Restructuring the Economy to create a “Dynamic Population for a Sustainable Singapore”

I empathise with the concerns of many businesses, especially SMEs, which will be impacted by further curbs in foreign labour. Companies which are dependent on low wage foreign labour will face the greatest difficulties and will have to restructure. Economic restructuring is painful but it is critically important for our nation’s future. The Government should commit to supporting companies and workers through the restructuring process, as well as retraining workers to provide them with the right skills to make a transition to another industry.

This was the speech I delivered in Parliament on 5 February 2013, during the debate on the Government’s Population White Paper.

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Madam Speaker,

Over the past decade, Singapore’s population has grown by over 1.2 million people to reach 5.3 million last year. While GDP growth figures were rosy for most of the past decade, income inequality has risen significantly. The wages of the bottom income earners were held down in part by the influx of foreign labour while higher income earners enjoyed huge gains in their income and wealth during this period.

The much-anticipated White Paper on Population projects population growth of another 1.6 million, largely through immigration and foreign workers, over the next 18 years to reach up to 6.9 million by 2030. The Paper positions population growth as necessary for economic growth. Singaporeans are then given a Hobson’s choice: Accept more new immigrants and foreign workers, or face a declining economy and lower quality of life.

This is a false dilemma. In my speech today, I will explain how I believe we can stabilise the population size, while improving our economic dynamism and ensuring a more sustainable Singapore for future generations to enjoy.

The White Paper sets a goal for Singapore to become a “leading city” that can attract talent and enterprise, and set the pace for other cities (White Paper 2013, 16). It is this goal that seems to be driving the GDP growth target of 3 to 5% per year. This GDP growth probably cannot be achieved by productivity growth alone, so a high rate of mostly foreign labour force growth is needed. This in turn will drive up our population size.

Does being a leading city or global city improve the quality of life of all Singaporeans? Global cities attract many young migrants from their hinterlands and around the world. Even though their fertility rates are low, their populations continue to increase through immigration. But it is expensive to live in a global city. Many cannot afford to live in such expensive places upon retirement, so they move to other parts of their country with lower costs of living.

Will our retirees have such options when they are too old to work, since Singapore does not have any hinterland to speak of?

The cost of population growth

The Government needs to better explain to Singaporeans not only the benefits of population growth, but also the attendant costs that citizens will have to bear. With a larger population, businesses benefit from a larger pool of customers. Their profits increase, and their owners, top managers and shareholders reap the dividends and bonuses.

On the other hand, the negative effects of population growth are mostly borne by ordinary citizens. They have to suffer through overcrowded MRT trains, buses and public spaces. They continue to pay high prices for housing. They have to compete for jobs with foreigners, and their wage expectations must be lowered in order to remain competitive. The higher transportation demand pushes up COE prices, which puts cars out of reach for many. Taxpayers also have to bear the cost of infrastructure development to accommodate a larger population.

Has the Government calculated overall cost per new immigrant compared to per capita benefits which accrue to citizens? The Government has spelled out the expected GDP growth, but has it done any projections for real income growth of workers come 2030?

Productivity as a driver of growth

For the last decade in Singapore, GDP growth has been driven mainly by labour inputs. The generous supply of foreign workers has lowered the bargaining power of local workers, forcing them to accept lower wages in order to be competitive. This has led to much of the benefits of our stellar GDP growth accruing to company profits instead of workers’ wages. Our workers’ wage share as a percentage of GDP is relatively small compared with most other developed countries. In 2011, just 42.3% of Singapore’s GDP went to workers’ wages (SingStat 2012, 9). In contrast, according to OECD data, the wage share is 47.5% in Australia, 49.2% in the European Union and 52.3% in Canada (OECD 2011). If companies here continue to rely heavily on foreign workers, there will be little incentive for employers to think hard about ways to boost productivity.

But if growth is driven mainly by productivity gains, it would lead to higher real wage increases for workers. In a tight labour market, companies will need to pay their local workers more to retain them, as well as to restructure themselves to become more productive. Therefore higher productivity growth is critical for our next phase of growth, and we should not let up in our pursuit of our productivity targets.

WP’s population proposal

Our population has grown from about 3 million in 1990 to 4 million in 2000 to 5 million in 2010. This is an increase of about 1 million per decade. The White Paper projects the population to continue growing by about the same quantum. It is projected to grow to almost 6 million by 2020 and almost 7 million by 2030. What will happen after 2030? Will we grow to 8 million in 2040 and 9 million in 2050?

