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.

———————–

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.

Tackling income inequality should be Govt’s top priority

Our national productivity drive needs to start from the top. We currently have three very senior ministers advising the PM, three ministers in the Prime Minister’s Office—two of them without any portfolio—nine ministers of state and six parliamentary secretaries, most of whom are drawing multi-million dollar salaries. Does the prime minister of such a small country really need so many advisers and ministers assisting him?

This is my response to the Finance Minister’s Budget 2010 speech.

—————–

Income inequality is one of the biggest challenges our nation faces. The median household income in 2009 was only 71 per cent of the average income, down from 74 per cent in 1999 [see note 1]. This means that the few very high income earners are pulling up the average, while the large number of lower income earners are pulling down the median. The share of wages in GDP has declined from 47 per cent in 2001 to 41 per cent in 2006 [see note 2]. The Gini coefficient–a measure of income inequality–rose from 0.436 in 1990 to 0.478 in 2009, indicating a widening income gap.

Increasing income inequality has been shown to coincide with higher divorce rates [see note 3] and crime rates [see note 4], particularly property crime. Singapore’s wealthy elites can no longer afford to simply turn a blind eye to the plight of the poor, thinking it will not affect them–because it will, eventually.

Reducing income inequality should be the top priority of the government. This government needs to pay more than just lip service to the goal of ensuring that all Singaporeans benefit from economic growth.

Continue reading “Tackling income inequality should be Govt’s top priority”

What’s missing from Economic Strategies Committee report

These are just a few proposals that could help SMEs and entrepreneurs in Singapore. I believe that growing our local private enterprises holds the key to our next phase of economic growth, which unfortunately the ESC has overlooked.

I read through all 53 pages of the much-awaited Economic Strategies Committee’s (ESC’s) main report, which is supposed to “chart the course for Singapore’s economic development over the next decade”. The report proposed ways of increasing productivity and expanding our international economic footprint. It then shifted gear to talk about how to make Singapore a more attractive destination that rich and internationally-mobile “talents” would want to call home. The report’s areas of study are summarised in the diagram below.

ESC

While I appreciate the work that the committee members (or rather, their secretariats) have put in, I felt that the recommendations were too skewed towards boosting high-end growth of large corporations, with insufficient emphasis on growing the sector that is in the best position to generate broad-based growth for Singaporeans — small and medium-sized enterprises (SME).

To be fair, the ESC did present a few proposals for growing SMEs:

1. Develop stronger alliances between large and small players to promote technology transfer, test-bedding and commercialisation. Provide incentives for MNCs to co-develop innovative products and services with SMEs, helping Singapore-based companies build credible track records, enhance innovation and accumulate knowledge capital.

2. Catalyse the supply of growth capital for growth-oriented SMEs based in Singapore, through seeding public-private co-investment funds.

3. Enhance access to human capital for SMEs, which usually face more difficulties in attracting and retaining talent, through broadening the scope of internship programmes and facilitating a ready network of mentors to provide strategic and expert advice.

I think the ESC’s proposals for helping SMEs are too peripheral and are hardly enough to generate much growth in our domestic private sector. Without significant growth in our SMEs, we will continue to be at the absolute mercy of the winds of the global economy, as this last recession has demonstrated.

SMEs as a key engine of growth

Singapore cannot continue to depend so heavily on manufacturing exports and foreign MNCs to power our economy, when many MNCs are making plans to relocate to cheaper locations. We need to develop new engines of growth that are sustainable and benefit ordinary Singaporeans, not just foreigners and rich elites. The domestic private sector could form this new growth engine.

To achieve broad-based growth, it is critical that we help local enterprises prosper. This will not only benefit the national economy, but countless individual Singaporeans as well. SMEs make up 99 per cent of business establishments in Singapore and employ 56 per cent of all workers here. Many of those with lower paper qualifications are only able to find work in SMEs, as they do not possess the skills that many MNCs demand. SMEs tend to cater more to local consumers and businesses, and so are less likely to shut down and move to lower cost countries — taking all their jobs, intellectual property and technical know-how with them — when economic winds shift.

While SMEs employ 56 per cent of the workforce, they contribute only 42 per cent of Singapore’s GDP. Their comparatively lower output is due to many factors, including a lack of economies of scale, international connections to market their goods, access to financing and a shortage of talented workers willing to work for them instead of MNCs.

So far, the government’s efforts to specifically help SMEs have focused on training programmes for SME managers and the grooming of a few SMEs which are deemed to have the potential to become home-grown MNCs. The result is that a few enterprises receive a disproportionate amount of funding and assistance from the government, while those that really need the help get very little.

The government should dispense of its habit of “picking winners”. Instead, more effort should be put into attracting venture capital (VC) funds to our shores. These private sector investors can provide a greater amount of funding that start ups need to bring their ideas to market. VCs are more in touch with the market than civil servants are, so they are in a better position to assess the investment potential of start ups. Also, the risk of failure is spread out among many VC firms. So even if one VC makes a wrong investment, the fallout will be more limited than if a government agency makes a huge bet on an industry which ends up in utter failure.

