William Baumol (1996) famously distinguished between “productive” entrepreneurship, which enhances social welfare through production and innovation, and “unproductive” or “destructive” entrepreneurship, which fails to do so and may even be detrimental to welfare. Rent-seeking behaviour, which involves using resources to obtain transfers without contributing to production, is an example of unproductive entrepreneurship. It also violates the democratic commitment to equality before the law and may even undermine the rule of law itself (Holcombe and Castillo 2013; Holcombe 2018).

Political economists generally acknowledge that the problem of containing unproductive and destructive entrepreneurship is an institutional one. Market liberals argue that under private property institutions and competitive markets, firms’ ability to engage in unproductive and destructive behaviour is limited (Boettke and Coyne 2009). They view rent-seeking activity as a “by-product of big government” (Holcombe 2013). However, a rival school of thought drawing on East Asia’s 20th-century experience of the “developmental state” challenges this view. These scholars argue that through institutions of “embedded autonomy”, states can engage in extensive policy interventions without being subject to interest group influence. Even though the state is “embedded” and maintains close linkages with firms, it can remain “autonomous” through careful policy designs that minimise political capture (Evans 1995). Within the context of an “entrepreneurial state”, this embedded autonomy enables states to engage in successful mission-directed interventions.

This paper draws on a detailed case study of the Singaporean experience to throw light on these perspectives and specifically to question the claims of embedded autonomy put forward by developmental state theorists. In its early years, the Singaporean state acted as an “entrepreneurial substitute”, driven by a perceived lack of domestic capital (Huff 1995). Presently, it collaborates with private start-ups and invests in future-oriented projects to foster an innovation ecosystem (Woo 2018). Singapore is thus both a developmental and an entrepreneurial state (Chang 2011a; Ebner 2015; Kattel et al. 2022). Many also highlight its record in sustaining low levels of corruption and hence its apparent ability to engage in state intervention without interest group capture. It thus provides an important testing ground to evaluate the claim that developmental states control rent-seeking.Footnote 1

In contrast to the developmental state narrative, the paper identifies three causal mechanisms through which rent-seeking behaviour is encouraged in Singapore. First, the Singaporean state provides grants to local enterprises on very generous terms, thus creating an attractive target for subsidy entrepreneurs. Second, the developmental state’s institutional framework, characterised by its close public–private linkages, also creates an institutional forum through which rent-seeking is pursued. Third and most importantly, the developmental state, through its reliance on performance legitimacy to maintain hegemony and its ability to wield ideological control over the populace, facilitates a culture of rent-seeking where such behaviour becomes socially legitimated. The state has the ability and will to regularise participation in government industrial programmes and the search for subsidies. Rent-seeking thus becomes a socially legitimate aspect of doing business under developmental state arrangements, rather than just a sporadic occurrence. Crucially, this culture raises the costs of distinguishing between productive and unproductive entrepreneurship, making it difficult for the state to minimise the latter’s potentially harmful effects and maintain its supposed autonomy from interest groups. In brief, the Singaporean case suggests that states pursuing mission-oriented interventionism must engage in cultural engineering to enforce consensus over the relevant missions, but this very process may legitimise a culture of rent-seeking that diminishes the state’s capacity to steer society in a mission-directed manner.


The paper contributes empirical evidence on the effectiveness of the developmental state model and its contemporary variant, the entrepreneurial state. Developmental state theorists argue that East Asian developmental states effectively mitigate rent-seeking pressures (Onis 1991; Wade 1995; Amsden 2001; Thurbon and Weiss 2016). If accurate, this suggests that the contemporary entrepreneurial state variant may steer societies towards mission-driven goals (whether innovation or other grander ambitions) without being captured by factional interests (Kattel and Mazzucato 2018; Rasiah 2020; Kattel et al. 2022). Because Singapore’s political economy closely resembles both the developmental and entrepreneurial state variants, it provides a useful test case with which to evaluate the claims of embedded autonomy, and thus the state capacity necessary for mission-oriented interventionism.

This paper stakes out a different position on Singapore’s political economy, challenging prevailing understandings. Market liberals highlight the state’s reputation for transparency, low corruption levels, and relatively high economic freedom indicators. On the other hand, developmental state theorists contend that Singapore embodies a successful model of state-driven capitalism. Whilst the former group sees Singapore as deviating from the characteristics of a typical rent-seeking society, the latter group believes that rent-seeking is effectively minimised through institutional arrangements. However, this paper takes a different stance, arguing that rent-seeking extends beyond overt corruption and that, despite best efforts in institutional design, a culture of rent-seeking has emerged in Singapore.

For the sake of argument, the analysis takes as given the premises of scholars such as Robert Wade, Ha-Joon Chang, and Stephan Haggard, who reference Singapore as an exemplar of an East Asian state-based form of capitalism, to offer a critique of their preferred model. The analysis shows that given the bureaucratic apparatus created in Singapore for industrial policy, serious trade-offs have resulted in a form of rent-seeking, which cannot be reduced to instances of blatant corruption but must be extended to include subtler forms of subsidy entrepreneurship and cultural norms that facilitate this behaviour. Accordingly, the paper serves as a cautionary tale of the potential for rent-seeking to arise in contemporary mission-oriented policymaking and demonstrates that such behaviour in the Singaporean case is a central feature of its model.

To clarify, the arguments presented in this paper do not imply a wholly negative view of state action and do not undermine the significant achievements of the Singaporean state. It is acknowledged that Singapore’s proactive economic policymaking has facilitated economic restructuring, attracted foreign investment, and contributed to rapid development (Prime 2012). However, this paper operates within a varieties of capitalism framework that recognises different capitalist models having distinct institutional strengths and weaknesses (Amable 2003). As such, certain trade-offs associated with the Singaporean model have been previously suggested, including limited creative destruction, inadequate indigenous innovation, and political authoritarianism (Audretsch and Fiedler 2022; Cheang 2022a, 2022b). In this context, the paper offers a culturally situated public choice analysis, a perspective that has rarely, if ever, been applied to a setting where Confucian culture is widely believed to have contributed to positive development outcomes.

