The growth of investment in plant and machinery declined from an annual rate of 23 per cent between 1978 and 1981 to 3 per cent between 1981 and 1984 .sx ( Singapore , Economic Committee 1986a :sx 12) .sx There is , however , evidence of expansion of activities involving skilled labour in which Singapore retained a cost advantage .sx This was most clearly the case in electronics , where more capital-intensive and sophisticated production has developed .sx In 1984 two chip-making plants were established , one by the American-based Texas Instruments and the other by the Italian group SGS .sx This represented a major break in the dominance of the electronics sector by assembly work ( see chapter 6 for a discussion of the significance of these developments in the context of the Asian Regional Division of Labour) .sx However , the other major development between 1979 and 1982 , the rapid growth of computer manufacture and the establishment of Singapore as a major exporter of disk-drives ( Asian Business , December 1981 :sx 46 and December 1982 :sx 65 ) , were essentially higher value assembly activities .sx These moves to higher value production characterised European and American investment but not Japanese since 1971 .sx Japanese investment in Singapore has fallen ; it has gone either to lower labour cost location or to Europe and the USA .sx This was a major blow to the PAP's strategy .sx The failure of international capital to respond fully to the PAP's 'second industrial revolution' reveals the limited extent to which even the most powerful Third World state economic apparatus can influence international capital .sx The generally broader base of the economy to a degree insulated Singapore from the 1979-82 recession that so seriously affected the other NICs .sx However , sharp falls in commodity prices , including oil , slowed the growth of exports ( figure 5.2 ) and made the Singapore economy increasingly vulnerable to any major contraction in the demand for its manufactured goods and services .sx This vulnerability is underlain by the fact that in 1984 66 per cent of goods and services were exported .sx The other Asian NICs are far less dependent on foreign demand - of their total production , Hongkong exports 48 per cent , Taiwan 37 per cent and South Korea 26 per cent ( Singapore , Economic Committee , 1986a :sx 7) .sx In 1985 all the NICs experienced problems , but Singapore was , because of its more exposed position , by far the hardest hit .sx The fall in Singapore's industrial production was much steeper than in the other Asian NICs ( figure ) .sx The impact of the sharp contraction of markets for Singapore's products was reinforced by the collapse of the domestic construction industry boom which between 1982 and 1985 was a major factor in sustaining growth rates .sx Growth came to a shuddering halt .sx GDP decreased by 1.8 per cent , declines of 8 per cent in manufacturing and 17 per cent in construction being partly balanced by a 5 per cent growth in the service sector .sx There were widespread business failures and sharp falls in export earnings and , more spectacularly , foreign investment ( figure ) .sx Unemployment rose from 2.9 per cent in 1984 to 6 per cent in 1986 .sx In addition the number of Malaysian 'guest workers' fell from c. 105,000 to c. 60,000 ( Sieh , 1988 :sx 104) .sx figure&caption .sx The serious impact that the global recession had on Singapore , particularly between 1984 and 1986 , reveals the vulnerability of such an open economy .sx These experiences resulted in some revision of the PAP's development strategies .sx These centred on the recognition that the leading growth area will in future be the service sector with manufacturing playing a major but secondary role ( Singapore , Economic Committee , 1986a) .sx In effect the government merely recognised what had been happening since 1980 and incorporated it into strategy .sx Singapore was to be promoted :sx as a premier Operational Headquarters ( OHQS ) for Manufacturing , Finance and Banking Services , especially risk management and fund management , knowledge intensive industries and other internationally traded services .sx ( Singapore , Report of the Fiscal and Financial Policy Sub-committee , 1986 :sx 1 ) .sx While the aim of attracting high-value industry was retained , the importance of labour-intensive industry was also recognised .sx To this end the continual use of 'guest labour' was accepted .sx However , no major influx of foreign labour is contemplated and given the almost zero population growth labour supply is likely to exert a major constraint on the economy .sx Perhaps more significant was the realisation that Singapore has , since the late 1970s , lost the 'competitive edge' in manufacturing .sx Between 1979 and 1984 total labour costs rose by 10.1 per cent while productivity per worker rose by only 4.6 per cent ( Cass , 1985) .sx During this period Singapore's competitive position declined by 50 per cent against Hongkong , 15 per cent against Taiwan and 35 per cent against South Korea ( Singapore , Economic Committee , 1986a :sx 31) .sx While rising labour costs were seen as the principal cause of this decline , attention has also been drawn to the role of increased rents , interest charges , transport costs and the costs of power and water in reducing the level of profitability ( Singapore , Economic Committee , 1986a :sx 44) .sx A variety of measures has been introduced with the collective aims of reducing production costs , raising profitability and attracting foreign investment .sx Taxation on charges for electricity , gas and telephone calls was suspended and 50 per cent rebates on property taxes granted .sx Particular attention has focused on the reduction of corporation tax from 40 to 33 per cent ( Far Eastern Economic Review Year Book , 1987 :sx 237) .sx However , central to the policy has been the reduction of labour costs , through cutting of the employers' contribution to the CPF from 25 to 10 per cent , wage freezes and actual reductions .sx These policies are being pursued with the active 'cooperation' of the corporate trade unions .sx It is clear that since 1985 there has been a significant retreat from the 'second industrial revolution' strategy ( Rodan , 1987 :sx 172) .sx Whether the revised policies will enable Singapore to regain the 'competitive edge' is a moot point .sx The government's ability to reduce labour costs far enough to compete with lower cost areas is , in particular , highly debatable .sx Since 1985 the government has attempted to stimulate the economy by increasing development expenditure .sx By 1986 state expenditure as a percentage of GDP had risen to 29.3 per cent ( table ) .sx Given the reductions