Friday, March 23, 2012

Staying at the top in a global economy

Mar 23, 2012
Singapore recently emerged as Asia's most competitive city and the third-most competitive worldwide in a ranking of 120 cities. But for how long more can the city-state sustain its standing, even as it unfurls policies for its people that blunt its competitive edge, and with other young cities in the developing world snapping at its heels?
By Cheong Suk-Wai, Senior Correspondent & Phua Mei Pin, Senior Correspondent

THERE are two views on where Singapore is headed in global city rankings.

The first is that it is likely to slip, in the face of super-charged competition from emerging Asian cities.

The second is that it has a good chance to stay among the front runners, along with established players like New York and London.

One thing Singapore has going for it is that it never stands still, so observes New York City Mayor Michael Bloomberg on a visit here this week.

'Every time I visit it, it has new land, new buildings and new industries,' he says. Mr Bloomberg and his city officials are the winners of this year's Lee Kuan Yew World City Prize.

The prize was announced just a week after the Economist Intelligence Unit (EIU) released its ranking of 120 global cities, in which the Big Apple also emerged tops.

Singapore was not far behind, emerging third overall, just a spot behind London. Its final score was a mere 1.4 points behind New York's.

But going forward, two big questions hang over Singapore's prospects.

The first is whether its economic growth can keep pace with that of developing cities that are galloping along with growth rates in the double digits.

The second is whether it can improve its scores for the less tangible aspects of city living, which include cultural character and entrepreneurial verve.

The answers to those questions could influence the extent to which Singapore remains attractive to capital, business, talent and visitors - the prize catches that all cities worldwide are wooing.

The odds against Singapore

MR MANOJ Vohra, the EIU's director for Asia-Pacific, says Singapore's ranking might well have been lower if the survey had not been based on growth rates for 2010 - the year its economy grew by an astounding 15 per cent.

'Singapore got lucky with 15 per cent growth in 2010,' Mr Vohra says. 'If not for that, it would likely have dropped a couple of notches.'

The EIU's ranking is based on a Global City Competitiveness Index it developed. The index measures cities across eight distinct categories of competitiveness: economic strength, human capital, institutional effectiveness, financial maturity, global appeal, physical capital, social and cultural character, and environment and natural hazards.

The EIU, the business analysis offshoot of The Economist news magazine, gave the most weight to a city's gross domestic product (GDP) growth.

It accounts for 45 per cent of the score in the economic strength category, which in turn accounts for a third of the final score.

Mr Vohra believes 'the odds are against Singapore in the future'. The EIU's assessment is that developed cities like Singapore will enjoy modest growth yearly at best.

That is consistent with the Singapore Government's own forecast of GDP growth of 3 per cent to 5 per cent a year over the medium term.

Mr Sudhir Vadaketh, EIU's senior editor for Asia, notes that a 'middle tier' of mid-sized cities is emerging as a key driver of global growth.

The EIU survey found that the fastest overall growth came from cities with populations of two to five million. These include Abu Dhabi in the United Arab Emirates, Bandung and Surabaya in Indonesia, Pune in India, Hanoi in Vietnam, and three second-tier cities in China, namely Dalian, Hangzhou and Qingdao.

The EIU forecasts that these mid-tier cities will grow at 8.7 per cent a year overall, from 2010 to 2016. Double-digit growth rates are likely in many Chinese cities during this period.

Of course, the EIU index, though more comprehensive than most, is but one of several indices that have been drawn up to measure cities.

Singapore's own Centre for Liveable Cities (CLC) has its own index, for which Associate Professor Tan Khee Giap is the lead investigator.

The CLC's Global Liveable Cities Index uses five equally weighted measures: economic vibrancy and competitiveness; domestic security and stability; good governance and effective leadership; quality of life and diversity; and environmental friendliness and sustainability.

A more important difference is in approach. Prof Tan, an economist at the National University of Singapore's Lee Kuan Yew School of Public Policy, says his focus is not ranking per se but finding ways to help poorer performers improve.

As he puts it: 'Rankings are like beauty contests and I'm here to give the uglier contestants some make-up so they can improve enough to attract investors.'

Mr Khoo Teng Chye, the CLC's executive director, also stressed that while economic strength is important, what makes Singapore stand out is its 'balanced approach to development'.

'The physical environment (clean air, water, greenery) and quality of life (including quality of education, housing, transport, safety and security) play equally important roles in determining a city's competitiveness, and that has always been Singapore's comparative advantage,' Mr Khoo tells Insight via e-mail.

Beyond balanced development, Singapore has to grapple with how best to achieve balanced or inclusive growth. That is a huge challenge in a globalised world where a disproportionate share of the benefits of growth accrues to those who are skilled and rich, while wages of the low-skilled lag behind.

The stakes are far higher for a city like Singapore, which is also a country.

