Some Small Countries Do It Better: Rapid Growth and Its Causes in Singapore, Finland, and Ireland by Shahid Yusuf
My rating: 5 of 5 stars

This excellent small book of just 169 pages provides a systematic analysis of evidence pertaining to a particular development path that a group of three small countries—Singapore, Finland and Ireland—followed.  I read the book with special curiosity, not only due to a general interest in economic and social development, but because I was born and grew up in one of the countries, Finland, and wanted to know whether I would recognize my home country from their analysis. I can now confirm that I mostly did.

Collectively termed Sifire, they experienced strong growth and transformed their economies from middle-income countries to some of the richest in the world in the period since the mid-1980s. The authors’ premise is that: “The path followed by these three countries offers a different perspective on growth. Their approach may be of greater relevance than the well-worn East Asian model in the highly competitive global environment of the early 21st century because it does not necessarily assume heroic levels of investment” (p. 3). Moreover, they suggest that “it may be better tailored to the opportunities available to a heterogeneous group of middle- and lower-middle-income economies …, as well as to late-starting, low-income countries that, because of their youthful, rapidly increasing populations, need to grow at high single-digit rates to create enough jobs and to double per capita income in 10 years” (p. 3).

The authors provide a number of reasons for their focus on these particular three countries. Firstly, they acknowledge that “between 1985 and 2005, the three Sifire countries demonstrated a remarkable capacity to learn and, by improving the quality of learning, to achieve technological catch-up, develop manufacturing capabilities of the first rank, and increase their ability to innovate.” Demographically they are of comparable size. Ireland, the smallest, had a population of 4.4 million in 2008, as compared with 5.3 million for Finland, the largest of the three countries. In 1985, Sifire were all middle-income countries, with per capita GDPs ranging from US$6,000 to US$11,000. By 2008, they were among the countries with the highest incomes as a result of steady rates of growth. Singapore’s economy grew the fastest (5.0-6.4% p.a.) on average, followed by Ireland’s, with Finland’s economy in third place (2.9-4.6% p.a.). The authors assert that the Sifire growth was closely linked to “competitiveness, derived in large part from institutional factors and the quality of the countries’ human resources.” (pp. 21-22)

The authors are both economists with no discernible bias for anything but rather classical economics. Shahid Yusuf has a history in the World Bank and is now Chief Economist of Growth Dialogue at the George Washington University School of Business in Washington, DC. Kaoru Nabeshima is Director of Technological Innovation and Economic Growth Studies Group in the Institute of Developing Economies of Japan External Trade Organization (IDE-JETRO). Chapter 1 of the book – Looking for Growth – reviews the conventional wisdom on economic growth before turning more specifically – and more interestingly – to the Sifire group. In this context, they acknowledge the key role governments played in promoting the development strategies in each of these three countries. They recognize how the three countries devised consultative arrangements involving key segments of the business community, labour unions or other influential representatives able to communicate the concerns of workers and exercise a degree of discipline over their constituencies, the financial community, and the education sector (or, more broadly, the learning economy, which includes preschooling and vocational training). This has enabled the governments to “achieve a workable consensus on economic objectives and strategies, and to agree on emergency remedial policies when the nation faces crisis” (p. 16).

Turning specifically to Finland, the authors say it “demonstrates the workings of an advanced democratic system that has perfected the political and labour market institutions for consensus building around key economic objectives and the capacity to arrive at significant macroeconomic results by coordinating the initiatives of a number of small urban centres” (pp. 23-24). When I grew up in the country, ‘consensus’ was the key word. The frequently tough negotiations between the labour unions and central employers’ and industry organizations were a perennial feature. Despite some hard rhetoric, they all eventually ended up in both sides making concessions for the common good. The government played a key role in facilitating these. One feature of the multiparty democracy in Finland is the emphasis on the qualifier ‘multi.’ There have long been many parties active on the national political scene and none of the 3-4 big ones ever reached anything even remotely resembling an absolute majority (in the latest parliamentary elections, the conservatives were the largest party with 20.4% of the vote, while the second, the social democrats, got 19.1%). This forced the country always to have coalition governments, which together with a general consensus regarding the overall development goals guaranteed that there’d never been major disruptions or changes in the chartered course.

