Introduction
It was Dean Inge of St Paul's, who famously remarked, more than half a century ago:
“The nations which have put mankind and posterity most in their debt have been small states, Athens, [Ancient] Israel, Florence, Elizabethan England.”
And my own addition to the good Dean's list is Singapore.
The Importance of Singapore
Why have small states so frequently had such a great impact? In ancient times it was perhaps because administration of large units was so technically difficult. The Greeks believed that large units could not attract sufficient loyalties from the citizens. It was Aristotle, who suggested that the best political community was a city state in which all the citizens could hear the blast of a trumpet summoning them to the assembly.
Of course, there has always been a contrary view. In the past, great empires, established by force of arms and driven by mercantilist economics, struggled to increase their territories, populations and natural resources, certain that only by doing so would prosperity and success be achieved.
Today, we are, I believe, in a different world with great new opportunities if we have the will to secure them. The end of the Cold War and the almost complete collapse of communism means that world affairs need no longer be dominated by power bloc politics. The United States, the one great power which can be relied upon — because it has always been more than a great power — to uphold civilised values has been left with unchallengeable military and technological supremacy. The rolling back of state socialism and regulation and the opportunities of expanding open trade can bring prosperity to every continent — as that approach brought prosperity to Singapore. It is not the size of states but the scope for enterprise which limit our economic horizons.
And in such a world the people of small countries and great nations alike can flourish.
But there is a price to be paid. Freedom is exhilarating, but exhausting. Equality so often seems a comfortable second best. And the peace and order which allow prosperity have to be secured by strong defences and the resolve to use them. Beginning with the lessons which I believe the rest of us should learn from Singapore, I want today to explore these themes. The time is opportune.
For there is a dangerous complacency abroad in countries which we once regarded as constituting the West. But first, to the lessons I draw from your own astonishing and admirable example.
Singapore's success shows that size neither determines achievement nor limits influence. Yet your achievement demonstrates much more than that. It is testimony to three things — the creative political leadership of former Prime Minister Lee Kuan Yew, the importance of a political and economic framework favourable to enterprise, and the drive and dynamism of the people.
The agonies of the Second World War felt so grievously in this area — and how pleased we were with Japanese Prime Minister Hosakawa's statement to Parliament of apology and remorse for his country's aggression — were followed by a tidal wave of decolonisation which brought into being a far greater number of sovereign independent states than have existed at any time since the evolution of the nation state. Who would have thought when the United Nations was founded in 1945 with a membership of fifty one states, only eleven of which came from Africa and Asia, that forty five years later the membership would have amounted to some one hundred and eighty four including one hundred and two African and Asian states.
National independence on this scale brought both opportunities and problems. It is ironic that it came about at a time when for the better part of a century, the focus of political debate had been on enhancing the role of the state as a or indeed the way of bringing about social and economic transformation. Many new states took that fundamentally wrong path to the future and stultified the hopes of their people. But not Singapore. Her leaders knew that in a free society it is the people who own the Government, not the Government who own the people.
So Singapore's record is and continues to be outstanding. Its beauty whether in gardens, buildings, layout (even its rapid transit system), its stability, its people, its constant adaptability to changing circumstances, its influence both on South East Asia and the wider Commonwealth, have a message for us all. It is that yours is a system which — in every sense — works.
And, of course, Singapore is a great port, indeed the world's third largest port. There is always something exciting about a thriving port on the world's great trade routes. The commerce and activity you see daily are witness that the market economy is no mere academic theory but the oldest form of exchange of goods and services know to man. Its contribution is not confined to economics.
It teems with life, encourages enterprise, creates its own social structures and keeps a nation outward-looking. It is a visible sign that trade and services are the most potent form of international co-operation which daily reaches across the world from business to business, family to family, nation to nation.
Singapore's political importance matches her economic success. She hosted the ASEAN Summit in 1992 and takes an active part in the development of the Asia Pacific Economic Co-operation Group.
And nations large and small seek the advice of your first Prime Minister. Master of detail though he is, he never allowed it to obscure the great political changes that are on the move in the world and their significance in global terms. And his successor Prime Minister Goh has vigorously continued his wise policies.
The Morality of Capitalism and the Way to National Success
How came this great success story? It is a saga not only of a strong personality but of the right policies and approach which other countries could learn if they would. It is an approach which recognises that nations are not wealthy merely according to their natural resources — if that were so nations like Russia and Brazil would be rich and others like Japan, Singapore and Switzerland would be poor. Natural resources lie un-used, like oil under the North Sea or under the sands of the Middle East, unless and until the inspiration of human beings can see their value and work out how to bring them into profitable use.
