A Brave New Economy For Singapore

Its shift to "knowledge" industries may boost joblessness

When Singapore's state-controlled press recently extolled the merits of becoming a street cleaner, Toh Mun Heng figured it could mean only one thing: The government was preparing the island for a seismic change in industrial policy that would embrace the New Economy--and render hundreds of thousands of uneducated factory workers jobless. "You can fight the market for a short while," says Toh, who teaches business policy at the National University of Singapore. "But not in the long term."

For years, Singapore used subsidies and microplanning to ensure that 25% of its gross domestic product came from manufacturing. Besides providing a foundation for rapid economic growth, the policy also served a critical social purpose: In a country with no safety net to speak of, it employed the 38% of the workforce that never finished high school. But now, Singapore wants to swap such manufacturing sectors as disk-drive and printer assembly for "knowledge industries" like life sciences, biotech, and e-commerce.

Painful though it may be for those who will be displaced, Singapore knows it must retool an obsolete model of development. "The social objective must ultimately face up to economic realities," says S. Dhanabalan, chairman of state-owned Temasek Holdings, which controls several conglomerates.

NUDGED OUT. The switch could have a huge impact on foreign manufacturers that take for granted tax breaks, direct government investment, and other subsidies. Incentives that once went to hard-drive assemblers are being offered to drug companies, for instance. Schering-Plough has unveiled plans to spend $340 million expanding its Singapore plant, while Merck, Sharp, and Dohme are building a $300 million facility.

When Singapore decided to phase out heavy industry 20 years ago, officials persuaded Ford Motor Co. to move its Singapore assembly plant to Malaysia. Makers of apparel and cheap electronics were nudged out, too. Now, industries like disk drives, where companies such as Seagate Technology Inc. employ tens of thousands of workers, could be next.

It's not yet certain when or at what pace the policy shift will occur. No one expects the government to formally announce the change, perhaps because of its potential to disrupt society. Up to 500,000 Singaporeans lack the education to easily migrate to new service and technology industries. "Employment is the only social safety net we have," says Simon Tay, chairman of the Singapore Institute for International Affairs. "What are these people supposed to do?" To address the problem, Singapore has committed $80 million for retraining over the next three years. It is urging people to set up small businesses. And officials have told employers they may have to boost monthly contributions to the Central Provident Fund, the government's compulsory savings program.

Still, Singapore lost 6,000 jobs last year because of plant closures, and one survey shows that only one in four displaced workers found a new job. "It's already happening on the factory floor," says Zulkifli Baharudin of Circle International Group Inc., a logistics outfit that recently let go workers without computer skills. One of them, an ethnic Malay warehouse supervisor without a high school diploma, knocked on Baharudin's door asking for help. He had only found work as a truck driver and couldn't support his family. Such scenes may be common in other economies undergoing wrenching adjustments. But not in Singapore Inc., which has long prided itself on full employment. It may be time for a new social contract.