Tyler Cowen, discussing the sins of left-wing economists, says “Classical liberals are increasingly facing up to the enduring successes of the Nordic nations. There is not always a similar reckoning with the successes of Chile and Hong Kong and Singapore; often this is a sin of omission.”

I can’t say much about Chile and Hong Kong, but to me the striking thing about Singapore is how fundamentally similar it is to the Nordic countries in a lot of ways. People often see it as being all the way on the other end of the spectrum since the formal tax burden is so low. But this seems to me to largely be an artifact of the fact that the 35.5 percent Central Provident Fund contribution rate isn’t counted as a tax. So, okay, that’s not a tax it’s an individual mandate to save. But as we’ve learned lately with the health care debate, the distinction between taxes and mandates is a bit fuzzy. I also frequently hear the CPF invoked in the context of conservative schemes to privatize Social Security, but as you might have guessed from the name there’s nothing “private” about the Central Provident Fund. This is a government agency. The basic structure is similar to an idea Tyler Cowen put in his “would likely lead to massive socialism” file.

Which is all to say that Singapore seems to have achieved some enviable results in public policy, may well be on the cutting edge of sound welfare state design in many respects, but is very much a country with a large welfare state. And of course if you look at it from the other side Norway, like Singapore, runs a large sovereign wealth fund. Denmark and Finland, like Singapore, make it very easy to start a new business. Sweden and Denmark, like Singapore, have privatized the provision of a lot of public services. I don’t think it’s a coincidence that Stockholm and Singapore are leading the way on congestion pricing. These are all small countries that put a premium on well-managed public sector. We should probably all learn more about what they’re doing, but it’s important to really learn about what’s happening. In my experience, references to Sweden’s school vouchers or Singapore’s private accounts tend to obscure large differences between the programs in question and the US policy proposals.

Kevin Drum bolsters his “reasonable liberal” credentials by explaining that he’d be fine with the idea of “add-on” Social Security private accounts, he just objects to the kind of magical accounting that tends to be associated with privatization proposals.

This is not an idea I’m enthusiastic about. A large body of research indicates that individuals are not well-equipped to engage in speculative investments, and experience teaches that financial managers are moderately well-equipped to duping people into paying management fees. What I would be interested in is copying the classical implementation of Singapore’s Central Provident Fund, which I often hear cited as an inspiration for privatization proposals but is really quite different. The way the CPF traditionally worked was that everyone had to make mandatory “contributions” to their “account” but the actual investment of the money was all handled centrally by the Central Provident Fund Board. More recently, I believe the CPFB has acted to allow private financial managers to try to persuade people to take their CPF money and give it over to them, which strikes me as unwise.

At any rate, privatization proponents seem to me to often confuse between arguing the general merits of prefunding of a retirement scheme (large) and arguing the merits of having your prefunded retirement scheme take the form of private accounts (nonexistent). On top of all that, the transition issues can’t simply be waived away. The best way to capture many of the benefits of the Singaporean system would be to go back in time to the early 1980s and start investing the Social Security Trust Fund in assets other than federal debt. But since that’s not what we did back then, turning the SSTF into something more CPF-like today would create a huge problem for the rest of the federal budget. This exact same difficulty would occur, however, under any plan to replace the current system with private accounts.

Dani Rodrick has a widely praised piece about the superior economic performance of liberal democracies relative to authoritarian countries:

Democracies not only out-perform dictatorships when it comes to long-term economic growth, but also outdo them in several other important respects. They provide much greater economic stability, measured by the ups and downs of the business cycle. They are better at adjusting to external economic shocks (such as terms-of-trade declines or sudden stops in capital inflows). They generate more investment in human capital – health and education. And they produce more equitable societies.

Authoritarian regimes, by contrast, ultimately produce economies that are as fragile as their political systems. Their economic potency, when it exists, rests on the strength of individual leaders, or on favorable but temporary circumstances. They cannot aspire to continued economic innovation or to global economic leadership.

Rodrick observes that the apparent exception of China is really quite untested. China is much less poor than it was 15 years ago, but it’s still poorer than El Salvador so it’s not clear what kind of model this is.

Both the strength and the weakness of this argument, I think, is captured in the observation “[f]or every Lee Kuan Yew of Singapore, there are many like Mobutu Sese Seko of the Congo.” The strength—historically that’s been the case. The weakness is that if you’re a modern-day dictator, the lesson of history is clear that the less-corrupt, less-exploitive Singapore model was not only better for the Singaporeans it was better for the dictator. For all the same reasons that over the long term the revenue-maximizing tax rate equals the growth-maximizing tax rate, over the long-term dictatorship is more incentive-compatible than Mobutu seems to have realized.

Historically, few authoritarian regimes have seen that their own self-interest is best maximized via enlightened policies. But at least one interpretation of what’s happening in China is that the most important authoritarians around have figured this out (Abu Dhabi also seems to have) and this is driving major improvements in human well-being. It seems to me that the clearest thing you can say about growth and democracy is that when growing democracies hit economic downturns, what tends to happen is you vote the incumbents out of office. But when growing dictatorships hit economic downturns, what tends to happen is you throw the dictators out of office. I’m not sure whether China’s leaders can keep delivering growth, but if they can’t it’ll be hard for them to stay in charge.

I often here right-of-center people cite Singapore as an appealing social policy model. And I agree that there’s a good amount to admire in Singapore’s approach to a variety of issues, especially health care. That said, I wonder what these same free marketeers would say if anyone attempted anything even remotely resembling Temasek Holdings here in the United States.

The company is clearly loathe to describe itself in these terms, but Temasek is basically a sovereign wealth fund—an investment vehicle owned by the government of Singapore. It’s an active investor in companies around the world, but especially focused on Singapore’s region and on Singapore itself. And it’s portfolio of “more than US$120 billion” is giant compared to Singapore’s $240 billion GDP. Imagine we had a public sector entity managing a $7 trillion portfolio of investments in private companies. That would be the end of capitalism as we know it!

It would, frankly, be such a dramatic departure from free market practice that I don’t even know how to go about forming an opinion about it. My suspicion is that the United States would prove quite bad at managing such a fund, but also that Singapore’s success at organizing this sort of thing plays a big role in explaining their success over the past few decades.