I will now turn to a longer-term issue: how we can lay the foundations for sustained growth into the next century. Combining Economic Growth With Social Progress Singapore has successfully combined rapid economic growth with equitable income distribution. Real economic growth averaged 8.4% per year between 1960 and 1994. Between 1980 and 1990, real household income for the bottom 20% of households rose by an average of 8.9% per year, faster than the 7.9% for the middle 60% of households and 6.4% for the top 20% of households. More up-to-date figures from the Household Expenditure Survey show that, for the period 1982/83 to 1992/93, real household income for the bottom 20% has also kept pace with those of the middle 60% and top 20%. At the personal level, Singaporeans can see for themselves how their standard of living has improved. The ownership of telephones, TV sets and refrigerators is near universal, and more than three-quarters of households have washing machines or VCRs. One-third own air-conditioners, 31% have cars and 20% have personal computers. These ownership rates are high, by any international standards. Singapore's record of widespread social progress and equitable income distribution is partly the result of the development process. Economists have found that income distribution tends to improve as an economy develops because unemployment falls rapidly and the fruits of economic growth are shared among a larger group of citizens. This has been the experience of most East Asian economies, including Singapore, but it is not universal or automatic. Wrong-headed policies, like populist subsidies and restrictions on economic transactions, can worsen income distribution and impede growth. In Singapore, the Government has played a key role in improving the standard of living of all Singaporeans through mass programmes in public housing, primary health and education. The effects of these on the well-being of Singaporeans are clear. For example, 86% of our population live in public housing, which is of a standard far higher than public housing projects in other countries. Newer HDB housing estates like Bishan and Pasir Ris are comparable to private housing in Singapore. Unlike other countries, the public housing programme in Singapore is a social leveller. Professionals and workers live in the same HDB estates and share amenities. The public health programme and affluence have significantly reduced infant mortality in Singapore. We now have the lowest infant mortality rate in the world - 5 per 1,000 live births, as low as Japan and Sweden. Almost all our children attend school and more than half of them enter Polytechnic or universities. Challenges for the Future In the next stage of economic development, we will face different challenges. In the 1960s, the priority was to create jobs, provide housing and build new schools. In the 1990s and beyond, we will face new issues. I will outline two key ones, viz, the entry of new players into the international economy and the development of a middle class society in Singapore. First, the entry into the world trading and production system of large economies like China, India, Indonesia and rapidly growing ones like Malaysia, Thailand and Vietnam will alter the world economic structure. It has been estimated that by the year 2020, 7 of the 10 largest economies in the world will be in Asia, viz, China, Japan, India, Indonesia, Korea, Thailand and Taiwan ("The Global Economy", survey in The Economist, 1st October 1994.). The entry of new players into the world economy will raise average income levels worldwide, but it will also change the distribution of income, both between countries and within individual countries. The more developed countries will increasingly be forced to specialise in higher value added activities, leading to greater demand for skilled workers who are in short supply worldwide. Demand for low-skilled workers will be met by less developed countries which concentrate in more labour-intensive activities. However, the supply of unskilled workers is far higher than the supply of skilled workers. As a result, in many countries incomes will rise faster for skilled workers than for unskilled workers. The reason goes back to the fundamental laws of demand and supply. Because the number of unskilled workers is so much larger, an increase in demand will first reduce unemployment or under-employment before it leads to rising wages. In contrast, as skilled workers are scarce, increased demand will lead to higher wages. Putting these two divergent trends together, it is not hard to imagine a world where income distribution could become more unequal. This is already happening in some developed countries. In the US and the UK, wage differentials between those with higher education and those without have widened in the last 10-15 years. Closer to home, Hong Kong has faced this problem since the mid-1980s. With keen competition from China in labour-intensive manufacturing, the Hong Kong manufacturing workforce has shrunk from about 1 million to only 600,000 whereas the workforce in Hong Kong-owned factories in southern China is estimated to be 3-4 million. Accompanying this massive shift has been a depression of wages in the Hong Kong manufacturing sector, particularly in lower-end industries, like textiles and toys. It is therefore not surprising that there is deep concern in the developed countries, especially Europe, that East Asia_s growth will be at the expense of their workers and their social stability. Some groups in the developed countries are advocating protectionism in various guises, including social and environmental protection. Singapore, as a small and open economy, cannot insulate