In Chapter 2 – How Sifire Compressed Development – the authors move into analysing the context of the Sifire experience. The Sifire developed against a backdrop of globalization (in the case of Finland and Ireland, the integration with EU provided an important context) and this road was not always smooth. In fact, all of the countries faced crises during the late 20th century. In the authors’ analysis, the advantages of a consensus-based development path became apparent during the crises that helped “crystallize options and prod decision makers to choose among alternatives by systematically gathering and evaluating data and by canvassing the views of market participants.” Further, the crises “highlighted the desirability of mechanisms to reduce investment risks for domestic and foreign investors and thereby raise the level of investment through better coordination of the decisions of key players, of public investments, and of policy incentives. (p. 40)

A major crisis for Finland was the collapse of the Soviet Union, which had been a major market for Finnish products over the past several decades. Entire industries had developed around supplying the seemingly endless and hardly discerning eastern market. Fortunes were made by the so called ‘Red Barons’ who manufactured and sold to the communist market, getting paid in hard currency through the government of Finland that in turn imported oil and other goods at advantageous prices (incidentally, this steady supply of energy from the Soviet Union shielded Finland from the worst impacts of the OPEC-induced energy crises in the 1970s). My uncle was in the garment industry, but never bet his fortunes on the Soviet trade. I remember him telling me in the 1980s how his peers on what was then a garment focused street in Helsinki were mocking him: “Uitto goes to Paris for fashion shows; what a waste of time! We manufacture one-size-fits-all boots and frocks in a single model and colour and the Russkies buy as many as we have time to produce!” Well, the Russian market was suddenly gone overnight and so were all of those who had relied on it. Finnish unemployment shot from negligible to over 20%. This forced a rapid restructuring of the economy.

The authors identify a third success element, which is the “governments’ capability to implement decisions, to follow through with promises, and to ensure that incentives were actually delivered with the minimum of transaction costs. Crises in these small economies underlined the advantages of public organizations with a limited number of clear objectives, a readiness to engage with key stakeholders, streamlined structures with few layers, and strict accountability” (p. 41). The long-term strategy for growth was further centred on technology as a driver, which required building capabilities in the countries (p. 44). They conclude the second chapter by stating that: “Globalization and the pace of technological change served as the enabling conditions for these countries – as they did for others as well – but Sifire’s widening lead over other countries emerged from the forging of domestic consensus in support of long-term-development strategies that were keyed to the quality of human capital, intangible factors, and an open, productively networked system of innovation and learning. The focus on human capital committed these countries to building their education and training assets. The importance attached to intangibles and the soft infrastructure undergirding development meant that institutions were given due attention” (p. 48).

The chapters that follow focus more in detail on these specific success factors. Chapter 3 considers the Elements of a Learning Economy, providing a host of statistics on the major shift in the structure of exports from primary commodities to high-tech products in Sifire. The chapter also provides an overview of the education sector, on the premise that this economic transformation was only made possible by the investment in human capital (p. 65). It focuses on the comprehensiveness and quality of education, as well as research in science, technology, engineering and mathematics. Apart from the broad-based quality education, innovation was spurred by an open economy and the focus on IT and telecommunications industries. The authors conclude that all three countries leveraged “technological advances in key subsectors with the rise of advances in electronics and telecommunications, thereby opening new industrial pathways. Globalization in general – and for Finland and Ireland, integration with the EU – widened market opportunities that were essential for their industrial development. Without access to large external markets, these small countries would not have been able to grow as rapidly and consistently as they have done” (p. 96).

The transition was enabled by an education strategy that responded to the economy’s needs. Sifire focused on providing “universal primary education and expanded secondary and tertiary education as demand for higher skills began rising. High levels of enrolment in the science and engineering fields enabled the Sifire countries to accelerate industrialization and assisted in progressive upgrading of new and traditional industries” (p. 97).

Chapter 4 – Governance and Growth – starts off with recapping some theories of endogenous growth and institutions. Yusuf and Nabeshima then return to the issue of “leadership that forged a consensus on economic objectives and the means for achieving them” (p. 103). They continue that: “A leadership committed to a firm economic agenda that enjoyed broad support could strengthen the economic governance institutions and deepen the organizational capabilities to enforce rules, uphold the law, and frame as well as implement policies” (p. 104).

A large part of this chapter focuses on coordinators that helped the countries en route to a knowledge-intensive economy. In the case of Finland, the system involved a host of actors from the public and private sectors. The government’s Science and Technology Policy Council set policy that individual ministries implemented. Financing for both the private companies and academic institutions was channelled through the Academy of Finland, Tekes (a unit under the Ministry of Trade and Industry) and the Finnish Innovation Fund, Sitra, directly under the parliament. Universities, research institutes, business R&D, industry and academic societies were all harnessed to the task (pp. 105-107). Some of the more hard-core free-marketers in the USA today might condemn such public-private partnerships as unfair competition, but this has been the practice in virtually all successful countries.

The authors also underscore the importance of urban networks, which facilitated the creation of social capital. Admittedly, Sifire benefited from a small number of dominant cities (in Singapore’s case just one) where the people and activities are centred.

