Leonard Hong shares his experience of studying in Singapore on a Prime Minister’s Scholarship for Asia.

I strongly urge students to apply for the Prime Minister’s Scholarship for Asia, it was one of the best decisions of my life.

As an undergraduate student at the University of Auckland in 2019, I finished the autobiography by former Singaporean Prime Minister Lee Kuan Yew, From Third World to First: The Singapore Story: 1965-2000. This book ignited my fascination with Singapore. From that point, I had in my mind that one day I could study or live in Singapore in order to gain a deeper understanding of the economic miracle it has achieved.

Fast forward five years later, I was able to realise both objectives. I just completed my postgraduate degree at the S. Rajaratnam School of International Studies (RSIS) in Nanyang Technological University, Singapore. With its entrepreneurial dynamism and open international economy, I was lucky to have lived in this remarkable nation. I am grateful for the opportunity as it provided me with a world-class education with a much better understanding of Singapore’s political economy as well as other Southeast Asian countries.

Some friends asked me before, “Why International Political Economy, Leonard?” I have always responded that solving complex global and domestic challenges requires an interdisciplinary understanding of political science and economics. I thought the Master of Science degree offered by RSIS would allow me to build a more comprehensive analytical framework with better technical skills.

Gardens by the Bay.

Furthermore, Singapore was a perfect place to study for me as a global financial hub of Southeast Asia reliant on international trade and investment. New Zealand has a similar demography with low corruption and pro-business practices. Singapore’s approach to governance and public policy offers valuable lessons, adaptable to our unique local context.

My dissertation topic considered the fiscal implications of its domestic savings scheme and how that translated to its accumulation of public assets – sovereign wealth funds – and its private pension schemes. I compared and contrasted Singapore with New Zealand and uncovered certain setbacks within our approach. I was able to get coverage from the New Zealand Herald’s Liam Dann’s business column on my comparative political economy analysis as well as publishing a column myself on the New Zealand Herald arguing against a capital gains tax. It was gratifying to contribute to policy debates back home, even from abroad.

The timing of my programme was also impeccable. I was fortunate to meet New Zealand Prime Minister Rt Hon. Christopher Luxon and Minister of Climate Change Hon. Simon Watts in Singapore as part of their Southeast Asia trip in April fostering greater trade and investment across the Indo-Pacific region. Their choice of Singapore as the first destination outside Australia was significant to me.

With Professor Tommy Koh.

I also had the opportunity to meet various policymakers and public intellectuals from Singapore. I had a quick meeting with Minister of State Alvin Tan about his portfolios and responsibilities. Conversations with Professor Kishore Mahbubani on US-China relations and the future of ASEAN were enlightening. I also was very honoured to meet Professor Tommy Koh who graciously signed his book for me during our conversation.

With Dr Anne-Marie Schleich for book launch.

Moreover, I served as the master of ceremonies for the launch of a new book edited by Dr. Anne-Marie Schleich—Senior Adjunct Fellow at RSIS and former German Ambassador to New Zealand—titled Perspectives of Two Island Nations: Singapore-New Zealand. This event, co-hosted by the New Zealand High Commission in Singapore, RSIS, and World Scientific Publishing, was one of the first books directly comparing and contrasting public policy in New Zealand and Singapore.

My time abroad in Singapore well-exceeded my expectations. I met various famous Singaporeans in my field of interest, networked and built a new cohort of friends for life and my understanding about Southeast Asia expanded significantly. This experience made me more resilient, adventurous, and globally minded. It taught me the importance of cultural understanding and empathy in solving global problems.

With Singaporean Prime Minister Lawrence Wong.

I encourage more students and professionals to consider studying in Singapore and building connections to contribute back to New Zealand. I share my story not for its own sake but to motivate others to pursue similar opportunities, learn, grow, and explore Singapore’s unique and unorthodox policy approaches.

The Treasury, in its briefing to incoming finance minister Nicola Willis, said a comprehensive capital gains tax would generate more tax revenue to help balance the Government’s books.

But can’t prudent fiscal policy be achieved in other ways?

Singapore provides some answers.

A couple of weeks ago, the city-state’s finance minister Lawrence Wong released the 2024 Budget. 

As with other countries, immediate social spending and investment were prioritised in response to the ongoing cost-of-living crisis and challenges relevant to long-term productivity and population ageing.