itself from larger global trends. Without natural resources or a large hinterland or domestic rural sector to fall back on, we cannot afford to pay ourselves higher than world market rates or keep alive activities which are no longer viable. Countries better-endowed than ourselves have tried and failed to do this. What they have achieved is to transfer the problem from the labour market to the state treasury while delaying much-needed structural adjustments to their economies. The EU countries have run budget deficits to finance generous welfare states and unemployment benefits. The result is that public debt has mounted, unemployment is at a record high of 11% and labour costs are uncompetitive. Future generations of European workers and citizens will have to pay the cost of past fiscal deficits, either through a high debt servicing burden or through higher inflation if governments choose to inflate away their domestic debts. Singapore will need to address these issues head-on. I will elaborate on possible solutions later in my speech. Let me now turn to the second challenge, that of Singapore becoming a more middle-class society. Economic growth and improvements in education have enabled most Singaporeans to join the middle class. We are close to achieving our target of 60% of each cohort entering polytechnic or university. In twenty years time, up to 30% of the workforce will have either polytechnic or university education compared with only 15% today. The Singapore economy must stay competitive to create jobs for these ambitious and well-trained people. We must regionalise successfully so that our best and brightest will have a bigger pie to compete for. To cap the supply of university and polytechnic graduates is an unworkable and self-defeating alternative. It will slow growth and depress earnings for all, including the graduates, who will have few job opportunities in a stagnant economy. At the same time, the larger number of better-educated people will increase demand for the traditional trappings of middle-class living like owning a car and a private house, thus hitting against a fixed supply of land. Aspirations could run ahead of our ability to meet them in the conventional way. Meeting the New Challenges The trends I have outlined have implications for how we need to manage our economy to ensure many more years of economic prosperity and social stability. There are three key areas in which we need to devote attention. They are: preparing Singaporeans to meet the challenges of the global economy, providing maximum incentives to able Singaporeans to create wealth for the nation, and building a more cohesive society. Preparing Singaporeans for challenges of the global economy In the new global economy, competition will get keener and the pace of change will become faster. No country can afford to sit back while the competition passes by. Technology is pushing the pace of restructuring. Companies and countries which cannot cope with the fast pace will be left behind. In Singapore, we have taken steps to meet the demands of a modern economy by investing heavily in education, training and re-training. Over the years, we have increased the proportion of young people going into tertiary education. In 1980, 19% of our young people were admitted to university, polytechnic or the then Vocational and Industrial Training Board. In 1994, the proportion was 71%, with 19% going to university, 35% to polytechnic and 17% to the Institute of Technical Education (ITE). We aim to raise the proportion of those with post-secondary training from the 71% in 1994 to 85%, broken down into 20% going to university, 40% to polytechnic and 25% to ITE. We will achieve these targets by the year 2000. We have increased enrolments in institutions of higher learning without sacrificing quality. Each year, the "O" and "A" level results, which have international standing, have improved. Achievement in English and Mathematics is high and improving. With up to 85% of each cohort receiving post-secondary training in the Institute of Technical Education, the polytechnic and the universities by the year 2000, nearly all Singaporeans will be equipped with the means to compete in the global economy. But being well-educated only offers the worker a place at the starting line. Whether he completes the race and wins a prize depends on whether he can adapt to the changes in the economy. Experience from the developed countries shows that although unskilled blue-collar workers have borne the brunt of global competition in the developed countries, even white-collar and management staff are not immune to changes. White-collar jobs in data-processing, insurance claims processing and accounting can be done offshore, in the Philippines, China, India or Ireland. The restructuring of the American corporate sector in recent years was accompanied by "de-layering" of corporate hierarchies and the loss of many middle management jobs. The rise of a new class of "temporary professionals" in the US is a sign that even professionals are not immune to fundamental changes in the global labour market. The key to keeping ourselves relevant to the rest of the world is flexibility. Workers need to be able to learn new skills and knowledge and to adapt to new processes, new machines and perhaps even new employers to retain life-long employability. This will mean a concerted effort by the workers themselves, unions, employers and the Government. Although recent retrenchment episodes by MNCs have raised some concern, it is reassuring that the retrenched workers easily found replacement jobs. Such restructuring of the manufacturing sector is a continuing necessity if we are to upgrade. So far, our economy