The key is to ensure that one generation won’t bankrupt future generations by living beyond its means.

Obituaries of Lee Kuan Yew, the first prime minister of Singapore who died this week at age 91, broke down into roughly two camps:

He was a hero, building a “clean as Disneyland” republic that runs like a Swiss watch. He was an autocrat, who built a successful economy but crushed opponents and journalists who challenged his “managed” democracy.



Both statements have big elements of truth. I take a third approach, based on a fascinating visit I made to Singapore earlier this month. Lee Kuan Yew, a member of Britain’s left-wing Labour party while a student at Cambridge, managed to create a workable welfare state, one that provides for people without creating Social Security–like Ponzi schemes or unsustainable entitlements. Both liberals and conservatives have much to learn from what he built, the details of which are missing in most of the tributes to him.

Lee’s first priority when he became prime minister in 1959 was to reimagine Singapore’s economy. “Back then, this place was a swamp, with no natural resources, and it even had to import its drinking water from Malaysia,” Jim Rogers, a noted American investor who has lived in Singapore for nearly a decade, told me during my visit there.

By embracing free trade, capital formation, vigorous meritocratic education, low taxes, and a reliable judicial system, Lee raised the per capita income of his country from $500 a year to some $52,000 a year today. That’s 50 percent higher than that of Britain, the colonial power that ruled Singapore for 150 years. Its average annual growth rate has averaged 7 percent since the 1970s. “A 2010 study showed more patents and patent applications from the small city-state of Singapore (population 5.6 million) than from Russia (population 140 million),” noted economist Thomas Sowell observes.

But that wealth wasn’t used to create a traditional welfare state. Economist Mark Skousen notes that Singapore is rated along with Hong Kong as one of the two most free economies in the world. Any expansion of government is gradual and grudging. In 2013, when Singapore broadened its medical-benefits program, the local Straits Times newspaper made clear the government’s philosophy: “The first [priority] is to keep government subsidies targeted at those who most need them, rather than commit to benefits for all. Universal benefits are ‘wasteful and inequitable,’ and hard to take away once given, [finance minister Tharman Shanmugaratnam] said.”


That mindset is embodied in Singapore’s philosophy of welfare, which rests on four pillars:

Each generation should pay its own way. Each family should pay its own way. Each individual should pay his own way. Only after passing through these three filters should anyone turn to the government for help. But it will be there when needed.


Singapore’s approach to the provision of health care, retirement income, and housing is in sharp distinction to that of other countries. People are required to make relatively high payments into savings plans from which they can later buy a home, pay tuition, and purchase a variety of insurance policies. For those under age 50, the employee contributes 20 percent of his income, and the employer 16 percent. A third of the employee’s share is put into a private Medisave account. When the balance reaches 34,100 U.S. dollars, any excess funds can be used for non-health-care purposes. All are enrolled in a catastrophic-health-care plan, although they can opt out.

#related#Health-care expert John Goodman is credited (along with economist Richard Rahn) with first proposing medical savings accounts in the U.S. He says Singapore shows that they can work as the backbone of a health-care system. “The issue is,” he says, “can individuals be counted on to manage their own health-care dollars responsibly, or does health care work better if all the dollars are controlled by government or insurance companies?”

The answer is clear.


Not only is Singapore’s population healthy, but the private sector dominates health-care spending, and consumer choice keeps health-care costs down. In Singapore, the government’s share of health-care spending has fallen to 20 percent, down from 50 percent 30 years ago. “Singapore has found a rational way to provide services that are provided by legalized Ponzi schemes in the rest of the developed world,” Goodman told me in an interview. “Those governments have made promises they must either default on or impose draconian taxes to pay for. Singapore has avoided that problem.”

It’s no wonder that other countries constantly consult Singapore for guidance on how to turbo-charge their economies. In 2011, Ghana’s vice president, John Dramani Mahama, told a visiting delegation from Singapore that his country “takes a lot of inspiration from Singapore in their economic transformation from a third- into a first-world country.”

There is less to emulate from Singapore’s brand of politics. As Frank Lavin, a former U.S. ambassador to Singapore from 2001 to 2005, notes: “Lee believed that open politics can lead to demagoguery, rent-seeking, and short-term thinking. Yet over time, Singapore did become more open, allowing for both political debate and contested elections. . . . Of Lee’s many successes, his most important legacy might be the move to that more open political system to complement the open economics.”

But from my visit there, I believe that the least appreciated part of Lee Kwan Yew’s legacy is his method of ensuring that one generation won’t bankrupt future generations by selfishly living beyond its means. It’s a welfare state that works, and one he always said was available to any political leader with the courage to tell his people the truth about the limits of government’s power to pass out goodies.