One Man's View of the World

by Lee Kuan Yew

Therefore, Brahmins tend to marry only Brahmins, Vaishyas only Vaishyas, Dalits only Dalits, and so on. The Brahmins, who are associated with the priesthood, are – as individuals – as bright as anybody in the world. Many among them are multilingual. So what effect does the caste system have on India? What I am about to propose is not popular, but I believe it to be true. At the macro level, the caste system freezes the genetic pool within each caste. Over many years, this has had an isolating impact on the overall intelligence of the people.

A Brahmin, on the other hand, cannot marry a non-Brahmin without falling down the social ladder. If the caste system did not exist, the Brahmins would have spread their genes and there would be many more half-Brahmins around India.

Supposing your society suddenly came up with a new rule that said university graduates cannot marry non-graduates without automatically losing social status, where would your society end up?

Infrastructure is another important area where India’s disadvantage is obvious. The country has developed a reputation for being inconvenient for investors because it does not have a solid infrastructure in place for doing business: container ports, railways, airports, communications and liveable cities. Many Japanese investors in China who want to diversify their bets have gone to India in the hope of setting up a plant or a mine, only to be surprised by the poor state of the infrastructure.

How do you move the goods in? How do you get the products out? The length of China’s expressways grew from less than 100 km in 1988 to 74,000 km in 2010, second in the world only to the United States.

By comparison, India has only 700 km. The Indian government now wants to spend US$1 trillion on infrastructure over the next five years. But who will build it? If it is going to be built by Indians, it will take a very long time. It will be much more realistic to franchise ...

The British kept us as a separate colony after the war and we fought for a merger. The leaders of Malaya did not want us initially because the large number of Chinese in Singapore would have upset the overall racial mix.

There are issues other than race on which Singapore and Malaysia differ, but over the years we have learned to live and let live. We accept that we are different. When we separated from Malaysia in 1965, English was the language common to both countries. Some years after that, Malaysia decided to drop English and teach all subjects in Malay, making it the working language.

The second big conundrum for Indonesia is infrastructure. When you have 17,500 islands, the ability to connect these islands becomes vital to economic development, since major population centres need to be brought together in order for growth in one region to feed off that in another.

The Sunda Strait Bridge, which would be the country’s longest bridge and would connect Sumatra and Java, Indonesia’s two most important islands, has been talked about for years. If built, this bridge would turn the two islands into one big island, generating much economic potential. Unfortunately, words have not been translated into action.

In Britain, if you look at the First Class Honours list of Oxford or Cambridge and trace their careers, you will find that these people end up not in politics, but in banking, finance and the professions.

The frontbenchers in Parliament are often not from the top tier. They are not drawn from the best lawyers or surgeons. The same forces are at play in America. The chief executive of a Fortune 500 company has a much better life, and the post would naturally attract more able candidates than those vying to become the president of the United States. But the difference between Singapore and those countries – that is, America and Britain – is that they will continue to do well despite an average government, but we will not. This is a small country with no natural resources and in the middle of a region that has been volatile historically. Special leadership is required here.

If I were in charge of Singapore today, I would introduce a baby bonus equal to two years’ worth of the average Singaporean’s salary. The sum would be enough to see the child through to the start of primary school at least. Would I expect the number of babies to increase substantially?

Once women are educated and have equal job opportunities, they no longer see their primary role as bearing children or taking care of the household. They want to be able to pursue their careers fully just as men have always been able to. They want more leisure time. They want to travel and to see the world, without being burdened by children. They have very different expectations about whether or whom they should marry because they are financially independent. There is no turning back the clock, unless we want to stop educating women, which makes no sense.

In many Western countries, a culture has emerged that tolerates not just cohabitation but also the raising of children outside of wedlock. This has ameliorated the fertility problem for them, creating space for more babies. Unmarried mothers suffer much less stigma than they do in Asia. Indeed, some of these societies provide extra help for single mothers, effectively, if somewhat inadvertently, incentivising the decision to not get married.

First, they have to come at a pace that is politically digestible or there will be a significant backlash from the population, which would be counterproductive. As a society, we need to come to a consensus about what this level would be. For now, we are probably comfortable with about 15,000 to 25,000 migrants a year. Below this range, it is mathematically impossible to prevent the population from shrinking at current fertility levels.

Each generation of immigrants, therefore, represents not a permanent fix to the underlying problem, but temporary relief. A never-ending stream of immigrants is required. What we really need in order to change the game is therefore a willingness to consider a different lifestyle and to have more babies.

