As Singapore matures as a developed country, it has been threading carefully between conflicting needs.
The ills of Capitalism: Inequality
Since Singapore’s independence, there has been an emphasis in attracting big foreign companies here so we can get cool jobs. This was all fine and dandy when everyone was benefitting from the increase in wages together.
As the economy flourishes, some people got a larger part of the pie. Successful family businesses prospered and expanded. Wealthy expats migrated here and became part of us. Their children grew up in privileged environments.
Singapore is now facing the same problem that any developed, free market nation is bound to face: The rich gets richer. And the poor gets poorer.
We are already starting to smell the rot. Politicians saying rubbish that show a disconnect with the lives of the average man. Kids starting out with completely different playing fields. Keep it that way and we’ll see corruption and nepotism on the rise.
Expanding the Progressive Wage Model (PWM)
The PWM is a productivity-based scheme that rewards employees based on skills upgrading.
Instead of implementing a blanket minimum wage, the PWM ‘maps out a career pathway for their wages to rise along with improvements in productivity’. MOM says.
I’m not sure about the efficacy of the PWM in bridging the income gap. Feedback from the Opposition has it that the PWM is being implemented far too slowly for Lower-Wage Workers (LWWss) to see the effect.
What we know is that in Sep 2021, Singapore expanded its PWM to cover even more LWWs. It will be increasing the wages for LWWs under PWMs at a compounded rate of more than 10% annually. Currently, PWM covers 10% of LWWs in Singapore. By 2023, the PWM will be expand to more sectors and also cover in-house employees to reach 82%.
This time, the government didn’t mention any mapping of productivity standards to increase in wages, but focused on the latter. It also mentioned explicitly that the increase in wages will be funded by businesses, consumers, and government. It seems like the expanded PWM seems moving away from productivity-based standards, and closer into a Minimum Wage.
Clearly, if the increase in wages is not grounded by productivity gains, business profits will have to take a bite of the losses.
Consequences of increasing labour cost
Increasing labour cost may not be all beneficial to the LWWs.
Labour cost is a huge component to the cost of living (food, security, transport). If the wages for LWWs go up disproportionately to the rest of the population, this may increase the prices of basic commodities. This may hit LWWs more badly than the rest of the population.
If the wages for LWWs go up disproportionately to the rest of the world, businesses will find better opportunities setting up their companies at places with lower labour cost. This has happened before. When China, Thailand, and Vietnam opened up their markets to foreign businesses, MNCs in Singapore packed up their bags. When we fall off the radar, we lose the cool jobs. Capital stops flowing. The skillsets of our people stop growing.
And after a few years of decline, where will we stand in the world? Can we lift our heads and stand on our own feet when interacting with our foreign counterparts?
As a country so dependent on remaining relevant for survival (not just for growth), we need these constant supply of capital, ideas, employment, and latest innovation to us.
We can even argue that the capital creation that helps to stimulate the economy to provide jobs is ultimately beneficial for LWWs (although it can benefit the capital owners disproportionately more).
Until we find another irrefutable comparative advantage against the rest of the world, our reliance on globalisation is here to stay.
So we’re here.
Economy vs Society
If we increase wages, we reduce tensions in the society by having a more even distribution of wealth. But we may harm our long-term competitiveness if other countries continue to have cost advantage. This may create a downward spiral of diminishing economic opportunities.
If we leave wages to the free market, we may be able to continue our cost advantage. But even that is not guaranteed. What’s guaranteed is that we’ll end up with a disunited population that makes us vulnerable to rot.
The negative consequences for both decisions are huge; one hitting global competitiveness and the other resulting in societal regression. One cannot simply exist without the other. What’s a good governance if it cannot take care of its people? But what’s a good governance if it cannot bring in opportunities?
Either way, increasing wages is like a strong Panadol used as a short-term solution to assuage tensions within society. Its benefits can be popular and immediate. But unlike Panadol, its downsides are far and serious.
But when the dose wears off, which other potion should we use?
What about… other things?
Most of our discussion thus far has been centred on keeping labour cost low to attract businesses. But we know now that that’s a tricky tool to use.
What if we make the other benefits of doing business here so attractive, that cost becomes a non-factor?
This can include:
- Increase workforce skillset (ie. multi-lingual, skilled engineers, knowledge-based workers, adaptable workforce)
- Reduce business bureaucracy, regulations (speed, efficiency)
- Modern, affordable technology (connectivity, Data warehouses)
- Huge market base (mobile penetration rate, businesses can tap on the whole SEA or APAC if they set up their base here)
- Communities (networking, societies)
- Stability (foreseeable future for lower risk investors)
- R&D grants for innovation projects
Of course, these ideas are by no means easy to execute. Some are bound by geographical endowments, some as a result of deeply entrenched culture.
But if there are more sustainable means of reducing our income inequality while preserving global attractiveness than increasing labour cost, these could be worthwhile areas to look at.
Competing on cost is a race down an unending hill with serious societal consequences. By moving the focus away from cost, we can break the viscious cycle.
The great balancing act
Capitalist societies need to balance between remaining relevant globally while preserving equality locally.
We need the rich to come and spend, but we don’t want them to accentuate the rich-poor divide in the society.
We want the global companies to bring in opportunities, but we don’t want to over-stress our people in the rat race.
We want to be the most attractive country for doing business, but we need to compete on labour cost globally.
It will never be a straightforward game. We need to continuously assess the acidity of the pot and introduce necessary potions at various junctures to maintain the taste.
And sometimes, we need creativity to come up with new ways to maintain the balance.
I’m no economic expert nor a policy maker.
A little on measuring inequality
Comparing Singapore’s gini coefficient with the rest of the world is not an accurate metric to understand our differences in inequality. The gini co-efficient measures the wealth distribution in a country.
In Singapore, this was 0.375 in 2020 (after accounting for taxes) — higher than developed countries, more inequality. However, it was 0.454 before taxes, which is lower if not comparable to the same developed countries — more equal.
What does this mean? In terms of earning power and equality in a population, Singapore’s rich-poor divide is not worse off than other countries. However, if we compare after-tax gini coefficient, it fares worst than other countries. This is especially so for countries that provide redistribution policies. They tax the rich so that they can provide for the poorer. It’s an artificial redistribution of income.
Comparing gini coefficient with other countries may not be an objective way since we’re all operating on different economic systems and policies that skews metrics. what would be a more meaningful way to measure inequality?
Part 2: Preserving local culture vs assimilating foreigners