I am concerned that the Government seems to be proposing a “population growth forever” model, whereby each successive generation requires a larger workforce to keep expanding the GDP. This is simply not sustainable.

Our population will eventually reach the limit of our island’s space. Eventually all the reserve land will be used up and we would have reclaimed land to its limit. When that happens, we will have to settle for zero population growth because of constraints in Singapore’s physical size.

If we head down the path spelled out in the White Paper, as we approach 2030 we will again be debating about how to maintain economic growth without growing our population. The main difference then is that we would be bursting at the seams with close to 7 million people crammed on this island. We will have much less room for error in planning. That would be a truly worrying situation.

It would be more responsible to restructure our economy now to grow with fewer labour inputs, than to leave it to future governments to deal with this problem.

We need to start planning for an economy that assumes a stabilised population, rather than to rely on perpetual increases in labour through immigration and foreign workers. We must invest more in developing the skills of our people, improving our technology and investing in more capital so as to be able to increase productivity and raise wages.

The Workers’ Party is proposing a more moderate pace of growth of our labour force, compared to what the Government has planned in its White Paper. We envision a workforce which grows mainly through local instead of foreign labour force growth.

Madam Speaker, with your permission, I would like to request the Clerk to distribute a table listing our projected GDP, labour force and population growth numbers. (Click here for table.)

We will target to increase our local labour force growth by up to 1% per year from now until 2030. We should strive to keep our foreign labour force constant between now and 2020, depending on our success in growing the local labour force. It does not mean that we shut the doors to foreign workers. Instead, new work passes will be issued only to replace expiring work passes or to supplement shortfalls in the local labour force. Companies will have to find ways to hire more Singaporeans.

How will we grow our resident labour force if the number of new entrants is not increasing due to declining fertility trends? One way would be to increase our labour force participation rate, so that more residents of working age are encouraged to work. The Labour Force Survey 2012 found that there are 418,000 economically inactive residents of working age, of which 90,000 are willing to work. This is a valuable pool of labour that can be tapped.

With slower labour force growth, our economy will rely mainly on productivity improvements to grow. If the Government meets its 2 to 3% per year productivity growth target, we could enjoy 2.5 to 3.5% GDP growth per year up to 2020, which is far better than the 1.2% we achieved last year and the 1.8% average achieved by OECD countries in 2011.

Between 2020 and 2030, if we maintain labour force growth of 1% per year, and productivity grows by the Government’s 1 to 2% target during this period, this will generate 1.5 to 2.5% GDP growth per year, which is in line with the growth rates of most mature economies.

In this scenario, we are looking at a projected population of 5.3 to 5.4 million by 2020, and 5.6 to 5.8 million by 2030. This is significantly lower than the 6.5 to 6.9 million that the Government is projecting by 2030. More importantly, we will not need so many foreign workers and immigrants to supplement the local labour force, which will help us better preserve the Singaporean core.

What would be the trade-offs of having a slower inflow of foreign workers? The Singapore Business Federation has said that slower labour force growth in Singapore will have “devastating consequences for many companies” and that if businesses go under, jobs will be lost and Singaporeans will be affected (CNA 2013).

I empathise with the concerns of many businesses, especially SMEs, which will be impacted by further curbs in foreign labour. For many businesses it will mean lower profits, as they will need to pay higher wages to their Singaporean workers to attract and retain them. However, companies which are dependent on low wage foreign labour will face the greatest difficulties and will have to restructure.

Economic restructuring is painful but it is critically important for our nation’s future. The Government should commit to supporting companies and workers through the restructuring process, as well as retraining workers to provide them with the right skills to make a transition to another industry.

Conclusion

Madam Speaker, the Population White Paper proposes a population policy that continues to increase our reliance on foreign labour, leading to large increases in our population, which is unsustainable in the long run. I cannot accept this as the roadmap to address Singapore’s demographic challenge, and therefore I oppose this motion.

The Workers’ Party instead proposes a plan which places less emphasis on foreign workforce growth and focuses more on local workforce and productivity growth. This will increase the dynamism and real incomes of our local workers, while putting Singapore on a path towards more stable and sustainable population growth trajectory. Under the Workers’ Party’s plan, I am confident we will have a more dynamic population for a sustainable Singapore.

