The PAP’s obsession with GDP growth

Following the publication of the Economic Strategies Committee report earlier this year, we were supposed to be restructuring our economy. Growth was supposed to be slower, and led by productivity gains, not manpower inputs. Yet, the other headline today directly contradicts this: “100,000 foreign workers needed: PM”.

After a drop of just 4,200 foreigner numbers last year due to the downturn, the PAP’s “open-the-floodgates” immigration policy is back with a vengeance. So much for all their promises of “moderating” the inflow of foreigners.

THIRTEEN to 15 per cent. That is the government’s latest projection of GDP growth rate for 2010. To the casual observer, this looks like fantastic news. It makes for a great pre-election fodder.

However, just like fodder, it may turn out to be inedible to humans. This kind of growth rate is not natural, not least for a supposedly developed economy like Singapore. Even China, with all the talk about its economy overheating, is not expected to have more than 10 per cent growth this year. The reality may bite for ordinary Singaporeans in a few months time: Inflation is likely to shoot up; the prices of everything, from utilities to food to transport will continue on their dramatic upward trend. Yet a recruiting firm managing director interviewed by TODAY warned that those who expect a much higher salary from their current job may be disappointed, because many hiring managers still peg their salary figures against last year’s rates. PM Lee himself said that “you don’t want it to happen too suddenly. You have to manage it (wage increases).”.

Following the publication of the Economic Strategies Committee report earlier this year, we were supposed to be restructuring our economy. Growth was supposed to be slower, and led by productivity gains, not manpower inputs. Yet, the other headline today directly contradicts this: “100,000 foreign workers needed: PM”.

After a drop of just 4,200 foreigner numbers last year due to the downturn, the PAP’s “open-the-floodgates” immigration policy is back with a vengeance. So much for all their promises of “moderating” the inflow of foreigners.

Since we have this “fantastic” rebound in the economy, isn’t it the best time to ramp up our nation’s productivity drive, by forcing businesses to innovate and come up with better ways to achieve the same output without the over-reliance of cheap foreign labour? This “bitter medicine” seems to have been postponed. The government has reverted back to it’s habit of feeding our businesses steroids in the form of cheap labour, so they can generate more output and help boost economic growth.

Why does the PAP government have such an obsession for GDP growth? Don’t they realise that GDP growth does not necessarily indicate a healthy economy? Isn’t it more important to have equitable growth—where all citizens, especially the poor, benefit from growth?

It could be partly due to one incentive that drives many of their actions, whether consciously or subconsciously: The bonuses of all civil servants, Ministers and MPs are tied to GDP growth rates. This could explain why they are so reluctant to restrict the inflow of foreign workers, which could inadvertently end up applying the brakes on economic growth.

As a friend and former colleague, who was a human resource consultant, told me that this is a “big flaw” in the design of civil service and ministerial pay. She pointed out that people tend to focus on what they are rewarded to do. Monetary incentives tagged to a result focus attention on that result. She said that pegging politicians’ and civil servants’ bonuses to GDP is dangerous because it encourages behaviours that will over-emphasize GDP growth, and under-emphasize social justice objectives like housing affordability, wages, welfare of Singaporeans over foreigners and the like.

I have written previously about how we need to use alternative measures to measure economic progress. Perhaps we also need to come up with alternative incentives for our policymakers, like tying their bonuses to the median income or the income of the lowest 20 per cent. Or maybe a basket of items that include low inflation and wage increases.

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What do you think civil servants’ and Ministers’ bonuses should be tied to, besides GDP growth and their individual performance ratings? Do share your thoughts in the comments beow.

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23 thoughts on “The PAP’s obsession with GDP growth”

  1. If I am not wrong, Spore uses the expenditure method of determining GDP. In this method, GDP are determined by:

    GDP = private consumption + gross investment + government spending + (exports − imports), or GDP = C + Inv + G + (eX – i)

    From the above, the govt is able to influence GDP in 2 ways – one is through govt spending, and the other is through investment by GLCs and/or TLCs.

