Transcript Session 16 - Contingent Liabilites

Economic Policy-Making in Singapore:
Some Reflections
Basant K. Kapur
Department of Economics
National University of Singapore
Issues
(A) ‘Growthmanship’
(B) Domestic Demand Issues
(C) Concern for Others, Social Cohesiveness
(D) The Importance of ‘Passion’
(A) ‘Growthmanship’
Emphasis on high rates of GDP growth has
been a hallmark of economic policy in
Singapore since Independence.
GDP growth can be achieved through a
variety
of
positive
means:
capital
accumulation, technological and skills
upgrading, efficiency improvements, etc.
(A) ‘Growthmanship’, cont.
Import of professional and skilled foreign
talent at a reasonable pace is also
beneficial - augments the economy’s talent
pool.
However, Singapore has also relied on
large imports of unskilled and lower-skilled
foreign labour, in pursuing GDP growth,
and here the consequences are much
more mixed.
(A) ‘Growthmanship’, cont.
Such large inflows create a vicious circle:
Their
availability
reduces
employers’
incentives to upgrade their operations through
further mechanization, automation, etc.;
Resulting low productivity levels imply that
employers can only afford to offer low wages,
which act as a disincentive to Singaporeans
to take up such jobs;
(A) ‘Growthmanship’, cont.
Which in turn leads to continuing employer
demands for inflows of foreign workers.
In a 1994 speech, Dr Lee Boon Yang, then
Minister for Defence and Minister for Labour,
quoted illustratively from a 1989 CIDB study:
(A) ‘Growthmanship’, cont.
"In Perth, the cost of the two major
construction inputs are considerably higher
than those in Singapore. The prices of basic
building materials are, on the average, 60 per
cent higher than Singapore's and all-in labour
wages are 400 per cent to 500 per cent those
in Singapore. However, the unit construction
cost for luxury apartments, offices and hotels
in Perth are only between five per cent and 11
per cent higher than the corresponding levels
reported for Singapore."
(A) ‘Growthmanship’, cont.
More recent examples can also be given, e.g.
South Korean shipbuilding industry.
Time horizon: need for gradual but sustained
adjustment, which should have commenced
earlier, but anyway can commence now.
Intention should be not to eliminate low-skilled
foreign labour inflow altogether, but to tighten
it over time, e.g. through levy increases.
(A) ‘Growthmanship’, cont.
Recent policy pronouncements are in my
view a step in the correct direction.
The ‘GDP Bonus’ scheme for civil servants
may also usefully be modified.
Consideration should, in my view, be given to
replacing it by a composite criterion
comprising:
(A) ‘Growthmanship’, cont.
(a) GDP growth,
(b) a broad-based measure of productivity
growth of Singaporeans, e.g. growth rate of
per capita indigenous GDP, and
(c) a measure of the well-being of lower-paid
Singaporeans, e.g. growth rate of the average
household disposable income of the lowest
20% of Singaporeans.
(A) ‘Growthmanship’, cont.
A composite criterion along these lines would
serve to highlight more clearly some key
priorities in policy-making.
(B) Domestic Demand Issues
Last year, Prof Linda Lim observed:
‘It turns out that both China and Singapore
have the world’s lowest shares of consumption in GDP — about 40%’.
GDP may not be best deflator for Singapore,
owing to high profits component in it, much
accruing to foreign MNC’s.
(B) Domestic Demand Issues
However, from 1986-87 to 1998-99, C/GDP
ratio went down from about 0.46 to 0.39, even
as wage share of GDP remained fairly
constant, around 0.42.
While low domestic demand has become an
issue of policy concern in China, the same
does not appear to have occurred in
Singapore.
(B) Domestic Demand Issues, cont.
One argument in favour of the status quo is
that in recent years domestic consumption
growth contributed only a small fraction to
overall GDP growth.
However, this does not imply that the former
could not contribute more to the latter if the
C/GDP ratio were higher.
(B) Domestic Demand Issues, cont.
Another argument in favour of the status quo
is that meeting domestic demand is mainly
useful if the local firms that cater to such
demand eventually branch out into exports,
thus increasing Singapore’s earnings from the
rest of the world.
But meeting domestic demands is also an
economically valuable activity in its own right.
(B) Domestic Demand Issues, cont.
Singapore residents derive benefits from
consuming an entire array of tradable, and
nontradable, items, from more to less
sophisticated ones – services of doctors,
restaurants and hawker centres, barbers, etc.
Domestic production cannot obviously meet
all our needs, so trade is necessary, but such
production is still valuable. In a market economy, price generally reflects value to
consumers closely.
(B) Domestic Demand Issues, cont.