References

Channel NewsAsia (CNA). 2013. “Slower workforce growth will severely impact businesses: SBF”. 31 January 2013. Kristie Neo.

Economist Intelligence Unit (EIU). 2012. “A Summary of the Liveability Ranking and Overview”. August 2012.

Ministry of Manpower (MOM). 2013. “Labour Force”. Retrieved from http://www.mom.gov.sg/statistics-publications/national-labour-market-information/statistics/Pages/labourforce.aspx.

Organization for Economic Cooperation and Development (OECD). 2011. OECD.StatExtrats. Retrieved from http://stats.oecd.org/.

Saw, Swee-Hock. 2007. “The Population of Singapore”. Second Edition. ISEAS Publishing: Singapore.

Singapore Department of Statistics (SingStat). 2012a. “Key Annual Indicators”. Retrieved from http://www.singstat.gov.sg/stats/keyind.html.
Singapore Department of Statistics (SingStat). 2012b. “Singapore in Figures 2012”. Retrieved from http://www.singstat.gov.sg/pubn/reference/sif2012.pdf.

White Paper. 2013. “A Sustainable Population for a Dynamic Singapore”. Singapore Government.

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6 thoughts on “Restructuring the Economy to create a “Dynamic Population for a Sustainable Singapore””

  1. It makes sense. Due to real physical limitations, Singapore cannot continue to grow in population. Business that are highly labour-intensive or depend on low cost labour to survive in Singapore have to make the painful and necessary transition to other lower cost countries.

    Singapore has to be a country that services high-value / margin / tech business and industries. We also need to do more with less. In fact, Singapore can be among the pioneers in building a sustainable country, and make it a real success story.

  2. http://feedmetothefish.blogspot.sg/2013/02/11-days-to-say-no-to-69m-in-2030.html

    Yahoo’s reported, “WP’s Chen Show Mao takes fire in Parliament over 5.9 million projection” [Link] It looks like there were more that 2 attack dogs in parliament embarrassing themselves as bullies! I often wonder why PAP is so stupid.

    The debate is on the ‘papulation paper’ put forth by PAP. Instead of defending PAP’s proposal with sound reasoning, it sends its attack dogs to terrorise an “alternative proposal” that will never see the light of day.

  3. Great to watch and deeply impressed by how you tackled the questions that were thrown at you during the parliamentary debate. Besides the good answers, you hv become so cool and calm (as compared to previous debates) in spite of your fierce opponents. No worries, you have at least 40% (and likely to be more now) of Singaporeans behind you. God bless!

  4. Hi Gerald, just want you to know that I just had a word with a PAP MP who’s a good friend this afternoon. He/She is someone highly respected, not one of the “rookies” (ie. Vikram etc). He/She said that you held your ground impressively very well during the questioning by TCS / Iswaran. Just thot you may want to know this. In my opinion, so did the rest of the WP MPs too during this White Paper debate. So, Good work and keep it up!!

  5. The on-going Population White Paper, YOU MUST ABSOLUTELY READ THIS !!!!!!!!

    EVOLUTION OF THE POLICY OF IMPORTING CHEAP FOREIGN LABOUR

    “Singaporeans of my generation remember vividly the slums, joblessness, dirt and disease of the 1950s. Through dint of hard work and discipline, we moved rapidly from a labour to a skill-intensive economy. By the early 1970s, we achieved full employment with an unemployment rate of 3 per cent.

    ‘In the early 1970s when we achieved full employment, some of us in the EDB began to ask the question about the critical size of populations. We did some desktop research and found that there were several industrialised European countries with population size of around 5-6 million. These were Israel, Norway, Sweden and Finland. Our town planners went to work and concluded that Singapore with a land area of 670 square kilometres can comfortably accommodate a population of 5-6 million … we allowed in one million foreigners in the last decade.”

    He went on, to give another reason for the FT policy, “As our births fell below replacement levels, we resorted to immigration as an instrument to top up the babies that young Singaporean couples are not having. There are also elements of political re-engineering. Submerged in our immigration policies is the belief that to maintain racial harmony, we need to keep the current population balance constant.”

    He challenged the premise that S’pore needs a bigger population pointing out that

    – “Singapore is already straining at the seams with a current resident population of five million … The economic assumption is that we can increase our GDP if we can accommodate more people … even doubling our population to 10 million people will not make things better. More likely, a larger population can only make matters worse.”