However, there is a stark contrast between the city-state and other major developed economies. Singapore has net zero debt, and, in some ways, has already solved the long-term fiscal issues facing other countries.

Singapore’s government gross debt level is worth 170 per cent of gross domestic product (GDP). But this is offset by high levels of domestic savings in both the public and private sectors. The city-state is a capital exporting country that generates reserves from its large financial assets and public investments.

A large portion of the public sector comprises large government-linked companies – such as SMRT Corporation and Singapore Airlines – and its sovereign wealth funds – including the Government Investment Corporation and Temasek Holdings.

GIC has around US$770 billion ($NZ1.2 trillion) in assets under management and Temasek has US$290b ($NZ470b). In combination this is around 227 per cent of Singapore’s GDP.

In contrast to libertarian claims that governments should simply reduce wasteful spending, Singapore’s approach to fiscal policy involves an effective and strategic government that leverages the state as an investment vehicle.

Former Singaporean finance minister Goh Keng Swee said it best: “Our experience confirms some of the conventional wisdom of growth theory, but refuses much of the rest. The role of government is pivotal.”

Simultaneously, in the private sector, the Central Provident Fund (CPF) plays a fundamental role providing social insurance to citizens, but in the form of self-provision rather than a ‘pay-as-you-go’ social security system, such as in the West.

Singaporeans are required to save up to 20 per cent of their wages, and an additional 17 per cent is provided by their employers, which is invested by the CPF Board. As of 2023, CPF managed around S$571b (NZ$707b) – equivalent to 92 per cent of Singapore’s GDP.

Overall, Singapore’s fiscal management has been outstanding, and its prudent fiscal management has allowed the country to thrive as the diamond of Southeast Asia. The city-state currently has a very high net worth position.

I came to study in Singapore to understand precisely why this was possible and what policy lessons the city-state could provide for New Zealand.

I was inspired by Lee Kuan Yew’s story. It was in 2019 when I first read his autobiography, ‘From Third World to First: The Singapore Story, 1965-2000′. It sparked my desire to study in Singapore and learn about its unique and unorthodox economic model and policies.

My time in the city-state has made me realise that we have much to learn from its fiscal policies – particularly around public asset management. In contrast, our economic history has a mixed record.

For NZ, we missed the golden economic opportunity when then-prime minister Sir Robert Muldoon cancelled our superannuation scheme in 1975. It was one of the worst economic decisions made by a government. If we didn’t, NZ would have much higher domestic savings potentially as high as NZ$500b.

Sir Michael Cullen’s decision to revive a private saving scheme under KiwiSaver in 2005 was a sensible decision, but it was insufficient. The total KiwiSaver funds currently under management is NZ$105b – equivalent to 25 per cent of NZ’s GDP. It is an automatic enrolment scheme with minimum and maximum contribution rates of 3 per cent and 10 per cent. This is much lower than Singapore’s compulsory rates for both employers and employees.

Cullen also introduced our sovereign wealth fund – the NZ Super Fund. It was an innovative policy developed in 2001 based on his long-term foresight and prescience that demographic ageing would result in a significant increase in pension demands. Our sovereign wealth fund currently has a balance of NZ$70b – 18 per cent of GDP. Draw downs will start soon in 2033.

Since the passing of the 1994 Fiscal Responsibility Act, there was strong bipartisan consensus of ensuring persistent budget surpluses. This institutional framework helped our nation to weather the storm of the 2007-08 Global Financial Crisis and the Covid-19 pandemic because of our low debt position of 19 per cent of GDP in 2019.

Yet, in stark contrast to Singapore, NZ has not been able to build greater public assets that could be utilised in favour of the long term. There is no doubt that our KiwiSaver plans are competent, but their investments have not been diversified, with a significant portion of funds being invested passively abroad. Regulatory hurdles have hindered the growth of the sector and greater competition.

Although the NZ Super Fund is highly regarded internationally, with annualised investment returns of around 10 per cent over the past 20 years, the fund’s size could have been larger if the previous National-led government had not stopped contributing to the fund to reduce budget deficits.

It is clear that based on the projections from the NZ Treasury, demographic change and population ageing will have substantial fiscal implications with net debt expected to reach above 160 per cent of GDP by 2060. In the words of late Harvard economist Martin Feldstein: “The current structure of pension systems in most developed countries cannot be sustained without cutting benefit levels substantially or introducing much higher taxes”.