If one wishes to adopt a ‘quasi-mercantilist’
viewpoint – which is not necessary in my view
– one could still argue that spending on
nontradables diverts spending from tradables,
helping to improve our trade balance.
Growth standpoint: SME’s often first cater to
the local market, and, after acquiring
experience, expand overseas. E.g. BreadTalk, Sakae Sushi, Charles & Keith, OSIM.
(B) Domestic Demand Issues, cont.
At around 40%, Singapore’s C/GDP ratio is
far below that of another small economy,
Hong Kong, which is over 60%.
If we could move closer to the HK figure, there
would likely be larger scope for domestic
enterprises to start up, grow, and expand into
a wider range of markets. In some respects,
thus, production for the home market and for
exports are complements.
(B) Domestic Demand Issues, cont.
As firms grow, they also tend to spend more
on R&D, leading to new and better products,
and lower production costs.
Relevance of (private) property prices to
C/GDP ratio (Abeysinghe, Choy, Gu).
E.g., some S. Korean thinking currently (that
property prices there are too high).
Implications of 5-6 million population target
for property prices here?
(C) Concern for Others, Social Cohesiveness
Arguably, we also wish to become a society
characterized by concern for others, and
social cohesiveness – a ‘gracious society’, in
the true sense of the term.
Apart from its intrinsic social worth, a more
humane society also commands greater
loyalty and support from its citizens, and
encourages them to sink roots here.
(C) Concern for Others, Social Cohesiveness
Some selected issues, in this regard:
(A) Healthcare issues: Is encouraging that
MOH is now considering extending the
Medishield coverage age beyond 80.
In one area, however – subsidies for ARVmedication for HIV/AIDS victims – we come
up glaringly short.
(C) Concern for Others, Social Cohesiveness
ST reports in December last year are
instructive. On Dec 1, Salma Khalik, Health
Correspondent, wrote:
‘And unlike other major illnesses where there
is at least one, sometimes as many as a
dozen, medicines available to the poor at
highly subsidised prices, there is no
Government subsidy at all for the treatment of
HIV here.’
(C) Concern for Others, Social Cohesiveness
‘Today, HIV is about the only major illness
where patients do not enjoy any subsidies on
medication.’
Then, in an article on Dec 6, she provided
some good news: ‘People with..HIV, who
have long complained about the cost of mediication here, are about to get some relief - the
Government has decided to subsidise their
medicines.’
(C) Concern for Others, Social Cohesiveness
She continues, ‘Health Minister Khaw Boon
Wan told The Straits Times he agreed with
the view that HIV should be treated “like any
chronic disease”. “The committee of experts
will apply the same approach as they do
when evaluating drugs for other diseases. We
should not single out HIV for special
treatment,” he said.’
(C) Concern for Others, Social Cohesiveness
Unfortunately, since the announcement was
made, no further action has been taken.
Hopefully action will be taken soon.
(C) Concern for Others, Social Cohesiveness
I turn next to another set of issues, inspired
by recent observations by Professor Tommy
Koh in two ST articles:
(C) Concern for Others, Social Cohesiveness
‘Unfortunately, that 'greed is good' culture [of
Wall Street] has infected some Asian
countries.
Excessive
pay
for
senior
management, for example, has become
fashionable in certain parts of Asia. This is
not consistent with our communitarian values
or our emphasis on team work and equity.’ (4
March 2009)
(C) Concern for Others, Social Cohesiveness
‘We seem to calculate everything in terms of
money. We think that a person's worth is
measured by the amount of money he or she
makes. We have imitated one of the worst
aspects of American capitalism, by paying our
senior executives inflated salaries while, at
the same time, stagnating the salaries of our
middle and lower strata. As a result,
Singapore has become a more unequal
society than the United States.’ (19 Aug ’09)
(C) Concern for Others, Social Cohesiveness
In their 1995 book, The Winner-Take-All
Society, economists Robert Frank and Philip
Cook argue that very high salaries at the top
in various occupations – management,
banking and finance, movie-acting, law, etc. –
are largely due to (a) widening of markets,
owing to technological advances that lower
communications and transport costs, etc.,
and (b) open competition for top performers’
salaries. Changing social norms also play a
role.
(C) Concern for Others, Social Cohesiveness
They also argue that owing to negative
externalities (each entrant into such
competitions does not internalize the effect of
his entry on others’ prospects of winning),
entry into such occupations tends to be
socially excessive, at the expense of entry
into other, lesser-paid but also socially
valuable occupations, such as engineering,
the sciences, etc.
(C) Concern for Others, Social Cohesiveness
A progressive income or expenditure tax
system is thus in their view potentially
efficiency-enhancing, in discouraging excess
entry into such occupations.
