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[h=2]Singapore will tank because of PAP’s addiction[/h]
August 25th, 2015 |
Author: Contributions
Addiction
to labour that is, which is why Prime Minister Lee Hsien Loong has this to say
at the NDR.
“If we close our doors to foreign workers, our economy will
tank.”
In this article, the writer critique the PM from a conversation with
Professor Pang Eng Fong who briefly introduced himself to the writer at the
Singfirst forum on national reserves. He is the former Dean of the Lee Kong
Chian School of Business at the SMU, High Commissioner to the UK and Ambassador
to the EU.
The writer and blogger Law Kim Hwee had coffee with the professor to discuss
socio-economic issues and a recently published paper “Labour, Productivity and
Singapore’s Development Model” written by Linda Lim, University of Michigan, and
himself.
Growth driven by Labour
Singapore’s impressive economic record is characterized by “extensive growth”
which is driven by factor accumulation (adding capital, labor, land to create
“extensive growth” or more output from more inputs) rather than increases in
total factor productivity (the more efficient use of existing resources,
enhanced by technological progress, to create “intensive growth” producing more
output per unit of input). This is evidenced by the lack of Total Factor
Productivity (TFP).
On the labour, the proportion of foreign non-resident workers rose from just
3.2% in 1970 to 38.1% in 2014, more than a third of the labour force of 3.5m.
Very few countries have GDP growth that is driven largely by an influx of
foreign labor. Professor Hui Weng Tat and Associate Ruby Toh of the Lee Kuan Yew
School of Public Policy found that “employment as the driver of growth has
increased its share from 31% in the 1970s to 75% in 2000s”.
Growth with perspiration, not inspiration
The Singapore government did recognize criticism that the impressive growth
is achieved with perspiration, not inspiration; euphemism for the lack of
productivity. Hence the restructuring efforts to attract knowledge-intensive and
high value added industries such as clean technology and precision engineering,
and high value services such as medical services and wealth management.
Although these efforts have
transformed Singapore’s industrial landscape, it makes little difference to TFP
growth, with productivity actually falling 0.8% in 2014.
Why the failure?
Despite a recognition that a switch toward intensive growth — or increasing
productivity — was necessary, the basic model of state-driven multinational-led
export manufacturing did not change, but rather was extended through ever more
factor accumulation.
Carrots for Business, Stick for Workers
The above simply provide academic confirmation to the writer’s assertion that
the PAP government avoided its own Hard Truths. For the government has
consistently back-tracked from its own policy intentions to reduce dependence on
foreign labor, increase productivity and encourage high wages. This has been so
consistent that businesses simply had to wait for those obscenely remunerated
knees to buckle. Look no further than the recent relaxation of the foreign
workers curbs.
The reason given was the repeated short-run need of foreign investors (and
local SMEs which were part of their Singapore supply-chain) for “cost
competitiveness” in the face of external demand shocks, and increasing
international supply-side competition to which the traded goods sector
(export-oriented manufacturing) is highly vulnerable.
When economic adjustments have to be made, the vast majority of adjustments
fell on workers through reductions in CPF contribution rates and by the
suppression of real wages through ready access to cheap foreign labour. This has
the awful effect of structurally weak personal consumption which would have
lessen those external shocks on the export sector.
Conclusion
Academia or least the independent thinking part of it is not enthralled by
the PAP’s economic record. It is just the 156[SUP]th[/SUP] ranked Pravda-in-the
Red-Dot did not publish such thinking. If Singapore stayed within its long run
growth potential of 2-4% instead of running at 6-7% during PM Lee’s tenure, as
the writer repeated ad nauseam, then all these socio-economic problems would
not exist today or are much smaller.
Similarly, some economic growth are not worth having if these means more
subsidies, tax breaks and foreign labour. Singapore should concentrate on
commercial and industrial services in which her advantages are much harder to be
competed away by neighbouring countries. More on this in another article.
Nevertheless, the writer is left with a depressing thought. Each successive
policy back-tracking back to the extensive growth model, diminishing returns
worsened and opportunity costs rose as pointed out by Pang and Lim. The data
conforms to research by Paul Romer and others suggesting that
“the availability of abundant cheap labor not only discourages investment
in productivity but also reduces innovation and increases income
inequality.” (Economist, 2013).
However the Prime Minister seems bent on reinforcing policy failures with his
party’s addiction to the easy option of cheap foreign labour evidenced in his
NDR speech. More of the same with 6.9m population or even 10m? We have already
seen what 5.5m population has caused today. This addiction may well spell the
end of Singapore’s existential meaning of citizenship and nationhood.
Chris Kuan
* Chris was regional head of capital markets for Asia Pacific until his
retirement. He writes opinions and commentaries mostly on economic and financial
matters.
August 25th, 2015 |
Author: Contributions
to labour that is, which is why Prime Minister Lee Hsien Loong has this to say
at the NDR.
“If we close our doors to foreign workers, our economy will
tank.”
