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Was Dr Tony Tan responsible for the 1985 recession?
August 25th, 2011 | Author: Your Correspondent
In 1985, Singapore plunged into its first recession, and the minister responsible
for the economy at that time was Dr Tony Tan, who has trumpeted on his
financial and economic acumen in this Presidential Election.
Dr Tony Tan joined the Cabinet in 1980, and he was the Minister for
Trade & Industry (1981–86) and Minister for Finance (1983–85).
(Video: here)
In the video shown at the EDB 50th anniversary exhibition at the
National Museum, civil servant extraordinaire Philip Yeo
(EDB Chairman 1986-2001) blamed the 1985 recession on the
PAP government’s mismanagement of the economy.
“The 1985 recession was a self-created recession. Between 1981-1985,
we had a policy in government to uplift from no-skill to high-skill.
What the government did was impose very high CPF. The CPF went
up to 50%. All costs went up, but at the same time there was no
incentive given to encourage companies to upgrade. Just pure punishment.”
Indeed, the PAP government attempted a bold restructuring of the
Singapore economy in the early 1980s, often referred to as its
Second Industrial Revolution. This was to move the economy
into skill- and capital-intensive industries producing high
value-added goods. And one of the means to achieve it was
through the use of National Wages Council (NWC) as a means of
raising wage rates well ahead of productivity so as to force
firms to upgrade and to move “upmarket.”
The Singapore economy started to slow significantly after the first
quarter of 1984 and recorded a bottom -10.1% year-on-year
growth in the second quarter of 1985, before coming out of the
recession in the first quarter of 1986. Overall, real GDP declined by 1.7% in 1985.
While the external factors had a role to play, internal events were
key in explaining the causes of the recession. The most important
of these, the rise in unit labor costs, can be linked directly to the
policies of the Second Industrial Revolution. Labour costs ran far
ahead of productivity, and as a result Singapore lost its
international competitiveness significantly against its
Asian Tiger peers – Taiwan, South Korea and Hong Kong.
In March 1985, Dr Tony Tan announced the creation of an
Economic Committee to study the causes of the recession and
indentify policy remedies. The committee was however chaired by
the newcomer BG Lee Hsien Loong, who had only been appointed
as Minister of State in MTI in January 1985, right after the
December 1984 election. The Economic Committee completed its
report one year later, and its policy recommendations included
reducing CPF contributions, wage restraint, reduction in
tax rates, the divestment of GLCs, and the promotion of services sector etc.
In February 1986, BG Lee Hsien Loong was appointed acting
Minister for Trade and Industry, replacing his predecessor.
Dr Tony Tan, who had also relinquished the Finance ministry
portfolio, returned to the Education ministry.
The mismanagement of the economy during Dr Tony Tan’s
stint as the main minister in charge of the economy is evident
in his biography, which he has nothing to show for in his
5 years as the Minister of Trade and Industry.
(See page 2 of Tony Tan’s biography: (read more here)
Though the other Presidential candidate Tan Jee Say was an
Administrative Service officer in MTI in the early 80s, he was
promoted to be the Principal Private Secretary of the then
DPM Goh Chok Tong from 1985 to 1990.
August 25th, 2011 | Author: Your Correspondent
In 1985, Singapore plunged into its first recession, and the minister responsible
for the economy at that time was Dr Tony Tan, who has trumpeted on his
financial and economic acumen in this Presidential Election.
Dr Tony Tan joined the Cabinet in 1980, and he was the Minister for
Trade & Industry (1981–86) and Minister for Finance (1983–85).
(Video: here)
In the video shown at the EDB 50th anniversary exhibition at the
National Museum, civil servant extraordinaire Philip Yeo
(EDB Chairman 1986-2001) blamed the 1985 recession on the
PAP government’s mismanagement of the economy.
“The 1985 recession was a self-created recession. Between 1981-1985,
we had a policy in government to uplift from no-skill to high-skill.
What the government did was impose very high CPF. The CPF went
up to 50%. All costs went up, but at the same time there was no
incentive given to encourage companies to upgrade. Just pure punishment.”
Indeed, the PAP government attempted a bold restructuring of the
Singapore economy in the early 1980s, often referred to as its
Second Industrial Revolution. This was to move the economy
into skill- and capital-intensive industries producing high
value-added goods. And one of the means to achieve it was
through the use of National Wages Council (NWC) as a means of
raising wage rates well ahead of productivity so as to force
firms to upgrade and to move “upmarket.”
The Singapore economy started to slow significantly after the first
quarter of 1984 and recorded a bottom -10.1% year-on-year
growth in the second quarter of 1985, before coming out of the
recession in the first quarter of 1986. Overall, real GDP declined by 1.7% in 1985.
While the external factors had a role to play, internal events were
key in explaining the causes of the recession. The most important
of these, the rise in unit labor costs, can be linked directly to the
policies of the Second Industrial Revolution. Labour costs ran far
ahead of productivity, and as a result Singapore lost its
international competitiveness significantly against its
Asian Tiger peers – Taiwan, South Korea and Hong Kong.
In March 1985, Dr Tony Tan announced the creation of an
Economic Committee to study the causes of the recession and
indentify policy remedies. The committee was however chaired by
the newcomer BG Lee Hsien Loong, who had only been appointed
as Minister of State in MTI in January 1985, right after the
December 1984 election. The Economic Committee completed its
report one year later, and its policy recommendations included
reducing CPF contributions, wage restraint, reduction in
tax rates, the divestment of GLCs, and the promotion of services sector etc.
In February 1986, BG Lee Hsien Loong was appointed acting
Minister for Trade and Industry, replacing his predecessor.
Dr Tony Tan, who had also relinquished the Finance ministry
portfolio, returned to the Education ministry.
The mismanagement of the economy during Dr Tony Tan’s
stint as the main minister in charge of the economy is evident
in his biography, which he has nothing to show for in his
5 years as the Minister of Trade and Industry.
(See page 2 of Tony Tan’s biography: (read more here)
Though the other Presidential candidate Tan Jee Say was an
Administrative Service officer in MTI in the early 80s, he was
promoted to be the Principal Private Secretary of the then
DPM Goh Chok Tong from 1985 to 1990.