The next chapter deals with Delivering Quality Education, the million dollar question that has eluded educators and policy-makers in many countries, not least in the United States. Yusuf and Nabeshima boil the Sifire success to six factors, which they elaborate on and which I quote in an abbreviated form here: (1) Raising and sustaining student performance at high levels are inseparable from non-school factors, such as family circumstances, the value a society attached to education, and the conviction that excellence is necessary for progress toward a better, innovative and more prosperous society. (2) Quality needs to be pervasive, extending from the primary all the way to vocational and tertiary levels. (3) Student performance and the pursuit of excellence must continually be reinforced by family and social environments. (4) Teacher qualifications. (5) Pay and prestige. (6) Teacher autonomy in fine-tuning the curriculum and pedagogical techniques and in evaluating students (pp. 119-123). Several of these factors fly in the face of what educators elsewhere are trying. In the US, the focus is distinctly on the stick rather than the carrot. Standardized testing is seen as a solution and schools that fall below the averages risk having their funds withdrawn. Parents blame teachers for failing their kids, without taking responsibility themselves.

Allowing teachers the freedom to design their own curricula for learning, rather than answering tests, obviously hinges upon having quality teachers. In America, teaching is not a respected profession and the pay is poor. Consequently, statistics show that those graduating from teachers’ colleges have lower than average academic grades. In Finland, all teachers are required to have master’s degrees and the competition to enter teacher training in the University of Helsinki is harder than getting into the medical school. I for one credit my high school teachers in geography, history and languages for my lifelong interest in world affairs. A perverse conclusion of market thinking in America has devalued this most important of professions, which now is seen as not producing direct economic value and therefore doomed to low pay and prestige in the public sector.

The sixth and final chapter attempts to distil the Message from Sifire, condensing it under three main headings: (1) Pragmatic governance; (2) Leveraging global markets and general-purpose technologies; and (3) Quality of human capital. In this summary, I had the feeling that, despite their own evidence to the contrary, the authors seemed to downplay the importance of the public sector and the government. Perhaps this was not fully in line with the ideology of the economists or the World Bank that published the book.

They then draw implications for African countries, while identifying differences in the situations. Yusuf and Nabeshima acknowledge that all is not rosy for Sifire and, especially, Ireland and Finland have later again faced crises. However, they affirm that this “cannot diminish the remarkable economic progress by the three countries against considerable odds. Nor does the postcrisis slowdown detract from the relevance of their experience for ambitious low- and middle-income countries” (p. 132). They conclude: “Whether countries hew to a Sifire-type strategy or choose a different approach, the outcome will be crucially linked to design, planning, institutional architecture, and implementation. The efficacy of these elements will be affected by governance mechanisms” (p. 144). I would argue that the relevance goes beyond the middle- and low-income countries that are explicitly targeted. In fact, many of the lessons are directly relevant to the debates currently raging in the United States.


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In defence of decency

At midnight I walked back to my hotel through the darkened city park. On this July night, not even the lights here and there could lighten up the quiet and verdant place by the lake, mostly because the lindens and other trees were covered in thick foliage through which the lamplight hardly could penetrate. It was lonesome although I was not alone. There were shapes lurking in the shadows. Mostly lovers embracing each other, but also small groups taking advantage of the balmy summer night. I could see the shapes of wine bottles as they were lifted to thirsty lips. It never crossed my mind that I should be worried that someone might try to rob me (or worse). I was in Geneva, Switzerland, a place known for its safety and decency.

When you talk with people who 'have been around', Geneva, and entire Switzerland for that matter, often come up in discussions as a 'boring' place. Yes, it's beautiful, but so dull and regulated. Pedestrians wait for the light to turn green before they cross the street, even if there's no traffic. And when there is, cars stop politely when you're about to step onto the zebra crossing. It's so neat and clean; a real traveller would need some more grit. The trains leave exactly on time, so if you're even 20 seconds late you've missed it.

Horrible, isn't it? How can a creative and free human being live under such constraints? In New York where I live, every self-respecting person takes pride in not hesitating to exercise their rights enshrined in the Constitution. Pedestrians hover halfway through the street when there's heavy and unruly traffic from all directions, thus making everyone a little less safe and a little less efficient. But waiting would show your meekness and respect for rules that someone else created. Completely unacceptable. It would cramp your style, even if it benefitted the society as a whole. Maybe it's a reaction to the fact that your risk of being run over by a rogue driver is highest when the walk/don't walk sign is green at the same time as that of turning traffic from behind. If one runs through red lights, like half of the people who drive in the city, then everyone is alert and avoids accidents.

And isn't it a sign of fascism that trains run on time? That's what Mussolini made them do in the Italy of the 1930s. It doesn't take into account that individualistic and relaxed people have to have some leeway. Never mind that they make others wait. It's their individual right.

