What do the China Development Forum, Lee Kuan Yew, and the World Bank have in common?

This week has seen the untimely passing of one of Asia’s and the world’s great statesmen, Lee Kuan Yew. There has been an outpouring of eulogies to celebrate his considerable contributions to the world. One of these contributions, of course, was inspiring Deng Xiaoping to embark on economic reforms during the course of a visit by Lee to China in 1976. So it is fitting that during Lee Kuan Yew’s final days, China’s current president, Xi Jinping, was outlining the next set of reforms at the China Development Forum.

It is extraordinary that a city-state, with a citizenry of just over 3 million people, often described as unique because of its size, geography, and history, can have had lessons for China, but that is indeed what happened. And now it would appear that this legacy is being extended, as China’s legacy of achievements in some areas is being taken up by the World Bank and extended to the rest of the world.

The big idea is that development must be pragmatically and persistently pursued over the long term, with constant fine-tuning and adaptation to the times and without ideology. In both Singapore and China, this fine-tuning has been done by government, albeit in different ways.

The “authoritarian bargain”

Singapore is one of the pioneers, and most successful practitioner, of the “authoritarian bargain,” a contract between the state and its citizens in which the former provides material and economic benefits to the people, and in exchange the people legitimize (or at least refrain from challenging) the state’s authority. This is now the model espoused by China and by many countries around the world.

The alternative model is that democracy, by presenting a robust competition of ideas, permits fine-tuning of development policy. Many countries like the Republic of Korea have moved towards democracy as they developed and this has helped sustain growth. An influential 2008 paper by Papaioannou and Siourounis in The Economic Journal shows that the historical evidence is that the democratic model is correlated with higher average long-run growth. China and Singapore are awkward exceptions that show that the average country experience cannot be easily extrapolated to specific country situations.

The experiences of both Singapore and China suggest that the key to success in an authoritarian model is to constantly update reforms and growth strategies to fit prevailing global conditions and to conform with new realities created by old growth strategies. Both countries have been “impatiently patient.” Impatient, because they both insisted on accelerated development. The “third world to first world in one generation” narrative that has driven Singapore has played out in China too, and increasingly resonates in other countries. The patience refers to the tactics of implementing reforms. Both Singapore and China have avoided big-bang, sudden, and sweeping change. Instead they have done pilots, started with small wins as Kishore Mahbubani has argued, and only then systematically extended their scope after a hard-nosed evaluation of whether the pilot succeeded or not.

Managing mistakes

There have been plenty of mistakes. From 1979 to 1984, Singapore attempted to force private industry to upgrade by instituting a policy of high wages. Government officials worried that the export-led growth model, based on foreign investment, was restricting Singaporean labor in low-productivity growth assembly jobs. They wanted to accelerate productivity growth. The results were not good, although the diagnosis of low labor productivity upgrading was sound. High wages contributed to a recession in 1985 and the policy was abandoned. Singapore found other industrial policy mechanisms to achieve the restructuring to higher value added, with more success.

Similarly, China has had setbacks with reform pilots that consequently slowed their rollout: pension portability and urban land market reform are both critical to long-term development in China, but the pilots have not gone well and the best way forward has yet to be determined. China is also struggling to develop better instruments to deliver inclusive growth. The urban-rural divide remains stubbornly high, and hukou reform and universal health care have lagged. Adjusting for prices, China is richer today than Britain was in 1948 when the National Health Service was introduced. Yet the government is cautious about scaling up inclusive growth policies without leading to long-term welfare dependency.

There is little regularity about whether and when reforms need adjusting, or even about the likely impact of reforms in different country contexts. For example, even though Singapore is a market-oriented economy, it is not a purely private sector driven economy. The government of Singapore regulates land ownership and sales, government-linked corporations produce up to 60 percent of GDP, and the country boasts two of the largest 10 sovereign wealth funds in the world. Anywhere else, this could be a recipe for disaster. Singapore has managed it partly by making sure that politicians are squeaky clean. There is no corruption. This may be due to high civil service wages, or from the likelihood of being caught in a small place where people know a lot about each other. In China, on the other hand, corruption from state economic engagement in the market economy is a significant problem. Premier Li refers to “tigers in the road” restraining economic development. In other words, the way in which the government has driven growth in China is now retarding further development. There has to be a course correction that the Chinese leadership is now embarked upon.

Can we export Lee’s results and maintain flexibility?

This search for practical on-the-ground know-how to get specific results, and getting the timing of reform right, is also behind World Bank President Jim Kim’s drive to restructure the World Bank into a “solutions” institution. Each of 14 global practices at the World Bank now has a solutions unit (and in addition there are cross-cutting solutions groups), and delivery of results is the focus. Indeed, this is a fashion that has swept all development agencies. It reflects an urge to find a scientific approach to development, one where specialists in various disciplines can be called upon to give professional advice, in the same way that a doctor can get a consultation from a colleague in any number of specializations. What remains to be seen is whether local country knowledge can be combined with global technical expertise in an efficient way, or whether a “good practice” global approach will crowd out seemingly heterodox local solutions. The lesson from both Singapore and China is that it is important to learn from the external world, but to adapt solutions and timing to the local context.

If the World Bank gets this balance right, then Lee Kuan Yew’s impact will continue to spread to a global scale. His pilot in Singapore has triggered reforms in China, and perhaps will inspire the World Bank to spread his approach further. The risk is that the adaptability he consistently demonstrated will get constrained by a search for the optimal solution. What the China Development Forum and Lee Kuan Yew have in common is the determination to constantly adapt to changing circumstance. Let us hope this will also characterize the World Bank’s solutions units.