Research Design

Because Singapore is usually held up as an exemplar of a developmental and entrepreneurial state, it makes for what methodologists call a “crucial case” amenable to a single case study design (see Gerring 2007). The analysis in this paper relies on qualitative data, in part due to the lack of a reliable international dataset on rent-seeking,Footnote 2 but more importantly because qualitative data enables the exploration of values and attitudes, which are essential for understanding the prevailing “economic culture”. The data collected investigates a “culture of rent-seeking”, defined as a “perception shared by some members of a society that having influence over political allocations is an important and potentially preferable source of private benefit relative to other avenues of pursuing economic gain” (Storr and Choi 2019).

A mixed-methods approach was used to collect the data in question. Over three years from January 2018 to January 2021, the author conducted an online survey, one focus group discussion, and a series of interviews. These data were cross-referenced with existing information in the public domain, such as news articles or government documents, to facilitate triangulation. Triangulation is necessary due to the inherent difficulty in measuring rent-seeking, and the potential for such behaviour to remain hidden (Hillman 2010). It also helps mitigate biases that may result from relying on a single type of source. By comparing and corroborating different data points, triangulation enhances the validity of the claims made.

The online survey was conducted using Pollfish, a paid online platform based on a “random device engagement” methodology (Rothschild and Konitzer 2019). Survey questions were presented within apps—such as popular news apps or fitness apps—that collaborate with Pollfish. This approach avoids the issue of professional survey takers, as no panel data was purchased. The responses are organic since they target individuals using mobile apps naturally. Additionally, this method improves upon the “random digit dialling” technique used by organisations like Pew, as Pollfish taps into the expanding network of mobile users.

A dedicated survey hyperlink was sent to the author’s contacts at the Singapore Business Federation (SBF).Footnote 3 With the assistance of an affiliate of the SBF, a focus group discussion involving 23 business professionals at the C-suite and managerial level and above was conducted in November 2019. The focus group and survey were further complemented by a series of one-to-one interviews with civil servants from the SME-focused pilot agency Enterprise Singapore and other practitioners in the small and medium enterprises ecosystem.

Whilst there are well-known limitations that compromise the value of single case studies, it is hoped that the processes identified in this paper may stimulate further case studies that might throw more light on the relationships between culture, rent-seeking, and state form in other East Asian contexts and beyond.

Why SMEs?

An important clarification is that this paper focuses primarily on rent-seeking amongst local small-medium enterprises (SMEs). This is not to suggest that government-linked corporations (GLCs) and multinational corporations (MNCs), two big players in the Singapore institutional landscape, are unimportant. In fact, it is precisely that their dominant presence in the economy was deemed to have crowded out local SMEs which led to the state, from the late 1980s onward, refocusing its industrial policy subsidies towards the local sector. A series of national economic plans were formulated (see Appendix 1), which saw the creation of dedicated SME-centric subsidies and organisations. Given this focus, which today is spearheaded by Enterprise Singapore and the trade associations it engages, this paper focuses on the SME sector.

Yet, it must be acknowledged rent-seeking is not exclusive to local SMEs. GLCs may be implicated especially when politically connected individuals are appointed as directors, and where such public–private interlinkages entrench the ruling networks of elite power in Singapore (Barr 2008; 2014). Given the Singapore state’s active efforts to court foreign MNCs, rent-seeking behaviour in this arena is not unimaginable. Therefore, one limitation of this study is its omission of the MNC and GLC sectors, which will require a separate study on its own.Footnote 4

That said, this paper in the first-place challenges conventional portrayals of rent-seeking centred around elite players like government ministers and business leaders involved in overt scandals and criminal acts, instead seeking to uncover modalities of rent-seeking found and reproduced in the regular fabric of business. It is precisely for this reason that the paper’s focus on SMEs, notwithstanding its limitations, remains a valuable contribution.

Public Choice and the Problem Rent-Seeking

Rent-seeking takes numerous forms, including but not limited to lobbying, expending resources to establish a legal monopoly or protection from competition, or in extreme cases, bribery, and corruption. The essence of “rent-seeking”, defined by Tullock (1967) and Krueger (1974), is the transfer of resources to a privileged interest because of state intervention—a transfer that would not be possible without government policies that convey the rents to the rent-seekers.

Whether rent-seeking is a problem is disputed. Developmental state theorists, such as Ha-Joon Chang, challenge the view that rent-seeking is “unproductive”, arguing that such labelling stems from an unreasonable distrust of the state (Chang 2011b; Chang and Rowthorn 1995, ch. 1). They contend that associating rent-seeking with unproductivity constitutes an arbitrary moral judgement that unfairly favours individualism and markets over more collective forms of action (Chang and Rowthorn 1995). Additionally, focusing on government failure may bias discourse towards non-action, hindering state action that may be necessary to crowd in private investments and solve large-scale social problems (Mazzucato et al. 2019).

It must be emphasised, however, that the very concept of embedded autonomy presumes that rent-seeking is a problem to be managed. The very possibility of private interests capturing the state is why in the first place, mechanisms such as merit-based recruitment, professional management techniques, and stringent performance criteria attached to grants are necessary to ensure bureaucratic autonomy (Wade 1995, 14). To portray rent-seeking as unproblematic is to render the concept of embedded autonomy—the institutional solution to the problem—superfluous.

Significantly, the idea of rent-seeking being unproductive draws on a long tradition of social science research (Olson 1982; Baumol 1996; Coyne and Leeson 2004; Dejardin 2011; Congleton 2015a). Documented examples include EU farm lobbying (Nedergaard 2006), American corporations manipulating financial regulation (Zywicki 2016), and state-owned enterprises breeding cronyism (Som 2022). Such rent-seeking activities are unproductive in that they do not expand the production possibility frontier, but instead expend real resources to redistribute resources from one group to another (Congleton 2015a). This diversion of resources constitutes a loss of economic welfare and efficiency (Hillman and Ngo 2019). Social costs arising from rent-seeking in the last few decades are estimated at 2.5% and 7% of GDP in the United States and Europe, respectively (Laband and Sophocleus 1992; Angelopoulos et al. 2009).

Reasonably, policymaking should be oriented towards the common interest rather than specific segments of society. The problem with rent-seeking is that it involves elite capture, whereby well-organised groups unduly influence policymaking (Holcombe 2018). Thus, whilst it is true that moral judgements are involved when portraying rent-seeking as unproductive, this moral judgement is reasonable given the widespread acceptance of the democratic principle of equality.