This creative capacity which man has is noble. It should be respected, encouraged and used.
“In short, besides the earth, man's principal resource is man himself. His intelligence enables him to discover the earth's productive potential and the many different ways in which human needs can be satisfied.”
Those are not my words but the words of Pope John Paul IIHis Holiness the Pope in his encyclical, Centesimus Annus.
Perhaps we in business have been too slow to point out that capitalism is therefore not only about material things, it is about the human spirit and its creativity. Freedom is a moral quality with which we use our God-given talents to further knowledge and its application for a better way of life. In seeking to liberate people from poverty and servitude it is the business ethic in action which is the cutting edge of progress. And when the Left criticise profits or the profit motive, we should retort that economic advance depends on the ability of an economy to form capital or to attract it, and the first social responsibility of a Government is to frame its laws in a way which maintains the wealth-creating capacity.
Those countries — the Communist countries — where the power of the state was everything and the people were merely pawns on a chessboard — have left an economic wreckage and a bewildered people.
The Role of the State
The role of the state should be limited but strong to do those things which only Governments can do.
— Strong to uphold the rule of law, independently administered;
— Strong to keep the finances and the currency sound;
— Strong to provide educational opportunity so that knowledge and insight will develop;
— Strong to provide a general framework which encourages free enterprise.
— Strong to defend the nation.
There is nothing laissez-faire about that policy. I don't think anyone would accuse either Senior Minister Lee Kuan Yew or Thatcherism of that.
But in case this should sound too dry or too clinical — merely a matter of politics and economics — let me make clear the most important thing of all: what makes a man, a family, a community, a culture or a nation are the values by which they live, for values not only inspire policies they inspire people.
There was a time when some political philosophers sought a “system so perfect that no-one would need to be good” (T S Eliot). Such systems don't exist.
Your success in Singapore bears witness to what a motivated people can achieve, respect for hard and honest work, thrift, moral probity, responsibility for one's family. You do not need to invent new ideologies, these things are part of what Burke called the general bank and capital of nations and of ages. They are relevant to all times and they can be applied to new circumstances and discoveries. They are the compass by which we chart true progress.
Economic Problems of Today
When we examine the economic problems of today some of you will have noticed that I said rather quickly the phrase that part of the task of Government is to ensure sound finance. That involves not only a sound and stable currency but also a balanced budget taking one year with another. And a taxation system which encourages enterprise. You may be tempted to observe that these things are sometimes more honoured in the breach than in the rule.
Moreover, it is not enough to get just one of these elements right — they must all be present if growth is to be soundly based. We know what the right policies are to combat inflation; the money supply must be controlled by interest rates and to be effective it must take priority over the exchange rate. To put exchange rate policy first is knowingly to give up control over the supply of money and to risk either inflation or recession.
After the collapse of the Bretton Woods system in the early 1970s and now (effectively) of the ERM, surely we in Europe should have learned that lesson and not get our fingers burned again.
The recession we are enduring in Europe now is deeper and longer than it need have been had we not clung stubbornly to non-maintainable exchange rates. Yes, of course business would like a stable exchange rate, but not one that makes its exports too expensive and imports too cheap. The reason Britain is recovering ahead of our Community partners is because we came out of the ERM in response to market forces.
There has been criticism of the German Bundesbank for not reducing its interest rate faster.
Some other ERM countries wanted it reduced in order to stimulate their own economies to recover. Such criticism is in my view ill-judged. The gift of the Bundesbank — the best central bank in Europe — to the European Community is that it has shown how to keep inflation down. It must not be deflected from its prudent path. Even to debate this point indicates some of the pressures which would be put on a European Central Bank were it ever to come into existence.
When it comes to controlling public expenditure, you in the Asia-Pacific region have a lot to teach the Western democracies. You have learned to preach and practice the wisdom of thrift as a virtue in itself, and of high savings as necessary for high investment and that public spending be strictly limited.
These things do not come naturally to all Western politicians. Interest groups are very strong and vociferous, particularly in the public sector, and there is a constant temptation to increase public spending to appease them. This was what I found I had to resist when I was Prime Minister. And as a result over the years the share of the national income taken by public spending shrank and budget deficits were converted into several years of surplus. At least nowadays there are not many who believe that increasing spending and deficits actually stimulates the economy. We recognise that such policies drag the productive private sector down and those who work in or depend on it. So there is even less reason to allow the reins on public expenditure to loosen.