Developing an entrepreneurial culture

Entrepreneurship is the bedrock of SMEs. Without entrepreneurs starting small businesses, there would be no SMEs to speak of. Thus, increasing the number of entrepreneurs and their success rate will directly contribute to the growth of SMEs.

The government has a few training programmes to support entrepreneurs. However training alone will not help Singapore reach the tipping point of entrepreneurship. For this to happen, a culture of entrepreneurship needs to be developed among not just working adults, but has to start from young with students and their parents.

The entrepreneurial culture in Singapore is weak, especially when compared to other developed economies like Taiwan, Korea and the US. The recent Global University Entrepreneurial Spirit Students survey (GUESS) of 2,300 students from local tertiary institutions found that only 18 per cent of them intended to start their own businesses after graduating. In contrast, a whopping 69 per cent planned to take up salaried jobs.

We need a mindset shift in our society regarding what constitutes career success. Our current education system is too geared towards preparing students to be good employees, not entrepreneurs. Most local students strive to ace their exams so they can get into good universities and land a stable, well-paying job working for some large firm or the government.

Entrepreneurs require a very different skill set from salaried workers. A business owner needs to do a lot of selling and marketing of one’s goods or services. This takes a lot of innovation, confidence and humility — all skills which our schools have not adequately prepared our young for.

The stigma of failure in our culture needs to be changed. There needs to be a greater tolerance for those who stumble while trying. A lot of the “afraid to fail” mindset originates from our education system, where examination results define a student’s success or failure.

Schools should see it as their mission to nurture future business owners, not just salaried workers. They should start teaching the basics of running a business, like managing cash flow and selling, early in secondary school. Our young should be brought up with the mindset that the brightest and most capable students start their own company after graduating (or more likely the other way around), rather than win government scholarships or work in MNCs.

Parents often frown on their children taking the entrepreneurial path, as it is seen as more risky and less likely to guarantee financial success. To counter this, schools could consider tying up with business associations to conduct seminars for the parents, to explain the motivations behind what their children are learning, so that parents too can catch the vision about entrepreneurship and encourage their children to pursue that as a career.

Conclusion

These are just a few proposals that could help SMEs and entrepreneurs in Singapore. I believe that growing our local private enterprises holds the key to our next phase of economic growth, which unfortunately I feel the ESC has overlooked.

Measuring economic performance: Looking beyond GDP

While GDP is a broad measure of a country’s economic performance, it falls way short as a comprehensive measure of the economic health of a nation in more ways than one.

It is the highlight of every National Day Message from the Prime Minister[1]. No National Day Rally speech gets delivered without its mention. Economic statistics dished out by the government never fail to mention it. It is used as  the main measure of how well our nation is doing economically. Indeed, it is such an important statistic that the bonuses of all the Cabinet ministers and 60,000 civil servants are pegged to it.

I am talking, of course, about Singapore’s Gross Domestic Product (GDP).

The GDP is the market value of all final goods and services produced in a country in a year. Specifically, it is the sum of consumption, investment, government spending and exports, minus imports, in one year. Economists usually talk about GDP in terms of its year-on-year growth, measured as a percentage increase (or decrease) from the previous year. Also frequently quoted is the GDP per capita, which is the GDP divided by the total number of residents in the country.

GDP a poor measure of performance

While GDP is a broad measure of a country’s economic performance, it falls way short as a comprehensive measure of the economic health of a nation in more ways than one.

Continue reading “Measuring economic performance: Looking beyond GDP”

Economic growth should benefit all, not just the rich

By Avery Chong, Gerald Giam, Nathaniel Koh, Watson Chong and Yaw Shin Leong

Singaporean workers are facing their most challenging period since Independence. Thousands have lost their jobs since the current economic crisis began last year, and unemployment is expected to continue rising through 2009 and beyond. Many workers have been forced to accept salary cuts or go on unpaid leave to help their companies stay profitable.

These workers should be saluted for their resilience, perseverance and adaptability in the face of enormous challenges. Singapore’s prosperity and economic progress were achieved primarily through the sweat of our workers.

The Government always claims credit for Singapore’s economic growth during good times, yet conveniently blames the global downturn when our economy takes a nosedive. However the facts tell a different story. Singapore was the first country in Asia to slip into recession last year. Our GDP is expected to contract 8.8% this year  — much worse than almost all our major trading partners (see Annex A for the economic forecasts for our top trading partners).

The Government’s economic model may no longer serving us well, and we need to start a national conversation to discuss alternative economic models to take Singapore to the next level of progress.
Continue reading “Economic growth should benefit all, not just the rich”

Singapore still the same after 23 years

One of my friends flagged on his Facebook this archived Fortune Magazine article from January 1986, the year after Singapore reported its first economic contraction in 20 years.

