Eventually, the gap with developed countries will close, he said, spelling good news for high-cost Singapore as it can look forward to a more level playing field.

The phenomenon of companies outsourcing part of their operations to cheap countries such as India and China has raised an outcry in the United States and worried many First World countries, including Singapore.

But, as the report points out, companies will think twice about outsourcing now that the cost gap is narrowing, with Indians becoming more educated and Americans accepting lower wages.

SM Lee believes the same outcome will occur among Singapore's neighbours. Wages among regional rivals will not remain low forever, he told union leaders from the Singapore Airlines (SIA) group at an Istana meeting on Monday.

He said: 'Will the Thais always remain cheap? I don't think so.

'Will the Chinese always remain cheap? Definitely not.'

Already, the Chinese, with an eye on attaining the standards of living in Hong Kong, Singapore, Taiwan, South Korea and Japan, are working hard to get higher wages.

Mr Lee is confident they will catch up: 'How fast? I hope quickly. The quicker their wages go up, the less the pressure on us.'

High cost is Singapore's biggest challenge and he called on the employees of the airline group to work in unison with management, adding that he was confident they could overcome the challenges ahead.

The reason for his optimism? The more-educated Singapore workforce and the country's track record in triumphing over even bigger challenges in its short history.

'I don't know how long this state of restructuring will continue, but if we go into battle with faint hearts, we will lose. '

We are facing tough times now, but it is nothing like what we faced in the 1960s and 70s,' Mr Lee said.

Then, Singapore did not have what it has now: an educated workforce with those below the age of 35 having at least basic training, be it from the polytechnic or the Institute of Technical Education.

He squarely accepted responsibility for the problem of older workers who, being less educated, are more likely to be laid off: 'It's really our fault. If we had succeeded with our education system earlier, say in the 1970s, then we would have been okay.'


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