  2. Growth is just growth, ie A/B, a number which can be calculated. It doesn’t tell you much else, ie why the growth happened, who benefited from the growth, etc.

    And MTI projections are just that– expected numbers based on leading indicators. In other words, MTI cannot change the reality thru their projections; what happened happened, and what has yet to happen will not be affected simply because MTI projected a number.

    Unlike others, I think the Govt’s role in GDP growth is not that great, at least in normal times where huge stimulus packages are not the norm.

    It is companies and their managements which determine how their sales fare year after year, not the govt; at best the govt’s role is to reduce taxes or provide incentives to invest in certain areas, but these rarely affect the bottom line straight away.

    Growth in and of itself is not evil. In fact, it would be unacceptable if there was no growth for an extended period of time. Imagine if your company’s sales were stuck at the same level for five years.

    What you’re asking for is lower income inequality and more sharing of benefits. But most people earn income not from the govt, but from companies they work for, so to earn more, they have to do something that’ll make companies pay them more.

    Is that the Govt’s job? Of course the Govt can provide incentives and benefits for skills upgrading, even set a minimum wage, but it is still the individual’s job to climb up the income ladder.

    The other way to lower income inequality is through income redistribution, ie tax the rich more and give more benefits to the poor, otherwise known as the Robin Hood approach.

    Does that work?

    Or are there other means for the Govt to reduce income inequality? Do share if there are.

  3. I think there is no other reasons for PAP to be obsessed with GDP growth other than to trumpet it to the world and anybody who is listening.

  4. Seng, that should be pretty obvious even if inflation stays at politically expedient levels, as it no doubt officially will until after the election.

    This PAPaganda gets more insulting by the day. THe GDP trumpeting is getting a lot of play in the international business press, as the Gahmen obviously intended; The Message is that Singapore, Inc. is a good place for foreign investment, and that Singaporean SWFs are (by extension) well-run exemplars of good business and common sense. I’m more and more convinced that this is at least as important a reason for PAP’s iron fist around the media: not only to control what the serfs are told to think, but also to influence foreign visitors here evaluating investment/business opportunities… no matter what they read here, even if it originates off-island (like the Asian WSJ), it’s filled with positive spin for Singapore and it’s all-seeing, all-knowing Leader. One of the clay feet has a casino in front of it; the other a block of HDB flats, thereby saving the casual observer from seeing any imperfection.

    That’s another thing that needs fixing once we have a change in Government.

  5. Aren’t you the guy who wanted the S377A act to stay?

    Gosh. The WP sure picked the wrong guy. I used to vote for the WP, but if scumbags like you are in WP, I might choose to abstain voting.

  6. I voted for WP because they can provide alternatives. If you, Gerald Giam, are running for WP, you are not going to provide any better alternatives to the conservative morons in white.

    Try not to run in my GC, dude. I guarantee my vote will never go to you.

  7. This comment has nothing to do with the article. I am actually hoping to see some change in Singapore’s political scene come 2011. I hope that WP will be able to outshine the PAP in the upcoming elections, and do some justice to a real democracy we have never felt in Singapore. I think many people out there have yet to hear the voice of the opposition since very harsh punishments are meted out to those who are careless with their choice of words – so much for democracy. Hence, I think first thing that WP should do before reaching out is to set its image right. Its logo should be changed. The current one looks really like a party thats rooted in communism, and the combination of the red and yellow colors somehow gives me a very “Chinese Communism” feel. I’m not saying that it is, but please use a nicer symbol, with more vibrant colors, that can all signify what the Workers’ Party stands for.

  8. I am not so sure what this article is aiming to achieve or drive the point at. Is it about not to take the GDP announcement seriously? If yes, what is negative impact or considerations we need to be careful with if we do. Salary is definitely at the heart of many S’poreans and I’m quite sure that companies do not raise salary significantly using GDP as their guide. The civil service also do not raise salary significantly except maybe those in very top positions. Therefore it’s not very impactful to talk about this since majority will not feel any difference.