Culture of Rent-Seeking

The prevalence and characteristics of rent-seeking in society are shaped by numerous factors, with the institutional environment playing a crucial role. Institutions significantly influence the willingness and capacity of individuals to engage in rent-seeking activities. By structuring incentives, institutions determine the calculations of potential rent-seekers. As Congleton et al. (2008) summarise, “to the extent that existing formal and informal rules can be modified or new formal rules introduced, rent-seeking expenditures can be reduced (or increased) through institutional design”.

Extensive research demonstrates the impact of institutions on rent-seeking (Buchanan 1980; Rowley et al. 1988; Congleton 2015b). In this regard, the size and scope of the state in relation to the private sphere are critical institutional determinants of rent-seeking’s extent. As government intervention in society increases, rent-seeking activities may become more prevalent. When the state plays a significant role in regulating, shaping, or directing economic activities, it creates stronger incentives for firms, interest groups, or economic actors to influence the political process (Holcombe 2013). This can lead to the entanglement of political and economic power, as well as collusion between political and economic elites (Holcombe 2018).

Chang (1994) emphasises that rent-seeking is not exclusive to market economies and that mere market deregulation does not eliminate rent-seeking. This point is valid and should be acknowledged. However, the argument made here is that the risks associated with rent-seeking are heightened under state capitalism (Aligica and Tarko 2012). In corporatist arrangements where state and market actors are institutionally intertwined, firms have greater opportunities and incentives to capture agencies, influence the political process, and seek favours. Whilst deregulation may not eliminate this problem, it reduces the opportunities for private actors to seize political means of advancement that are typically unavailable in a market setting. Rent-seeking involving public funds also raises concerns about public accountability compared to rent-seeking in private domains.

Rent-seeking is influenced not only by formal rules and institutions but also by the prevailing culture within a society. Cultural economists have emphasised the significance of examining how attitudes, values, and expectations shape economic behaviour (Chamlee-Wright and Lavoie 2002; Storr 2013; Grube and Storr 2015; Granovetter 2019). This insight does not render irrelevant the economist’s intuition that incentives matter, but that economic agents interpret, perceive, and respond to these incentives through cultural filters, also called “shared mental models” (Denzau and North 1994). Institutions are not rendered irrelevant either, but that they must be conceived in a broader way to consider the “webs of significance”Footnote 5 (Geertz 1973) that form the context for human decision-making. In fact, a community’s formal institutions and de jure rules are often embedded within webs of social meaning which provide underlying legitimacy and thus added impetus for rule compliance. Both culture and institutions can feed on each other, shaping institutional development in complex ways (Aldrich et al. 2008; Mokyr 2014). It is with this premise that this paper considers how developmental state policies perpetuate a certain culture of rent-seeking, the subsequent interaction effects between the visible realm of policies, and the intangible realm of economic culture (see Fig. 1).

Fig. 1
figure 1

Interaction effects of causal mechanisms

Applying this cultural political economy framework to rent-seeking, I argue accordingly that whilst the institutional environment may create incentives for rent-seeking, the cultural context also plays an independent role in determining the nature and extent of such behaviour (Olson 1982; Hillman and Swank 2000; Mbaku and Kimenyi 2015; Storr and Choi 2019; Lavoie and Chamlee-Wright 2015). Granted, both culture and institutions can reinforce each other, for instance, if a nation’s formal rules and culture both sanction rent-seeking; then, the prospects for such behaviour would be greatly curtailed. The complication is where there is a misalignment between both.Footnote 6 In such cases, even if formal rules and explicit efforts are taken to sanction rent-seeking, these efforts are frustrated if the underlying culture supports such behaviour.Footnote 7 This is why, according to sociologist Daniel Smith (2006), institutional efforts to control corruption in Nigeria have failed, since corruption was baked into the fabric of regular life.

Without negating the role for incentives and institutions, culture can exert an independent effect on social outcomes above and beyond them. Thus, even if individuals everywhere may be rationally incentivised to accept government assistance (depending on the availability of such assistance), the prevailing culture can heighten the prospects of rent-seeking behaviour over and above the existence of said incentives. The case study of this paper is precisely an instance where a culture of rent-seeking arises from the vision of a developmental state, the existence of which further compounds the initial problem.

The most explicit treatment of the concept of a culture of rent-seeking is by Storr and Choi (2019), who show it to be a crucial determinant that influences rent-seeking, and how state action can perpetuate such a culture. They highlight that culture should not be seen merely as a form of capital or an informal institution but as an independent causal variable that shapes economic and social behaviour, including rent-seeking. Culture, being deeply ingrained in the way individuals perceive and interact with the world, also shapes social expectations regarding the legitimacy of rent-seeking behaviour, often in ways that individuals may not consciously recognise.

According to Storr and Choi (2019), there are seven characteristics of a culture of rent-seeking (CoRS):

  1. 1.

    First, a culture of rent-seeking legitimises and orients members of a society towards certain rent-seeking activities

  2. 2.

    Second, cultures or rent-seeking are not homogenous, but rather, vary across time and place

  3. 3.

    Third, there are a variety of economic cultures that prevail in each society

  4. 4.

    Fourth, cultures of rent-seeking are influenced and supported by other aspects of a society’s broader culture

  5. 5.

    Different institutions will give rise to different cultures of rent-seeking

  6. 6.

    There will be differences in the levels and nature of rent-seeking between societies with a CoRS and those without, and between societies with different types of CoRS

  7. 7.

    Whilst CoRS are likely slow to change, institutional shifts can play a part in eroding them

A culture of rent-seeking poses two significant challenges. First, if rent-seeking is ingrained in the economic culture and socially accepted, it becomes difficult to control through institutional measures. Even if control mechanisms are implemented, monitoring and enforcement costs can be prohibitive, as rent-seeking becomes a norm in business practice. Moreover, distinguishing between productive and unproductive entrepreneurship becomes challenging, as various forms of rent-seeking, including subtler practices like subsidy entrepreneurship, become regularised. A knowledge problem is unintentionally created when rent-seeking is routinised and made diffuse. Despite Singapore’s efforts to impose performance conditions and monitor grant recipients, rent-seeking has persisted, highlighting the difficulty of overcoming an entrenched cultural practice. Second, a culture of rent-seeking undermines the objectives of an entrepreneurial state, particularly in mobilising social action towards ambitious missions. If rent-seeking is socially legitimised, the state may struggle to maintain the necessary autonomy to enforce its agenda over private actors. Factional interests can influence the state, impeding its ability to rise above such influences. The lack of state capacity in this regard hampers efforts to guide society in a “mission-oriented” manner.

