By Chong Yee Lim and Marc Tan (ECONews reporters)
Awarded with the nation’s highest honor, the Order of Temasek (First Class), earlier this August, Mr Suppiah Dhanabalan, 78, is one of the most respected elders of Singapore Inc. After graduating from NUS with BA in economics, he started his career as a civil servant in 1960. He became part of the pioneering team that established Economic Development Board (EDB) and later the Developmental Bank of Singapore (DBS).
He entered politics in 1976 and held influential positions such as the Minister for Foreign Affairs, Minister for National Development and Minister for Trade and Industry. In 1988, he was even identified as a possible candidate to succeed Mr Lee Kuan Yew as the Prime Minister. He then moved to positions to oversee Singapore’s prominent government-linked institutions, serving as Chairman of DBS, Chairman of Singapore Airlines, and Chairman of Temasek Holdings. He is also one of the longest serving directors of Government of Singapore Investment Corporation (GIC).
Mr Dhanabalan reflects that he has tried to live a meaningful life even at the expense of a happy one. In our conversation with notable alumni, he shared with us his diverse experience and advice he hopes to pass on to the next generation.
Mr Dhanabalan, we understand that you went into the public sector right after graduation. What was your motivation for doing so?
My time was unlike your time. We were not so well informed. We could not survey the whole world and ask ourselves what we should do after graduation. I was rather naïve when I graduated and I thought that the academic world was the whole world. I wanted to do my master’s degree so I enrolled for masters and stayed on for 2-3 months. But my financial situation was bad as I had to support the family, so I applied to join the administrative service in 1961. I was accepted and got posted to the Ministry of Finance (MOF) and that was how I started. I didn’t stay there for very long as EDB was set up within a year. I was seconded to EDB for a couple of years. I then decided to resign from the admin service and joined EDB.
As a pioneering member of EDB, what were the challenges that you and your team faced in the initial stage?
When we started EDB, it was supposed to be an institution to promote investment in manufacturing industries. Nobody in EDB had experience in this area, including the Chairman, Mr Hon Sui Sen, who later became the Minister for Finance. We were all rookies. The first director of EDB was an Israeli who came here for two years. He had experience in promoting investment in manufacturing industries and he shared a philosophy with Mr Hon that while we were all without experience, the decisions should be made by locals because investments are made in the local economy.
The biggest obstacle for us was that we did not know much. But we were also able to use that to our advantage, as that also meant we did not know how difficult things were going to be. We were full of energy and ideas and we charged ahead. By the time I joined MOF, the policy decision to set up EDB had already been taken. However, a formal decision that would require cabinet approval and drafting of laws had not been taken. I was asked to draft the first cabinet paper to set up EDB. The startup capital was 100 million dollars, which was a lot of money in the 1960s.
The board of EDB accepted my recommendation that the interest rate should be 7% for long term loans. Industrial loans were very new in Singapore. Commercial banks only made loans to traders and those loans required collaterals which came in the form of either properties or commodities. The banks had warehouses to store these collaterals and they were released when payments were made. In industrial financing, however, cash flow is the key thing. But the idea of cash flow financing, which required evaluation of prospective projects, was then unheard of. To do that, you needed economists to make estimates of the market and assess reasonable prices and technical experts to dive into the details of projects or businesses.
Where did you learn about the idea of cash flow financing?
We learned from books and some of us went to the World Bank when we were still part of Malaysia. We were quite involved in the details of the common market that we would need to make Singapore viable, especially on what kind of protection the industries needed. At that time, Singapore was a port where things were duty free except for tobacco, liquor and petrol. The conventional thinking was that we cannot build up industries without a domestic market. There was this concept of “infant industries”.
