Singapore has an impressive history of growth, making it one of the most successful economies in south-east Asia. In the second quarter, Singapore recorded its highest rate of expansion in eight years, reaching 11.7 per cent compared with the year before, although that performance was flattered by last year's downturn caused by severe acute respiratory syndrome.

But Mr Lee believes profound change may be needed to maintain the city-state's position in the face of fierce competition from China.

Singapore has claimed its economic success was built on the high quality of its bureaucrats, with the best and brightest of each generation encouraged to join the civil service. Now Mr Lee fears this tradition, which he fostered, has sapped Singaporeans' appetite for risk-taking.

Returning from Beijing recently, he suggested the city-state's high- flying "scholars" should no longer be guaranteed a comfortable career in government but should be forced to compete in the private sector.

Mr Lee noted that Switzerland's respected Institute for Management Development scored Singapore highly on its public sector but less well on entrepreneurship and venture capital. "What does that mean? Too much concentration of talent, drive and energy in the public sector," he says.

Local businesses have long complained they are deprived of the most talented recruits, who prefer jobs in government or state-owned companies with generous salaries and security of tenure.

Out of the 12,000 students graduating annually from Singapore's secondary schools, 250 to 300 of the top ranks receive scholarships from government agencies, with more provided by the state-owned companies that dominate the local economy. After graduation they must serve up to six years working for the government, with most staying on to pursue careers in the public sector.

The result is that Singapore lacks a class of entrepreneurs who want to start their own small and medium-sized businesses. This is in contrast to the city's history as a British colony, when it was a breeding ground for rags-to-riches business dynasties among its dominant ethnic Chinese population.

The lack of entrepreneurial drive is seen as a handicap when Singapore, with its small mature economy, is seeking further growth by expanding abroad. Mr Lee has long argued that Singapore lags behind Hong Kong and Taiwan in creating the successful "external" economy needed to remain competitive.

Singapore can boast only a few regionally successful entrepreneurial companies, such as computer audio maker Creative Technologies, water purification specialist Hyflux and tropical fish breeder Qian Hu.

The city-state has already sought to spur enterprise by cutting corporate taxes and appointing a minister for entrepreneurship.

Mr Lee's latest proposal would require half the students who receive state scholarships to foreign and local universities to be "released" to the private sector after serving several years for the government.

Yet even the pro- government media have been sceptical about the effectiveness of his suggestion. "There could be consternation in the upper reaches of the public sector: the very idea of swapping the cushy, prestigious world of writing policy papers for the unknown hazards of business would not appeal to many," said the Straits Times newspaper.

Nonetheless, the proposal is seen as an attempt to overhaul an education system that seems geared to turning out bureaucrats. "The biggest weakness in Singapore's education system is that it overlooks bright kids who would make good entrepreneurs," says Dominique Dwor- Frecaut, regional economist for Barclays Capital in Singapore.

Some top schools and universities recently announced they would reduce the importance of results in selecting applicants and apply greater weight to activities such as sports and the arts. This represents a U-turn from the views once espoused by Mr Lee, who used to criticise "liberal sociologists" for promoting an approach to education that resulted in "a workforce that cannot compete".

But reform looks set to stop short of politics in the famously authoritarian city. Mr Lee's son, Lee Hsien Loong, who is preparing to take over as prime minister later this year, recently warned political opponents he would "rebut or even demolish" them. Economic risk-taking may be more palatable to the Lees than its political equivalent.

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