Singapore: safe haven, model society Such comparisons with the old world may not be entirely fair, for unlike most countries, Singapore is a densely populated city unencumbered by relatively low income or outlying regions. Against other cosmopolitan cities such as London, New York, or even Shanghai, the comparison isn't quite so flattering. None the less, the achievement in breaking free first from poverty - and then from what economists sometimes call "the middle income trap" - to become something close to an advanced economy, is undeniable. So why has this eminently successful little country embarked on a process of all-embracing and critical self- examination; one, moreover, that has revealed quite high levels of dissatisfaction with the way things have been going. Under the strict, disciplinarian rule of Lee Kuan Yew, Singapore was known as something of a right-wing dictatorship, albeit of a fairly benign variety, with a nod to Westminster-style democracy tacked on. Yet the first thing to appreciate about this island nation is that it defies traditional Right/Left labels. In some respects, Singapore is free- market liberalism in its most classic form. In others, it is almost socialist in its outlook. Members of the ruling People's Action Party are still known to call each other "comrade," in private at least. Social harmony and equality of opportunity are pursued as vigorously as enterprise and economic advancement in this ethnically and religiously diverse country. Social cohesion is ruthlessly enforced. The deputy prime minister, Tharman Shanmugaratnam, calls this mix of liberalism and interventionism a "paradox." In some European economies, he points out, "the social market economy has come to mean just state dependency." Yet Singapore believes there to be "an important space between the individualism of the free-market model and European- style welfare." Tharman characterises this approach as "active government support for self -reliance" - a paradox indeed. This mindset instructs all government thinking as Singapore debates how best to make the final leap from developing- to advanced-economy status. The government is determined not to repeat the mistakes of maturer, Western economies. "No one predicted the way culture can change in response to incentives," says Tharman. Societies that were well known for being industrious [have been undermined by welfare, which has] eroded the incentives for work. In deciding on a more generous social safety net, Singapore therefore intends to avoid universal entitlements, and instead focus on targeted health care and pension assistance, especially for disadvantaged, elderly groups. Singapore is, in most respects, a textbook example of an open, small- state, free-market economy. Low taxes, rule of law, respect for intellectual property rights, intolerance of corruption and a policy mindset to facilitate business and finance, rather than hinder them - all these things have been key to Singapore's success, attracting unparalleled levels of inward investment and encouraging the development of some truly world-class industries. Yet with success have come some very familiar problems, in particular, growing social inequality and immigration. This has resulted in erosion of support for the ruling party, and a record number of opposition MPs, albeit with no chance or immediate intention of forming an alternative government. The government has responded to these pressures with a national "conversation," or consultation, recently published. As a result, some quite uncharacteristic shifts in social policy are proposed, which Tharman concedes will, over time, lead to a higher tax burden. It is also pretty much conceded that the days of double-digit growth are over. "We are doing this with our eyes open, and we are absolutely committed to making changes that are sustainable," says Tharman. Again, he draws uncomfortable comparisons with the West, where unaffordable welfare promises place a potentially intolerable burden on future generations. "A key lesson for the democratic Left in advanced countries is that they have built up commitments that were debt-financed when populations were young and growing," Tharman observes. Whereas we used our rapid- growth years to build up reserves and savings. We played the demographic and growth curves when we were young and rapidly growing, and we built up reserves. Welfare entitlements have given a very unfair deal for the children and grandchildren of the beneficiaries. The cutbacks in spending [you are seeing in advanced economies] as a result of having to service debts are being felt by the young - in education, and so on. This shift towards a more generous social safety net may or may not be an affordable and controllable exercise for Singapore. Remember, the British welfare state was solidly grounded in the contributory principle when it started. Yet it is perhaps worth dwelling a little on the political pressures that cause societies to tweak their free-market, self-reliant models once they reach a certain stage of economic development. In Singapore's case, it is a combination of an old complaint, growing levels of social inequality, and a relatively new one: very high levels of immigration. As elsewhere, the two issues tend to get conflated. Migrant labour has helped to drive economic success - roughly a third of Singapore's workforce is foreign - but it is also perceived to have contributed greatly to social inequality. As a relatively safe and hospitable gateway to Asia's fast-growing markets, Singapore has been a magnet for high-earning American and European financiers and executives. This has put upward pressure on housing, health care and other living costs. At the unskilled end, immigration has put downward pressure on wages and an overloaded infrastructure. Perhaps surprisingly for a society that has always prided itself on its multi-ethnic characteristics, combining as it does Indian, Chinese, Malayan, and European influences, these pressures are causing as much resentment as they do in the West. This is particularly evident in housing, where Singapore's admired system of public provision and private ownership is showing signs of fracture, with rising prices and constrained supply. The response has been double-pronged: proposed spending to reduce social deprivation and a big increase in the levy on employers for hiring low- to middle-income foreign labour. Higher-skilled foreign workers, judged vital to competitiveness, are untouched. These policies, the government hopes, will deter use of low-paid immigrant labour and spur investment in productivity, which in industries such as construction and retail is quite poor by international standards. This all sounds very sensible. Whether it will actually work is a different question. Asia is slowing across the board as its surplus economies seek to rebalance away from exhausted, Western export markets towards sustainable internal demand. On top of these structural changes comes a renewed outbreak of Asian currency jitters, caused by capital flight from deficit economies as the US Federal Reserve cuts back on money printing. This has rekindled memories of the Asian crisis of the late Nineties. For the time being, Singapore is comparatively unaffected, and certainly most Singapore-based financiers and government officials seem relatively relaxed. They do not, on the whole, see it as a rerun of the Nineties. And even if that's how it turns out, Singapore seems fairly well insulated against the storm, with buoyant foreign-exchange reserves and, at nearly 20pc of GDP, a current-account surplus to die for. None the less, the recent turmoil is quite widely regarded as an important wake-up call. Countries that stalled on reform during the years of plentiful money, allowing deficits to grow and failing to address problems, find themselves punished for their inaction. There's no shortage of movement in Singapore's giant container port, but recent data have shown an easing-off in traffic. Withdrawal from quantitative easing, flatness in Europe and slowdown in China all point to a slow-growth world for some time to come. Yet as Sir Stamford realised all those years ago when this distant trading post was first established, there are few places better positioned to weather the vicissitudes of the world economy than Singapore.