But we knew that we had to do things differently in order for Singapore to shift away from being an entrepot. A tariff commission was set up to discuss the viability of protectionism for various manufacturing industries. Before we could impose any duties, we became part of Malaysia. The basic rationality for the merger was the common market and a larger domestic market. The process of setting up the common market was very convoluted. We had a Malaysian tariff board that consisted of members from Singapore, Malaya, and Sabah, and it was chaired by somebody from New Zealand. During that period, I went to the World Bank to learn the tools about analyzing projects and establishing financial viability. When I came back, we were separated from Malaysia and that was the end of the common market.
How did EDB build Singapore’s industries after the breakaway from Malaysia?
EDB became a one-stop organization for people who wanted to come to Singapore to establish industries. We had various incentives, tax being the main incentive. There was a concept of pioneer industries. They were firms that were bringing new products to Singapore and in return, they were given tax exemption for five years. EDB recommended and processed these applications while the final decision was made by the Ministry of Finance. For firms wanting to invest in Singapore, they were unsure if the political will to promote industries would remain, so, they wanted the government to take up equity other than purely loans, so EDB took up equities in various firms. Those were exciting and tough times.
Were those decisions the prime reasons that Singapore became successful?
We were saved. We became successful not so much because we made right decisions but because the international environment changed. The initial investments were made by Japan and Hong Kong. They invested in Singapore because they could see that we were going to protect the market. Then a wave of textile manufacturers came who did not ask for protection as their target was the international market. For them, Singapore was mainly a base with low-cost labor that allowed them to produce goods at competitive prices. The textile industry took off because of a system called the long term textile agreement. The first country to have that was the UK and subsequently, the US. America was being flooded by cheap imported items and they set up the textile agreement by which they forced countries like Taiwan and Hong Kong to cap their exports. As Singapore was not part of this agreement, textile companies came to Singapore to set up factories which allowed them to export without the cap.
Basically, our thinking at the time was that we would continue to grow industries with tariffs and exports. But the change came later when US firms faced severe competition from Japan and Taiwan in certain industries such as electrical and electronic products. They found it difficult to compete in highly labor intensive industries. Thus Americans began to look for overseas location to establish operations that would allow them to compete against the Taiwanese and Japanese. That was how the electronic industry got started in Singapore. We were fortunate that this new wave of investment began to grow while most of the third world countries kept multinational corporations (MNCs) out of their economies because they felt that MNCs was a new form of colonialism. They feared that MNCs would become too powerful and eventually control their governments. Singapore however, was very receptive towards these MNCs.
You soon moved from EDB to DBS. Why did you do it?
In 1968, Dr Goh Keng Swee decided that EDB’s responsibilities should be divided in order for them to become more efficient. The financing responsibilities were taken over by DBS while real estate development was taken over by Jurong Town Corporation (JTC). Productivity related activities were taken over by the National Productivity Board (NPB). EDB was split into different components, leaving investment promotion as their primary objective. I went over to DBS with Mr Hon Sui Sen, who became the first chairman of DBS. DBS then became the financing institution for industries for long term finance. My job scope stayed the same, except that I was no longer doing investment promotion. My focus was on finance.
You stayed with DBS nearly for ten years and then moved to politics in 1976. What was the motivation to do so?
Soon after we set up DBS, Mr Hon went over to politics. He stayed as the chairman for two years, then Mr Howe Yoon Chong became the chairman, while I was number two in the bank. Mr Hon knew me from EDB days, so obviously he must have recommended to the Prime Minister that I should be persuaded to go into politics. I was persuaded by PAP leadership to go into politics.
There were quite a few rounds of interviews. The first round was with the chairman of the party, Mr Toh Chin Chye and a few other ministers. At the time, I was not sure about the timing as I was 39 years old and thought that maybe I should wait for another term. But that meant I would only enter parliament at 44 and probably become an office holder only at 46 or 47. That would leave me with a very short runway, and so I decided to go ahead with it.
You served both Mr Lee Kuan Yew and Mr Goh Chok Tong as Prime Ministers. Was it very different working under Mr Lee and Mr Goh?
