By 1994, per capita income had doubled to $ well in the league of developed countries. Within a generation, the lives of Singaporeans have been transformed beyond recognition. Towards a knowledge-based economy We always knew that as our economy matured, and we approached income levels of the developed world, our growth would slow down. But we did not expect the transition to be so sudden and difficult. The Asian Crisis was a major setback for the whole region. Before the region could fully recover, the US economy went into recession. In Asia, China continues to prosper, which is both a major opportunity and a huge competitive challenge. On top of that, September 11th and the discovery of terrorist groups in Southeast Asia linked to Al-Qaeda, signalled a new and troubling long-term problem. In these troubled circumstances, we entered the third phase of our economic development. We needed to rethink all our economic policies and strategies. The Economic Review Committee (ERC) report sets out what policies we need to change, and what new strategies to pursue. The ERC made many specific recommendations to prepare Singapore for the transition to a knowledge-based economy. But underlying them all are three fundamental, related ideas: Firstly, we must promote innovation, creativity, and entrepreneurship. Secondly, we must deregulate and liberalise the economy, to allow enterprise to flourish. And thirdly, we must encourage self-reliance complemented by community support, and minimise dependence on the state.
The latest retail sales figures provide some comfort with volume growth below that in the middle of last year when consumption was stimulated by windfall gains, predominantly from the conversion of building societies. (Rarely have so many, been so grateful, to so few building societies.) Highs and lows in house prices In the past, domestic demand has been sensitive to developments in the housing market. In the late 1980s house prices increased by 40% in two years, while consumption rose by over 9%. Borrowing using housing as collateral - so called equity withdrawal - amounted to almost 50% of the increase in consumption over that period. The impact of rises in house prices on consumption - which is cause and which is effect - remains hotly contested by economists. A rise in house prices leads not only to an increase in wealth but also to an increase in the cost of housing services. Or, to put it another way, if the price of your home goes up, you will not be able to spend more on other things if you wish to carry on living in your home. So it is not at all clear that changes in house prices will in fact have a significant impact on household spending. Perhaps of greater importance is the role which house prices play in signalling consumer confidence about the future. In common with other assets, such as equities, house prices can respond quickly to news about future economic prospects.