Was Dr Tony Tan responsible for the 1985 recession?

In 1985, Singapore plunged into its first recession, and the minister responsible for the economy at that time was Dr Tony Tan, who has trumpeted on his financial and economic acumen in this Presidential Election.

Dr Tony Tan joined the Cabinet in 1980, and he was the Minister for Trade & Industry (1981–86) and Minister for Finance (1983–85).



In the video shown at the EDB 50th anniversary exhibition at the National Museum, civil servant extraordinaire Philip Yeo (EDB Chairman 1986-2001) blamed the 1985 recession on the PAP government’s mismanagement of the economy.

“The 1985 recession was a self-created recession. Between 1981-1985, we had a policy in government to uplift from no-skill to high-skill. What the government did was impose very high CPF. The CPF went up to 50%. All costs went up, but at the same time there was no incentive given to encourage companies to upgrade. Just pure punishment.”

Indeed, the PAP government attempted a bold restructuring of the Singapore economy in the early 1980s, often referred to as its Second Industrial Revolution. This was to move the economy into skill- and capital-intensive industries producing high value-added goods. And one of the means to achieve it was through the use of National Wages Council (NWC) as a means of raising wage rates well ahead of productivity so as to force firms to upgrade and to move "upmarket."

The Singapore economy started to slow significantly after the first quarter of 1984 and recorded a bottom -10.1% year-on-year growth in the second quarter of 1985, before coming out of the recession in the first quarter of 1986. Overall, real GDP declined by 1.7% in 1985.

While the external factors had a role to play, internal events were key in explaining the causes of the recession. The most important of these, the rise in unit labor costs, can be linked directly to the policies of the Second Industrial Revolution. Labour costs ran far ahead of productivity, and as a result Singapore lost its international competitiveness significantly against its Asian Tiger peers - Taiwan, South Korea and Hong Kong.

In March 1985, Dr Tony Tan announced the creation of an Economic Committee to study the causes of the recession and indentify policy remedies. The committee was however chaired by the newcomer BG Lee Hsien Loong, who had only been appointed as Minister of State in MTI in January 1985, right after the December 1984 election. The Economic Committee completed its report one year later, and its policy recommendations included reducing CPF contributions, wage restraint, reduction in tax rates, the divestment of GLCs, and the promotion of services sector etc.

In February 1986, BG Lee Hsien Loong was appointed acting Minister for Trade and Industry, replacing his predecessor. Dr Tony Tan, who had also relinquished the Finance ministry portfolio, returned to the Education ministry.

The mismanagement of the economy during Dr Tony Tan’s stint as the main minister in charge of the economy is evident in his biography, which he has nothing to show for in his 5 years as the Minister of Trade and Industry. (See page 2 of Tony Tan's biography: http://www.tonytan.sg/wp-content/uploads/2011/08/Biography.pdf)

Though the other Presidential candidate Tan Jee Say was an Administrative Service officer in MTI in the early 80s, he was promoted to be the Principal Private Secretary of the then DPM Goh Chok Tong from 1985 to 1990.

Edmund Khor