Government's credible commitment in economic policy-making: Evidence from Singapore

Abstract

Studies of participatory policy-making show citizens’ participation in policy-making yield better solutions and more successful policy performance. But studies of the Asian Newly Industrialized Countries (NICs) of South Korea, Singapore and Taiwan attribute the successful economic policies and performance of these NICs to strong governments that limit citizens’ participation or ignore their policy preferences. Are the Asian-NICs unique? This paper examines Singapore between the 1960s and 1990s to show empirically that, contrary to ¢ndings in Asian studies, the government bargains by credibly committing to include and realize private sector input. This government bargaining through credible commitment alleviates production investors’ concerns that government may arbitrarily set policies or even seize property. The government’s bargaining conforms to the following pattern: When the economy performs optimally, the government does nothing; however, when it is less-than-optimal, the government compensates production investors or demotes or replaces its representatives or agents, and increases private sector participation in monitoring, evaluation or modi¢cation of the government’s policies. This evidence of government bargaining advances existing scholarship in important ways. First, it provides a theoretical framework to understand if, how, and when government bargains with resource owners in the less- democratic NICs. In particular, the framework reveals how government bargaining may be credible despite the lack of formal constraints in these countries. Second, it shows that policy success in the Asian-NICs is the result of government bargaining with resource owners and not the result of limiting participation. This credible commitments argument, then, provides a new perspective on policy success in the NICs.