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Singapore, Asian Opinions

Vikram Khanna
Sunday, Aug 31, 2014

Singapore, Asian Opinions

Thinking hard about S'pore's choices

The Straits Times | Vikram Khanna | Sunday, Aug 31, 2014

Singapore-bound trainee maids in Central Java taking lessons on how to care for the elderly. Immigration, particularly its impact on Singapore society, is a hot-button issue tackled in the book Hard Choices: Challenging The Singapore Consensus.

One of the unfortunate realities of economic discourse in Singapore is that outside the Government, there is relatively little research on practical public policy, especially social policy.

So the publication of the book, Hard Choices: Challenging The Singapore Consensus, featuring the views of scholars who do not serve in Government comes as a breath of fresh air - even more so for the fact that, as its sub-title suggests, it questions some long-held assumptions and dogmas, some of which have been baked into policy for decades.

Policymakers, academics and members of the public have come to accept as axiomatic certain policy ends and means - what the book's authors describe as "the Singapore consensus". For example, it is more or less taken for granted that economic growth is always good, universal government-funded welfare schemes are generally bad, meritocracy is an unmitigated plus, an ageing population portends serious problems and home ownership is good for everyone.

The authors of Hard Choices seem to believe that these axioms are open to question, or at least qualification.

The book consists of a series of essays, which have been published before separately, but which pack a powerful intellectual punch when put together in a volume. The essays are organised along different themes, though these sometimes overlap.

Inequality and wages

The issue of inequality is one major theme that runs through the book. Unfashionable in economics until recently - governments were focused more on economic growth than income distribution - inequality now takes centre stage in economic debate. The global financial crisis was a watershed that exposed the dimensions of the problem; Singapore, too, has suffered from rising inequality since the 1990s.

Donald Low's fine essay, The Four Myths Of Inequality In Singapore, addresses some of the common misconceptions about inequality. He argues persuasively that it is not an inevitable consequence of growth and dynamism; the evidence shows that unequal societies do not produce superior economic outcomes.

Nor is helping the rich the best way to help the poor; in Singapore, the introduction of a less progressive tax system since the 1990s has increased inequality, which has not been sufficiently offset by redistributive policies in the form of Workfare and discretionary fiscal transfers, which Mr Low suggests have "simply not been aggressive enough". He makes a strong case for reinforcing them.

However on the regressive tax policies, the situation is not simple. Singapore needs to attract foreign direct investment (FDI) - much more so, relative to economic size than the high-tax economies of northern Europe, which are often cited in this book. While Singapore has many non-tax advantages relative to other countries, it cannot allow its tax rates to get too far out of line.

Since the 1990s, several economies, including Singapore's competitors, have been reducing their tax rates. Could Singapore have held the line with a top marginal tax rate of say, 30 per cent, when Hong Kong was at 15 per cent and Ireland, 12 per cent? Would it still have been able to attract the sort of FDI that it did? And if it did not, what would have happened to growth and jobs? Would lower-income Singaporeans have been better off? This seems unlikely. Mr Low rightly points out that people care more about their incomes relative to others than about their absolute levels of income. He notes that income inequality also leads to inequality of opportunity, which then perpetuates the problem: the children of the rich generally get a better education than the children of the poor, which carries inequality into the next generation.

He also contests the view that unequal pay is purely the result of unequal ability. He points out that wages are not only a function of productivity, but also of immigration. Thus he recommends that "to raise the wages of our lower-skilled workers, the emphasis should NOT (his emphasis) be on raising their productivity, but on reducing our intake of low-skilled foreign workers."

Certainly, reducing this intake will lead to higher wages, especially given that Singapore has near-full employment. But it is not sustainable for wage levels to keep rising without a rise in productivity; companies hiring such workers will sooner or later simply go out of business. Nor should wages be allowed to shoot up sharply and suddenly by, for instance, draconian curbs on labour imports. Companies need time to adjust and productivity increases are typically slow.

Nor can Singapore adopt a one-size-fits-all policy towards labour imports. It is well known that in certain sectors, foreign workers are indispensable, at least in the short term. Construction is one. The marine sector is arguably another. Household help is definitely a third. Singapore could stop the intake of foreign maids, which would lead to the development of a local household-help sector, with wages perhaps five times higher than they are now. But how popular would this be, especially with families where women work?

The constant refrain throughout the book about the need to curb labour imports contains no caveats or a sense of calibration. Nor does it even mention the challenges Singapore will face when other social needs have to be addressed in labour intensive areas such as eldercare, where local professionals are in short supply. If Singapore is to curb labour imports in this industry too, it will need to find alternatives - and fast.

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