Singapore and the Developmental State Model

Singapore’s political economy and development experience have been deemed by some to reflect the power of economic freedom. According to market liberals, Singapore is one of the freest economies in the world (Tupy 2015; Kim 2020). If true, this means that the fundamental premise of this paper—Singapore being a developmental state—is effectively negated. This market-liberal position is to be acknowledged. Whilst not denying this perspective, this paper works within a different methodological paradigm, one concerned with the form of state-market arrangements rather than the magnitude of economic freedom. Even if measurable economic freedom is great in the Singapore case, it nonetheless operates a specific variety of capitalism, that of the developmental state (Cheang 2024, forthcoming).

Accordingly, the institutional form of the developmental state exhibits three characteristics (Chu 2016). The first characteristic is the heavy use of industrial policy for economic restructuring. Crucially, this economic motivation is also connected with a political motivation to maintain performance legitimacy, where good economic performance rewards state actors electorally. Industrial policy comes in several forms: direct participation, infrastructure investment, and incentive provision.

  1. 1.

    In terms of direct participation, the Singapore state maintains a significant portfolio of government-linked corporations, not only for the economic purpose of steering the direction of capital investment but also to maintain political hegemony by controlling strategic nodes (Cheang and Lim 2023)

  2. 2.

    The state, through the Jurong Town Corporation and similar organs, constructs industrial facilities, clusters, and infrastructure to catalyse innovation and investment. Indirectly, it works with urban planners and other public–private bodies to facilitate business-friendly conditions even in non-commercial areas

  3. 3.

    Finally, a slew of incentives is provided to firms. Though foreign firms are not neglected, the state had since the 1990s refocused its efforts to support local enterprises who are beneficiaries of a range of incentives targeting human capital, technological upgrading, internationalisation, branding, and more. At times, the state directly woos a foreign company to establish itself in Singapore on generous terms unavailable to others.

Aside from industrial policy, a developmental state also enjoys a high degree of state capacity, specifically the ability to impose its independent will onto society (Haggard 1990; Castells 1992; Weiss and Hobson 1995, 170–178). This state capacity, in the East Asian context, arguably stemmed from their authoritarian governance, such that pro-development policies could be imposed onto a society that would otherwise resist them. Crucially, this state capacity must be characterised by “embedded autonomy”, the simultaneous ability to influence the private sector through its close connections with it, but also remaining autonomous from their capture (Evans 1995; Haggard 2018).

The third characteristic is that of institutional software. Developmental states forge “a developmental mindset” (Thurbon 2016), which refers to a culture that is geared towards pro-economic growth activities, including but not exclusive to high savings by workers, a strong work ethic, and a civil service that is focused on generating better returns for society. Importantly, the political regime in a developmental state derives its legitimacy from good economic performance, what has been called “performance legitimacy” (Castells 1992, 56; Johnson 1999, 52). This crucial third characteristic suggests that a sound analysis of developmental states must consider culture and public beliefs.

Singapore’s political economy exhibits these characteristics. Its industrial policy and state investment through government-linked corporations is well-known. More important to be emphasised is the third characteristic of the developmental mindset. Sociologist Chua Beng Huat (1995) reiterated the constant emphasis on economic survival, i.e., how “continuous economic growth is the wellspring of all else in a Singaporean’s life, including a democratic society in the end”, is “the conceptual kernel”, and the “logical unfolding” of the incumbent People’s Action Party (PAP) government (59). Critically, such beliefs are not just held by the elites, but are widely imbibed by the people. Chua (1995) adds that the acceptance of constant economic growth being delivered by the state has “penetrated the consciousness of the population and has come to serve as the conceptual boundaries within which Singaporeans think through significant portions of their daily life” (68). This constitutes the whole-of-society developmental mindset that characterises developmental states.

Developmental State Configuration and Rent-Seeking Mechanisms

This section presents several causal mechanisms linking developmental states to rent-seeking behaviour. The nature of the developmental state’s interventions and the often-generous terms of its provisions constitute the first mechanism. A developmental state is a form of capitalism characterised by unique interventions. Whilst regulatory states regulate to curb private sector excesses, developmental states employ “positive” interventions. Instead of restricting private sector activity through mandates, rules, licensing, taxes, or quotas, developmental states focus on pro-business interventions that support firms. Industrial subsidies are the most common policy favoured by developmental states. They are transfer payments to encourage firms to adopt new technologies, projects, or restructuring initiatives. Other policy tools include tax breaks, cash grants, favourable loans, incentives, partnerships, and joint ventures (Oqubay 2020). These interventions create an attractive target of opportunity for subsidy entrepreneurs, depending on how generous the terms on which such subsidies are given.

Private actors employ diverse strategies to capture privileges through rent-seeking. This can range from criminal acts like bribery and graft, commonly known as corruption, to more nuanced methods of influencing the political process. These include organised lobbying and regular social interactions with public officials to sway public decisions. Whilst outright corruption is rare in Singapore, the developmental state’s policies have still incentivised subtler forms of rent-seeking amongst private actors. The generous terms of grant provision create not only strong incentives for subsidy entrepreneurship but for grant recipients to expend resources to surmount the many performance checks imposed by the state.

The second mechanism which explains rent-seeking in developmental states is an institutional one. This regime type prides itself on forging close linkages between state and business entities. Scholars use the term “embedded autonomy”, to portray how a developmental state is enmeshed within a network of relationships with different private actors, which could come in the form of councils, deliberation forums, informal organisations, private–public partnerships, etc. (Evans 1995; Haggard 2018). Even if embedded autonomy allows a state to discipline private sector agents, it will also provide, in the opposite direction, an institutional forum for private agents to influence public decisions. This second mechanism feeds on the first because it institutionalises what might otherwise be an ad hoc practice.

Illustrating Mechanisms 1 and 2

The Singapore developmental state institutionalises the provision of small business grants through a range of pilot agencies, which themselves forge a range of close ties with private actors through intermediaries like trade associations, councils, and business forums. In these bodies, the provision of grants is conducted on a very generous basis, with simple guidelines to facilitate easy application. The interaction of these two mechanisms means that the state deliberately designs the institutional framework to make the securing of grants as frictionless as possible.

