Trade & Industry Minister George Yeo is regarded as one of Singapore's most visionary technocrats. Besides the fallout from Asia's recent financial crisis, Yeo and other Southeast Asian leaders must cope with growing competition from China for investment. Also, members of the Association of Southeast Asian Nations (ASEAN) have agreed to press ahead by 2002 with an ambitious plan for trade liberalization. While in New York recently, the trim former brigadier general discussed with international editors Christopher Power and Pete Engardio about how Singapore and ASEAN are trying to reposition their economies.Note: This is an extended, online-only version of the interview that appears in the June 19 International Editions of Business Week.
Q: It seems as though Southeast Asia has dropped off the map for many U.S. investors. Are you worried?A: We in ASEAN have been bothered that Southeast Asia has receded in strategic importance to the U.S. since the end of the Cold War.
While the Japanese continue to give tremendous strategic emphasis to Southeast Asia, the Americans have not. During the financial crisis, when Japan tried to create a special fund to help us out, it was blocked by the U.S. Treasury. Today, there is a residual effect in parts of Southeast Asia over the way the U.S. reacted in a crisis situation.
[But] it's in ASEAN's best interest to have a close linkup with the U.S. The common language used in the region is English. Our best and brightest come to your schools. So there is an easy welcome for U.S. business in Southeast Asia. In the longer term, I hope we can work toward a greater free-trade arrangement between the U.S. and Southeast Asia.
Q: Do you mean something like the North American Free Trade Agreement for ASEAN?A: Yes. I think it's something to work toward in the longer term. But I am speaking as an individual. It is what I would like to see ASEAN become.
Q: What are ASEAN countries doing to lure investment?A: For all intents and purposes, by the end of next year, ASEAN will be a free-trade area with minimal tariffs. Besides bringing tariffs down, there is the ASEAN investment area agreement, which effectively confers national treatment on anybody who operates within ASEAN. This will apply to all countries in manufacturing, agriculture, mining, forestry, and fishing, as well as all associated services.
We're now discussing the "e-ASEAN" initiative. This is an effort to create a common trade area in information communications, so that wherever you are in the region, you're never more than a local phone call away from a global Internet connection. This requires connectivity, common standards, and progressive liberalization. Ever since we [in Singapore] opened up our own infocom market in April, the effect has been electric. In hindsight, we should have liberalized earlier.
Q: How will China's entry into the WTO affect Southeast Asia?A: All Asian countries supported China's entry, because otherwise the easy peace we have in the Pacific now would one day be threatened. China's entry is part of the new chapter. It stabilizes the strategic situation in Southeast Asia and also creates all kinds of new opportunities for increasing trade.
But China will also compete with our economies in many industries for the same investments from America, Japan, and Europe. So this ought to be a great challenge for Southeast Asia. If we are divided, compartmentalized, and unable to exploit our different strengths as one, I think we'll lose out to China.
Q: Do you agree that, despite government efforts, Singapore now lags behind Hong Kong in new industries, like the Internet?A: When it comes to the dot-com boom, you're absolutely right. There's much more action in Hong Kong than in Singapore. But that's really just the financial layer. Once you go beneath that, to real industrial and technological capabilities, you'll find Singapore some years ahead of Hong Kong. We have always kept manufacturing at 20% to 25% [of gross domestic product] because we didn't want to be hollowed out. We also believe the hard sciences are important.
Q: Then why hasn't Singapore produced an explosion of tech startups?A: We have to be realistic. It would be marvelous to have lots of Singaporean startup companies. But our population base is 3 million Singaporeans plus 1 million foreigners, and we've got to do many things with that limited resource. There will be many Silicon sub-Valleys all over the world, and we hope to be one of them. The key is whether or not we're able to attract talent from India, China, Europe, and America without social tension or conflict.
This means that in the natural course of things, many players, including CEOs, would be non-Singaporean. This is what we have got to accept. We are seeing large numbers coming in now. I can give you one statistic you may not be aware of. For every two babies that are born in Singapore, we bring in one foreign permanent resident. Also, one in four marriages among Singaporeans is to a foreigner. This has doubled in the last 10 years. We have become a migrant society all over again.
Q: In which new industries can Singapore make its mark?A: We have got to move upstream to research and development, higher value-added manufacturing, and robotics. One new area is the life sciences. Today, most major pharmaceutical houses have big manufacturing facilities in Singapore. But it's mostly engineering activities -- such as maintenance and quality control. We intend to move into genomics and integrate pharmaceuticals with drug discovery, health care, clinical testing -- the whole range.
We have always had a very good health-care system, and many of our best minds go into medicine. The fact that we are an ethnically diverse population may be an advantage for functional genomic research. For example, because we have good medical record-keeping, the analysis of ethnic differences in disease patterns right down to the genetic level can help companies discover new treatments.
Once again, the key is whether we're able to bring in talent from China, India, and elsewhere. We will need substantial public funding to kick-start research work in genomics. It will then be easier for us to draw in private investments. But really, the life-sciences revolution is vast, and no one knows how the industry will turn out in the future.
E-commerce is very big now. Many logistics companies in Singapore have gone into partial manufacturing. Nokia and Ericsson have an agreement with DHL. If you buy a hand-phone and it doesn't work, send it back to DHL, and the technicians there decide whether or not it can be repaired. DHL will send the replacement from a stock it carries. In some cases, they will do the repairs in-house. Logistics is an area where Singapore can be competitive.
Q: How is Singapore changing the education system?A: The whole system is being reevaluated in a fundamental way. In the past, it was designed to suit an industrial economy. But for the New Economy we need people with broader skills.
This means equipping them with knowledge of science, computers, biology, and culture so they are able to adjust as the economy evolves. It means retraining workers and instilling in them an expectation that, in the course of their lives, they will have to change jobs at least three or four times.
We also have a program to introduce computers into every kindergarten. There is one computer for every two school children. By fifth grade every child has got to learn to construct a simple Web page. One objective is to have a quarter to one-third of teaching done via the computer.
Q: Are the schools still very rigid in Singapore?A: For the brighter students we should loosen up, so they can explore more and develop in different directions. We should allow for greater experimentation. If you want to take an alternative exam, or skip an exam, there is now more free play. But you can only do that for your better students. If you try to do that for everybody, you end up lowering the education of the average.
I would say the system is now more discriminating. Every teacher knows that no two students are the same, and you've got to adjust to each student, rather than the other way round. Middle-class kids will be O.K., but if you don't look after those in the bottom quartile and they grow up illiterate in computers, they will be a burden to society for the rest of their lives. And they will fight you.
This digital divide will be very serious if we do not educate the children of poorer families in information technology. The reason why we have such political stability in Singapore is because the bottom 10% is better looked after than in any other major city in the world, bar none.