Senior Minister (SM) Lee Hsien Loong has explained why Singapore often builds public policy around economic logic and market behaviour, from housing and healthcare to car ownership and financial support schemes.
In an essay titled Microeconomics in Public Policy: A Practitioner’s View, published in the Singapore Economic Review Journal on 31 March, Mr Lee outlined how microeconomic principles have influenced Singapore’s policymaking over the years.
Source: Lee Hsien Loong on Facebook
He said that while governments often need to step in where free markets fall short, such as in housing, healthcare, and social support, Singapore has taken a more “market-oriented approach”.
“Ours is not a purist laissez-faire model, where the government does as little as possible,” he wrote.
Instead, “the Government actively intervenes in many areas to achieve public policy objectives”, but does so with economic principles in mind.
“We need to be [cognisant] of economic laws, market forces and incentives,” Mr Lee said. “This way we work with, rather than against, human nature.”
The better we understand these powerful forces and the more we use them in designing and implementing policies, the more effectively we will achieve our goals.
Mr Lee pointed to public housing as one of the clearest examples of this approach.
Source: Lee Hsien Loong on Facebook
“Today, around 80% of Singaporeans live in public housing and 90% of Singaporeans own their own homes,” he noted.
He said these outcomes were only possible because of strong government intervention, including land acquisition and large-scale flat construction, but added that the system still incorporates market principles.
For instance, the Housing and Development Board (HDB) buys land at fair market value to reflect its true cost, and most flats are built by private contractors through competitive tenders to improve efficiency and keep costs low.
Even though flats are sold at a discount, prices are not fixed. They vary based on factors such as location, floor level, and orientation, reflecting differences in value.
After fulfilling the Minimum Occupation Period, homeowners can sell their flats on the open market instead of returning them to HDB.
“We allow households to buy and sell their flats on a secondary resale market, at market prices set by willing buyers and sellers,” Mr Lee wrote.
He added that this allows homeowners to benefit from their flat’s value while still maintaining broader social objectives like affordability and home ownership.
Mr Lee also discussed Singapore’s healthcare system, describing it as a hybrid model that combines both public and private elements.
He noted that heavily market-driven systems, such as in the United States, can result in high costs and unequal access, while fully government-run systems like the United Kingdom’s National Health Service may struggle with long waiting times and inefficiencies.
Singapore’s approach instead combines government provision with co-payment, so patients bear part of the cost of their treatment.
“Nothing is free at the point of use,” he wrote, explaining that this helps discourage overconsumption of healthcare services.
At the same time, schemes like MediSave and MediShield Life ensure that Singaporeans can afford care, while subsidies keep treatment accessible.
Public healthcare providers, he added, are run on a not-for-profit basis.
Their mission is not to [maximise] profits, but to deliver good quality, cost-effective healthcare to the population while being mindful of the costs.
Beyond housing and healthcare, Mr Lee said Singapore often uses pricing to allocate scarce resources, rather than deciding administratively who should get them.
He cited examples such as Certificates of Entitlement (COEs), casino entry levies, and water pricing.
“Often the cleanest, fairest way to allocate the resource is to just price it,” he wrote, explaining that this ensures resources go to those who value them most.
On car ownership, he said the COE system helps manage limited road space in Singapore by controlling vehicle numbers through a quota and auction system.
This approach, he noted, also ensures that drivers bear the broader social costs of congestion.
Mr Lee also highlighted how the Government supports households, noting that cash or cash-like assistance is often more effective than direct subsidies.
“Between cash and cash-like, in theory, cash is the superior choice,” he wrote, as it gives recipients full flexibility in how they spend the support.
However, he added that vouchers can sometimes work better in practice, as they remain tied to a specific purpose and are more visible to recipients.
Schemes such as Goods and Services Tax (GST) Vouchers and Community Development Council (CDC) Vouchers were cited as examples of this approach.
Source: Lawrence Wong on Facebook
Mr Lee concluded by noting that while the Government “intervenes heavily to achieve major public policy objectives”, it also recognises economic realities and often relies on market forces, “sometimes in unconventional ways”, to achieve these goals.
He said Singapore’s policies are broadly guided by three key ideas: using market forces when designing policies, pricing scarce resources instead of allocating them administratively, and providing support through cash or vouchers where possible.
At the same time, he stressed that economic logic is not the only factor in policymaking.
“Governments must balance them against other considerations such as political acceptance, social norms or intangible objectives,” he wrote.
Still, he noted that governments tend to run into more problems when they ignore economic principles than when they apply them.
“Because Singapore has done this systematically and extensively, we run a smaller government than most,” he added. “The outcome . . . confirms that this is a viable way to achieve not only the economic, but also the social and political goals of the nation.”
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Featured image adapted from Lee Hsien Loong on Facebook and by MS News.