Mr Lee is the founder of modern Singapore and he had great persuasive power, foresight and courage. He built the machine that was taken over by the second generation. Mr Goh was chosen by the second generation leadership, which comprised of myself, Tony Tan and Ong Teng Cheong. Even though he was not Mr Lee’s first choice, as he made clear in his rally speeches, Mr Lee accepted our recommendation. Mr Lee was much older than me when I entered politics, a lot more experienced, a lot of battle scars, so he was a different kind of leader. Mr Goh was my colleague (They were from the same cohort of the NUS Economics Department). We entered politics together in 1976, so obviously the relationship was different.
Which job did you enjoy the most?
Pre-politics, I enjoyed my time in DBS the most. While EDB was satisfying because we learned a lot of new things, DBS was more satisfying and also more exciting because we were the latest local bank to be set up. We did not have all the baggage of past practices or families telling us what to do. We just did what was needed. DBS did many new things that other banks never did. DBS not only did long term financing but also participated in equity financing and promoted financial leasing and merchant banking. We were the first bank that issued Asian dollar bonds.
In politics, I covered various portfolios. I enjoyed the most when I was the Minister for National Development as the job was a lot more concrete. Things are within your control in Singapore. Foreign affairs are a different kind of experience and responsibility. We are small and cannot shape world events. We have to take advantage of trends. In national development, we could decide how Singapore should develop and we could see the results of our decisions appearing before our eyes. Even today, I still see things that were a result of the decisions made by my team when we were in charge of national development. That gives me much satisfaction.
After politics you moved to Temasek. How was Temasek conceptualized? Did the government always have the intention to create a sovereign wealth fund?
It is important not to use “sovereign wealth fund” to describe Temasek. A sovereign wealth fund, strictly defined, is a fund that manages government’s overseas assets or funds that invested overseas. Temasek is an investment holding company, while GIC is a fund manager. GIC manages government’s funds and is paid fees to manage. They are told by the government about the areas they can invest in and what kind of risk they can take. And they follow these parameters quite closely.
In contrast, Temasek is an investment holding company. Temasek shares are held by the government and Temasek owns the companies in which they invest. For example, Temasek owns more than 50% of Singapore Airlines, 100% of Port of Singapore, 100% of Sing Power, 30% of DBS Bank. So there is a whole list of companies that Temasek has invested in and owns. An investment holding company has direct shareholdings in the companies in which they invest. GIC invests in companies on behalf of the government, but they are basically operating in the public markets, buying listed companies or using public funds to buy properties on behalf of the government.
When EDB was split up into many different components, we had a portfolio of loans that were made to companies and a portfolio of equity investments that they made in order to promote and share the risks with the investors. The loans were quite simple. We knew what the loan size was, and it was transferred over to DBS. Equity participation was a little more complex. There were companies that were private or public, and there were also questions of their valuation and how they should be transferred. An easy way was not to transfer them to DBS, and so the Ministry of Finance took over the equity portfolio of EDB.
From 1968 to 1974, those equities were held by the Ministry of Finance. Then in 1974, the Minister, Dr Goh Keng Swee, decided it was not a good idea to hold it within the ministry and it would be better to set up a separate company, transfer all the equities to it. If the company is 100% owned by the government, no valuation problem occurs. The main idea was to make it a separate company with separate management to focus on the investments. Civil servants should look after policy, and not get involved in the running of companies. That was how Temasek was set up. The first chairman and group of managers were loaned from the government to look after the company.
How did Mr Goh Keng Swee come up with the idea of this separation?
It was quite clear to him that it was not a good idea for policy makers to be confused by whether they were making policies for Singapore as a whole, or making policies for the company which the government has interests in. The two should be separated. Policies should be made for the economy as a whole, and not be colored by the fact that the government has a company that it owns. So that was very farsighted of him. This is unlike other countries that do not do that.
Your career so far has indeed been amazing. Can you tell us about some essential skills that you have picked up over the years?