The cleanliness must also be some form of fascism. At least it is very bourgeois and thus reprehensible. A society that is so efficient and organized must surely be repressive to the wild individualism that we're all entitled to. My freedom is sacred, even if it tramples on yours. It is my right to mess up the environment in my pursuit of my happiness.

Friends of mine once moved to Zurich. In their apartment building there was a written house rule that, after 10 pm, men also had to sit down to pee. This was so that they wouldn't disturb the neighbours with the sound of the stream hitting the water. They didn't last long and moved back to Tokyo. But hey, wait a minute, isn't Japan also supposed to be a conformist society of uniformed robots? Well, in fact, no. It's another society that allows for the pursuit of individual interests, however nutty or eccentric they may be (think about obsession with cafés where the waitresses are dolled up as manga characters), as long as they do not infringe on other people's freedoms to pursue their own happiness. Freedom with responsibility, such a new and foreign idea, especially to Americans.

Another such repressive place, of course, is Singapore. A place everyone with any sophistication loves to hate. Chewing gum is frowned upon, not because it's an ugly habit, but because the chewers have a tendency to stick their chewed globs mixed with saliva in places where other people step or, worse, try to hold onto for balance on public transportation. Anyway, public transportation is for losers, of course. Just look at the lowlife who take the 'loser cruiser,' as buses are called in the States. If you have your own car or SUV you don't have to deal with such petty inconveniences. Unless someone messes with your car.

Several years ago, Singapore had the audacity of caning an American youth, Michael Fay, for running amok in the city and spray-painting cars that had the misfortune of having been parked by their owners along his route. This was barbaric (the caning, that is). Even the then-president Bill Clinton interfered and successfully convinced the government of the independent country that an American should not be so inhumanely punished for just innocently expressing his stupidity. Singapore agreed to reduce the number of the lashes from six to just four, but still the poor lad did get spanked for his offence and could not sit for a lengthy while. It must have been so humiliating and painful. A gross violation of human rights! And for what? Just for some youthful indiscretion and fun destroying innocent people's property on which they had spent hard-earned pay. Everyone does that, right? (Somewhat ironically, just this June a Swiss business consultant, Oliver Fricker (32), confessed to spray-painting a Singapore metro-car and may thus be subject to the same fate.)

Singapore, like Switzerland, is such an oppressive place. The only thing one can do is to go drown one's sorrows on Clarke Quay or one of the other clean and lively entertainment areas by the seaside and join the thousands of other merrymakers for a Singapore Sling and some fabulous fried noodles (guaranteed not to make you sick, because the fascist state has set up draconian health controls on the restaurants that restrict the God-given right of the entrepreneur to maximize his profit). Or go to one of the many clubs for some music and dancing with the scantily clad locals (poor things are not even obese).

It seems indisputable from the evidence of places like Switzerland, Japan, Singapore and, yes, my country of origin, Finland, that wealth and its relatively even distribution, high levels of education throughout the population, and a strong government are good for the environment and well-being of the people.

Back to Geneva. It's a small town, that's for sure. But for its size it's not dead. Just this past Tuesday night I was sitting with my friend Azusa in a waterfront bar by Lac Léman. The place was crowded, but not unruly. Plenty of people were having drinks and mingling with others from different national and ethnic backgrounds in the cosmopolitan town. The noise level was such that one could actually have a discussion. All were dressed well. Not fancily or expensively, but in style. Most women looked quite sexy in their summer dresses. Midnight came and the keepers of the establishment rapidly and effectively expelled us. The closing hour specified in their licence had arrived and everyone had to leave, which we all did in an orderly fashion and without protest. Had we wanted to continue, we could easily have gone to any one of the many bars that have a licence to stay open until 2 am or stay in a nightclub until 5 am. We did not feel the urge, nor did we feel particularly deprived by the fact that we were thrown out onto the beautiful lakeside walk at this early hour.

As I wrote this, the weekend was coming and the lakeside was even more crowded than on that particular Tuesday. Some hours ago the sun had set over France. The recognizable silhouette of Mont Blanc behind the gorgeous lake had faded into darkness. The restaurants in the city centre were still teeming with people and there was excitement in the air: after all, this weekend would bring important matches of the football World Cup in South Africa and the Wimbledon finals. When I headed towards the leafy darkness of the park, the sidewalk bars were still selling drinks and hundreds of people were perusing them. Those who couldn't fit into the seating areas were lounging leisurely on the lawn. The establishments served the beers in real glasses, as opposed to plastic. It was a risk, of course, as common sense would dictate that the glasses would be broken on the grass or on the next guy's head. But these domesticated people didn't do that. They just lay there enjoying the balmy evening in harmony with friends and actually returning the empty glasses to the bars.

They must have felt so deprived. After all, they didn't even have concealed handguns on them to protect their freedom and liberty from each other and the government.