To provide a concrete example of the generosity and ease of securing grants, we begin with the nominal criterion that firms need to pass to qualify for grants: as long as an enterprise has (1) at least 30% local shareholding and (2a) less than 200 staff or (2b) revenue turnover of less than $100 m, they are eligible for all small business grants. Such schemes are myriad and include those which provide capital or loan financing, catalyse new start-ups, expand to overseas markets, improve their internal processes, upgrade workers’ skills, pursue an innovation or productivity improvement project, or enhance their human capital. Significantly, the grants administered defray a significant bulk of firms’ expenditures. Notably, most schemes are at a 70% support level, which means that the firm receives a subsidy from the government to defray 70% of the cost of a project and only pays the remaining 30%. Notably, the amount payable by the firm may end up being less than 5%. This is because the 70% support level is sometimes increased to 80% or 90%, with an additional SkillsFuture Enterprise Credit offsetting significant portions of the remaining outlay by the firm.

To provide further clarity, we consider the most prominent grant called the Enterprise Development Grant (EDG), launched in October 2018, which is an enhancement of the long-standing Capability Development Grant (CDG). EDG “helps companies grow and transform. This grant supports projects that help you upgrade your business, innovate, or venture overseas, under three pillars”, which include “core capabilities”, “innovation and productivity”, and “overseas market access” (Enterprise Singapore 2022a). A common example involves an SME hiring a human resource consultant to upgrade its human resource capabilities. The consultant would quote the company a fee, which can amount to $150,000, as consultancies typically cost, and the firm then claims 70% (in some cases up to 95%) of this cost from the government upon the submission of a report.Footnote 8

Admittedly, the assistance provided is not indiscriminate but carefully assessed by officials, rating firms based on the strength of their business plan, growth potential, leadership, and management capabilities. Ex-ante mechanisms include careful screening, and ex-post controls would include disqualifying errant firms. Indeed, Singapore’s civil service has engaged in such control mechanisms and is globally lauded as being transparent and non-corrupt (Saxena 2011). A former officer in the pilot agency Enterprise Singapore, in an interview with the author, recounted the systematic approach utilised to evaluate firms’ suitability for government support; this included interviews with the CEOs, physical inspections, and reviewing past financials and the viability of the project proposal.Footnote 9

Although control mechanisms are in place, detecting and enforcing compliance with the grant terms can be costly due to the large number of applications resulting from the generous terms. Various public–private bodies promote these grants to firms, creating many access points through which to influence the receipt of said grants. Furthermore, because the rewards of obtaining these grants are substantial, firms invest significant resources in meeting the performance checks (including hiring experienced consultants to write compelling reports) without truly fulfilling the intended objectives of the grants. In the subsequent analysis, it will become evident that they adhere to the letter of the programmes whilst undermining their spirit.

Enforcing Consensus over the Mission of Growth and Discursive Strategies (Mechanism 3)

Not only are firms provided institutional opportunities to receive grants on generous terms, they start believing that such actions are legitimate and socially permissible in the world of business. This occurs because of two further subsidiary mechanisms.

The first has been explained: the state’s high capacity to shape the decisions of private actors. Developmental states are said to have high state capacity, often bordering on authoritarianism (Cheng 1990; Haggard 1990). Crucially, however, state capacity manifests not just in the physical realm but also in the ideological, cultural realm. In other words, a powerful state does not just enjoy the force of arms, but the means to influence what people think and believe to be true, good, and acceptable. In the Singapore case, it is no surprise that numerous political scientists have acknowledged a high degree of compliance by the populace for state directives arising from concerted social engineering (Wilkinson 1988). Low incidences of political protests, high levels of trust between state and society, and landslide electoral victories for the ruling party are typical evidence for this hypothesis. More radical viewpoints suggest that systematic “brainwashing” or “indoctrination” has occurred in Singapore (see Tremewan 1996).

The second subsidiary mechanism is its desire to shape culture to enforce consensus over the mission of economic growth. Developmental states rely not on democratic legitimacy to maintain political hegemony but on performance legitimacy” (Castells 1992, 56; Johnson 1999, 52). They justify their continued rule, even authoritarianism, on the basis that they deliver superior economic growth. Uncoincidentally, all East Asian nations except Japan were authoritarian during their experiment with the developmental state (Carney 2018). The logic is as follows: democratic discussion, civil liberties, and dissent are obstacles to the state’s enforcement of a single mission of economic growth.

In Singapore, there is social acceptance that democratic liberties are to be subordinate to the national mission of development. Existing surveys show that in Singapore, as compared to other East Asian nations, “living in country that is governed democratically” is less important a value. According to results from Wave 6 of the World Values Survey, the mean score of Singapore respondents answering this question in the affirmative (on a 10-point scale) is lower than in Hong Kong, South Korea, Taiwan, and Japan (World Values Survey 2020). Additionally, Singaporean citizens are most likely than in these other countries in thinking that “having experts, not government, make decisions according to what they think is best for the country” is “very good”. Significantly, the Asian Barometer Survey shows that in Singapore, more than half the population believe that economic development is at least somewhat more important than democracy (59.8% in 2014) (Koh et al. 2017).

Secondary academic evidence agrees that development has been used as a national discourse around which political hegemony is maintained. Academic scholars for one have identified how the Singapore state’s political hegemony is built on a discourse of heroic development piloted by the state (Chua 1995; 2017). So extensive is this discourse that it constitutes a national myth, one of “rapid economic development, rather than a religious-mythical narrative, that undergirds the unity and political cohesion of its Asian neighbours. The national myth of Singapore is the story of struggle against economic and political odds to achieve a first world standard of living” (Kluver and Weber 2003, 378).

Therefore, the state exerts its capacity not just to shape the behaviour of private agents and direct market outcomes but to maintain nationwide consensus over the mission of economic growth. Employing a range of rhetorical, discursive, and ideological tools, developmental state policies are presented as “necessary for one to live a good life”. This is precisely the “solidaristic vision” and “moral ambition” said to be central to developmental states (Loriaux 1999). Consequently, the pro-business policies of the developmental state are not only actively pursued but are also strongly legitimised in the cultural realm.

Indeed, government policies are framed, communicated, and articulated by political elites, and this has an understandable effect on how people interpret said policies. The Singapore state routinely offers industrial subsidies to firms for them to upgrade their internal capabilities, develop new product lines and technologies, and even expand overseas. Not only are such policies given on generous terms but the state would also identify firms that successfully acquire these subsidies and portray them as “industry success stories” (see Enterprise Singapore 2022b for proof). This process of legitimisation goes to the extent where some firms are held up as national champions and featured in annual addresses by the Prime Minister (Ministry of Finance 2015; 2018). In these addresses, the success of firms in acquiring subsidies and making good use of them is not only tolerated but also celebrated.