    On the other hand, it is important to build up arguments & viewpoints to educate and inform S’poreans not to forget the other side of the story regarding the fantastic GDP growth and don’t be taken in blindly by the good news only & therefore sing praises for the PAP only.

  9. I don’t know about the other things, but you should use common mathematics sense in interpreting the 13 to 15% GDP growth. It is not “abnormal”: this level of growth will only return Singapore’s GDP to the pre-crisis level. That is, it is ONLY a rebound. Ask any mathematician and he will confirm what I have commented. Hope you will correct this point please.

  10. made a mistake with the website, so i re-entered it. However it still contains no information, sorry about that.

  11. Nice article that is much needed to continue to drive home the fact that the citizenry is fully aware of the differences between GDP growth reported in the newspaper vs. the real equitable welfare growth for the joe on the street.

    Their bonus structure needs to be changed for sure. At the very least, it should no longer be pegged to GDP growth because then a quickly rising property market would also be good for their pockets, when it isn’t obviously good for the majority of the non-speculative portion of the citizenry.
    There should be some form of a reward system that will steer Singapore’s future in the direction of Australia or Switzerland or Canada, and not Shanghai or Hongkong or Tokyo.
    Singapore can do it, if only she dares to challenge the status-quo.

  12. I think that the performance of the Singapore economy is great by all means, with Singapore’s per capital income reaching $50,000 USD (4th in the world) we have surpassed the per capital income of USA ($46,000) and even Japan ($32,000) , HK ($42,000) by a commendable margin. Although it can be argued that this was also a direct result of the strength of the Singapore dollar against many major currencies due to our huge foreign reserves.

    I would partially agree with the post that the increase in GDP would increase hardship among some Singaporeans but would disagree that the GDP figures are “not natural and inedible”.

    1. Overheating

    concerns of overheating is only very true if there is a sustained period of such growth over a period of time (which is highly unlikely) inflation can indeed spike during such periods. However the government has many readily available tools at its disposal to reduce inflation: Currency controls , GST (7%) and wages (By increasing or decreasing foreign labour) – its a huge buffer zone to control any sort of spiraling inflation, It is probably premature to say that overheating will definitely occur more so when the government has many disposable tools to prevent it.

    2. Relation between foreign labour and GDP growth

    I think one of the most important points that most people misunderstand is the government stand on foreign labour. It is a logical and important step to ensure that there is an ample supply of labour available to the market. Singapore’s unemployment stands at 2.2% which is very low and would probably not accommodate any large increase in demand of labour. (100,000 workers is already greater than the 2.2% of avaialble Singaporean workers)

    Effects:

    i. reduce strain on labour market (by ensuring supply meets demand)
    ii. reduce wages (by increasing supply of labour)
    iii reduce inflationary pressures ( by reducing wages)

    3. Wealth Distribution gap

    I think that the most pressing issue that the government most solve is the wealth distribtuion gap caused by the up-swing in GDP growth.

    Asset prices are spiraling out of control due to the influx of FDI (Foreign investments) and the overheating GDP which auctually is a good thing for the wealthier Singaporeans as they are asset rich, but would not be great for the majority of Singaporean who live in HDB (who are technically renting their apartments for 99 years- higher asset prices imply higher rent).

    Coupled with the governments policy of bringing in Foreign workers to reduce inflationary pressures – an undesirable effect is the direct impact of lowering labour wages especially in the lower income range (most foreign workers are in this range)

    Add the spike in inflation that is probably going to come soon , we have sandwiched lower and middle income Singaporeans who will feel the effects of:

    i. Inflation (higher cost of living and depreciated savings)
    ii. Higher Asset Prices ( higher cost of housing )
    iii. Controlled wages ( Government policy of controlling inflation by bringing in foreign workers)

    4. Inedible & Un-natural ?

    Probably not inedible, its just a matter of who is getting a larger slice of a pie (the pie has obviously increased in size) , and probably not un-natural since it is caused by a surge in exports (which has little to do with government policy).

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