    – “[C]omputer technology has made many manual operations in production obsolete. The key is to produce more with less manpower.”

    Knowledge-based economy

    “The great challenge … is that we have reached the limits of our skill-based model of growth. Singapore has to move from a skill to a knowledge-based economy. The products and services … are characterised by high technological content. To position ourselves for such an economy, Singapore devotes the greater part of our national budget to education and training.”

    “When I was in school in the 1950s, only three out my O level class of 40 went on to university. Today, 30 per cent of a primary school cohort enrol in tertiary education. Raising our average educational level from primary to post-secondary should make a world of difference for our international competitiveness.”

    “Our higher education levels and superior infrastructure enable us to compete in knowledge-based industries and services.”

    Productivity

    “I observe with some dismay that the manufacturing share of our GDP dropped from a high of 30 per cent in the 1980s to 20 per cent currently.”

    “Our total factor productivity should be rising not stagnating. In my view, productivity and real wages of the bottom 20 per cent of our work force have not risen because our labour policies allow employers easy access to low wage foreign labour.”

    He explains that for S’pore as a whole, there are costs to this easy access to cheap foreign labour, “If we add the cost of housing, transportation, health and other social services which employers have to provide for their foreign work force, they may be better off training and equipping their Singaporean employees to raise their productivity. Rising productivity enables workers to be paid more. Inflation sets in only when wages are raised without any increase in productivity.”

    “Productivity can only be raised when CEOs … take direct charge of the production process. They have to be hands on, not resorting to outsourcing. Productivity should be the key KPI (key performance indicator) for the award of bonuses to CEOs and management.”

    “Like any other country in the world, Singapore now competes in a global economy. In such an economy, importing cheap foreign labour is no longer a viable strategy. It is a dead end.”

    “We have to grow through raising productivity, not higher headcount. We need to be smart enough to produce more with less. Our higher education levels and superior infrastructure enable us to compete in knowledge-based industries and services. We transformed ourselves in the 1970s from a labour to a skill-intensive economy.”

    But he accepted that “raising total factor productivity .. is not easy. A Japanese scholar pointed out … that the optimum rate of productivity increase achieved by [Japan] averaged 4 per cent annually … Japanese are one of the most diligent people in the world.”

    Why importing cheap labour is not the solution – it’s a race to the bottom

    “Singapore now competes in a global economy. In such an economy, importing cheap foreign labour is no longer a viable strategy. It is a dead end.”

    “In a global economy, you will be competing not only with friends and classmates but with the best and brightest of your generation in India, China, Brazil, Russia and Eastern Europe. University graduates in China and India are willing to work for a tenth of what our young engineers and scientists expect. If we fail to raise our total factor productivity, Singapore would just be an also-ran in the race to be a knowledge-based economy. The window to raise total factor productivity through application of knowledge and training is fast closing with the opening up of India, China and Indonesia. Singapore has lost two decades relying on low-wage, low-skilled foreign labour to drive economic growth.”

    What can help

    – “Our managers and administrators are among the best paid in the world. They will have to get off their high horse and personally lead the drive for higher productivity. Outsourcing is a bad word in my vocabulary. Companies and government ministries should figure out how to train their staff and redesign jobs and processes to achieve more with less.”

    – “[I]nterest free loans should be given to enterprises with clear roadmaps to re-equip and raise the productivity of their workers.

    What he is against

    “Grants should not be given to management (consultants) to do a job they are already paid to do.”

    ‘I am against job credits in any form because they are simply wage subsidies which do not raise productivity in any way. My personal observation is that job credits simply add to the bottom line for payment of bonuses to management who do not have to lift a finger to raise the productivity of their enterprises.” Based on this, I suspect he would also be against having a minimum-wage.

    “The 2012 budget is politically adroit, replete with spending proposals which basically are income transfers from the taxpayer to the poorly paid, the disadvantaged and the aged. Income transfers are palliatives, temporary reliefs to abate rising social discontent. They do not help to raise productivity.”

    Final warning

    “We failed to bite the bullet in the 1980s to restructure our economy. There may be no second chance the next time around.”

    ————————-

    *Ngiam was in the 1980s one of Lee Kuan Yew’s and Goh Keng Swee’s most trusted civil servants and if anyone, could be called a co-driver of S’pore’s drive from third world to first world, it would be he.

    **The quotes are taken from a transcription published in BT.

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