Building on an economy that is already the strongest in Southeast Asia, Singapore's government is pursuing a "second industrial revolution" aimed at putting the city-state in the ranks of the world's most technologically advanced countries.

At the same time, the administration of Prime Minister Lee Kuan Yew is moving toward greater political sophistication. Most political prisoners have been quietly released in recent months, and a "second generation" of young technocrats is being groomed to take over Singapore's leadership.

These new leaders will inherit Southeast Asia's best run state, one whose world importance far outstrips its small size. Although Singapore has only 2.4 million people and 226 square miles of land, it ranks as the world's third-largest oil refining center after Rotterdam and Houston and, according to diplomats, recently passed Yokohama to become the world's second-busiest port.

Yet, while Singaporeans enjoy economic growth, political stability and the second-highest per capita income in Asia after Japan, their prosperity has a price.

"The government delivers, and what it delivers is material goods," one Western diplomat said. "But the price is toeing the line. Singaporeans get a high standard of living in return for being treated like schoolchildren."

While most people here seem to accept this without complaint, one Singaporean said, "In the universities there is strong criticism of the high-handed manner in which Lee rules us. No other people get so badly lectured by the government as Singaporeans."

Indeed, Singapore is a state run by various "campaigns" of admonition designed to mold citizens' behavior. This "social engineering," apparently largely successful, has prodded Singaporeans to practice family planning, line up for buses and refrain from littering. Now citizens are being harangued to be polite to tourists and each other in a "Courtesy Campaign" and to avoid using various Chinese dialects in a "Speak Mandarin Campaign."

In addition, Singapore has introduced policies aimed at reorienting the economy and attracting foreign investment in high-technology, capital-intensive industries.

"It's now virtually impossible to open a business that needs labor," said a director of a U.S. firm here. In fact, some assembly plants employing relatively large numbers of workers have moved their operations to neighboring Malaysia because the government has withdrawn incentives and generally made their continued presence difficult.

Instead of labor-intensive industries, Singapore is trying to attract aerospace and computer firms, manufacturers of medical equipment and pharmaceuticals and producers of such items as optical instruments and advanced electronic components.

To this end, the government not only is offering investment incentives but also has been pushing wages in the private sector up by an average of 20 percent a year since 1979 through a series of closely followed salary "recommendations."

The main reasons for Singapore's pursuit of a "second industrial revolution" are its acute labor shortage, a desire to increase the standard of living without pricing exports out of their markets and a perception that foreign protectionism is more likely to hurt labor-intensive industries than capital-intensive ones.

Although the policy holds some risks, it is beginning to show results, according to economists and businessmen. Several firms already installed here have upgraded their facilities in line with the government's aims.

"The main problem in the whole economy is there aren't enough people," one economist said. With unemployment at a minimal 3 percent, the government has had to rely heavily on foreign workers but seems reluctant to allow in many more.

One side effect of the new industrial policy may be to benefit the less efficient economies of Singapore's partners in the Association of Southeast Asian Nations (ASEAN).

"Other ASEAN countries would welcome the kind of investment that Singapore doesn't want anymore," a diplomat said.

At the same time, Singapore may soon become a new source of competition for foreign high-technology industries.

Among the risks, however, is that the economic reprogramming could entail labor problems. This concern apparently lies behind the government's decision to restructure the labor movement by disbanding two omnibus unions and creating about 10 industry unions.

"The Singapore leadership has a phobia about labor movements," an economist said. "The goal has been to establish total political control despite a democratic framework." He added that the government "didn't like two unions being able to cut across industrial sectors."

The restructuring not only allows the government to shake up the union leadership, he said, but new union charters "assure effective government control."

This sort of control is exercised over the society generally by Lee Kuan Yew's ruling People's Action Party, which has not lost an election since 1959 and has won every seat in parliament since 1968.

Singapore's press observes a fairly stringent self-censorship, and the government retains the authority to imprison opponents for two years without trial under the Internal Security Act, a remnant of British colonial days.

But with the political situation stable and public support ensured by the country's economic successes, the government has felt confident enough to release most of the 50 political prisoners Lee acknowledged were being held four years ago.

The release of Communists, union organizers and student leaders began about two years ago, and several have been freed in recent months. Now Singapore is believed to hold no more than 15 political prisoners.

"There are still political prisoners, but they're no longer a major issue," said an independent Singaporean scholar. "Singaporeans are more focused on society's development. They're concerned with bread-and-butter issues such as housing policy, inflation and education."

"Singaporeans are enormously uninterested in their own internal politics," said a Western diplomat. Because of this apolitical tendency, the 56-year-old Lee has been at some pains to start grooming successors to take over the leadership in future years.

"He's aware he has cast such a long shadow that nothing much has grown in it," the diplomat said.