Former Prime Minister and Founding Father of Singapore Lee Kuan Yew, we can all agree, was an intelligent, well-read man who saw Singapore through its turbulent years. It would be interesting to explore some of his intellectual influences and whether they hold any relevance for us today.
Significantly, Lee was a strong supporter of the Nobel-prize winning, classical liberal political economist Friedrich Hayek. He had read Hayek’s famous book Road to Serfdom and declared:
I believe Hayek was a very clear thinker and that he hit upon the eternal truth, explaining that the free market is necessary to get the economy right.
This is an important statement, for it partly explains why Lee Kuan Yew abandoned the socialist principles he had earlier favoured. His pragmatism enabled him to realise that without a free market economy, the young fledgling nation of Singapore simply could not survive. Socialism may sound nice on paper, but it simply cannot work in reality.
Of course, Singapore has never been a pure laissez-faire economy (as no economy has), and significant forms of state intervention have persisted over the years. The point here is that relatively speaking, Singapore has had one of the freest economies in the world. The Singapore economy can be more accurately described as a mixed economy whereby the government formulates a national plan, after which market forces are allowed to operate within these pre-defined limits. This judicious mix of government planning and market forces is best articulated by Mr Goh Keng Swee, the other economic architect of Singapore credited for its prosperity:
The government has to be the planner and the mobilizer of economic effort, but the free enterprise system, correctly nurtured and adroitly handled, can serve as a powerful and versatile instrument of economic growth.
Thus, Lee’s Hayekian influences never translated into a genuine market economy, where the government was limited only to the protection of private property, enforcement of contracts and the rule of law. The Singapore government has had participated heavily in industrial policies, investments into key industries, and maintained numerous government-linked entities.
Additionally, we see in recent years that Singapore politics has moved towards the Left. The People’s Action Party, which had traditionally eschewed social welfare policies, has slightly relented on this front: witness Pioneer Generation programs for example. There is also a general sense amongst Singaporeans that economic growth has come at the expense of income equality and social fairness. Not surprisingly, we have heard calls for the institution of the minimum wage, higher social spending and a new focus to combat the income gap.
What does social justice really mean?
These “social justice” style policies however, were condemned by Hayek, for good reason. Hayek had insisted that the term “social justice” was nothing but a mirage, a meaningless term that cannot apply in a market system, where the distribution of incomes was a product of impersonal forces. The market cannot be “unjust” if there was no one deliberately shaping outcomes. The fact that Justin Bieber is a multi-millionaire is not the deliberate outcome of a single mind, but the result of millions of voluntary exchanges that rewarded his musical services.
This scepticism of social justice was accompanied by Hayek’s criticism of what he called the “fatal conceit”, which was an arrogant belief amongst government officials that they could foresee how the economy would evolve, and their inflated confidence in creating positive outcomes. Adam Smith captured this insight in Theory of Moral Sentiments, worth producing in full here:
The man of system, on the contrary, is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably, and the society must be at all times in the highest degree of disorder.
Central planners, no matter how benevolent, would lack the necessary knowledge required to plan the economy, which was a highly complex system, a mosaic of millions of individual plans that could not be manipulated from above.
Lee Kuan Yew had expressed support for this line of reasoning, as quoted in the book “East Asian Challenge for Democracy” by Daniel Bell:
Friedrich Hayek’s book The Fatal Conceit: Errors of Socialism expressed with clarity and authority what I had long felt but was unable to express, namely the unwisdom of powerful intellects, including Albert Einstein, when they believed that a powerful brain can devise a better system and bring about more “social justice” than what historical evolution, or economic Darwinism, has been able to work out over the centuries.
What Hayek was pointing to, which Lee embraced, was the notion that the market system comprises a social intelligence greater than the sum of its parts. The market is an evolutionary process driven by private entrepreneurs who experiment with different ideas. Over time, the market discovers new products and services, better production processes, and enriches the lives of ordinary people.
This collective brain of the market would be hampered if government engaged in central economic planning, where they would essentially substitute the social intelligence of the market with their limited, myopic viewpoint.
Perhaps this economic lesson from Hayek helps to illuminate the ongoing economic challenges that Singapore is experiencing today. Today, one key economic initiative is the Industry Transformation Maps (ITMs), a comprehensive, centrally-directed plan to restructure the economy in 23 sectors and support key emerging industries. This is part of a general effort to prepare the Singapore economy for the future of disruption and innovation.
A question F. A. Hayek would ask would be: how does the government possess the necessary information to identify such emerging industries of the future? To identify the future skills and knowledge areas that companies should invest in? To identify the areas of the economy that disruption will most affect? Hayek would conclude on a sceptical note. Knowing Lee Kuan Yew’s Hayekian influences, and his pragmatic, penetrating mind, he most probably would agree.
If you’re interested to find out more about Hayek’s unique conception of the market as a process of discovery, watch this: