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When statehood was thrust upon Singapore in 1965, the primary challenge for the newly independent city-state was economic survival. Its leaders also knew very well that a sound economic footing was the foundation of a viable nation. However, it was obvious that Singapore was greatly handicapped by its small population and hence small domestic market. Moreover, it does not have natural resources and a hinterland. The major asset of the new Republic was its strategic position. As the major port between the Indian and Pacific Oceans and situated next to the Straits of Malacca, Singapore had developed itself into a respectable entrepot. Apparently, the leaders of Singapore were not satisfied with the traditional role of a middleman in the regional economy. To build a nation, Singapore adopted an export-oriented industrialization strategy. The policy option chosen was to plug the nation into the global economic system. Its globalization strategy was guided basically by two features: the promotion of foreign investments in Singapore and the continuation of a free trade policy that would enable liberal import and export of goods and services.
As the local businessmen were not really equipped to launch the strategy, the state, and not the private sector, was to take an active part in the promotion of Singapore as a place for export production. Notably, in the case of investment promotion, the Economic Development Board (EDB), set up in 1961 by the government, assumed a greatly enhanced role in helping Singapore's industrialization drive to transform the city-state from a trading nation to a modern, diversified economy. To promote Singapore as an investment target, the EDB set up offices in mostly industrialized countries to attract Multinational Corporations (MNCs) to the Republic of Singapore. The EDB offices would brief potential investors about Singapore's investment incentives. Once a corporation had made the decision to invest in Singapore, EDB would help it to set up the enterprise in the city-state. In this way, the functions performed by the EDB included not only overseas promotion, but also developing the industrial infrastructure, training manpower, providing loans, and acting as a one-stop service center for the MNCs. Some of the functions were later taken over by other government agencies like the Jurong Town Corporation (JTC), the principal developer and manager of industrial estates in Singapore. Other facilities like the opening of the Development Bank of Singapore (DBS) to provide finance for industrial ventures and the Neptune Orient Lines (NOL) to ensure reasonable transport changes also helped boost Singapore as an investment destination for MNCs. More agencies, like the Singapore Trade Development Board (TDB), were also created to develop and expand the city-state's international trade.
Apparently, the immediate objective in the early years of Singapore's globalization strategy was job creation in the light of a high unemployment rate of nearly 9 percent. Naturally, labor intensive industries were encouraged and the MNCs came to Singapore in the 1960s and early 1970s because the city-state could provide a low-cost base for their labour-intensive operations. This strategy worked as demonstrated by the fact that unemployment was basically resolved by the early 1970s. In fact, some industries began to encounter labour shortages leading subsequently to the reliance on foreign labour.
In retrospect, the fear of unemployment probably had caused Singapore to rely too much on low-wage labour-intensive industries for quite some time. As a result, real productivity was low when compared with other newly industrializing economies (NIEs). It was obvious that one of the basic problems of Singapore's development was how to increase productivity so as to increase the competitiveness of Singapore products. This was especially true at the time of the rise of protectionism and faltering of the world and regional economy after the oil crises in the 1970s. Moreover, it was clear that countries with a large pool of labour, like China, India, Indonesia and Malaysia would have an edge over Singapore in the labour-intensive industries. As a result, Singapore began to encourage MNCs and local companies to use more capital-intensive modes of operation and to …