7.6 GLOBALISATION AND SINGAPORE

7.6.1Globalisation and Singapores Pattern of Trade

The underlying principle that determines the Pattern of Trade for an inter-industry model is the Law of Comparative Advantage. However, globalization can affect or alter the underlying factors behind the Law of Comparative Advantage.

7.6.1.1 Composition of Trade

Globalisation has impact on comparative advantage (gain/loss)

Loss in comparative advantage due to the emergence of new rivalsTrade liberalisation in a globalised world has led to the emergence of new rivals (e.g. China/India) causing countries such as Singapore to lose its comparative advantage in the production of cheap, low-end and labour-intensive products e.g. socks and sandals. Many Multi-National Companies (MNCs) have taken advantage of opportunities offered by globalisation to cut costs and increase productive efficiency by offshoring or outsourcing to cheaper production centres like China, India or Vietnam.

Gain in new comparative advantage due to greater mobility of resources/productive factorsMobility of resources or productive factors across national boundaries has enabled countries like Singapore to acquire a new comparative advantage in producing high value-added, capital and knowledge-intensive products e.g. biomedical industry and aircraft engines. Capital mobility usually takes the form of Foreign Direct Investment (FDI) inflows while labour mobility takes the form of an influx of foreign talent/skilled workers.

7.6.1.2 Trade Partners

In Singapore, globalization has also altered the composition of our trade partners. Traditionally, major advanced economies like US and EU and regional economies like ASEAN have been our key trade partners.

Today, due to the growing network of FTAs, trade has been extended to emerging economies like China and India as well as non-traditional trade partners like Peru, Panama, Russia and some Middle Eastern Countries like Jordan.

The forging of FTAs has been prompted by the need to diversify our markets (e.g. decoupling) to cushion our economy against the threat of contagion and protectionism in a globalised world.

7.6.2Singapores Pro-Globalisation Policy

Being a small and open economy with no natural resources, Singapore has much to gain from globalisation. It has clearly served our economic interests, providing access to resources and global markers which drive economic growth and development, thus overcoming our domestic constraints of a small population with no natural resources.

However, globalisation has its costs or downsides. As a highly globalised economy, it is inevitable that from our economy occasionally suffers from external shocks e.g. global financial crisis in 2007-2008. Moreover, Singapore has to deal with rising protectionism whenever the world experiences an economic downturn and countries scramble to protect their own domestic industries. In recent times, the income gap has also widened to worrying levels. Moreover, workers continue to face the threat of structural unemployment due to outsourcing and off-shoring.

Policies to mitigate the downsides of globalisation

Maintain Free Trade policy and pro-migration policy.

Singapore does not believe in retreating from globalisation and resorting to protectionist measures to save jobs, even in times of recession. The government also does not believe in closing our doors to the influx of foreign talent and foreign workers. Such protectionist measures are detrimental to the well-being of our economy in the long run.

Build resiliency

A key policy is to build resiliency to enable our economy to stay afloat in turbulent times. Such policies include:Diversifying our export markets to reduce dependence on major Western markets such as US. This policy is sometimes called decoupling. This is done by forging a network of FTAs with other trade partners including those from non-traditional areas like Middle East and Central Asia.

Continuous investment in training, retraining and skills upgrading for the workforce. This enables the workforce to be competitive and occupationally mobile so that workers can find jobs in other sectors should they lose their jobs during a recession/as a result of structural unemployment.

Provide Workfare Income Supplement (WIS) to low-wage earners to help cushion the impact of globalisation on their stagnating incomes.

In summary, in a globalised world, Singapore has to be resilient and adapt quickly to external changes when met with challenges so as to stay competitive and relevant to the rest of the world.

CONCLUSION

It is clear that while globalization promotes growth and brings economic benefits to countries which have embraced it, there are also drawbacks and problems. Countries more open to the free flow of trade, capital and labour inevitably face greater risk and uncertainties which might destabilize the economy.

If unresolved, these problems might threaten the very process of globalization itself, making it unsustainable. For example, countries might withdraw from free trade if they perceive themselves to be victims of unfair trade, or at the losing end.

Despite the downsides, the Singapore economy is similar to the economies of China and India, which have much to gain from globalisation. As a trade and resource-dependent economy, retreating from globalisation is simply not an option. The Singapore government has been introducing policies to build resiliency into the economy so we can better withstand external shocks. As a result, Singapore has been able to leverage on globalisation to increase the free flow of trade, capital and labour to spur and sustain economic growth as well as improve the living standards of its residents. These results can be seen in the robust economic growth and relatively high standard of living enjoyed by Singapore and other globalised economies in recent times.