Therefore, whilst maintaining fiscal discipline, pursuing the development of much greater public assets and ‘nudging’ individuals and households towards greater domestic savings is fundamental to NZ’s long term fiscal position. 

Singapore’s unorthodox but pragmatic economic model provides some answers to our future challenges.

Nicola Willis should consider examining parts of Singapore’s macroeconomic strategy – it’s not just about balancing the books but identifying methods in building significant domestic capital savings and developing strategic government assets in the interests of the public.

Leonard Hong is a NZ Prime Minister’s Scholar for Asia, studying for a Master’s degree in International Political Economy at Nanyang Technological University, Singapore. He is also an Asia New Zealand Foundation Leadership Network member.

I have an announcement to make in regards to my new adventure. I received the Prime Minister’s Scholarship for Asia to study a Master’s degree in International Political Economy at Nanyang Technological University Singapore at the RSIS | S. Rajaratnam School of International Studies starting in August this year. This is an exciting opportunity for me to pursue my passion in political science and economics at a world-leading institution ranked alongside John Hopkins and Columbia University.

I decided to study in Singapore because I was intrigued by Lee Kuan Yew’s leadership and the city-state’s economic miracle. As a result of its world-leading meritocratic approach to governance and Singapore’s emphasis on excellence within its society, the nation is now one of the most developed economies in South East Asia. In particular, I am eager to learn about Singapore’s sovereign wealth funds, its interconnections with state-entities like the Monetary Authority of Singapore, Temasek, GIC and the Central Provident Fund.

I would like to thank my academic and professional mentors, notably Professor Natasha Hamilton-Hart and Andrew Bayly MP; and also colleagues and friends who have contributed to my personal and professional development. Special thanks to Education New Zealand | Manapou ki te Ao for the financial support. I’m looking forward to this new adventure abroad that takes place soon.

The economy is not an understandable and controllable machine as assumed by conventional macroeconomic theory. Rather, the economy is a complex, adaptive system, like many others in nature and society, in which policies can have significant, unintended consequences. 

Former BIS Chief Economist William R. White

We are dealing with an intellectual problem—a profession that has been absorbed by theoretical constructs abstracting from human behaviour. We are dealing with ingrained ways of thinking. The challenge is to raise questions about accepted approaches, in drawing lessons from recent experience. We need to pull economics back into the real world of political economy.

Former Federal Reserve Chairman Paul Volcker

We also have to recognize that good economics cannot be divorced from good politics: this is perhaps a reason why the field of economics was known as political economy. The mistake economists made was to believe that once countries had developed a steel frame of institutions, political influences would be tempered.

Former IMF Chief Economist and University of Chicago Professor Raghuram Rajan

Leonard’s Curiosity in Economics

My interest in the political dimensions of economic policy began while I was still an undergraduate student at the University of Auckland. I was intrigued by the rise of Bernie Sanders in the United States and Donald Trump in 2015. They both represented movements against the status quo of government. Meanwhile, in my Economics courses, I was learning about macroeconomic models of endogenous growth, the Solow-Swan theory of technological progress, Paul Krugman’s liquidity trap theory, Milton Friedman’s monetarist theory, among other frameworks. An intense interest in both Political Science and Economics led me to major in both disciplines (History and International Business were later added in 2018).

Theoretical economic models were fascinating. Yet, in my mind economists have been missing the mark.

I was particularly intrigued by the global financial crisis (GFC) of 2007-2008. What caused it? The greed of Wall Street, easy monetary policy, or institutional corruption? Globalisation? Are there political influences at play? Exactly how can geniuses from Ivy League universities make such an error? I was perplexed by the global financial crisis and remained keenly interested in it (so much so that I even co-authored a report on the potentials for the next financial crisis in 2021).

The failure of world-renowned economists – in the likes of Larry Summers – to identify the fundamental causes of the GFC (and the aggregated political effects of that crisis) convinced me that the discipline required fundamental reform.

My education at the University of Auckland contributed to my intellectual framework. However, the models and theories that I learned in my economics classes were insufficient to prepare me to be an excellent economist. I believe that the study of Political Science, Psychology and Economic History should become complementary areas for students studying Economics.