Of course, there is always a tendency for public spending to rise at times of recession. Such increases must be only temporary and they should be regarded for what they are — a thoroughly undesirable movement in precisely the wrong direction. To the extent this proves unavoidable it should be soundly financed, which means not allowing the deficit to get out of control. But we should always ask whether there are not other items of public expenditure which can be cut before tax increases are contemplated. Tax rates — particularly taxes applying to top earners who are internationally mobile — are intensely competitive. To increase top tax rates does not necessarily enlarge the tax take. Such people can easily make alternative arrangements.
It was my experience as Prime Minister of the United Kingdom that when the top rate of tax was reduced from 83 per cent to 40 per cent the proportion of total income tax paid by the top 5 per cent rose by several percentage points. I note that Prime Minister Goh's budgetary proposals for the next two years are to cut income tax, reducing the top rate to 30 per cent, and lowering corporate taxation from 30 per cent to 27 per cent, and moving more of the burden to indirect taxation. Incentives do matter both to those in the higher brackets and those who aspire to get there. New inventions, new business, good top management, it is these things which create not only the wealth of individuals but the wealth of nations.
Of course we all want recovery — a sound recovery. One of the reasons why it is so slow is that individuals and businesses have learned from bitter experience that too much spending on easy credit will eventually lead to a loss of capital as property values fall and the return on business investment fades. Savings ratios, even in the West, have increased and one hopes that this time the real lessons of over-extended credit will have been learned. If that is so — a slow recovery will be worthwhile.
There is another aspect of modern economies which is now being discussed but not yet fully addressed — I refer to what has become known as the dependency culture.
The term dependency culture didn't exist when I came into politics. That was about the same time as Singapore became independent. At that time it was assumed that anyone who was offered a reasonable job would want to take it and wish to keep his own family. Thankfully, this is still true of most people — the world over people have a disposition to want to do better for their families. Nevertheless, the rules of civilised society which impel us to look after those who for diverse reasons are unable to find work or can earn but little, are sometimes being used by others for whom they were never intended.
When I was in Singapore comparatively recently your local press carried an article about how some people who did not want to work were artificially bringing themselves within the benefit rules. This was my first inkling that the problem had reached Singapore. But every benefit is provided not by the state but by conscientious citizens who fulfil their obligations. Our forefathers knew that there can be no rights unless obligations have previously been accepted.
In 1985 at the G7 Economic Summit in London, when I was in the chair, I proposed we began together to discuss this problem and the rising cost of Social Security as a whole. As an old political hand I knew that if any one of us broached this subject alone in our own country, our motives would be impugned by our political opponents. Perhaps, I suggested, by gently leaning on one another in our discussions we can stand together whereas separately we might fall. Sadly at that time my fellow heads of government (with one exception in addition to myself) were not bold enough to tackle this subject. But the time is coming when we shall have to and the majority of the population would support such an effort.
South East Asia
I am well aware that in many of these things I am talking to the converted in this region. For the peoples of the Asia-Pacific, of which Singapore is such an important centre, are out-stripping much of the rest of the world in growth, investment, new technology and trade.
That should not surprise us, for the importance of trade and prosperity are rooted in the ancient history of your continent, whether it be with the Chinese traders from the north or the Arabs from the west. Long before the first Roman merchants had ventured beyond the confines of the Mediterranean, Chinese ships were plying the coasts and islands of your region.
Today the Asia Pacific region has the highest growth rates in the world in spite of the world recession.
1. By the end of this decade trade within the Asia/Pacific area is expected to exceed trade within Europe.
2. Across Asia, output per person is doubling every ten years;
3. Savings rates are running out over 30 per cent of GDP.
4. Asian banks hold over one third of the world's foreign currency reserves;
5. Between now and the end of the century the number of people in the crucial 20-39 year old age group will decline in the United States. It will decline in Japan. It will decline in Europe. But in the Pacific Rim countries it will increase by some 80 million, representing a huge advance in buying power and the capacity to produce more goods and services.
In the past thirty years Japan has led the way for the Asian revival. The Japanese had the genius to take the technology and scientific research of America and Europe and turn them into products the world wanted. Those products were well designed and competitively priced.
A similar strategy has been applied by the other countries of the Pacific Rim, Taiwan, Hong Kong, South Korea, Malaysia and here in Singapore. Wisely you have kept regulation comparatively low. No-one can doubt that some regulation is necessary both for the efficient functioning of the market and to provide protection for consumers and labour forces alike.
