TRADE-OFF BETWEEN MANUFACTURING AND SERVICE ORIENTED GROWTH STRATEGIES IN SINGAPORE

Abstract

Although the service sector plays an important role in all economy, its significance in the process of economic development has often been overshadowed by the manufacturing sector. As a result, service-oriented growth strategy in economic development is less well understood compared to manufacturing-led growth. The manufacturing sector has been considered the prime mover of the economy in Singapore for the past 25 years. The Economic Subcommittee in 1986 has identified the service sector as another pillar of growth. The potential of the service sector to propel Singapore's economic development to greater heights is evident in its increasing contribution to the economy over the years. Trade has played an important role in our economic development. Since the 1960s, Singapore has had a healthy balance of services depicted in the Balance of Payment Accounts. Our service exports have been growing as quickly as the world trade in services, hence, making the service sector an ideal candidate for further development. However, unlike manufactured exports where our major export markets are the rich OECD countries, due to the nature of services, service exports are more likely to be targeted to regional markets. As a result, there arise the problems of whether there exist a demand for our services as many of our neighbouring economies are only at the budding stage of economic development. Furthermore, even if there exist a demand for our services, the sector's ability to earn sufficient foreign exchange remains to be examined. Many services are labour-intensive in nature. Hence the further development of this sector may put an additional strain on the already tight labour market. To tackle the labour shortage problem, the government may have to ease control on foreign labour into the country. An influx of foreign labour however brings along with it the associated social and economic problems. Hence, foreign labour can only provide a temporary solution, a better alternative would be to fall back on the domestic labour pool. Although there has been effort to encourage more labour participation from the women and older population, there is still much more to be done. However, on balance, the effect of diversifying and restructuring into more service-oriented areas is favourable. As more services are incorporated into the manufacturing process, the role played by the service sector will continue to grow. With Singapore's comparative advantage in service exports, service-oriented growth may prove to be a more favourable strategy compared to manufacturing-led growth.