has been able to adjust flexibly to new demands. We will need to maintain this flexibility even more as we enter the new global economic race. Giving maximum incentive for wealth creation As we equip Singaporeans in general with the skills to compete effectively, we need to pay attention to those among them who are most able to create wealth for all. These able people command a premium in the world market, and they can easily work and live overseas. The Singapore economy needs them to manage our companies and lead our workers to win in the global economic race. Economic competition is a team game like football, but each team needs its fair share of star strikers like Fandi Ahmad to score the goals and bring success to the team. It is essential to pay special attention to them, to nurture them so that they can give of their best and to reward them handsomely when they do well. The same applies to captains of industry, entrepreneurs and skilled professionals. Talent is scarce in Singapore. We should identify our best and brightest early, and invest in their education, for example, by setting up autonomous and independent schools, stretching them in the Gifted Education Programme or by giving them the best possible university education here or abroad. Given the intense global competition, we must also be able to satisfy their aspirations for a better life in their many facets, ranging from the strictly material like owning a car to psychological and emotional factors like identifying Singapore as home and seeing a future for their children here. The Government will refine and adjust economic incentives to maintain Singapore_s competitiveness. One major aspect will be our fiscal policy. Experience has shown us the considerable benefits of keeping the overall Government burden on the economy and the individual low. In terms of tax revenue like individual and corporate income tax, property tax and consumption tax, Singapore_s tax burden is lower than the major industrial countries. We are comparable to the other Asian Newly Industrialising Economies (NIEs) except Hong Kong, and the other ASEAN countries. This is shown in Table 1 (Cols. 115 - 116). However, Government revenue is boosted by the use of fiscal measures to allocate scarce resources, like the COE system and levy on foreign workers. Our overall level of Government tax and non-tax revenue is around 22%, slightly above other Asian countries who are at 20%. Table 1 - TAX AND NON-TAX REVENUE OF SELECTED COUNTRIES (Cols. 115 - 116) The Government is studying possible changes to its fiscal policies to make the economy more competitive, and to strengthen the incentive for businesses and individuals to venture, succeed, and enjoy the fruits of their enterprise. It will keep the overall burden of Government levies on successful Singaporeans as low as possible, taking into account both income taxes as well as other levies like the foreign maid levy and revenues from land transport policies, including COEs. Our strong fiscal position, built up through prudent management over many years, gives us some leeway to do this. As the Prime Minister said in his New Year message, taken as a whole, Singapore must offer its citizens a quality of life, abundant opportunities and a future for their children that will make them want to stay. Apart from adjusting fiscal policies, the Government has tried and will try to meet the aspirations of the talented in more creative ways. While we cannot promise everyone a piece of landed property, we will set aside enough land to develop different types of housing to cater to Singaporeans_ needs. We will also invest in public transport to make it a more attractive alternative to car ownership. We will continue to improve traffic management, introduce new measures to control car usage and make heavy investments in roads to help more Singaporeans own cars while controlling congestion. Whatever innovative solutions we can come up with to ameliorate the problems of being a small country, Singaporeans must realise that there is a physical limit to how far we can go. The quality of life in Singapore has to be taken as a package. Apart from material rewards, Singapore will offer a vibrant arts scene, a safe home for our children and highly efficient public amenities to make up for the high cost of owning cars and landed property. Building a cohesive society While we encourage our high achievers to do well, we need to instil in them a sense of social obligation to other Singaporeans who are less able to compete. They must feel that Singapore is not merely a place to make money but also a nation and a community within which we bring up our children and provide them with the means to build a better future for themselves. In this endeavour, all Singaporeans whether rich or poor must feel as one and contribute in every way he can. All will enjoy the fruits of economic growth but we must accept that some will do better than others. Just as in football, top players are paid more than those who are reserves and play in only a few matches. But if the star players pay no attention to the others, they will stop feeding him balls and he will no longer be able to score any goals. While we cannot turn back the tide in global competition, we will continue to strengthen social stability in ways that do not undermine our economic vitality. We will continue to evolve new ways to meet the aspirations of all Singaporeans while balancing economic imperatives with social needs. So long as we do not lose sight of the challenges ahead of us and put in place rational policies to deal with them, I am confident that Singapore will enter the 21st century as an economically dynamic and socially cohesive nation.