Singapore at the crossroads

Economic growth prospects look fairly good — but that may not be enough for the people

We are judiciously confident that Singapore’s headline economic growth in the coming two to three years is likely to be more than satisfactory. The wind is behind our backs:

• In the past two years, the Economic Development Board has succeeded in drawing in record levels of foreign investment. These new production facilities will be coming on-stream in the coming years, generating exports, jobs and incomes.
• The Monetary Authority of Singapore has also done well in promoting Singapore as a wealth management hub and, more recently, as a compelling location for a range of FinTech enterprises. • As the two huge trade pacts Singapore signed up to — the Regional Comprehensive Economic Partnership and the Comprehensive and Progressive Trans-Pacific Partnership — fully take effect, more synergies and opportunities will flourish for the economy.
• The wave of technological breakthroughs that are unfolding will also play to our strengths, for example, in semiconductors and semiconductor manufacturing equipment as well as many other sectors we are present in.
• Singapore’s management of the pandemic has raised confidence in Singapore as a secure place to be — that will bring in more regional headquarters operations of large companies while also fostering growth in our wealth management centre.
• Eventually, the regional economies that form our hinterland will bring the pandemic under control and rebound. Over time, there is a good chance that the reconfiguration of supply chains will benefit Vietnam and Indonesia, enlivening prospects for our trade and transportation hubs as well as our manufacturing sector.

So, yes, headline GDP growth could look quite sexy in the next few years. But there are three reasons why higher growth may not translate into a happier set of Singaporeans.

First, there is an issue of the distribution of the gains. Singapore is a fairly unequal society, but the real problem goes beyond just conventional measures of inequality such as the Gini coefficient. In the period of rapid economic growth in the 1970s through 1990s, social mobility was high. Sons and daughters of cooks and farmers became permanent secretaries and managing directors of companies. Today, growth is slower and the opportunities for social mobility may not be sizeable enough to match the expectations of Singaporeans. Class divisions have grown as well and could be becoming more entrenched.

But there is another perception of inequality that has deepened of late — a sense that non-Singaporeans are creaming off more of the growth in Singapore, leaving less for citizens. The huge surge of foreign professionals who entered the Singapore workforce in the decade of the 2000s led to disproportionate numbers of foreigners in some sectors with lucrative opportunities for climbing the corporate ladder, such as finance and technology. Part of this was the inevitable consequence of being a global city — after all, we see similar large foreign presences in New York and London. But some Singaporeans feel that it could also be due to distortions in hiring practices because of an ultra-open immigration policy. Moreover, recent data is not available, but when the government did share the information, it showed that foreign-owned companies tended to earn a disproportionate share of total profits generated in Singapore. In short, there is a foreign versus local divide which aggravates the issue of inequality in Singapore.

Second, this leads to problems in another dimension of how citizens view their satisfaction with life — issues relating to perceptions of fairness, identity and self-worth, as well as of security. Some of the changes in the Singapore economy since the late 1990s have produced dislocations — many middle-management roles were sidelined by globalisation or by technology, leaving Singaporeans who were once earning good salaries and enjoying a certain status in society feeling disenchanted. The world economy has become much more volatile as well — just look at the number of crises Singapore has had to weather in the past couple of decades. That creates a greater sense of insecurity among employees who now have more reason than before to fear sudden job losses or reductions in incomes. In addition, the cost of healthcare which the individual has to bear has also escalated.

A third factor creating a disjoint between headline economic growth and citizens’ welfare is the non-monetary costs of achieving life goals. The cost of a home has multiplied many times since the 1970s and a family has to pay a large mortgage for many decades before they can own their home. Ensuring your child gets the best opportunity to get a good degree in a good university has also become much more burdensome.

But there are no easy solutions to these challenges

The trouble is that the challenges we face result from factors that are deeply embedded in the structure of our economy and society. There are some uncomfortable truths that Singaporeans have to face when thinking of how to address the challenges described above.

