. 2 % a year. by 1994, per capita income had doubled to us $ 20, 000, well in the league of developed countries. within a generation, the lives of singaporeans have been transformed beyond recognition. towards a knowledge - based economy we always knew that as our economy matured, and we approached income levels of the developed world, our growth would slow down. but we did not expect the transition to be so sudden and difficult. the asian crisis was a major setback for the whole region. before the region could fully recover, the us economy went into recession. in asia, china continues to prosper, which is both a major opportunity and a huge competitive challenge. on top of that, september 11th and the discovery of terrorist groups in southeast asia linked to al - qaeda, signalled a new and troubling long - term problem. in these troubled circumstances, we entered the third phase of our economic development. we needed to rethink all our economic policies and strategies. the economic review committee ( erc ) report sets out what policies we need to change, and what new strategies to pursue. the erc made many specific recommendations to prepare singapore for the transition to a knowledge - based economy. but underlying them all are three fundamental, related ideas : firstly, we must promote innovation, creativity, and entrepreneurship. secondly, we must deregulate and liberalise the economy, to allow enterprise to flourish. and thirdly, we must encourage self - reliance complemented by community support, and minimise dependence on the state. these ideas emphasise that private enterprise must increasingly lead growth, and that to continue to thrive, we must be willing to venture into the unknown, explore new ideas, and establish new enterprises. to succeed, the initiative must come from individuals rather than the state. the government's role is to facilitate the creation of wealth and to enable individuals to do well. it is not to provide handouts or excessive social safety nets. many singaporeans, particularly the workers, feel instinctively that the erc changes are far - reaching, and worry that we are moving too fast. on the other hand, some analysts and journalists have faulted the erc recommendations for not being bold enough. i hope that setting the changes within this larger philosophical context will help to bring out their true significance. much more so than the two previous paradigm shifts of the 1960s and 1985, the current one calls for a mindset change - on the part of everyone. that

on how to achieve them. now that the financial crisis is receding, it makes sense to put the course of events into perspective – and to draw some lessons from these events. this has been the most serious financial crisis since the 1930s, and its causes will be the subject of many thick, academic volumes of economic literature. at this point i can only say that a strong economic upswing in the usa, initially boosted by tax cuts and highly accommodative monetary policy, spread to the rest of the world. at the same time, the chinese economy gained a more prominent role. the us economy rode on a wave of optimism and a strong propensity for consumers to buy, while the chinese economy gained strength thanks to impressive export growth and massive business investment. a very substantial us current - account deficit was to a large extent financed by surpluses in china and in the oil - producing countries, which profited from the strong growth in the world economy. the global financial system had access to ample and inexpensive liquidity. the hunt for profit took on many shapes, and risk appetite was strong. this also affected us here in denmark. being a small, open economy, we benefited from the international upswing. the ample supplies of liquidity in the international capital markets enabled banks to supplement traditional deposits with foreign loans for financing strong growth in lending. in addition to traditional corporate financing, this period was characterised by a boom in construction activity and refurbishment – not least in the housing sector. the favourable economic conditions also meant that transactions in the financial sector increasingly took on an international dimension, with acquisitions of banks to an extent not previously seen. the mounting foreign debt burdens of many banks made the sector dependent on continued access to international liquidity. the ample and inexpensive borrowing opportunities helped to fuel the upswing. the danish upswing was driven by exports, private consumption and investment, while government spending also had a procyclical effect. the danish economy reached its capacity limit towards the end of 2007, independently of the emerging financial crisis, and was already reversing when lehmann brothers collapsed in september 2008, sending shockwaves through the financial markets and triggering the economic crisis. the decisive financial blow came from abroad, but we had put ourselves in a vulnerable situation when the crisis struck. we cannot prevent new crises, but we can, and must, learn from experience. looking back over the last decade or so, it is evident that developments in the danish property market amplified the economic fluctuations