in tax and CPF contributions this is only sustainable if major economies are made in recurrent expenditure and a high level of capital inflow is established .sx caption&table .sx Concern over the level of public expenditure and the need for the state to revitalise the economy by promoting new areas of activity has , since 1986 , led to a systematic policy of privatisation .sx The Public Sector Disinvestment Committee was established to formulate a programme of disinvestment in Government Linked Companies ( GLCs) .sx Some 634 of these concerns together with 7 of the 33 Statutory Boards have been considered .sx However , while substantial progress has been made the state has retained a 51 per cent controlling interest ( Ng Chee Yuen 1989) .sx In addition , investment has brought new areas of the economy under central government control .sx Thus assets are being realised in some sectors of the economy in order to invest in others .sx Ng Chee Yuen and Wagner ( 1989 :sx 216 ) have suggested that there is unlikely to be any significant reduction in the involvement of the state in the economy ; rather the outcome " may be just a change of company portfolios and activities ; and public enterprise would continue to be the instrument of restructuring and development " .sx The various policies implemented since 1985 have contributed to a restoration of confidence on the part of domestic and , more especially , international investors .sx However , given the highly internationalised nature of the Singapore economy - in 1988 , 88 per cent of total demand was external ( Balakrishnan , 1989 :sx 66 ) - the renewed levels of growth that the city state has experienced ( table 1.19 ) are primarily a reflection of a partial recovery of the world-economy .sx In particular , renewed expansion in the demand for electronics resulted in rapid growth in this industry and the sectors that underpin it .sx Indeed it has been the manufacturing sector that has been the main element in Singapore's recovery rather than finance and business services .sx However , during 1989 the emergence of a world surplus of disk-drives heralded a contraction in the electronics sector and a marked slowing of rate of growth of Singapore's manufacturing sector and economy as a whole .sx In addition to Singapore's vulnerability in a period of marked instability in the world-economy the totality of government policies since 1981 has caused increasingly widespread discontent and focused opposition to the PAP .sx Such opposition may well limit government's ability to follow present strategy as well as undermining it by reducing the confidence of foreign investors .sx Thailand In many ways Thailand is the regional polar opposite of Singapore .sx While manufactured exports expanded rapidly from the early 1970s the country has never made a clean break from ISI .sx In addition until the 1980s the economy was probably the least internationalised of the ASEAN groups with a low level of foreign investment ( tables 1.6 and 1.7 ) and MNC activity .sx During the immediate post-war period Thailand was probably the most 'open' of the South East Asian economies and the one in which capitalist production had made least headway .sx However , these conditions did not result in any major influx of foreign activity .sx The lack of any resource not readily available elsewhere in the region , location off the main regional and international transport routes , apparent instability of the governments and proximity to the former Indo-Chinese states combined to discourage foreign undertakings and investors .sx In addition , particularly between 1947 and 1957 , the nationalistic and often erratic nature of government economy policy tended to discourage investors .sx In the immediate post-World War Two period Thai economic development was characterised , like most of South East Asia , by intense nationalism .sx During this period the Chinese population was heavily discriminated against .sx The government of Phibun Songkram ( 1947-57 ) established a form of state-led capitalist development .sx Under this the interests of Chinese and foreign capital were secondary to those of Thai nationals ( Skinner , 1958 :sx 317 ; Ingram , 1971 :sx 287 , 275) .sx Foreign investment and manufacturing activity were inhibited by threats of closure , state-promoted competition and non-renewal of contracts .sx During the period 1947-57 development strategy , while never clearly stated , had all the characteristics of ISI .sx However , these policies did not centre on tariff protection .sx Tariffs were treated primarily as sources of revenue .sx In addition , Akrasanee and Juanjai ( 1986 :sx 77 ) have suggested that the Phibun regime " deliberately avoided protecting industries for fear of promoting the Chinese community " .sx Rather , industrialisation was promoted through the direct participation of the state in production .sx State enterprises were set up with monopolies in such areas as brewing , paper manufacture , sugar refining and gunny sack production ( Marzouk , 1972 :sx 195 ; Silcock , 1967 :sx 262-3) .sx While some were fully state-owned , others were under the control of NEDCOL ( National Economic Development Corporation Limited) .sx The majority of these undertakings were effectively a partnership between the state and major Thai and Chinese business interests ( Hewison , 1985 :sx 276 ; Ingram , 1971 :sx 288) .sx Through NEDCOL the state acted as a guarantor of loans enabling comparatively large-scale foreign funding to be obtained for many of these enterprises .sx However , direct state investment played a major role in the development of manufacturing .sx The government's share of domestic investment rose from 32 per cent in 1952 to over 38 per cent for the period 1953-5 ( Akrasanee and Juanjai , 1986 :sx 83) .sx Evaluation of the state enterprise programme is difficult .sx The state concerns became bywords for corruption and inefficiency , none of them ever reaching target production levels ( Ingram , 1971 :sx 287) .sx In addition , after the overthrow of Phibun in 1957 , the record of NEDCOL and the state enterprises became a favourite area of propaganda to further discredit his regime and the direct involvement of the state in production .sx However , the state enterprises , whatever their failings , did initiate domestic production in a number of important areas and set Thailand on the ISI road .sx By 1957 there was mounting opposition to the Phibun development strategy .sx This stemmed from domestic and foreign investors , the World Bank and the Bank of Thailand .sx The protests do not appear to have been directed at ISI per se but rather at the haphazard way in which the state intervened in the economy .sx