changed if the partners negotiate. The Nordic countries usually go through a lot of changes and experience development in their workplaces which is considered to be very important in the global economy. Although every developed country faces the problem of changing demography. For instance, more people get older and older, students study longer time and the number of people who are supposed to deliver the welfare system are fewer as related to the other groups. I feel that in order to achieve this, the model needs to consider on getting more work hours into the economy so that students can enter the labour market. Along with that it should also make sure that more people can work at least up to the age of 65 when they are at their retirement age by catering proper working environment. The social security system is like social insurance schemes; the main objective is to create distribution of prosperity. They provide income security to people who are insured and cannot work for the following reasons such as illness, parenthood, etc.

Swedish model combines extraordinary taxes, high educational standards and free market economy. Sweden has been able to support high taxes and high economic growth because of which it balances the taxes by providing tax revenue to support childcare programs give employees vast leave of absence opportunities and helps offer free education which helps in making Swedish citizens more employable.

In1998 Sweden started the right to leave to conduct a business operation act it gives the employees the right to take a leave of absence of up to six months to start their own company. In a small country and an open economy like Sweden the capability of business to function well in international market is critical.

Good education and health are crucial elements in terms of citizen well-being, Sweden was the first country to introduce paternal leave. Public institutions play an important role in the well-being, by guaranteeing that the fundamental rights of the people are protected.

Conclusion:

State intervention in Singapore have given a competitive advantage in export manufacturing, the state policies have an effect on resource allocation by changing prices. I believe that state intervention has a positive impact on the profitability of the business and on the welfare of the people.

Sweden is a flourishing country whose wealth is evenly distributed. The Swedish model is an approach for inclusive growth. Swedish economy utilizes openness and liberal approach to trade and do business.

References

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