But even as we recognise these limits to immigration, we must understand that there are no alternatives in the short term. We must remain open to the diversity that newcomers bring to our shores. If harnessed effectively, diversity within our schools and workplaces can broaden perspectives and facilitate the constructive exchange of ideas.

Q: Our tax rate is now very low compared to many other developed countries. Is there scope for moving it up? A: If you raise it too much, you find your best people leaving. Already, we are losing them. Many of our best students go to America, they are headhunted by the big companies and don’t come back. The people who are middle-aged and beyond will stay. They have no choice. Those who are still flexible, below middle-aged, will leave in larger numbers. And without top-quality Singaporeans, this place would not be the same. Without my generation, there would be no such present Singapore. It’s Goh Keng Swee, S. Rajaratnam, Lim Kim San who helped build this place. In today’s world, they would probably go to America and get a job with Microsoft and not come back.

Q: As we become more of a knowledge economy, is it possible that we will increasingly subsist on ideas and genuinely innovative game-changers like Twitter and Facebook? A: No. How often can we produce a Bill Gates? We are 3 million Singaporeans. The Chinese are 1.3 billion and yet they are not as innovative as the Americans. India too. Why? America had high quality people migrating there beginning with the Pilgrim Fathers, then followed by other people at the top end.

The ability is missing simply because they have insisted on keeping women in the background. Arabic society in general is male-dominated. They have refused to allow women to be educated equally and to become as productive as men in society – precisely what is needed for the potential of these countries to be unlocked and for their economies to become modernised. They have resisted this, always finding some excuse or other. The problem is passed on from one generation to the next since less-educated women tend to bring up less-educated children, as mothers spend much more time with their children than fathers do. A generation of well-educated mothers, by contrast, is bound to nurture a generation of young people with different attitudes and worldviews.

You cannot change a feudal system with just a few bright and educated young men and women. You are dealing with a priesthood, the Wahhabis, the most powerful and most conservative group of clerics in the Arab world. Their power is entrenched by the symbiotic understanding they have with the royal family: the latter gets to deal with the fortunes of the country while the former is almost assured free rein over all religious matters.

The real challenge for the countries of this region is how they can make themselves relevant to the world when their finite energy resources run out. They need to transform oil-rich economies into economies that can sustain themselves in the long term, and they have to do this in a matter of decades.

Some years back, a Middle East country sent some of its students to study in Singapore, thinking that these students, coming from a new generation, could be changed. That did not happen. They were not here to absorb our culture or our work ethic. They were gallivanting. Singapore was a strange place to them. They thought to themselves, “Let’s have a good time and then go back.” Why should you work when you have such immense wealth lying right beneath your feet?

The Israeli-Palestinian conflict is the biggest problem plaguing the Middle East. It is a running sore that is oozing pus all the time. To end the conflict, there has to be a two-state solution – one state for the Israelis and another for the Palestinians. The Palestinian state must also be economically and politically viable. Its people must feel that they have a reasonable chance of making a success out of their country – only then will they have a vested interest in keeping the peace in this troubled region.

Because of the pro-Israel policy the Jewish lobby has succeeded in forging for America, a hard-line stance is allowed to prevail in the Israel leadership. This can have adverse and irreversible effects on the peace process. By building settlements in the occupied territories, for example, Israel is slowly but surely annexing land that presumably would be handed over to the Palestinians in any potential deal between the two sides.

Iran’s ambitions stem at least in part from how it views itself – as a civilisation in its own right, quite separate from the Arab world. Iranians are very proud of their history. I was struck by an answer that an Iranian minister gave to a question put to him on a BBC programme some years back. He said: “There are really only two civilisations in Asia worth talking about – China and Persia.” That is reflective of how Iranians think. They hanker after their glorious years of empire.

Q: But there is another view – that an Iran with a bomb might actually be safer, more predictable to deal with, than an Iran without the bomb, and that if Iran crosses the nuclear threshold, it may not be such a bad thing for the region. What do you say to that? A: That is a comforting theory. But I would say the Iranians may not be in the same mindset as the Americans and the Russians. There, they make the calculation: I hit you, you hit me, I hit again, and you hit again. First strike, second strike, third strike, we are both wiped out and so is a large part of Europe. Have you got that kind of cool-headed thought processes between Israel, Iran and Egypt? That is the basic question. We are talking about a system that produces suicide bombers who say, “Yes, I want to die and I want more of you to die.” I think anything can happen.

The capitalist system is not fundamentally defective. Despite the growing rhetoric in some quarters, it does not need to be overturned or rebuilt.