As someone who also holds a degree in History, the economic topics within all of the courses I took always intrigued me. Among these themes are, for example, the role of hyperinflation in the fall of the Weimar Republic and the rise of Hitler; the rise of Keynesian economics and the New Deal; the rise of the Bretton Woods system and its effects on international affairs; the revival of Communist China under Deng Xiaoping; and the experience of New Zealand under Rogernomics and Ruthanasia. In contrast to my colleagues who were studying other topics, I was fascinated by economic problems and how they affected the political system in general. As I see it, Economics is a hybrid of the humanities and the sciences – a social science. I was told by my history lecturer, Dr Paul Taillon, that I had more of a ‘political economy’ bent. I fully concurred with his assessment.

My involvement in Economics as a discipline was motivated by this experience. An overview of my obsession with the subject is presented in this section. It is fascinating to me and I intend to continue my studies in the future. In the next section, I will explain the fundamental causes of the GFC and why many economists got their predictions completely wrong.

The Failures of Economists: Predicting GFC

Many economists, including Nobel laureate Paul Krugman, admitted they were wrong in the wake of the first major economic catastrophe since the Great Depression. Most mainstream economists failed to predict the onset of the financial crisis in 2007-2008 (with notable exceptions such as William R. White, Niall Ferguson, Raghuram Rajan and Kenneth Rogoff). There was a great deal of hubris and arrogance in the profession.

By the beginning of the 1960s, mathematicians and engineers were becoming increasingly involved in the economics discipline, leading to the development of econometric models as a dominant source of policy analysis. One of the main reasons this occurred is the rise of mathematical economics. Paul Samuelson and other ‘technical’ economists popularised this sub-discipline. Prior to this disciplinary revolution, the subject was called ‘political economy’, not economics as we all understand it today. Through mathematic economic modelling, increasingly more experts have become almost certain that modelling meant that it will be reflected in the real world. In many ways because of what the numbers told them, many determined that the risk of financial collapse has been eliminated. Financial markets are supposedly safer as a result of the ‘Great Moderation’ and technocratic management of the economy. Francis Fukuyama’s End of History did not help. It created further arrogance and complacency among western elites, believing that they were destined to spread free markets and liberal democracy globally. However, with the bursting of the housing bubble in 2007, the Great Moderation of 1987-2006 proved to be a myth as it led to the collapse of the global economy.   

The GFC taught me that economics was not an entirely objective or empirical discipline in the same vein as mathematics, chemistry, and physics. In the words of former Bank of England Governor Mervyn King, “Economists have brought the problem upon themselves by pretending they can forecast. No one can predict the unknowable future and economists are now exception”. Economists forgot a very important concept called ‘radical uncertainty’.

In terms of quantitative predictions, in many ways they are correct in the modelling. But it is correct in real life? No. The models are not perfect. Individuals are not fully rational. Statistical formulas and mathematical equations can get manipulated to provide the authors of a particular research paper with data that supports their hypothesis.

I do not claim, however, that empiricism does not matter – it does matter to a considerable degree. Using models, we can obtain an understanding of what is happening throughout our economic system. We would struggle to solve problems without the aid of hypotheses testing and quantitative methods. But it does become problematic when economists strictly rely on models, as fundamentalist beliefs, akin to the scientific fact of gravity.

Pricing for options is an example of this. The Nobel Prize in economics was awarded to Robert Merton of Harvard University and Myron Scholes of Stanford University for their contribution to calculating stock options (a form of derivatives). In the financial world, it was believed that ‘rational’ calculations of these risky investments were feasible. But this was utter nonsense. It is nearly impossible to determine the value of these complex financial instruments. Analysts have devised numbers to create an impression of credibility. It was just a bogus form of quantification. There was a quasi-religious belief among people in the financial sector that risk had virtually disappeared following the introduction of these objective models. This legitimized financial gambling. This intellectual debacle was caused by the dogmatism of belief in ‘market perfection’ and ’empiricism’. Economist Raghuram Rajan questioned this dogma of the financialisation of the world economy in his 2005 research paper. He showed that actually banks and financial institutions were making more money via more risk, not less risk as shown by these models for derivatives. As shown in the documentary ‘Inside Job’ by Charles Ferguson, to some degree it was a form of intellectual and moral corruption where economists across elite institutions brought the idea that risk was eliminated.

The failure of economists told me a few things. There needs to be a fundamental restructure in the education of future economists. Economics as a discipline needs to combine both the ‘economic history’ and empirical methods to explain and understand complex systems like the global economy. More emphasis needs to be placed on the ‘humanity’ aspect of economics. The classical scholars in the likes of Adam Smith, David Ricardo, David Hume, John Maynard Keynes and even Hayek were not entirely mathematically driven economists. All of them were experts in the political economy. Excess objectivity within the field of economics led to financial disasters and hubris.