Well, it depends on what level you are. When I was in EDB and DBS, obviously I was applying many tools that I learnt as an economics student: demand and supply, break-even point, what kind of legal structure there should be and so on. But as we go up higher and higher in management, it is not so much specific technical tools that you need. Rather, the most important skill is how to judge people and how to select people to run the organizations. You need to get the right people in the right place. So most of the effort, at the level of chairman, was really focused on getting the right people and making sure we had good people at various levels of management. Once you have good people, they attract good people and they know what to do. I have never described to a head of a department: “this is what you should do”, “this is your function”, “this is your objective”, or “these are your terms of reference”. No, I expect them, as entrepreneurs, to take the ball and run with it. The key at higher levels of management is to identify and recruit the right people. So that’s something you don’t learn in Economics.
What is the secret of choosing the right people?
First of all, the person must have some basic technical skills and experience in running an organization, knowing how to make right investments, how to look for right markets and so on. At a higher level, you want to assess the person’s values: what is it that drives him, what is it that shapes his decisions, has he got a passion, is he focused on money, or is he focused on building an organization, and so on. These are judgement on values. It is necessary to get an idea of whether he is a sort of person that you can trust. So you talk to the person about many things, not just about works in the organization. You talk about his interests, his family, what is his background and what is his passion.
That is the key. The secret of Singapore’s success in government owned companies being so well run is not organizational structure, but people that make up the organization. I would say it is more dangerous and risky to take in someone who is highly skilled and has bad values than having someone who is less skilled but has better values. From time to time, I get people coming from other countries who are heads of investment holding companies, sovereign wealth funds, investment promotion agencies and they ask about the processes, the structure which can explain our success. And I keep telling them that it is not structure, it is not process, but it is people.
You applied the same principle in overseeing Temasek Holdings?
Once Mr Lee Kuan Yew appointed Mr Hon as the chairman as EDB and later as the chairman of DBS, he never interfered in what Mr Hon was doing. That is the key to success. When Temasek makes investments, some of them don’t go right. That’s bound to be the case because if you are only investing without any losses, then you are not taking any risk. There are bound to be losses and successes, but overall how they perform is what we should focus on.
Even today, many people in parliament do not understand that. When there is a loss, their immediate response is, “What is the minister of finance doing about it? It is your company, you own it, what did you tell them to sell, and what did you tell them to invest in?” And he has to keep explaining to them that he does not make the decisions and that Temasek makes decisions. He only looks at the financial performance at the end of the year. Should there be a year that they do not do well, he would want to look at it across four to eight years, not just one year. And if they are not performing, then he would change the management, and the board. If they are performing, he would leave them alone because he does not have time to micromanage and tell them what to do. Once the politicians start interfering, the management would be able to say that, if something goes wrong, it is not my responsibility but yours. That’s the difference between Singapore and many other countries. If we decide to set up a commercial enterprise, we must let them operate commercially, not by direction from the government.
When you recruit fresh graduates, what are the qualities that your companies look for?
First, we have to check if the person has basic educational qualifications. Personally, I will not look at how you did in PSLE, O levels and A Levels. To me, those are quite immaterial. I would ask what did he study, why did he study, and how did he perform. The merit of his performance at the last level is very important. I would also ask what else he did which would reflect his other interests. When I interview a person, I try to get an idea of what drives him, what motivates him, and what is he focused on. I was told about somebody who was being interviewed for a job, and the first thing he wanted to know was, “where is my office, and what does it look like, and who is going to be my secretary?” The interviewer just finished the interview. During the course of interview, people betray what drives them and what motivates them. If it is the wrong type of interests, then we just pass over and go on to the next person.
Moral values are very important, what motivates a person, his ambitions in life, what is it that he wants to do, and his level of commitment. My generation did not have any choice. The world was not their market. But my children’s generation was different. They had choices. And many of them actually made a conscious choice to live in Singapore and made their home here. Those who want to go somewhere else do so often for material reasons. “I cannot afford a big house, nor a big car.” Those are usual reasons. Some give the reason, which I do not know how truthful it is, that they find the society too oppressive. But I do not know if this is just to give a little more altruistic motive to what they are doing.