First, while the government had good reasons for raising immigration in the 2000s, the fact is that the large influx of low-paid, lower-skilled workers at one level and the inflow of foreign professionals at another level have had unintended effects. The easy availability of low-paid labour disincentivised companies from moving up the value chain and from improving productivity. Small firms became so wedded to low-cost labour that restructuring the economy to reduce dependence on low-skilled migrant workers will cause immense dislocation. At the professional level, we now have outsized finance and regional hub sectors that require large numbers of foreigners — it is not so easy to simply reduce the proportion of foreigners in the workforce.

Second, the longstanding approach of leveraging off multinational companies to generate rapid growth resulted in a degree of neglect of the local corporate sector. Compared to our peer economies such as Hong Kong, Taiwan or South Korea, locally owned companies are much less prominent. This was a bearable problem during the period of rapid growth and when government-linked companies were still doing well enough to offer Singaporeans good jobs and opportunities for reaching top positions. But now that so many government-linked companies are themselves not performing too well, the problem has worsened.

Third, we have to ask ourselves whether our much-vaunted education system is also part of the problem. Singaporeans are as bright and as driven as students anywhere in the world. But an education system that prizes success in examinations and which places a great burden of stress on young kids simply crushes the inquisitiveness and intellectual curiosity that are vital if Singaporean professionals are to be truly competitive. The education system leads to Singaporean kids excelling in tests of ability in science and mathematics. But to be a success in the intensely competitive finance sector or to move up the ranks in multinational companies that recruit the best talent from all over the world requires a broader range of skills. We will not be popular for saying this, but Singaporeans should ask themselves whether the seeming preference to hire foreigners, rather than Singaporeans, in some sectors is not due to discrimination against Singaporeans but because Singaporeans have not been armed with the skills they need.

Conclusion: Policy changes must address the deeper roots of the challenges we face

Singapore is not the only country suffering challenges of generating growth and ensuring fair distribution of that growth. But other countries are rising to the challenge.

Take China as an example. There, President Xi Jinping has certainly shaken things up in recent months as he moved decisively to tackle inequality in society. Large tech firms have to recalibrate how they operate — to ensure that they do not mistreat gig workers, or abuse their dominant position or force employees to over-work. The education system has also been rattled with sweeping measures to limit the tuition business so as to reduce the cost of educating children. One can question some of the methods used, but there is no doubt that the policy shift has forced the change of behaviour needed to address social and economic ills.

Elsewhere, we are witnessing governments breaking old taboos to push through measures to help the middle class and the disadvantaged. We are seeing this in the US as well as in Europe and even in South Korea and Taiwan. There are many policy experiments out there which we can learn from as well.

Our view is that for Singapore to be able to fully benefit from the opportunities and beat down the challenges of the post-pandemic era, much more needs to be done. This is not the place for a detailed discussion of policy changes. But, at minimum, the following changes are needed:

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• Wider social safety nets to help those hurt by the unavoidable dislocations that we are likely to see: for example, a proper minimum wage rather than the contortions to broaden out the Progressive Wage Model plus a system of unemployment insurance.
• A more aggressive strategy to build up the local private sector. That might include changes to public-sector procurement rules, so that local firms get more opportunities to secure government business as well as broader funding mechanisms than currently available.
• More thorough-going changes in education so as to reduce the stress on young students and to nurture more intellectual curiosity and inclination to think out of the box.

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Ultimately, whether we rise to the challenge is a matter of policy choice. The initiatives that Prime Minister Lee outlined in his National Day Rally speech are a good beginning. The hope is that they will lead to more thorough-going policy reforms over time, some of which have been hinted at recently by thoughtful policymakers such as the managing director of the Monetary Authority of Singapore, Ravi Menon.

Manu Bhaskaran, CEO at Centennial Asia Advisors, was one of the panellists who graced the very first cover of The Edge Singapore back in March 4, 2002 (above), when we talked about Remaking Singapore Inc. Our readers have benefitted from his insights and analysis for nearly 20 years