Our experience during the global financial crisis of 2008 was not a substantial deviation from our earlier understanding of the free market. There was a build-up of imbalances in the sub-prime mortgage market. America suffered a setback, sending shockwaves through Europe and Asia, because of the interconnectedness of the global economy. But America has bounced back, and the world economy has recovered along with it. The crisis has exposed underlying problems in Europe, which will take longer to recover. Those problems are related to the continent’s currency union and social spending and have nothing to do with capitalism. In the long run, the world is better off and will grow much more quickly under capitalism because the free market is the most efficient way of organising the productive forces in any society, as history has clearly proven.

That is not to say that the government has no role to play whatsoever. From time to time, human greed gets the better of corporate bosses, prompting them to skew the system in their favour. The challenge for governments is in identifying instances of that happening and taking decisive action against it. Its role is to level the playing field as much as possible so that free competition is also fair competition. The scandal surrounding the fixing of the London Interbank Offered Rate, better known as Libor, is one relatively recent example. It involved attempts by banks to manipulate interest rates, compromising the integrity of the banking system to the detriment of other market participants. The chairman and chief executive of Barclays Bank were forced to resign, and the bank was fined hundreds of millions of dollars in America and Britain. This case demonstrates clearly that governments and regulatory authorities cannot afford to let their guard down or to assume that corporate executives will behave ethically when nobody is looking and when huge profits are at stake.

When it comes to stabilising the economic system as a whole, however, government intervention can be both desirable and feasible. The Americans tried to stave off recessionary pressures by pumping liquidity into their economy – essentially, printing dollars. A looser monetary policy has been the standard way to fight downturns, although more non-conventional approaches are used this time, and the size of the latest American monetary infusion has been large by historical standards. Not everyone, however, favours this approach. Critics who subscribe to the views of the Austrian economist Friedrich Hayek believe such policies prevent fat in the economy from being trimmed, prolongs the life of inept companies and industries, and ultimately do nothing more than kick the can down the road. Natural adjustments to the economy must come eventually, they say, and blocking that through quantitative easing at best prolongs the necessary adjustment process and at worst builds inefficiencies into the system that will ultimately result in long-term sluggishness, if not a bigger recession later on.

I believe having supportive policies, monetary or Keynesian, to deal with crises is the lesser of two evils. Many countries tried the Hayekian approach of basically doing nothing during the Great Depression – with disastrous consequences.

The US is able to carry out quantitative easing because its dollar happens to be the world’s reserve currency. They are allowed to run a deficit for a long time with very few consequences. If other countries were to do that, they run the risk of capital outflow and exchange rate collapse. The cost is low to the Americans because some of what it would have cost a regular country has been transferred to the rest of the world. The Americans can borrow at more favourable interest rates because of a greater willingness by people elsewhere to hold cash reserves and assets in US dollars. That is the advantage of being the reserve currency.

The British used to enjoy the same benefits because the pound was once the currency with which international trade was settled. They have lost that status. Perhaps the Americans will one day lose the status too. I find that difficult to imagine, but it is possible. For now, there is no alternative to the US dollar as the world’s reserve currency. The euro is still in peril and the Chinese yuan is not ready.

For now, the bigger short-term threat to the health of the global economy is a clampdown on free trade. We will always be just one protectionist wave away from a slowdown. We must never forget that the Great Depression of the 1930s was worsened by the isolationist tendencies among several countries. If America’s politicians, for example, decide, perhaps out of electoral calculations, to impose a prohibitive tax on the Chinese for selling their goods under cost price, there will be some form of retaliation. Once you go down that route, it would not be long before other trading partners, including Europe and Japan, find themselves pulled into the conflict and having to consider similar measures. Then the whole trade system goes down by several degrees. The world will end up poorer overall. In many cases, it is the poor countries that will be hardest hit. Starting from lower bases, they stand to gain a lot more from trade, proportionally.

Free trade agreements are the way forward. As long as countries can come to agreement, these deals invariably benefit all signatories.

Would it be accurate to say that you accept what happened during the global financial crisis as part and parcel of the way the capitalist system works? A: It is part and parcel of the way the American capitalist system works. The European capitalist system works differently because they have got their social economy – more social security and therefore less dynamism all around. The British have free healthcare. The best of them are the Germans, but even they have a lot of weight to carry in health and unemployment benefits and so on. I do not think the Europeans are as competitive as the Americans. So the system goes to excess, something goes wrong, and then it recovers. The alternative is that it does not go to excess, but it lacks that competitive edge.