Let’s talk about your university days. Can you tell us what the most important lesson you learnt from university was?
One of the unique lessons I learnt in my economics course was from a professor by the name of Silcock, who I think was the first economics professor, and later went to Australian National University. He was not an easy lecturer to understand, because he knew that in Economics, when dealing with people and society, there is no categorical statement that you can make. Any categorical statement you make about the economic future, trends or situation has got to be qualified because there are many things that can be different and many things that can affect the outcome. For example, you can say that as price goes up, demand goes down, that is a categorical statement. But that does not always happen. Even in economics courses we learn about backward sloping curves and so on.
The point is that you must be aware that there are many things that affect the outcome. While you must not be frozen to inaction, you must be aware when you take action to keep your eyes on many other things so that you can adjust as you go along. So when he lectured, and made a statement, he always qualified that statement. So by the time the qualification is over, you will be confused and even have forgotten what the statement was. But it was good in the sense that it made you think and be aware that economics is not a physical science. It tends to be a science as with many sociological subjects, but it is only a science in the sense that you organize the data in a scientific way. You cannot predict the outcome exactly. This is a reflection of the real situations we face, that is why we have to keep our eyes on many things in business, else we get blindsided by things that happen which we do not expect.
But then Economics is getting more quantitative, which frankly is of some concern to me. It gives false impression that it is an exact science. It is not an exact science. At the very most we can say that a situation will happen with plus or minus 10 or 20% while that 10 or 20% can kill you or make you. So you have to be aware that though you try to add some precision, it must not lull you into thinking that you have a precise answer and that you have a precise action to take.
There was one branch of Economics that was in vogue when I was in university (from 1955 to 1960) called the theory of economic development. Arthur Lewis wrote one of the early books that dealt with this. Basically, his point was that how the economy of a country develops depends on many cultural factors, not just on the hard facts of what raw materials were available, labor available, and skills available and so on. Those do affect the outcome, but does not determine it. There are still many other sociological and cultural factors. This still remains the fact. That is why countries with a lot more resources than Singapore are less successful. It is not that they do not know what to do. But they do not do it because of many other factors.
Thank you very much for spending such a long time to share your experience and wisdom with us. Do you have any parting advice for graduating students?
Each person really has to ask themselves: What is it that you want out of life? Someone has sent me an article called ‘Meaning in Life’. It is not a religious article but one written by psychologists. Happiness is not same as meaning. Some people who lead the most meaningful lives may not be going through happy experiences. They lead very meaningful, satisfying, and self-fulfilling lives, by doing things which are painful and stressful. Being painful and stressful is the opposite of being happy. But it is still meaningful and makes them realize that there is more to life than just seeking happiness. There is a deep satisfaction when you are doing something for people in the world. Doing it does not make you happy because there are so many obstacles, challenges and stress. There is a difference between being happy and living a meaningful life. So basically, you have to ask yourself what it is that you find meaningful.
I did not do the things I did because I thought they were going to make me happy. I did them because I thought it was a duty that I had to answer. I would have been much happier if I had not gone into politics, in the sense that I could have spent more time with my children, could have been spared all the hassle of having to please constituents and evenings spent walking around the constituency meeting people. But these were meaningful. The burden of just driving past and seeing people along the street, and knowing the responsibility that you have on their future and their happiness is something that humbles you. So yes, I hope I have lead a very meaningful life.
I had not, even for a moment, dreamt that I would have done the things that I did. I think your generation is a lot more aware about what is happening in the world, and all the various options, problems, challenges and attractions. You have a lot more information. We were, as I once said in parliament, like babes in the woods, innocent people with very little knowledge. Your decisions are tougher because you are better informed than I ever was. But start with what you want, be it happiness or meaning.
This article was first published in ECONews in December 2015