However, you should be ever watchful to keep this intervention to the minimum. The Government sets the rules of the market to achieve a fair basis without trying to plan all the outcome. In other words it intervenes to create a true market not to distort the market.
Trade Policy and GATT
Rightly your example challenges the European world to be not only less regulated but less protected in trade. Protected industries soon become inefficient. The presence of Japanese car factories in America and Britain has done wonders to improve our own car and component industries. It is no accident that the new wave of prosperity has come in much more from the South East Asian economies which are opening their doors than from the wealthy Western economies which are tending to close theirs. While sixty developing countries have reduced their trade barriers in recent years, twenty of the twenty four developed nations have increased theirs.
We have been discussing the present Uruguay Trade round for a longer time than it took to reach decisions on the previous Tokyo Trade round. It is time it was completed and agriculture and services included within its jurisdiction. If a small group of European countries continue to be obstructive because of agricultural subsidies they must just be left behind.
It is ironic that the Common Market of Europe was meant to be an example to other nations to get trade barriers down. In fact it is putting quotas and anti-dumping orders on East European countries whose only hope is to earn a better living through trade.
I hope that China and Taiwan will join the GATT during this round. (Hong Kong is already a member.) Taiwan should be admitted by virtue of her outstanding performance and financial significance in the world community, China because of the path of economic reform chosen by Deng Xiaoping allowing markets to work in even more sectors of the Chinese economy.
There is nothing wrong with countries bilaterally or in groups agreeing to remove obstacles to trade and investment — as long as this is not at the expense of the GATT. What I strongly oppose is the kind of regionalism which leads to regional blocs of countries competing politically and economically, outside the proper global framework of principles and rules, in a manner which both discriminates against weaker less developed countries and results in general economic impoverishment.
Avoidance of that dismal prospect depends heavily on getting the international political framework right. If there is widespread cynicism about the effectiveness of international action to uphold order and fair dealing in one area it will spread to another. And the biggest challenge the international community now faces — and will face for many years to come — is the need to reintegrate the former communist countries peacefully and successfully into the system of freedom from which Marxist revolution abruptly shut them off.
China and Russia
Russia
The two main exponents of Communism, the former Soviet Union and China, have chosen different routes out of their Marxist and Maoist period. Former President Gorbachev began by giving personal and political liberty including more freedom to travel and leave the USSR — an enormous change which altered the whole atmosphere from one of fear and furtiveness to a more open society. Discussion flowed freely. Television showed the proceedings of the Supreme Soviet and elections including non-Communist candidates were introduced.
Russia had known only a brief period of private enterprise some sixty or so years before Lenin seized power in 1917, but during that time her industry was growing well and attracting some foreign investment as a commercial law began to develop. Nevertheless unlike the Chinese, her people were not natural traders and doubtless President Gorbachev hoped that the economic way forward, or restructuring as he called it, would become more apparent through discussion.
In the meantime Mr Yeltsin, a firm believer in dispersal of power, limited government and a market economy, was elected President of Russia — itself the largest country in the world. But by this time the totally centralised Communist economic system was collapsing and just at the moment when President Gorbachev was about to disperse power to the separate republics, the coup was attempted, failed, and the USSR broke into fifteen component republics all of which joined the United Nations. Contrary to what many even in the West thought at the time, that was a thoroughly welcome development. The smaller, nationally based units which have resulted have a far better chance of pushing through the economic reforms required.
Yet the problems remain huge. The world has never experienced a challenge of this kind or dimension, turning a total tyranny where all land and jobs belonged to the state into a free enterprise economy with a sound currency and a rule of law.
Our freedoms, justice and democracy grew gradually and they benefit from our experience. It is a much more difficult task to construct the necessary institutions and to change the habits and customs of a people who have been denied freedom and justice.
Russia will always matter. The Russian people are good people with very special qualities after all they have endured. What they want is an honest market, a currency and a law they can trust as well as more goods. What they have is corruption, too few goods, an inflationary currency, no independent justice, a 1978 Brezhnev constitution and a Parliament pre-dating the attempted coup. While only they can make the necessary changes, it is in our interest to respond to their needs. Consider the alarm that would go through the world if Russia and the other countries were not to make the transition to a democracy.
