Singapore had achieved economic success with an economy that was heavily managed by the government (see Budgeting and Planning , ch. 3). The state owned, controlled, or regulated the allocation of capital, labor, and land. It coÍÍÍÍntrolled many of the market prices on which investors based their investment decisions and was the exclusive provider of social services and infrastructure. The 1985- 86 recession, however, stimulated discussion of impediments to economic performance and of dysfunctional aspects of the government's role in the economy. A 1987 report by the governmentappointed Private Sector Divestment Committee recommended that the state dispose of most of its interest in private companies over a ten-year period. It recommended privatizing forty-one of ninetynine government-controlled companies and investing the proceeds in high-technology companies.

Throughout the 1970s and 1980s, the government controlled wages through the annual wage guidelines set by the National Wages Council, a body in which representatives of employers, trade unions (which were controlled by the PAP), and the government reached a consensus on wage levels for the coming year. The council's wage guidelines were in the form of macroeconomic projections and were applied across the board in all sectors of the economy. In December 1986, the cabinet approved a National Wages Council report calling for a revised wage system that permitted greater flexibility, (the flexi-wage policy) with more use of bonuses and wage increases linked to increases in productivity. It was, however, not clear how the productivity of white-collar workers and civil servants, who constituted an increasing proportion of the work force, was to be measured. The call for wages to reflect the productivity and profitability of particular industries and firms implied more bargaining between workers and employers and a diminished role for the government, which could not impose a single rate on hundreds of distinct firms.

Although there was general agreement on the need for changed economic policies and modes of administration, significant tensions remained between those who favored greater flexibility and liberalization and those who wanted government direction of the economy. For Singapore's leaders, the challenge was to devise more sophisticated means of ensuring overall control while permitting greater autonomy and flexibility at lower levels.

Data as of December 1989