Lee Hsien Loong, Singapore’s prime minister, tells Karina Robinson that the city state’s continued success depends on self-betterment of the unskilled.

Fretting Prime Minister Lee Hsien Loong can take comfort from the book on the dashboard of a Singaporean taxi: Strategic Management, Concepts & Cases. There is at least one taxi driver in the city-state who subscribes to his government’s reinvention mantra.

So does Mervyn Davies, the group chief executive of Standard Chartered Bank, who told The Banker that the tall 54-year-old “is doing a great job for Singapore. Singapore is recreating itself. It has strong leadership.”

Standard Chartered has more than 2000 employees in Singapore and uses it as a hub for much of the group’s product development and training.

Twitchy in the interview yet humourous, the charismatic former brigadier-general in the Singaporean Armed Forces has all the appearance of a micro-manager as he reels off the statistics for the fertility rate in countries as diverse as France and Japan. That is, after all, a very Singaporean trait: a top official in the country’s central bank wryly pointed out in an off-the-cuff remark that even before being picked to host the 2006 International Monetary Fund/World Bank Meetings, government officials were already calculating how traffic flows could be managed with more than 10,000 participants.

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“If there is a major policy, then I make sure we get all the pieces worked out and with all the implications thought through, because if you just approve a general direction and then the implementation is soggy, you have a problem,” says Mr Lee. “But at the same time, you can’t run a dozen ministries yourself.”

Financial pedigree

He does, though, continue to head the Finance Ministry, a job he took in 2001. Prime minister since 2004, he was also groomed for the top by formerly heading the Ministry of Trade and Industry and the Monetary Authority of Singapore, the country’s central bank, as well as at one point being the second minister for defence.

Mr Lee says ministers choose the priorities, these are discussed in the cabinet, the national direction is decided and then they agree on how to explain to the people and mobilise them

A softer front

Finding someone locally to talk to about his management style – surely an innocuous subject – is, however, impossible, even though he is perceived as softer than his father, Lee Kwan Yew, the legendary founder of Singapore and still a force to be reckoned with in his role as minister mentor.

Due to his role and provenance, the current prime minister, who lists “tinkering with computers” as a pastime in his official biography, is still seen as beyond comment.

A top foreign-based banker who has known him for many years says: “He is a bit gentler than his father, who was authoritarian and rigid. Lee Hsien Loong is more modern and more in tune with the younger generation. He is quite dynamic and has done well.”

Mr Lee is certainly modern enough to deal easily with the awkward and importunate question about being part of a dynasty.

“That is a standard question. Singapore is a small place that runs on very fundamental principles of meritocracy. That’s how the whole structure was built and if I were here because of my father or family connections and I were not up to it, the whole country would know it because you can’t hide behind a television image,” he says, adding that he has been elected to parliament five times.

The same argument about the finite size of the talent pool is the one used about his wife’s role. Interview-shy Ho Ching is chief executive officer of Temasek Holdings, owned by the Finance Ministry and with a portfolio valued last year at $63bn (see page 28). The investment company is the dominant local player and has been expanding its wings abroad over the past few years. It would be quite fascinating to be a fly-on-the-wall when it comes to their pillow talk.

Singapore expert Professor Garry Rodan has a different view on the way the country is run: “The conflict of interest issue in Singapore is not principally a function of the city-state’s limited population, but of the links between economic and political power within the state,” says the director of the Asia Research Centre at Murdoch University in Australia. He points out that government-linked companies dominate the economy and its internationalisation, while a close nexus between the political and civil service elites means political appointments to head key institutions are often the norm.

In the meantime, Mr Lee dismisses accusations from some Asian bankers that Temasek is the new colonialist. “We are just a small player. Temasek is investing commercially, a part of our nest egg, and its strategy is to have one-third of its investment in Singapore, one-third in the region and one-third in the developed countries,” he says, sitting in his office in the Istana, the neo-Palladian villa housing the offices of the country’s top four officials. “When they see opportunities that make sense to them, they will invest, just as you would if you were the Carlyle Group or any other private equity fund. It’s a globalised world.”

When told that he had been described as very smart and his wife as extremely smart, he smiled and said: “I would believe that – the second half.

He does not do too badly either. Mr Lee studied at the University of Cambridge, graduating in 1974 with first-class honours in mathematics and a diploma in computer science. In 1980 he graduated from the Kennedy School of Government at Harvard University with a master’s degree in public administration. No-one, not even his sternest critics, query his intelligence.

Press control

As to the last awkward question – that non-governmental organisation Reporters Without Borders ranks Singapore 140 out of 167 when it comes to press freedom – Mr Lee appears rather amused.

“Yes, we are somewhere like Iraq and Libya. We cause them angst and confusion because we don’t look like [former Iraqi dictator] Saddam Hussein or [Libyan dictator Muammar] Gaddafi in the old days. On the other hand, neither are we a western liberal model. We refuse to conform to their mould. We are different and we believe this is what works for us,” he says.

He goes on to explain the Singapore government’s long-standing belief that, as a multi-racial and multi-religious society, race, language and religion are areas that are too sensitive for free speech. The city-state population is made up of ethnic Chinese, Malays and Indians, plus a host of foreigners attracted by the quality of life and the government’s openness to what it calls foreign talent, namely professionals in fields marked for expansion, such as biotechnology.

Mr Lee notes, however: “The limits gradually expand over time and we are able to talk about more things that are sensitive”. He uses as an example the discussions with the local Muslim community on the back of 9/11 and the discovery in December that year of a plot by Al-Qaeda-affiliated Jeemah Islamiyah terrorists to blow up diplomatic missions in Singapore.

