When Lee Kuan Yew took over the reins of an independent country in 1965 the odds were that it may not survive. There was no reason to be optimistic then, the country had no natural resources and no manufacturing base to speak of, it had nothing to offer for trade. The only thing going for it was its excellent port facility built by the British -- a conduit for trade and trans-shipment to other countries in the region. In order to survive they had to build an economic model that was sustainable for the long term, and build it fast to create jobs for a population of two million. This was a tough call and a challenge of gigantic proportions.

Lee Kuan Yew, the intrepid founder and chief architect of modern Singapore had a vision to offer to this fledgling city state.. He realised that the only way the country could survive was by opening up its doors and linking Singapore with mature economies like Western Europe and US. And also to act as an economic hub for the East Asian economies. This was ambitious, especially when he had virtually nothing to begin with, after having just severed relationship with Malaysia. But not for a moment despondent, he set about inviting multinationals to set up their manufacturing entities. He personally went marketing, visiting the head offices and CEO's of global companies and convinced them that Singapore was the right place for them to set up a cheaper manufacturing operations, supported by an excellent port facilities to ship their products out to rest of the world. He knew however that in order to attract the global companies he had to offer, a rule of law, best of breed infrastructure and a disciplined workforce. Singapore needed to provide a comprehensive enabling environment for the international companies, to set up shop. The result was phenomenal, they came in droves because Singapore offered not only a cheaper cost base but also the right physical, legal and financial infrastructure, the best one could find in Asia and readily comparable to Western standards.

Singapore also started building its own industries, there was not much of private capital so the state jumped in with its monetary reserves and helped create impressive corporates like Singapore Airlines, Singtel, PSA Corporation, Singapore Technologies, DBS Bank and more. They were run efficiently and unlike state owned enterprises in other parts of Asia, these corporations made money while keeping a squeaky clean reputation. It used its reserves wisely, built from high savings albeit some of it mandatory and created substantial investment funds like Temasak Holdings and GIC. Today Temasak owns 21 per cent of domestic market capitalisation and GIC manages around US$100billion of investments overseas.

The idea of a regional economic hub also came to fruition. Singapore built the right infrastructure to cater to the business and consumer needs of countries like Malaysia, Indonesia and Thailand. It provided efficient banking facilities and trade links. Consumers from the region traveled to Singapore to attend to their medical needs as it offered a high ethical and professional standard of service. Singapore also turned itself into a shopper's paradise and a food haven. While the husbands from the region cut their business deals, the wives shopped and dined well.

All this was created in just over thirty years, not bad. Commendable achievements! So what went wrong ? Truth is, nothing that Singapore did was ill conceived, just that rest of Asia has caught up with them. Today global companies wanting to set up in Asia ex-Japan, be it a representative, sales or manufacturing entity, has a choice. It could be Malaysia, Thailand, Indonesia (maybe) or Singapore in South East Asia or Hong Kong, Taiwan, Korea and the inevitable China in North Asia. They all now offer an acceptable set of infrastructure and a reasonable enabling environment, which for many years was almost a monopoly of Singapore.

When cost becomes an overriding consideration, China wins hands down. China is responsible, for hollowing out a large proportion of existing manufacturing operations of global companies from other Asian countries. The shift of manufacturing from Singapore to China has been relentless and is partly responsible for the current high unemployment and low growth. But all is not lost. When it comes to a decision of spreading the risk that is not putting all your eggs in one basket, in this case China, Singapore features well. Despite huge advances in China, it still remains unpredictable, multinationals prefer to cover this risk by considering stable Singapore as a regional headquarter or sometime even establish a manufacturing unit irrespective of its high cost base. High productivity also favours Singapore compared to China. Notwithstanding, Singapore has suffered badly from the advent of China as a global manufacturing base.

Other factors that have gone against this city-state is its inability to offer scale in manufacturing, after all it has a population base of only about four million which also restricts potential in domestic market.

So how is Singapore remaking itself? As one would expect, the country has set about tackling this problem with the same intensity and fervour that it had adopted to build a viable nation back in 1965. The leadership openly recognises the need for changes and is constantly having heated but productive public and private debates. There seem to be no attempt to hide or sweep things under the carpet. There is almost a revolutionary zeal and acceptance to re-invent Singapore Inc that would rather face up to the new challenges than be extinct. Nothing seems to be sacred. There seems to be a new found determination, everything that needs changing will be changed. Special high-powered cells have been set up to review, discuss and recommend.

Singapore has accepted that it can no longer be a serious contender for manufacturing. It now wants to be a knowledge based society. So at the high end they are building infrastructure and an enabling environment for creating a hub for research and design. Biotech and Infocom are a major focus. As before, the state is providing the initial impetus by investing in physical infrastructure and seeding some of these projects. Multinationals have gradually begun to follow in its footsteps. Business cost has been reduced, through tax breaks, reduction in mandatory pension contributions and depressed market condition has also seen to a fall in office rentals.

The government wants to cultivate innovation, creativity and entrepreneurship. They have recognised that Singaporeans are not very entrepreneurial by nature, a legacy perhaps of the schooling system, so they have set about overhauling the school curriculum and methodology of teaching. Bureaucracy is regarded as a hindrance to entrepreneurship, so they are asking the public to offer suggestion what needs to be changed for a freer and more deregulated society. There is a feeling that the government should loosen up and be less paternalistic and get the people to fend for themselves. The state owned corporations are being slowly privatised, accepting the fact, that the state is not the most efficient owners of enterprise, a role that should be taken up by private sector.

Singapore recently signed a Free Trade Agreement (FTA) with the US, enabling unhindered trade to grow between the two countries. A consequence of this, chewing gum, a previously banned item, is now about to be freely available. It wants an FTA with rest of ASEAN and other nations on bilateral basis: A recognition of a need to access other markets on competitive terms, its domestic market being too small for leveraging future growth.

On a lighter note they have recently allowed bar top dancing, something that wouldn't raise an eyebrow in other open societies, but was a big deal in Singapore. Sexuality was a problem in getting government jobs, but no more, gay community is no longer shunned. Film censorship is being relaxed. Sports have been a big deficient area for Singapore, so it has decided to open up sports school and train and encourage world class excellence from a very early age. Education is also targeted: Hosting best of breed foreign tertiary institutions offering pedagogic and curriculum excellence.

Lee Kuan Yew, who just turned 80, still serves the government as Senior Minister in the cabinet. He is a major influence and is known for his ability to see future trends, after all he got it right the last time. Goh Chok Tong, the current prime minister is scheduled to hand-over to his deputy Lee Hsien Loong, son of Lee Kuan Yew. Touch, nepotism perhaps, but a first from Cambridge Trinity in mathematics, son Lee is no duffer. He has worked his way up through the political ranks and appears confident and ready to see Singapore through the 21st century. Whether he will out do Dad, only time will tell !

Ghalib Chaudhuri is a former investment banker. He now operates an independent consulting practice based in Singapore.