David Skilling a director at Landfall Strategy Group, a Singapore-based economic research and advisory firm wrote in an article in ST
My assessment is that the more important constraints on Singapore’s transition to a productivity-driven growth model are those associated with the structure of Singapore’s economy. Indeed, I would suggest that it is exactly because the existing growth model has been so successful that the transition process to a productivity-led growth model is so challenging.
One way of thinking about this is a Singapore version of “Dutch Disease”, in which one part of the economy becomes so successful that it weakens the competitive position of other sectors. This is because the successful sector places upward economy-wide pressure on wages, costs and the exchange rate. In Singapore, as with some other FDI (foreign direct investment)-intensive economies, the MNC (multinational corporation)-heavy sectors are highly productive, and have correspondingly higher wage and cost structures. This attracts resources from elsewhere in the economy, and raises the cost structure for other Singapore firms relative to their levels of productivity.
This is felt keenly by Singapore firms in internationally oriented sectors that have lower average levels of productivity than the large MNCs. The high cost structures faced by these firms make scaling up entrepreneurial and innovative activity into international markets more challenging. This has contributed to the observed difficulties with growing new global champions from Singapore.