However, the liberalisation is not as straightforward as all that. Some of the most influential foreign press, including sister publication the Financial Times and the International Herald Tribune, have seen the rules tightened against them in August. Meanwhile, the Financial Times reported last month that a local newspaper was forced to suspend a blogger’s regular column when it complained about the rising cost of living in Singapore while the income distribution gap was widening.

Stellar track record

That sits oddly with the government’s can-do attitude to all challenges. The 4.4 million people city-state could, after all, rest on its laurels, as a few statistics prove. Singapore ranks as the third most competitive nation in the world, according to the International Institute of Management Develop-ment in its World Competitiveness Yearbook for 2006.

The value of all traded goods and services accounts for 243% of gross domestic product (GDP). A prudent handling of finances has led to years of government surpluses, with 2005 registering at 6% of GDP. Meanwhile, the economy has grown strongly in recent years, registering GDP growth of 8.7% in 2004, 6.4% in 2005 and, on the back of the latest numbers, an increased estimate of 7.5% in 2006 – impressive for a maturing economy.

But tackling challenges head-on in a well-thought out manner is part of the Singaporean ethos. And Mr Lee is most engaged during the interview when asked about government policy to tackle globalisation and growing income inequality.

The United Nations Economic Development Report ranks Singapore 77th in the world for income inequality, while the bottom 20% of households have seen their incomes fall over the five years to 2003, according to a government survey.

The social contract in Singapore, according to academics and commentators, involves a limited form of democracy in exchange for rising incomes for the population. But globalisation has led to increased competition with adverse effects on Singaporean unskilled labour. As a result, the government increased the level of special transfers to lower-income groups to S$3.6bn ($2.3bn) just before the May general election. (On the back of this, there will be budget deficit of 1.4% of GDP for 2006, but it will return to surplus in 2007.)

“In the short term, if the government has some surpluses and some reserves and can distribute a bit of largesse weighted towards the lower end, that’s helpful and it shows we’ve remembered fellow citizens who are being left behind,” says Mr Lee. “In the medium term, we really have to help people who are unskilled become more skilled and upgrade and train and, therefore, be able to do jobs that pay better.

He adds: “It may not be a top job, it may not be a professional job, but you can be a security guard upgraded to a supervisor; if you are a cleaner you can use proper equipment and work more productively; if you are a cook, you learn a skill and dress up a dish well rather than just stirring the pot.”

In the long term, he argues, the solution is education. The prime minister’s global peers also emphasise education. The difference is that in Singapore an efficient government with little opposition has already taken a number of steps at the school level, in the institutes of technical education that cater for the less educated and in the general retraining for the older generation.

The high-flying Singaporeans who study abroad at top universities, one of the hallmarks of the city-state, are only part of the story: more than half of Mr Lee’s generation would not have completed secondary school, he points out.

Worker retirees

A member of parliament from 1984, Mr Lee does not advocate welfare spending for retired workers, as the younger generation of workers would have to carry the charge and this would make them uncompetitive with countries such as China or Vietnam.

But neither is he complacent on how easy it will be to change working patterns beyond retirement age: “The difficulty is how do I make the employers and the [older] workers fit together so they can actually work productively and in a way that doesn’t put an intolerable burden on the companies or the employers, because if you just compel the employer to keep older or less productive workers, in the extreme the company goes out of business.”

The other side of the equation, an extremely low fertility rate of 1.24 children per household, is a problem the government has been addressing with bonuses for babies and other measures. However, Mr Lee does not sound very hopeful, noting that “the French have, by Herculean measures, pushed themselves up to 1.6. I think we will have some impact over time, but I am not optimistic that we can push it back up to 2.1. Nobody has ever done that.”

At least he is doing his bit as the father of four children.

Meanwhile, the government is spending heavily on research and development – due to reach an admirable 3% of GDP by 2010 – in areas such as biomedical science, international education and digital media, where it has attracted the likes of Lucasfilm Animation of Star Wars fame. In financial services, it has become a private banking hub, as well as emphasising asset management and even attracting 900 back-office jobs from Credit Suisse in May. It overcame its longstanding disapproval of gambling and awarded a concession to develop a resort to Las Vegas Sands, a US casino operator; proof of its flexibility when it comes to keeping the economy on a growth path and Singaporeans employed.

Oil-rich rivals

Some of the challenges facing Singapore lie beyond its control, such as the threat of an avian flu pandemic, the rise of the competing city-state of Dubai, which is bolstered by oil money, and the possible slowing of world growth due to high oil prices and increased protectionism following the collapse of the Doha trade round. The latter would have a disproportionate effect on an economy as open as that of Singapore. What Mr Lee calls Singapore’s “compulsion” to sign bilateral free trade deals (11 so far) is, as he admits, second best to a deal in the World Trade Organization.

There is also the next Asian political crisis, which could arise on the back of the issue of Taiwan’s independence, North Korea’s missiles or China-Japan relations, among other possibilities.

“Where is it going to go wrong? I think what it depends on is good relations between the US and China and really on that triangle of the US, China and Japan. If those go wrong, then we have a problem in Asia because we will have to choose sides and nobody wants to choose sides,” he says. Mr Lee believes the odds of a conflict over Taiwan have lessened as both the US and the Chinese have made their positions clearer.

The bottom line is that Singapore works. One can quibble with the model, or point out that the long-ruling People’s Action Party received 66% of the vote in the May general elections, rather less than the 75% in the last one – albeit that this took place in November 2001 and the higher-than-expected count was seen as a vote for security after 9/11. One can also point out that the younger generation may not subscribe to the current Singaporean government ideology.

But this all seems like trivial nit-picking when the country is so well managed and forward thinking.

The polite and pleasant taxi driver, meanwhile, may already have moved jobs.

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