China
When Mr Deng was restored to power in China, he introduced some aspects of a market economy but retained centralised political power in the hands of the Communist Party and its leaders. Chinese people are born traders and, unlike Russia, have a large diaspora in the other nations of the Pacific who poured investment and management into the coastal provinces. Of course there are massive problems especially as the banking system is ill-equipped to cope with the enormous growth now occurring and Mr Zhu Rhonji is left grappling with the problems, again on a scale we have never had to deal with.
I do not believe that the clock of economic reform in China can be turned back. Nor do I believe that you can insulate economic reform from political reform. The latter will come. Decisions on an enterprising economy can hardly be made by a political class unskilled in its ways, its habits and its needs.
There has been a tendency to suggest that perhaps democracy is not for some of the countries of the Pacific. But the Chinese, Japanese, Koreans and other Asians who chose to become devoted citizens of the United States found that great country's Constitution, founded on liberty and democracy, not only to their economic benefit but to their taste politically and as a way of life. However different their own history, culture and religion, their experience demonstrated that the characteristics and dispositions which bind us all as human beings are greater than those which divide us.
In Hong Kong it is the people who want more democracy; in South Korea, Taiwan, Malaysia, Thailand and here in Singapore, they have been successful in securing it. Recently I was asked in Russia whether I thought a form of enlightened absolutism would be better than democracy. I replied that it would rapidly become less enlightened and more absolute!
Peace as a Dividend of Strong Defence
Since the end of World War II we have been singularly fortunate in that the United States was willing and able to defend our freedom both across the Atlantic and the Pacific. In the history of the world it is a rare phenomenom for powerful countries not to want to extend their own borders and even rarer to be willing to stop would-be aggressors from taking the land of others by force.
We must not make the same mistake as after World War I of assuming that no major conflict would arise again and therefore cut our defences too far. Following the end of the Cold War some changes had to be made and our forces reduced in Germany after unification.
We often talk about the peace dividend. It is a phrase which can be misunderstood. Peace is the dividend that comes from strong investment in defence and technology, not only by America but the rest of NATO.
Communism is but one form of tyranny — this century has spawned others. The sanction of force must never be left solely to those who have no scruples about its use. The best way to prevent war is to keep not only our defence but our resolve strong enough to convince any would-be aggressor that he would not succeed and would pay a terrible price if he tried.
International organisations, and regional alliances, are not a substitute for clear national leadership.
Do not let them become a cover for lack of effective action as has happened in Bosnia. The moment the world grows weary of defending against dictators so they begin to succeed and once again innocent men, women and children suffer the agony.
A Time for Reflection
I want to end as I began with some reflections on small states. The first part of this century was marked by the collapse of empires acquired by conquest or inheritance.
But the small states often proved too fragile to survive in a world of political predators. Other similar problems affected many of the states which emerged later from de-colonisation. The collapse of the Soviet Union and of artificial states like Yugoslavia put together for diplomatic convenience has now led to a further emergence of new states trying to find their way in the world. And this will remain the flow of history, for as long as democracy prevails, both because people feel more comfortable with smaller units and because economic progress means that such small units are viable.
This may be awkward for diplomats and more than troublesome when borders have to be redrawn. But it is the way things will be.
What we have to do now is to ensure that the world is safe for small states. Indeed we can test how civilised our international order really is by whether the smaller states can flourish securely within it — just as the real mark of whether a society is law abiding is whether its weakest member can rely on the law for his protection. Judged by that criterion — and in the light of Bosnia — the scene is not without its dangers.
Small states can thrive — as long as they have the will and enterprise to do so — under three conditions. First there must be open markets in which to sell their goods. Second, there must be a balance of power in their region which acts as a check on any over-dominant force. And third there must be a reliable and overwhelmingly superior outside power which will hold the ring and intervene if, in spite of the power balance, aggression looks like succeeding.
That power is — and only can be — the United States, supported as necessary by other medium powers like Britain. Small states, therefore, must do all they can to welcome and reassure the United States that its influence and presence is welcome. This is particularly so at a time when some in the United States are questioning whether America has a world role at all.
Singapore has a special insight into these great questions. And I hope you will use your influence in the debate about what constitutes an acceptable world order — a debate which, with the end of post-Cold War euphoria may now be conducted in more realistic fashion. But these are matters which concern us all — big and small alike. For a world in which states are at risk is one in which great wars occur.
A world in which small states flourish is one in which the populations of large nations will also be more prosperous.
A world in which vulnerable countries are treated with respect is one in which decency and human rights in individual states are more likely to prevail.
In short a more civilised world fit for our children and our grand-children to grow up in.