Introduction
This essay will introduce the reader as to how the political capacity impacts economic and political performance. It has been argued that the relation between political capacity, domestic conflict, and patterns of socioeconomic and demographic change that are instrumental in the process of political development. Change is an inevitable part of life. It is amply known by one and all that if they want to grow and develop, they will have to learn to change, adapt and upgrade. For any change to occur, there needs to be a stimulating factor that is powerful enough to bring about a revolution in the way people live. Globalisation is one such factor which has helped many economies gow.
However, if it is globalisation that has brought about the change, or if it is the other way round, is debatable. The result of this phenomenon is that the world has come closer and the way humans think, function and do business is not the same as it was, say about 10 years ago.
The effects of globalisation can be seen in our day-to-day lives. You might live in Singapore but wake up every morning to a British news channel, sip on an American brand of coffee, wear a Swiss watch, drive a German car to work, and have Italian food for lunch. These are effects on a micro level but there has been an impact on a macro level, too. Globalisation touches all aspects of a nation, be it economic, political, or sociocultural. In this post, we look at some of the macro-level effects of globalisation on the development of Singapore.
All government has major internal macroeconomic goals to be fulfilled by their policies and these goals include growth, efficiency, stability and equity. The goals are often interrelated, sometimes interdependent. Unfortunately, the policy tools used to attain each of the goals may be at conflict with each other and attaining a particular goal may result in undesirable trade-off in the other aspects. Governments are to be able to balance these different goals through a combination of different macroeconomic policy tools. In today’s globalized world, many governments have decided to focus on economic growth as the central objective of macroeconomic policy in a bid to compete in the global arena and emerge as developed, modernized states. The various pros and cons have made economic growth a double-edged sword for policymakers but nonetheless, the pursuit of progress offers a solution to many of today’s problems and thus it is sensible for economic growth to be the central objective of government macroeconomic policy.
Government Policies to Achieve Economic Growth
Globalisation has helped Singapore attain actual economic growth through increased international trade. Actual growth means an actual increase in real Gross Domestic Product (GDP), a shift in Aggregate Demand (AD) to the right. An increase in net exports (X-M) to the rest of the world raises AD, which in turn leads to a more than proportionate increase in GDP via the multiplier effect. Singapore has relied heavily on exports for economic growth. In fact, net exports make up the largest component of Singapore’s GDP. Increasing actual growth also helps Singapore achieve full employment, or alternatively low unemployment.
These cover:
Encourage population growth
Import of foreign labour
Mobilising of working age population not in the labour force
Encourage domestic saving
Attract foreign direct investments (FDI)
Encourage Research and Development (R&D) and technological change
Improve the quality of education and continuous training
Promote international trade such as the signing of Free Trade Agreements (FTA)
Population Growth
Birth rates have been going down in developed countries since the crippling 2008 financial crisis, placing brakes on global growth. Births are falling in Singapore, China, Japan, the United States, Germany, Italy and nearly all other European countries. Studies have shown that births drop when financial instability and unemployment rises.
Few of the key influences that slowed the population growth rate can also be explained as follows;
Women’s opportunity costs
The economic theory of fertility suggests an incentive effect: more educated women have higher opportunity costs of bearing children in terms of lost income. The household bargaining model suggests that more educated women are better able to support themselves and have more bargaining power, including on family size.
Choices
Young millennials today have many opportunities to pursue their passions. They may also prefer having their own home or establishing themselves financially before settling down. These factors have contributed to many marrying and having children later.
Import of Foreign Talent
Increased labour flows, Singapore has benefited from increased labour flows across international borders. Importing foreign labour leads to an increase in Singapore’s labour which raises the economy’s productive capacity. This is a relatively efficient and cost-effective way of increasing potential growth.
Attract foreign direct investments (FDI)
Large amounts of foreign direct investment (FDI) have helped Singapore achieve potential economic growth. Potential growth is the increase in the economy’s potential capability to produce output. Transfers of physical capital, human capital, and technology from Multi-National Corporations (MNCs) have helped increase the Singapore economy’s productive capacity, and thus shifts Singapore’s long-run Aggregate Supply (LRAS) curve to the right, increasing her potential economic growth.
Encourage Research and Development (R&D) and technological change
Improve the quality of education and continuous training
Promote international trade such as the signing of Free Trade Agreements (FTA)
Yet, despite all its apparent benefits, globalisation has some downsides which could possibly derail Singapore’s macroeconomic aims.