Mechanism 3 works in tandem with 2. In other words, a culture of rent-seeking is institutionalised through close state-market linkages. The natural conduit is the role of trade associations, which are significant institutional intermediaries that bring together state and private agents. These organisations typically arrange ceremonies, events, and initiatives that honour entrepreneurs who execute grant-funded projects well. Companies that successfully win grants and effectively complete government-funded projects are featured as model success stories on state-owned public media (see Straits Times 2022a and 2022b for clear examples). One former trade association executive described how such companies are shortlisted by the pilot agency to be eligible for yet more opportunities to participate in government schemes.Footnote 10 A culture of rent-seeking understandably follows.

The three mechanisms identified in this paper may end up reinforcing each other in complex ways, as the following graphic depicts.

If rent-seeking is culturally legitimated, this poses a fundamental paradox for mission-oriented entrepreneurial states. On one hand, to achieve mission-directed outcomes, it may need to impose its will onto society to achieve consensus over such missions—just like East Asian developmental states maintained a solidaristic vision around the mission of economic growth. But by doing so, a culture of rent-seeking may arise, which weakens the state’s ability to remain autonomous enough to shape social behaviour.

Impact: Fraud, Misconduct, and Subsidy Entrepreneurship

The combined impact of all three causal mechanisms is that rent-seeking in Singapore takes many different forms. It includes outright fraud to subtler forms like subsidy entrepreneurship which are difficult to detect since they become regularised in the usual course of business. The following sections provide empirical evidence based on a variety of data sources to illustrate the various patterns of rent-seeking that have emerged.

The first type of rent-seeking would be outright fraud and financial misconduct. For this, we may usefully glean from a compilation of major news reports concerning fraud associated with government grants in Singapore that are provided by the pilot economic agencies (Table 1).

Table 1 Prominent cases of government grants fraud in Singapore

Such cases of fraud are easy to detect, but when rent-seeking becomes socially legitimised as a normal part of doing business, it starts taking on subtler expressions that are difficult to detect. In the case of Singapore, it takes the form of subsidy entrepreneurship revolving around the securing of small business grants, which was characterised by a Nominated Member of Parliament as “grantrepreneurship” (Chia 2016). These grants, to be fair, have evolved over the years, with refinements that eliminate the most egregious cases such as those involving the PIC. Yet, the underlying generosity of the grant terms has remained largely unchanged and with generic support available to all local enterprises.

The problem of such subsidy entrepreneurship is that moral hazard and principal agent problems are created, whereby the government’s aims of providing the grants in the first place are subverted. Business incentives are skewed towards securing grants for its own sake. A common example is the way in which the PIC grant allowed firms to fund purchases of computer hardware they would not need in the usual course of business. This led to skewed incentives, according to a focus group participant:

“I was doing accounts, accountancy for an oil and gas company—not gonna mention the name. I remember that our team, we don’t abuse the PIC, but we may have used the PIC to our advantage by buying a lot of laptops unnecessarily.”

The facilitation of subsidy entrepreneurship has at times become an industry on its own. Subsidy entrepreneurs typically present themselves as consultants dedicated to “advising” companies on how best to secure and maximise grants. The government itself, specifically the Inland Revenue Authority of Singapore (IRAS), has acknowledged the prevalence of subsidy entrepreneurship. The agency admitted that these “so-called consultants” have “misled or influenced hawkers, property agents, hair salon owners and taxi drivers, amongst other self-employed individuals, to make false claims to get cash pay-outs under the Productivity and Innovation Credit (PIC) scheme” (Tan 2016). As of 2016, there were $358 million worth of fraudulent claims that were not recovered.

Such subsidy entrepreneurship constitutes a principal-agent problem because the government’s intentions for disbursing grants are subverted. An interview conducted with a long-serving practitioner in the SME industry recounted his frustration with the way consultancy is being provided to firms. Rather than giving sound business advice, many consultants instead provide advice focusing on the securing of grants itself, with no aim in mind of long-term upgrading. Calling them “cowboy consultants”, the interviewee observed their recklessness which often leads to abuse and illegal activities.Footnote 11 Of course, not all engaged in illegal activities. The real problem lies with what an entrepreneur in the focus group encountered: dedicated “grants specialists”, who would assist firms to secure grants and aid them in writing performance reports to pass performance checks. Such behaviour is unproductive because it is not geared towards value creation for consumers, but the extraction of greater rents from the government tap. They also create serious logistical and epistemic challenges for the state when evaluating the performance of grant recipients.

The difficulty in controlling subsidy entrepreneurship is admitted by the government itself. An independent audit uncovered systematic irregularities in the grant management of government bodies in Singapore. Understandably, Workforce Singapore and Enterprise Singapore, the two economic agencies which disburse grants, had the most incidences of irregularities highlighted (Auditor's General Office, Singapore (AGO) 2020, iii-iv). These failings are not due to a lack of effort on the part of state officials to carefully implement “monitorable performance standards” (Amsden 2001, 8). The problem is that, arising from the combined interaction of the abovementioned mechanisms, it is difficult for officials to do so systematically and effectively. The first difficulty is logistical, as there are simply too many grant recipients for careful checks to be done. Remember that the Singapore civil service is known for its small size, as such, there would be many applications that each evaluator must handle.Footnote 12 Reasonably, these evaluators will resort to rules of thumb, which understandably lead to loopholes:

AGO’s test checks found that grant evaluators would generally rely on companies’ declarations and projections of project costs and outcomes when evaluating grant applications. In most of the cases, there was inadequate documentary evidence showing that the evaluators had adequately assessed the projections and costs (AGO 2020, 76).

The second challenge is an epistemic one. In a context where securing grants is baked into the usual practice of business, it is difficult to distinguish between firms who are genuine in using a grant for its intended purpose, or those who simply obtain it as a source of easy cash. This is then compounded by the qualitative nature of certain subsidised projects. For example, how would an evaluator confirm that a human capital development project subsidised by the Enterprise Development Grant led to improvements in “organisational culture”? Documentary evidence with numerical projections may be of little use, especially since firms may piece together a narrative—often prepared by expert grants consultants—that give an appearance of such improvements being made. When such ambiguities arise, evaluators start exercising a high degree of individual discretion, rather than following a set of objectively defined criteria, leading to inconsistencies and errors:

AGO found that the evaluators had exercised varying degrees of due diligence in their assessment. For example, in cases where the companies did not submit relevant financial records, some evaluators either did not follow up with the companies or could not provide evidence of having done so (AGO 2020, 75).