As Mr Vadaketh notes, many of the highest-ranking cities, including Hong Kong, London, New York and Singapore, have high levels of income inequality that could threaten social stability, and thus hurt different aspects of competitiveness.

'Singapore's situation is arguably more precarious because it is a city-state, and hence has no natural hinterland to which people can choose to move,' he says.

Singapore is now in the midst of limiting the inflow of foreign workers to its shores, a move aimed at alleviating pressures on its citizens but which could compromise its attractiveness in the eyes of some foreign investors and talent.

Dr Chua Hak Bin, director of global research at Bank of America Merrill Lynch, says these are trade-offs that need to be managed.

'Singapore has to balance the needs of those who can plug into a globalised world and those who can't. Those who can't, cannot go anywhere else because we have no hinterland, and yet they have to make a living,' he says.

It is Singapore's fate, as a small, resource-constrained city-state, to be always confronted with new challenges, be these economic, social or environmental, says Mr Khoo.

But he, for one, is confident that 'as long as we remain open to new ideas, to talent, to capital and continue to innovate our urban systems, we will be able to maintain our competitiveness and ranking' among cities.

Doing even better?

WITH emerging cities snapping at its heels, Singapore cannot afford to stand still.

In the EIU survey, Singapore did extremely well in six of the eight categories of competitiveness.

The six were economic strength, institutional effectiveness, financial maturity, global appeal, physical capital, and environment and natural hazards.

The two categories it fared least well in were human capital and social and cultural character.

In the human capital category, Singapore excelled when it came to the quality of its education and health-care systems, but fell flat on population growth and fostering an entrepreneurial and risk-taking mindset.

Overall, Singapore ranked No. 36 for human capital, behind even Chile's capital, Santiago.

The rub is, Singapore has been working on improving itself in these areas for years, with no solution in sight.

One worrying possibility is that Singapore has picked the low-hanging fruit in its push to be a leading global city.

If it wants to move further up the rankings, it needs to find new ways to tackle problems that it has so far found intractable.

With Singapore's total fertility rate now among the lowest in the world, the Government has population as a top item on its agenda this year.

The challenge is both to find ways to encourage its citizens to have more children, and to spur acceptance of significant inflows of new arrivals to top up the local population.

These are issues that the Government plans to deal with in its White Paper on a sustainable population strategy, which is likely to be debated in Parliament and could form the basis for legislation.

As for entrepreneurial verve, it is not yet part of the Singapore DNA but hopefully can be cultivated over time.

Professor Gerhard Schmitt is the director of the research laboratory at the Singapore-ETH Centre for Global Environmental Sustainability.

He is a professor at ETH, a Swiss science and technology university with an outstanding research record.

When it launched a technopark 10 years ago to encourage risk-taking, its students were risk-averse and would launch only two to four spin-off businesses a year, Prof Schmitt recalls.

Now, they launch two to four such spin-offs a month.

'Singapore is wonderfully wired as well as wireless so it's in a good position to make such an impact,' he says.

The category that Singapore fared least well in was social and cultural character, in which it ranked 42nd.

The category encompasses a wide range of indicators, from freedom of expression, human rights and ethnic diversity to quality of restaurants and the presence of international book fairs. But the category counts for just 5 per cent of the final competitiveness score for cities, since the EIU itself acknowledges that these factors probably matter less to investors than business opportunities.

Unsurprisingly, Singapore's weak link is freedom of expression and human rights. Any improvement on this score is likely to be gradual as it concerns social and political norms which evolve over time.

Still, Mr Vadaketh points out that 'there are ancillary benefits to the economy of having more freedom of expression'.

'It could foster more entrepreneurship and a risk-taking mindset,' he says.

Looking ahead

SINGAPORE'S ambition is not just to remain a leading global city but to position itself as a thought leader in the field.

That is why it set up the Centre for Liveable Cities and launched the biennial World Cities Summit. The latter is a platform for debate and exchange of solutions on the challenges cities face.

Observing that today, many cities are grappling with a resource crunch that Singapore has had to tackle from Day 1 of its existence, Mr Khoo, the CLC chief, says: 'Singapore has developed a high-density and high-liveability model that is resource-efficient and supports sustained economic growth.'

Mayors of many cities are keen to learn from its experience, he adds.

Perhaps this push to be a hub for the best ideas and best practices in city leadership and management will be a factor in helping Singapore stay at the top of its game.

As for Mayor Bloomberg who led New York City to the No. 1 spot this year, he too gives his vote of confidence to Singapore.

'It's always had a desire to win, to change with the times, to be open,' he says.

As for competition from established players and emerging rivals, that is par for the course.

'Singapore will have to fight every single day with them and that's good,' says Mr Bloomberg.

'Competition is Singapore's ray of hope, which keeps it going.'

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