Q: But there are economists now who are asking questions about the capitalist set-up as a whole. It appears to some that business cycles are shortening and recessions are deepening, pointing to the possibility that the system is in need of fundamental reform. The American economy did not fully recover for five years after 2007 – making it one of the longest downturns in recent times. A: I am not able to say what the American system should do. But I do not believe the majority of Americans would support the kind of welfare state the British have. That is the alternative. You are unsuccessful. I give you homes, I give you free medical services, you pay very few fees to go to university. That has not produced scintillating results for the British. But they cannot get out of it now.

Q: There is a concern here that hot money flowing into properties might price Singaporeans out of the market. A: We either have our borders open or we close them. Who is to say the properties bought by foreigners are overpriced or underpriced in five to 10 years? We leave it to the market to decide. They invest believing that it is a safe haven, but there are risks. If something happens, the value goes down. Properties are not liquid. You cannot cash in and cash out in an instant. Money in banks is liquid. You can tap the computer key and say: “Transfer my money into pounds or euro.” But you cannot do that with property. In any case, we have made rules so landed properties are not open to purchases by non-citizens, without prior approval. We have also imposed a higher rate of Additional Buyers’ Stamp Duty for purchases by non-citizens.

Q: It used to be argued that property prices should not be allowed to run too far ahead of salary increases, otherwise your average worker would not be able to afford those properties. That is true if the market consists primarily of the domestic population. But when you open up the property market to foreigners, you are delinking property prices from wages, with the former possibly going up a lot more than the latter. Is there not danger when that happens? A: But Singaporeans have also made great gains from their properties. If they believe their property is overpriced and that prices will eventually go down, the option of cashing out is available to them. You can sell your house, rent in the interim and wait for prices to fall. If you believe prices are going to stay up, then you hold on to it. It is ultimately a question of confidence in a particular country or in the political system that it is run on.

The centre of gravity of the world economy has shifted decisively from the Atlantic Ocean to the Pacific Ocean. The latter is today the arena of the greatest trade network in the world. It wasn’t such a long time ago when Adolf Hitler’s Germany was the dominant world power, both politically and in industrial terms. But they were defeated in war and the Americans became pre-eminent for many decades. In 30 years’ time, the biggest economy will probably be China. Europe combined may be second, but Europe uncombined will be 27 economies which cannot control their own destinies. By then, China and America will be the economic powerhouses whose decisions will matter most. They will be closely watched for the ripples they are likely to cause far and wide.

With the technological advances, everybody today knows how everybody else lives. The poorest in Asia and Africa are keenly aware of just how poor they are compared to the Americans, Europeans as well as well-to-do Asians and Africans. This has encouraged legal and illegal migrants to try to cross national boundaries to get better jobs and living conditions in the countries that are wealthier and offer them more economic opportunities.

Another downside of globalisation is the tendency for inequality to breed. The most talented individuals are mobile and can make a good living in many parts of the world. The drive to pay these individuals very high salaries therefore becomes impossible for companies to resist if they want to retain them. Conversely, those working in low-skill, poor-paying jobs find themselves competing with hordes of hungry workers in China, India and other emerging economies, often willing to work at a fraction of their pay. Wages in this segment of the economy naturally become depressed. Some even fall out of their jobs because of outsourcing. These forces pose very serious challenges to national governments.

While tackling inequality is important, there has to first be a recognition that some inequality is always going to be an inevitable part of globalised capitalism. There will be disparities, partly because there are disparities in human intellect, in effort, and in pure luck, and partly because of the cross-border nature of competition today.

At the same time, society has to maintain a sense of proportion. Pure, unbridled capitalism is dangerous because it would lead to riots and a breakdown in the social compact. A fine balance has to be treaded. Ways must be found to make sure even those at the bottom can maintain a decent standard of living and feel a sense of belonging to their community.

I am persuaded that the earth is gradually warming up because of human activity. This appears to be the broad consensus among the scientists who have studied the problem.

But on balance, I believe there is strong evidence to suggest that there is nothing “normal” about what we are experiencing today. The heating up is happening far too rapidly. Ice caps are melting away before our very eyes. The Northwest Passage along the coastline of Canada, Alaska and Russia, previously blocked by ice, is now being opened up for sea travel during the summer months. This has never happened before.

Global warming and climate change threaten human survival. This calls for governments to act together to cut total emissions significantly. Unfortunately, it is very unlikely that this will happen. In 2009, the United Nations Climate Change Conference in Copenhagen ended without a binding agreement, despite the gathering of the leaders of all the important players. Subsequent conferences have not achieved spectacular results, nor would I hold my breath for future ones to do so.

At the heart of the issue is the perceived unavoidable trade-off between cutting emissions and growing the economy. When a government comes to the negotiating table, it knows it cannot move too far ahead of its domestic population when it makes concessions. If the pain inflicted on i...