The Developmental State Has Fundamentally Shaped the Business Culture in Singapore

Mechanism 3 specifically has a unique impact on business culture in Singapore, such that firms hold onto a widespread expectation that state support is to be a core aspect of economic policy. Business culture in Singapore proceeds on the informal basis that obtaining some form of state privilege or favour is a given and that influencing how these favours are given is an inescapable part of good business strategy.

Whilst it is difficult to definitively prove such claims, the author’s online survey, interviews, and focus group go some way. These were conducted to understand the attitudes of business professionals towards government grant support. The data collected show that Singaporean enterprises largely operated with the assumption that the state ought to be providing funding support for business growth purposes, and that securing such support was crucial to business strategy.

Specifically, the online survey conducted through Pollfish targeted entrepreneurs and business professionals of C-suite and above from Singapore and Hong Kong.Footnote 13 The inclusion of Hong Kong is meaningful and provides further triangulation, considering political scientists have often compared both nations due to their similar characteristics as trade-reliant city-states, shared British heritage, and predominantly Chinese cultural traits (Woo 2018; Cheang 2022b). Notably, after 1997, Hong Kong was expected to adopt greater sectoral interventions like Singapore, whilst the latter was expected to move in the laissez-faire direction of pre-1997 Hong Kong (Lam 2000; Ngok 2015). If this thesis is right, one will not expect significant differences in survey responses regarding demands for state subsidies. However, the study’s results reveal a substantial disparity in perceptions on this matter, suggesting that Singapore respondents maintain relatively higher expectations of state support compared to Hong Kong, where its historic tradition of laissez-faire has persisted. The disparity in Figs. 2 and 3 may be a complex result of both culture and institutions, which are difficult to disentangle. Plausibly, there are less incentives to rent-seek in Hong Kong due to the dearth of subsidies available to entrepreneurs, and which also means an absence of a cultural expectation amongst them regarding such behaviour.

Fig. 2
figure 2

Online survey on business perceptions towards importance of government grants

Fig. 3
figure 3

How important is securing a government grant to your business development?

The focus group conducted, involving 12 business leaders randomly recommended by the Singapore Business Federation, provide further substantiation. A key theme that emerged from the focus group is that the disbursement of industrial grants is taken as a given by Singaporean enterprises, who actively seek them. Participants also spoke freely about how they would apply for grants, witness partner firms receive them, and sometimes even make dubious financial decisions with said grants. One focus group participant articulated how some firms would only engage in software investments if the costs were covered by grants:

A lot of businesses will come to us and one of the first questions that they ask to me is ‘Can you handle the grants for us?’ In a way that helps me get more business also (…) It helps the businesses actually approach me. Given… Or if there was no grant, I don’t think they would actually approach, like, agencies to do their work (…) They might just do it themself. Find somebody, a freelancer that they can do it for cheap. But with the grant, this allows them to say ‘Ok I wanna hire a professional agency’.Footnote 14

There is an expectation of government support. This may not always be publicly expressed, but rather may be an informal, taken-for-granted part of the business culture, as expressed by one focus group participant: “we sort of have a subtle lobbyist culture (…) everyone takes it for granted. Grants are understood.” A venture capitalist founder in Singapore admitted to the present author that a good number of local entrepreneurs often consider government grants as much as they do private financing.Footnote 15

The culture of rent-seeking is by no means the only economic culture that exists in Singapore. As has been pointed out, “a CoRS is likely to be one of a number of ‘economic cultures’ or models of economic success in the societies where they exist” (Storr and Choi 2019). Virgil Storr (2013) illustrated in his unique study of the Bahamas how the “spirit of Rabbyism”, one of trickery and deception, co-existed simultaneously with the “spirit of Junkanoo”, which promotes a sense of meritocracy. Consequently, there may be a co-existence of multiple economic spirits in the Singaporean context. It has been previously established that Singaporeans are generally motivated by a culture of meritocracy, a sense of hard work and the associated belief that such work brings rewards. This is arguably due to its immigrant history, where large numbers of settlers arrived during the British colonial era in search of better prospects, which inspired a strong work ethic and spirit of enterprise (Cheang 2023). This must be acknowledged. However, how this meritocratic culture interacts with the culture of rent-seeking discussed in this paper is understandably complex and requires further sociological investigation.


There are two consequences of a rent-seeking culture: it makes detecting unproductive entrepreneurship more difficult than it already is under generous terms of grant provision and fosters a dependency mindset that distorts the judgement of entrepreneurs.

The first consequence is the difficulty of detecting unproductive entrepreneurship. Former employees of Enterprise Singapore recounted the challenge of accurately evaluating whether a firm truly merited receiving a grant, recognising the possibility of grantees producing nicely written project reports, making it difficult to distinguish deserving recipients from those who were simply good at “crafting a nice story”.Footnote 16 Often, such firms have dedicated in-house subsidy entrepreneurs in the form of “grants consultants” whose expertise enables them to produce compelling reports that pass the government’s checks. Considering most grant administrators evaluate proposals based on disclosed information, mistakes are often made as to the companies that receive grants. What this means is that many firms apply and seek various funding from the government, but not necessarily for the purposes intended by the grant. This incentive misalignment was confirmed by several administrators in trade associations. One such executive recounted how the SME Talent Programme, meant to attract young talents, was sometimes abused by errant firms to offset the costs of hiring cheap student interns.Footnote 17 Another administrator recounted similar cases of firms applying for grants simply as means of acquiring quick resources, betraying the deeper spirit of the grants’ aim to encourage long-term upgrading.Footnote 18

Parliamentarians have acknowledged this culture but have found it difficult to reform the relevant programmes. In a recent national debate, both establishment and opposition leaders questioned if grants were backfiring. Parliamentarian Pritam Singh had asked if companies were essentially on state-sponsored welfare and others like Lim Wee Kiak and Ong Teng Koon recommended letting companies feel the brunt of competition rather than shielding them through subsidies (Tay 2016). However, there have been no substantial changes. In fact, new support schemes were suggested in 2017, 2018, and 2019 along the same lines.

