The Costs of Growth (and the action plan)

Singapore’s laudable transformation from third world to first within the past half-century has brought about unimaginable changes to the lives and living standards of its people. Labelled often as an economic miracle, it is unsurprising that growth and development formed the heart of the Singaporean success story. However, growth comes at a cost. Member of parliament Heng Chee How, who is also assistant secretary-general of NTUC, made this point, which I intend to elaborate on.

The Problems of Growth

Growing Income Gap

This comes as a result of rapid economic development and intense competition that offer generous rewards to those who are successful, but leave weaker Singaporeans behind. The development of our education system and economic restructuring led to the growth of high-income, knowledge-intensive industries which crowd out labour-intensive ones, benefitting the more educated younger generation. On the other hand, the less-educated, especially those from the older generations, remain stuck in low-paying, labour-intensive industries. Income inequality in Singapore remains shockingly high despite having one of the most progressive tax systems in the region. Other rapidly developing economies like China and Hong Kong experience the same problem too.

Inflation

A huge part of the inflation we are witnessing now come as a part of a spill over effect from the expansionary measures implemented during the last economic downturn. However, the surge in demand due to a larger, more affluent population vis-à-vis a limited supply of resources has led to a rise in prices. Combined with a less than proportional rise in wages, especially among the lower income group, this has caused many Singaporeans to suffer.

Low Productivity

This came partly as a consequence of complacency brought about by the availability of foreign labour and the failure to learn from the successes of other nations. Certain industries perform especially poorly. For example, the construction industry in Singapore is one of the least productive in the developed world. It is 30% less productive than Japan and half of that of the United States (http://sbr.com.sg/building-engineering/commentary/future-singapore%E2%80%99s-construction-industry). Additionally, and more significantly, our low productivity is a result of rapid, input driven growth fuelled by labour and capital contribution. Since the 1970s Singapore’s success has been driven by resource mobilization. For example, from 1966 to 1990, the employed share of our population grew from 27 to 51 percent, and investment as a share of output rose from 11 to 40 percent. Too little focus was placed on productivity gains in order for rapid growth to occur. Now, we are suffering from the consequences.

Insecurity and Vulnerability

Having an open, competitive economy was one of the reasons why the Singapore model succeeded. However, this has also lowered job security. The importing of technology rendered, and will continue to render, the skills of some workers irrelevant. Singaporeans resent the influx of foreign labour which threatens to depress wages and compete with them for jobs. Furthermore, an increasingly diverse economy and the growth of white collar jobs led to a greater share of the population being either a PME or a freelance worker. Both groups are not offered the same level of labour protection as compared to lower-wage or blue-collar workers.

Now that we have identified these issues, what does the government have in store to address these problems?

Restructuring and reducing foreign manpower growth

In order to remain economically viable in the long run, the government will tone down short-term cyclical remedies, by tightening foreign manpower growth, and instead focus on meeting structural challenges. The government has made it clear to the public that an indefinite reliance on foreign manpower is unsustainable and will drive Singapore to its physical and social limits, and began tightening the tap since 2010. In light of this, new policies like the Wage Credit Scheme, in conjunction with past ones such as the Productivity and Innovation credit, will incentivise businesses to restructure and increase their productivity.

Re-employment and benefits for older workers

Efforts are underway to encourage employers to re-employ older workers, and to allow older workers to play a greater role in our economy. This will help older Singaporeans cope with higher costs of living, close the income gap and attain a greater sense of fulfilment through being gainfully employed. One such effort is the re-employment law which took effect from January 2012. The results of such efforts have so far been encouraging. The employment rate of workers aged 55 – 64 has increased from 56.2% in 2007 to 64% in 2012. The proposal this year to increase the re-employment age band from the current 62 – 65 to 62 – 67 will aid in strengthening this cause.

The government will also consider directing policy and funding support towards workplace healthcare costs sharing and insurance arrangements to make them more affordable and equitable to workers and employers. This will be of particular importance for our older workers who, at their age, are most likely to face a rise in healthcare expenditure.

Labour Protection

With a growing number of PMEs in our workforce and the vulnerabilities they face, there will be a review of the Employment Act centred on expanding the number of workers that come under its protection. This will provide coverage for a large number of Singaporeans who now consist of 40% of our workforce. Since many of our PMEs belong to the middle class, providing them with a higher level of employment security will do much in reducing fears of sudden unemployment amid rising costs, and provide them with the confidence and ability to pursue their aspirations.

Helping the lower income

This year’s budget is much more progressive than that of previous years, and indicates the government’s stance towards helping the needy and closing the income gap. Aside from hand-outs, the use of schemes like the Workfare Income Supplement scheme ensures that despite being on the receiving end of welfare benefits, our low-income Singaporeans remain gainfully employed and work towards upgrading their skills to become more productive and witness a rise in their incomes.

 

Some sector-specific policies have taken effect too. One example is the cleaning sector, which has seen an extremely small growth in wages in the past decades in contrast to other industries. Since last year, the government has only awarded cleaning contracts to accredited cleaning companies in order to spur an upgrading of skills, quality, productivity and pay according to the Progressive Wage Model advanced by the Labour Movement.

 

I believe that this article is not exhaustive. There are certainly a wide number of costs that came with our rapid economic development which I have missed out. At the same time, there are probably a huge number of policies planned over the past decades (and planned for the decades to come) which are not listed here. What is most important though, is the fact that as long as the government recognises that growth comes with many costs, and that it should respond swiftly and sharply to address these issues. If they do so successfully, we will have the benefit of comfortable, sustainable growth in the many years to come.

About the author

Rio Hoe

Rio is currently a law student at Oxford University. He has a passion for writing, and hopes that his writing elucidates issues, encourages debate and engages his readers. He believes in creating a culture of progressive discourse in Singaporean society. Rio cares deeply about Singapore, and Singaporean issues and he hopes it will be better and stronger by the time he hands it down to his children.

He also writes for The Expository (www.the-expository.com)

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