SINGAPORE — Two of the world’s most open and successful economies face tough times as the global downturn marks the end of one era and opens a new period of peril and possibility for both.
Singapore and Ireland have staked their fortunes on being small, export-oriented, investor-friendly dynamos. Singapore was one of the original Asian Tiger economies, and the label passed to the Atlantic nation in the 1990s, as 15 years of 5 percent average growth earned Ireland its “Celtic Tiger” reputation.
But as Kishore Mahbubani, a former Singapore diplomat and author of The New Asian Hemisphere – The Irresistible Shift of Power to the East, told The Washington Times, “being globalized has its downside – when the world economy stutters, the more open economies feel the pain first.”
Both Singapore and Ireland are officially in recession, defined as two consecutive quarters of negative growth.
Last week, U.S. computer giant Dell Inc. culled 2,000 jobs at its plant in Limerick in the west of Ireland, while Singapore’s Trade Ministry stated Jan. 2 that it expected the economy to contract 2 percent in 2009, the worst predicted performance of any Asian economy for the coming year.
Ireland and Singapore in recent years have been at the top of rankings by the Heritage Foundation Index of Economic Freedom and the Foreign Policy/AT Kearney listing of the world’s most globalized economies.
But the downturn has raised questions about the benefits of globalization. Robert E. Kennedy, executive director of the William Davidson Institute and a professor at the Michigan Ross School of Business, told The Washington Times that “the success over the past 20 years of Singapore and Ireland is a sign that globalization is working.”
Ross said that =”traditionally, having a large home market was extremely important for development. Ireland and Singapore have outperformed the global economy by a large margin over the past 10 to 20 years.”
So far the downturn has hit Ireland a lot harder than its city-state counterpart in Southeast Asia. Unemployment is projected to top 10 percent by the end of 2009, and government borrowing will help push spending far beyond the 3 percent of GDP limit prescribed by the European Union, as revenues slump.
Michael Hennigan, founder of the Irish financial Web site Finfacts.com, said “huge inward investment from the U.S. triggered the Celtic Tiger, but it was allowed to develop into an out-of-control property boom, rather than focusing on developing a domestic exporting sector. Between 2000 and 2007, employment in Ireland expanded by 40 percent – in construction, public services, retail and distribution – while employment in the international tradable goods and services sector fell.”
Ireland’s fiscal wriggle-room is limited, as interest rates are set by the European Central Bank in Frankfurt, whose slow rate-change reaction to the global downturn sparked criticism across the continent during 2008.
Alan Barrett, economist at the Dublin-based Economic and Social Research Institute, saw few viable options in the short term for Irish policymakers.
“Ireland needs to regain its competitive edge so that it can position itself to participate in the global upturn. This means getting our cost structure into line with our competitors and will involve wage cuts,” he said.
Such cuts are a touchy subject in Ireland, as in most of the EU states. While private enterprise is cost-cutting, Mr. Barrett paints a different picture of Ireland’s public sector, saying, “The government will have to bring the unions around to this line of thinking.”
Ireland cannot use the currency devaluation option often used when countries lose competitiveness, as it replaced the Irish pound with the Euro in 1999.
Meanwhile, in Singapore, the services sector, about two-thirds of economy, has slowed. Singapore’s port, one of the world’s largest, last November recorded its first decline in traffic since 2001. One of Singapore’s sovereign wealth funds, Temasek, is reeling from the subprime collapse in the United States, as it took heavy losses from its stake in Merrill Lynch.
However, its currency reserves mark one advantage Singapore has over Ireland. Mr. Mahbubani is confident that Singapore, with an estimated $170 billion in hand, “can adapt to changing circumstances, as it has in the past.”
He added, “economically speaking, right now the tide is out, and when that happens, all you see is the garbage strewn on the beach. But the tide must shift, inevitably.”
French bank BNP Paribas has predicted, in turn, a V-Shape or rapid recovery for Singapore’s economy in 2010 – a revival as sudden and sharp as the current downturn.
“The scale of the global policy response – monetary and fiscal – should ensure the recovery is more V- than U-shaped,” said BNP Paribas economist Richard Iley, in a report titled Asia: Apocalypse Now . “In many instances, economies will experience a six- to seven-percentage-point swing in growth rates.”
For Ireland, Mr. Kennedy goes against the prevailing grain with a sanguine long-term prediction. “Ireland is very well positioned to be the services workshop of Europe and should hold on to and strengthen its position as the EU headquarters of many global firms. I am bullish on Ireland’s future. The present gloom is an overreaction.”
He also issued a cautious warning to Singapore: “Offshoring and outsourcing are opening up next opportunities for firms and new competitive risks. Singapore has advantages in being close to China, but it’s a tough neighborhood, with lower-cost rivals with domestic market advantages, such as Malaysia, Philippines and Vietnam, ardently pursuing services exports.”
Mr. Kennedy is author of a forthcoming book on what he deems “the next wave in globalization,” called the services shift; seizing the ultimate offshore opportunity. He says that the world economy is undergoing “a transformative shift” and that future prosperity will accrue to those that “get it” that growth in future depends primarily on services.
Ireland and Singapore “got it” better than most during the past 15 to 20 years, but it seems to be an even bet on whether these recent bellwethers of globalization and prosperity get it going forward.Show