The GFC should have been a wake up call, but have there been some changes? Not necessarily. Economists still buy into their DSGE models and macroeconomic equilibrium hypotheses. Although some economists in the likes of Dani Rodrik, Raghuram Rajan and Joseph Stiglitz have been warning others for some time about the continued failure of their fellow colleagues to diagnose the problem. What we witnessed instead were significantly political consequences in the form of both left wing and right wing populism.

Backlash against the Technocrats – Western Populists

While the mainstream neoclassical economists continued to repeat their talking points to the world, the world was shifting to a more polarised society. The GFC did not help the cause. With millions of ordinary people losing their life savings and wealth. Simultaneously, big banks and financial institutions were bailed out without any jail time for many of the financial executives that created the problem. Injustice and economic corruption led to a growing mistrust towards public institutions.

Politically, people became very angry across the world and manifested to resentment.

As shown by Charles Murray’s ‘Coming Apart‘, much of the political discontent had to do with offshoring of manufacturing and the decline of communities in former manufacturing hubs such as Detroit. These states and regions are nicknamed Rustbelt states for a reason. These same white-working class folks lost their jobs and their livelihoods through free trade agreements and offshoring of their jobs into developing countries. The rise of opioid addiction, rising divorce rates, crime, social disintegration, declining social mobility, and educational regression led to an intergenerational downward cycle. J.D. Vance’s ‘Hillbilly Elegy’ does a wonderful job illustrating the extent of the social decay. The richer urban class in states such as California and New York saw their wages increase exponentially with more households and families in these areas getting more educated, while those in the former stronghold manufacturing states such as Michigan, Wisconsin and Pennsylvania failed to see rising incomes. As mentioned by Raghuram Rajan, the premium on College education and demand for skilled work led to growing economic inequality. Social decay and free market prescriptions were a recipe for social disintegration and political discontent.

Globalisation and international economic integration was the correct policy subscription, but the short turn effects were devastating. Although globalisation and free flow of capital and labour led to overall net-positives for the world economy (3.8 billion people in the middle class as of 2018). Economists and policymakers failed to consider these people’s livelihoods. Trade adjustment subsidies and social insurance were insufficient.

Consequently, across the western world, we saw more politicians going against these mainstream orthodoxies. Anti-European Union politicians in the likes of Nigel Farage and Boris Johnson became increasingly popular, meanwhile the US saw the rise of an anti-liberal demagogue in the form of Donald Trump. Simultaneously, left-wing populists such as Bernie Sanders and Jeremy Corbyn shocked the world with their relatively successful campaigns for President and Prime Minister (and UK Labour’s leadership).

In my eyes, a healthy dose of populism is important for liberal democracies. It provides people with the sense that something is fundamentally wrong in society and that policy adjustments were warranted. But, extreme and excess populism can lead to bad consequences as we’ve seen with the rise of Hitler and Soviet Communism post-Great Depression. Economic stability and growth is significant for a stable liberal democratic system. Systems can break down and cause revolutions if it gets out of hand. This is why understanding the root causes of contemporary populism and dealing with the problems raised is crucial. However, I’m yet to see any western politician hoping to resolve the anti-establishment populist sentiment. Nor are economists willing to provide a new approach to this ongoing political economy problem.

Conclusion

“Almost every political question has an economic aspect and almost every economic question has a political aspect”.

Charles P. Kindleberger

As the prominent international political economy scholar Charles Kindleberger states in this quote, economics cannot be separated from politics and vice versa. The rise of mathematical economics and econometrics are crucial to policy evaluation and analyses, but by ignoring economic and political history, we fail to learn our lessons from what really happened. Economics is not just about models – it’s about people’s livelihoods. Humans are not just rational utility maximising robots. We are complex and we cannot rely simply on microeconomic theory, presumptions and calculations as a basis for effective economic policy making.

This opinion piece was to inform readers about understanding and staying skeptical about the economics profession. I have been heavily involved in this field and public policy in the early stages of my career and even though I don’t know much in comparison to many professionals globally, I hope this piece was relatively informative. As Kenneth Rogoff mentioned before, economics should still stay relatively objective and mathematical, but we must not ignore economic history and incorporate other aspects of social science into the equation.

I am a political economy person, and I think more economists should move in this direction.

Happy New Year.