As Lee Kuan Yew era ends, what's next for Singapore's future?

Lee Kuan Yew's death this week raises the question of whether the generation of leaders in waiting will reshape the mould that transformed the city-state from a colonial backwater to a haven of prosperity.

If Lee Kuan Yew represented the Singapore of yesteryear, his death this week raises the question of whether the generation of leaders in waiting will reshape the mould that transformed the city-state from a colonial backwater to a haven of prosperity.

While Lee had long retired from active leadership, his son, Prime Minister Lee Hsien Loong, is still the standard-bearer of a free-market model that relied on efficiency, low taxes, zero tolerance for corruption and a distaste for the welfare state.

Like his father, he has continued to curb free speech and use defamation laws to muzzle critics and political opponents.

But Lee has said he will hand over power by 2020 and speculation over his successor has swelled since he was treated for prostate cancer last month.

That, along with a decline in the popularity of the long-dominant People's Action Party (PAP), has brought an unfamiliar whiff of uncertainty to Singapore.

Years of galloping growth have led to income inequality, resentment over immigration, overcrowded trains and expensive housing, issues that knocked the PAP's share of the vote down to 60 percent from 67 percent in elections four years ago.

Since then, the PAP has faced calls to abandon what one senior party member dubbed a policy of "growth at all costs."

"Some of our young were starting to doubt about their future in Singapore as they saw housing and cars beyond their reach because of the rapid rise in prices," said Inderjit Singh, a sitting member of parliament for nearly 20 years.

The party must address these and other challenges, he said. "Failing to do so will see an erosion of support."

Manu Bhaskaran, a partner at research and advisory firm Centennial Asia Advisors, said that the 2011 election had forced ruling party's hand on policymaking.

"The next generation of leaders will be different ... failure to adapt to the new reality would of course mean that the ruling party could eventually lose power, so there is a powerful incentive to adapt."

Singapore's two previous changes of prime minister since independence in 1965 were well-flagged transitions to anointed successors. Lee Kuan Yew himself said in 2007 that he had "ensured succession, so that the system will continue to work."

No-one is suggesting that the script behind Singapore's success is about to be torn up, but there is a sense - heightened by Lee's death - that an era has ended, and the system will not "continue to work" as it used to.

"Singapore needs a new strategy yet again, but it is not going to be like the past where the PAP decided what it was and announced to the population," said Robert Broadfoot, managing director of the Hong Kong-based Political & Economic Risk Consultancy. "The government has to become more inclusive."

Already it has raised its spending on social development to roughly 8 percent of gross domestic product this year from 6.2 percent in 2011, though that is less than half of the proportion that the United States and Britain spend on welfare.

In its 2015 budget, the government uncharacteristically raised spending and assistance for poorer citizens and the elderly, while increasing tax rates for top earners by two percentage points to 22 percent.

A young generation of leaders awaits 

Who will take the baton from junior Lee is anyone's guess.

There are currently two deputy prime ministers - Teo Chee Hean, 60, who heads the powerful home affairs ministry, and Tharman Shanmugaratnam, 58, also the finance minister and a well-respected international economist. Either of these men could hold the fort if Lee decided to step down earlier.

But eyes are on younger leaders.

Three names have surfaced in the media as likely candidates - former army chief and Social and Family Development Minister Chan Chun Sing, Manpower Minister Tan Chuan-Jin and Heng Swee Keat, who is in charge of the education ministry.

For many the leading candidate is Chan, 45, who is set to take over as the head of the powerful labor body next month. He is a relative newcomer to politics, bursting onto the scene in 2011 when he won a parliamentary seat in a walkover in the Tanjong Pagar constituency - home to Lee Kuan Yew.

Eugene Tan, associate professor of law at the Singapore Management University, said succession plans would be clearer after the next general election when Prime Minister Lee names his deputy.

"It all depends whether the fourth-generation leadership is ready to take over when PM Lee steps down," said Tan. "However, should the fourth-generation leadership require more time, the current DPMs are ready and equal to the task ... and can step up if need be," he said, referring to the deputy prime ministers.

Whoever takes the reins, the next leader will inevitably be cut from the same cloth as Lee, who opted for pragmatism over ideology and social stability over civil rights.

"Senior figures don't join the PAP because they have a strong ideological mindset, they're recruited because they're seen as the best civil servants or military leaders," said one Western diplomat in Singapore.

"A safe pair of hands and someone already known well to the government."

(Additional reporting by Rachel Armstrong and Rujun Shen; Editing by John Chalmers)