Professor Pang Eng Fong who briefly introduced himself to the writer at the
Singfirst forum on national reserves. He is the former Dean of the Lee Kong
Chian School of Business at the SMU, High Commissioner to the UK and Ambassador
to the EU.
The writer and blogger Law Kim Hwee had coffee with the professor to discuss
socio-economic issues and a recently published paper “Labour, Productivity and
Singapore’s Development Model” written by Linda Lim, University of Michigan, and
himself.
Growth driven by Labour
Singapore’s impressive economic record is characterized by “extensive growth”
which is driven by factor accumulation (adding capital, labor, land to create
“extensive growth” or more output from more inputs) rather than increases in
total factor productivity (the more efficient use of existing resources,
enhanced by technological progress, to create “intensive growth” producing more
output per unit of input). This is evidenced by the lack of Total Factor
Productivity (TFP).
On the labour, the proportion of foreign non-resident workers rose from just
3.2% in 1970 to 38.1% in 2014, more than a third of the labour force of 3.5m.
Very few countries have GDP growth that is driven largely by an influx of
foreign labor. Professor Hui Weng Tat and Associate Ruby Toh of the Lee Kuan Yew
School of Public Policy found that “employment as the driver of growth has
increased its share from 31% in the 1970s to 75% in 2000s”.
Growth with perspiration, not inspiration
The Singapore government did recognize criticism that the impressive growth
is achieved with perspiration, not inspiration; euphemism for the lack of
productivity. Hence the restructuring efforts to attract knowledge-intensive and
high value added industries such as clean technology and precision engineering,
and high value services such as medical services and wealth management.
Although these efforts have
transformed Singapore’s industrial landscape, it makes little difference to TFP
growth, with productivity actually falling 0.8% in 2014.
Why the failure?
Despite a recognition that a switch toward intensive growth — or increasing
productivity — was necessary, the basic model of state-driven multinational-led
export manufacturing did not change, but rather was extended through ever more
factor accumulation.
- Industrial upgrading, for example, required more and more capital investment
per unit of output, and of labor, with its attendant need for ever-more-generous
tax incentives and other subsidies.
- When rapid growth at full employment caused the prices of land and labor to
rise, the policy response was to
prevent market adjustments from taking place, by continuing to subsidize scarce
land (e.g., in state-provided industrial estates) and allowing greater access to
foreign labor which depressed the price of competing local labor
- Without the obsessive government intervention, market forces would have
forced out businesses that are overly reliant on cheap foreign labour,
subsidized land, low taxes and rebates. This would have reduce the need for
cheap labour and generated higher productivity.
Carrots for Business, Stick for Workers
The above simply provide academic confirmation to the writer’s assertion that
the PAP government avoided its own Hard Truths. For the government has
consistently back-tracked from its own policy intentions to reduce dependence on
foreign labor, increase productivity and encourage high wages. This has been so
consistent that businesses simply had to wait for those obscenely remunerated
knees to buckle. Look no further than the recent relaxation of the foreign
workers curbs.
The reason given was the repeated short-run need of foreign investors (and
local SMEs which were part of their Singapore supply-chain) for “cost
competitiveness” in the face of external demand shocks, and increasing
international supply-side competition to which the traded goods sector
(export-oriented manufacturing) is highly vulnerable.
When economic adjustments have to be made, the vast majority of adjustments
fell on workers through reductions in CPF contribution rates and by the
suppression of real wages through ready access to cheap foreign labour. This has
the awful effect of structurally weak personal consumption which would have
lessen those external shocks on the export sector.
Conclusion
Academia or least the independent thinking part of it is not enthralled by
the PAP’s economic record. It is just the 156[SUP]th[/SUP] ranked Pravda-in-the
Red-Dot did not publish such thinking. If Singapore stayed within its long run
growth potential of 2-4% instead of running at 6-7% during PM Lee’s tenure, as
the writer repeated ad nauseam, then all these socio-economic problems would
not exist today or are much smaller.
Similarly, some economic growth are not worth having if these means more
subsidies, tax breaks and foreign labour. Singapore should concentrate on
commercial and industrial services in which her advantages are much harder to be
competed away by neighbouring countries. More on this in another article.
Nevertheless, the writer is left with a depressing thought. Each successive
policy back-tracking back to the extensive growth model, diminishing returns
worsened and opportunity costs rose as pointed out by Pang and Lim. The data
conforms to research by Paul Romer and others suggesting that
“the availability of abundant cheap labor not only discourages investment
in productivity but also reduces innovation and increases income
inequality.” (Economist, 2013).
However the Prime Minister seems bent on reinforcing policy failures with his
party’s addiction to the easy option of cheap foreign labour evidenced in his
NDR speech. More of the same with 6.9m population or even 10m? We have already
seen what 5.5m population has caused today. This addiction may well spell the
end of Singapore’s existential meaning of citizenship and nationhood.
Chris Kuan
* Chris was regional head of capital markets for Asia Pacific until his
retirement. He writes opinions and commentaries mostly on economic and financial
matters.