It’s uncanny how similar the situation is today, compared to 23 years ago. I guess we’ve changed, but not much…

———————–

A HARD LANDING AWAITS SINGAPORE
The economy shrank in 1985 after two decades of 9% annual growth. Other Asian highfliers stalled too, but Singapore’s troubles are more than cyclical. Its high-wage policy backfired, and Prime Minister Lee Kuan Yew’s paternalism has stifled entrepreneurship.
By Lee Smith RESEARCH ASSOCIATE Hiroko Hara

(FORTUNE Magazine) – LIKE ANY GOOD FATHER, the government of Singapore knows when it’s time to back off and let the children run the business — to struggle, stumble, and with luck succeed. And like any good father, the government of Singapore finds that it’s easy to talk about letting go and tough to do it. Clearly the family business is in trouble. A financial panic temporarily closed the Singapore Stock Exchange in December. After two decades of roaring growth that averaged almost 9% a year, the economy has suddenly gone cold. The gross domestic product shrank an estimated 2% in 1985. Asia’s other little dragons — Hong Kong, South Korea, and Taiwan — have temporarily lost their economic fire as well. Exports of TV sets, computer peripherals, and other electronic gear from all four places have suffered as the U.S. economy has slowed down. Singapore has depended heavily on oil refining and shipbuilding and repair, businesses in serious decline. Getting out of the hole will be made harder by the paternalistic rule of Prime Minister Lee Kuan Yew, 62. To Lee’s great credit, his regime has given the 2.6 million Singaporeans the third-highest per capita income in Asia. (Brunei, which has lots of oil and few people, is No. 1, followed by Japan.) The government has no debt, and the inflation and unemployment rates both run about 4%. At the same time, Lee’s paternalism can be suffocating. At a recent Scrabble contest sponsored by a local hotel, players kept censorship guidelines in mind as they chose words. (The government forbids racial epithets, for example, lest they stir up animosity between Singapore’s Chinese, who make up three-quarters of the population, and its Malay and Indian minorities.) Singaporeans have always been smug about the tidiness of their society, especially in comparison with the boisterous, anything-goes capitalism of Hong Kong. Now some are beginning to think they are paying too high a price for domestic tranquillity. ”Hong Kong is more vibrant,” says Lee Hsien Loong, 33, son of the prime minister and his likely eventual successor (see box). For now he is a junior minister heading a committee charged with devising a new economic strategy for Singapore. ”People in Hong Kong are quick to see opportunities and quick to cut their losses,” he says. ”We don’t have quite the same crop of entrepreneurs here.” So now the government is trying to release the creative energies of the citizens so they can come up with new products and services to get the economy moving again. In March, Tony Tan Keng Yam, 45, then minister of finance, now of trade and industry, proclaimed that the private sector rather than the government should be the ”engine of economic development.” Government, which owns part or all of some 500 companies, should not get into new businesses, he said, unless private enterprise can’t or won’t. And except where its presence is essential, the government should get out of the businesses it’s already in. BY SELLING OFF COMPANIES the government might slap life into the sleepy Singapore stock market. The weakness of the nation’s capital markets limits entrepreneurship. Singapore Chinese traditionally raise cash for new ventures by putting the touch on aunts and uncles, but that kind of money is rarely enough to launch, say, a bioengineering company. The government sold 100 million shares of Singapore Airlines at $2.38 a share in November. Including some stock earlier sold to airline employees, 37% of the superbly managed carrier now is in the hands of local and foreign investors. The airline earned $69 million in fiscal 1985 on revenues of $1.4 billion. With such powerhouse companies trading on the exchange, more investors will be drawn in. That in turn should eventually produce more capital for start-up companies. Still, despite Tony Tan’s ringing rhetoric, not much else has gone on the block. Nor does the government seem ready to relinquish majority ownership of Singapore Airlines or sell some of its other leading companies. More sales apparently have been blocked for now by an argument within government. The prime minister has yet to say where he stands, though he must be at least open-minded on privatization or the idea would not have been floated. Pushing for it is a group of young ministers including Tony Tan and Lee Hsien Loong. Arguing against them are traditionalists who continue to think that government can run the economy best. ”Young politicians think that government is too big and that if a business makes money, government should get out of it,” observes the amiable P. Y. Hwang, 50, chairman of the Economic Development Board. ”But we’ve done things quite well. We hardly ever run businesses as charities. We run them as businesses.”

Paradoxically that’s part of the problem. Because government businesses are well managed, they not only compete effectively with private enterprise, they sometimes crowd it out. Singapore’s brightest students get government scholarships, then work five years or so for government agencies or companies. Says an executive for a large multinational corporation in Singapore: ”Bright young people, and that includes bright young bureaucrats, always want to make businesses grow.”

[Read more here]