They observe: ‘In Japan and Germany, for
example, CEOs earn much lower salaries and
face much higher tax rates than do their
American
counterparts…And
yet
the
companies they manage have provided much
of America’s stiffest competition in recent
years.’
(C) Concern for Others, Social Cohesiveness
Some policies that Singapore might consider:
(a) an increase in the progressivity of our tax
system, which currently appears lower than
the United States’;
(b) Heightened incentives for students to
pursue engineering and science degrees, e.g.
through tuition subsidies (as also proposed by
Frank and Cook).
(D) The Importance of ‘Passion’
During his visit to Singapore in 1999, NobelPrize-winning physicist Steven Chu pointed
out, if I recollect correctly, that true excellence
in research cannot be motivated by material
incentives: there has to be an intrinsic
passion for it.
In the area of business, Professor Charles
Handy was quoted in The Straits Times of
March 17 1999 as saying:
(D) The Importance of ‘Passion’
‘Entrepreneurs have got to be passionate and
totally committed to what they are doing.
Now, I don’t mean passionate and committed
to making money, because that’s just an
outcome, but to what they’re doing – whether
they’re crafting something beautiful, or
making cameras, or starting an Internet
business, or whatever’.
(D) The Importance of ‘Passion’
An excellent, academic, rationale for the
importance of passion may be found in
another book by Robert Frank, Passions
within Reason: The Strategic Role of the
Emotions, 1988.
What about the situation in Singapore?
(D) The Importance of ‘Passion’
One writer, Phillip Holden, referred to ‘the
Singapore’s developmental state’s focus on
material prosperity, or “moneytheism”’ – a
description which appears largely apt even
today.
In characterizing the ‘special and unique Lee
Kuan Yew model of governance for
Singapore’, writer Catherine Lim commented,
(D) The Importance of ‘Passion’
‘Its goal—total economic success’, and she
also makes reference to ‘a culture so deeply
attached to material wealth’ (2008).
Higher goals, such as self-actualization, selfrealization, seeking to attain one’s fullest
creative potential, etc., do not appear to figure
high in our system’s priorities.
In keeping with our materialistic motivations,
(D) The Importance of ‘Passion’
our approach to social and economic
engineering is largely of the ‘carrot-and-stick’
variety – which reinforces our materialism.
Can passion, creativity, imagination, the
desire to excel for its own sake, and to help
others excel, flourish in such an environment?
(D) The Importance of ‘Passion’
Is it any wonder that, e.g., school-teachers
and principals have in the past been
motivated by examination-rankings-based
performance criteria, with the severe effects it
has had on the education of our children?
As an example, consider ST journalist’s Andy
Ho’s column of June 12 2008: ‘There is an
outcry about punitively difficult “sure fail”
exams that teachers set for students prior to
the national PSLE, O levels and A levels…
(D) The Importance of ‘Passion’
‘Is there not something dishonest in doing so?
After all, national exams are not pitched at the
same levels of difficulty…The authentic
teacher..would not ever be a party to, or even
consider setting, 'sure fail' exams. Exploitative
tactics like these signal inauthenticity in the
system. What teachers need to be first and
foremost is to be real.’
(D) The Importance of ‘Passion’
The above leads naturally to the most
important question of all – how can passion be
nurtured and fostered?
Some tentative
thoughts :
In my view, ‘culture’ in a broad sense,
inclusive of religion and spirituality, has a key
role to play – it sensitizes man to the
nonmaterial dimensions of human existence,
thus rendering him authentically human.
‘Man does not live by bread alone.’
(D) The Importance of ‘Passion’
Consideration should, I believe, be given to
the introduction of courses on ‘Comparative
Cultures’ in schools.
Highlighting the
commonalities across the world’s great
cultures – while recognizing that differences
remain - will foster tolerance, greater
understanding, and non-exclusivism.
It will also develop students’ awareness and
appreciation of the aesthetic and other non-
(D) The Importance of ‘Passion’
material
dimensions
of
the
human
experience, which could then foster their
interests in other fields as well, for their own
sake – i.e., stimulate their passion.
Those who are metaphysically inclined might
wish to note the following observation, which
various spiritual traditions subscribe to: ‘The
beauty that can be seen in all of creation is
merely a reflection of God’s artistic mastery.’
(D) The Importance of ‘Passion’
This sense of beauty – which can be in art,
physics, economics, engineering, etc. – is an
enduring source of inspiration and passion.
Ironically, effort – in any field – motivated by an
enduring passion could well lead to more
durable, sustained, material achievements, as
Frank has argued, even though this cannot
be the proximate motivation.