Vulnerable To External Shocks
First, Singapore’s dependence on exports makes her vulnerable to negative economic conditions in other countries. If one of Singapore’s trading partners were to experience a recession, demand for her exports would fall. This reduces AD which leads to lower equilibrium national output. Thus, the Singapore economy is susceptible to demand shocks. For example, Singapore’s GDP decreased during the financial crisis of 2007/2008. Thus, while globalisation might confer growth, it also means that same growth could potentially be more volatile.
Vulnerable To Competition
Second, while globalisation gives Singapore a bigger market for her exports, it also means that she could face more competition. Developing countries, like China, are catching up quickly. Singapore has already lost her comparative advantage in low- to medium-end manufacturing to rapidly industrialising countries. If exports decrease due to competition from low-cost countries, it will result in a fall in AD, which would lead to a drop in output. Over the years, Singapore has had to move up to higher value-added goods and services like biomedical or financial services in order to remain competitive.
Vulnerable To Global Business Shifts
Third, increases in Singapore’s productive capacity brought about by globalisation might not be permanent because she is highly reliant on MNCs which are by nature internationally mobile. They could shift operations to a lower-cost location, taking capital with them. There is also no guarantee that Singapore’s ‘foreign talent’ will stay in the country for the long term. Furthermore, importing foreigners to increase Singapore’s labour is also unsustainable in the long term givenSingapore’s small land size because the influx of foreigners, perceived to be competing with Singaporeans for jobs and space, has become a major source of political and social discontentment and political acceptability is a major issue. Thus, potential growth might be illusory and fraught with many potential political perils.
Inflation
Fourth, if the Singapore economy is already operating at or near full employment, then a rise in AD due to increased exports could possibly and realistically lead to demand-pull inflation. Singapore’s persistently low unemployment rate suggests that her economy is operating at close to full employment already. Thus, inflation could be a potential problem.
Vulnerable to Supply Shocks
Fifth, importing raw materials from abroad also leaves Singapore vulnerable to cost-push inflation, more specially imported inflation. For example, Singapore was affected by the rise in oil prices due to political uprisings in the Middle East. Hence, Singapore is vulnerable to supply shocks.
Secondary Effects
Sixth, should Singapore lose export competitiveness, (X-M) will become negative which would mean a current account deficit and a likely BOP deficit. Weak demand for exports would result in a depreciation of the Singapore dollar which would increase the price of imports. A depreciation of the Singapore dollar is likely to be inflationary given Singapore’s dependence on imported raw materials, and because it becomes more expensive to buy imported inputs which Singapore needs to produce goods. A deficit in the BOP also means a decline in the country’s foreign reserves which means that if Singapore has few foreign reserves, her currency will be vulnerable to speculative attacks.
Employment Woes
Seventh, globalisation could also potentially be harmful for employment. Singapore’s heavy reliance on exports means that she will experience high cyclical unemployment should her major trading partners enter recessions. Perhaps, even more worrying is the increase in structural unemployment because lower-skilled workers could find their jobs being outsourced. Even if their work cannot be easily shifted abroad, they face competition from foreign workers willing to work longer hours and at lower wages. Concomitantly, there is a shortage of workers able to take on high-skilled jobs created by the global economy. As such, Singapore has had to import ‘foreign talent’ to fill this gap. Therefore, there are many negative implications for the labour market.
Macroeconomic stability in the short run
Monetary policy; short term stability can be maintained by altering monetary conditions, raising or lowering interest rates, expanding or contracting the money supply. Most national economies and monetary unions review monetary policy on an ongoing monthly basis.
Conclusions
In the final analysis, despite many drawbacks, globalisation has been largely beneficial for Singapore. This is mainly due to the way in which the government has managed to tap into opportunities offered by a globalised world. For example, by providing necessary infrastructure, low tax rates, and a highly-skilled workforce, the government created conditions conducive for international trade and economic growth. At the same time, the government has been able to mitigate some of globalisation’s downsides through her economic policies. Singapore could and does use exchange rate policy. The Monetary Authority of Singapore (MAS) has the discretion to allow the Singapore dollar to appreciate in order to mitigate the inflationary effect of rising prices. Hence, to a large extent, globalisation has helped Singapore achieve its macroeconomic objectives; however, globalisation also brings with it several downsides which have to be properly managed.
xt in here…