is the fundamental remaking that we are striving for. singapore is by no means alone in facing the challenges of a fundamentally altered landscape. the other nies also face similar environmental changes, and are also searching for new strategies and policies. south korea has been revamping its chaebol - centred industrial system and has also opened up its economy to foreign investment and competition. taiwan is confronting the hollowing out of its manufacturing industries to mainland china, while hong kong is adjusting to the deflationary consequences of its currency peg system. compared to these other countries, we are not badly off, though we are still far from having solutions to all our problems. lessons drawn what lessons can we draw from these international and historical comparisons? how do they apply to singapore in the current remaking process? remaking is essential the first lesson is that no system works forever. as the external environment changes, and as economies evolve, institutions and policies that used to work can become outdated or even dysfunctional. countries will adjust incrementally over time to these changes, but eventually incremental change is not enough. then it becomes necessary for countries to break the mould and remake themselves - a difficult but essential process. this applies directly to us. however difficult the changes we have to make, the status quo is not an option. our system is still working - the economy continues to grow, investments are still coming in, business carries on. but the world around us has changed, and is continuing to change. if we delay adapting ourselves to the changing environment, we will only make the eventual adjustment harder and more painful. the erc's proposals to remake the economy will not be the final solutions to our problems. policies will need to be constantly reviewed and updated as situations unfold. new challenges will arise, and we will need to set fresh goals for ourselves. we will need to remake singapore again, and again. but the more promptly and flexibly we can adjust our policies, the less traumatic and disruptive the remaking will be. leadership second, strong and far - sighted leadership plays a key role in countries making the successful transformation. such leadership can come from one or two key individuals, like deng xiaoping in china or margaret thatcher in britain. or it can be a group, as in the meiji restoration, where the young samurais who led the reforms remained in key leadership positions for a whole generation. in the current crisis too, the different responses of the nies

passed the employment act and the industrial relations ( amendment ) act, to vest the power to hire and fire clearly with employers. we replaced the old adversarial approach with a cooperative tripartite relationship based on trust and confidence. this was institutionalised in 1972 with the setting up of the national wages council. since then we have enjoyed harmonious labour relations, a precious and unique advantage in attracting foreign investments to singapore. unlike other emerging asian economies like korea and taiwan, we also opened the door fully to mnc investments. it was the fastest way for us to create jobs, penetrate overseas markets and bring in western and japanese technologies. other countries in the region eventually followed, making southeast asia a major production location, which in turn benefited singapore. these remaking and growth strategies succeeded, and brought full employment and steadily rising incomes. over time, we moved into higher value - added activities. after two decades of robust growth, singapore had transformed itself into a newly industrialised economy. but in the early 1980s, rapid wage increases outpaced productivity gains, and when the international economy turned down in 1985, we fell into a deep recession. we had lost competitiveness vis - a - vis other regional economies. nie to first world the 1985 recession forced us to reassess our economic policies. we formed the economic committee, whose report refocused our growth strategy. to restore our cost competitiveness, we reduced employer cpf contributions ( from 25 % to 10 % ), and implemented two years of wage restraint. we began making wages more flexible, by introducing variable components into remuneration packages and cutting back on seniority - based pay. we cut direct taxes sharply ( from 40 % to 33 % ), and laid the ground for introducing the gst a few years later. competitiveness and flexibility became important yardsticks for economic policy and collective bargaining. in our overall development strategy, we put more emphasis on the services sector as a major growth engine, alongside manufacturing that had long been a key driver. in manufacturing, we made a conscious effort to assimilate and adopt new technology from the advanced economies, moving up the value chain as our incomes and capabilities rose. these policy changes worked better than we had hoped for, aided by favourable external conditions. east asia was undergoing an economic boom, the global electronics industry was expanding rapidly, and the us economy was experiencing its longest post - war recovery. for a decade until the asian financial crisis broke in 1997, growth averaged 9