The second consequence of a culture of rent-seeking is the creation of a dependency mindset, also called a “crutch mentality” by some government officials. This mentality is one where firms are dependent on government support and feel unable to sustain their operations in their absence. This is a concern because the grants given in Singapore are typically meant for very deliberate purposes, such as upgrading or catalysing new technology, and not for firms to become dependent on. A high-ranking civil servant and former Aide-de-Camp to the President of Singapore, Devadas Krishnadas (2014), explained: “while the government is generous in assistance to SMEs, there is an inadvertent danger that it could be too generous”. Krishnadas (2014) concluded that “the government should refrain from trying to save every firm and every Singaporean job…a greater tragedy would be to create a crutch mentality that weakens resilience and competitive drive”. Another long-serving civil servant from the pilot agency identified the same problem.Footnote 19 When asked what the biggest weakness of Singapore’s current approach to growing enterprises is, he identified the generosity of these grants and the dependency mindset that it fosters.

Aside from government officials, some prominent business experts have themselves detected a culture of rent-seeking. The former Vice-Chairman of the Singapore Business Federation Douglass Foo recounted how firms regularly expressed: “if there was a grant, then good…if this is the way to do business, then we need to do it” (Malay Mail 2017). He further corroborated that the crutch mentality exists, where SMEs “start to ask, ‘what can agencies do for me?’” (Malay Mail 2017). The broader concern is clear when we consider that entrepreneurial judgement affects economic performance (Foss and Klein 2012): the dependency mindset skews entrepreneurial judgement towards activities that are socially unproductive, dragging down overall economic productivity.

The culture of rent-seeking documented herein should be contextualised within a broader assessment of Singapore’s political economy, which has its own unique trade-offs. On one hand, its developmental state model must in some ways be credited for its high income growth and achievement on global competitiveness indices. State support has in specific instances enabled recipient firms to adopt technological upgrading. Yet, the trade-off is that there is a comparative underperformance in terms of “high-quality” development characterised by productivity, creative innovation, and entrepreneurial culture. An important volume reviewing Singapore’s development declares that “high GDP growth has been achieved through factor accumulation rather than productivity increase”, and at the same time, “without developing the inherent production and indigenous innovation capacity” (Lim 2016, 51, 135). Notably, Singaporean youths are the least inclined to entrepreneurship as compared to six other Asian countries surveyed (World Economic Forum 2019). Academic studies also confirm that most of the gains from innovation in Singapore are captured by the foreign and state sectors, rather than local private enterprise (Rikap and Flacher 2020; Audretsch and Fiedler 2022; Cheang 2022a).

Even though many of the developmental state subsidies were introduced from the 1980s in the first place to address these problems, the critical question is whether such support has efficiently translated into tangible outcomes. Answering this question in the negative, a 50-year review of the state’s successive economic plans to promote productivity and innovation concluded that Singapore’s performance “has not been outstanding” and “incongruous with the efforts expended” (Woon and Loo 2017, 10). Similarly, the World Intellectual Property Office (2019, 3) shows that despite a high aggregate rank on the Global Innovation Index, “Singapore produces less innovation outputs relative to its level of innovation investments”. Further reinforcing this is the only issue of the Creative Productivity Index which ranks Singapore as the worst in Asia:

Singapore provides the starkest example of the importance of efficiency in turning creative inputs into creative outputs. The city-state is far from an innovation laggard: it is ranked first in the level of creative inputs and sixth in the level of creative outputs. However, given its level of creative inputs, Singapore could be achieving even more creative outputs. Japan, Hong Kong, China, and New Zealand all have a lower level of creative inputs than Singapore, yet achieve a higher level of creative output. This is because Singapore is less effective at turning creative inputs into outputs, as evidenced by its ranking of 10th in the CPI (Asian Development Bank and Economist Intelligence Unit 2014).

What explains these structural challenges? Some point to institutional factors, such as institutional discoordination leading to conflicting incentives for innovation (Carney and Loh 2009) or crowding out of local enterprise due to prioritising foreign and state-linked sectors (Cheang 2022a). Others emphasise cultural explanations, focusing on risk aversion or lack of entrepreneurial values taught in schools (Lee and Lim 2004; Audretsch and Fiedler 2022). The value of this paper is to contribute a different mechanism to explain these challenges, one involving both culture and institutions. Namely, developmental state policies have created incentives for socially unproductive subsidy entrepreneurship, which in turn interact with a wider culture of rent-seeking that reproduces these dynamics on a system-level.

Given all the problems of rent-seeking investigated in this paper, a natural question arises as to why the Singapore state has nevertheless persisted with such interventions. State officials are surely aware of these problems, have refined their schemes over the years, and improved their control mechanisms, as acknowledged above. Yet, notwithstanding such tinkering at the margins, the underlying belief in the need for a state-led approach to economic policymaking remains unchanged. As such, short of a fundamental overhaul of this approach, the Singapore state will find itself stuck in a Catch-22 of wishing to intervene with industrial policy but managing the inevitable consequences of such interventions. The path dependence of the Singapore developmental state is therefore curious and worth further research, considering that other East Asian nations have partially moved out of such a model in the past three decades (Yeung 2017). One, though by no means the only, explanation of this path dependence draws from the literature on authoritarian resilience, arguing that the Singapore state’s use of ideological legitimation devices is what enables it to achieve greater longevity than its East Asian counterparts and to discursively rationalise its policies (Cheang and Choy 2023).


This paper has examined the challenges faced by the Singapore developmental state in managing rent-seeking pressures, focusing on three interconnected mechanisms. First, the state’s generous pro-business interventions create attractive incentives for firms to engage in rent-seeking. Second, the close public–private interlinkages provide institutional platforms for such activities. Third, and perhaps most important, the Singapore state fosters an economic culture that legitimises rent-seeking, where firms perceive it as a socially accepted aspect of business, willingly participate in national ambitions, and rely on grants for survival. The developmental state’s strong capacity enables it to deeply influence economic culture and shape social expectations related to its economic policies, driven by the need to maintain performance legitimacy. This analysis therefore raises broader concerns about the capacity of entrepreneurial states to guide society in mission-oriented ways. It implies that mission-oriented interventions may require extensive cultural engineering to foster consensus over the relevant “missions”, but this level of penetration simultaneously it harder to detect whether private interests are engaged in productive or unproductive forms of entrepreneurship.