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ExpertspointthewayforwardforSingaporeeconomicgrowthYahooNewsSingapore

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ExpertspointthewayforwardforSingaporeeconomicgrowth
YahooNewsroomThu,Sep3,2015

COMMENTARYBYPANGENGFONGANDLINDALIM
Economists,governmentleadersandoppositionpoliticiansallagreeSingaporemustjettisonitsdevelopmentmodelof
extensivegrowthbasedonfactoraccumulationtheadditionofmorelabour,talentandcapitaltothesingularlyscarce
resource,land,thatdefinesourterritorialspace.
Wemust,likeotherdevelopedcountrieswhoserankswesupposedlyleadonmanymetrics,relyonproductivityincreases
todeliveroutputgrowthatamuchlowerbutmoresustainablerateof13%peryear.
Fromourownexperienceandthatofotherrichcountries,weknowthisisadifficultandlongtermtaskrequiring
considerablebehavioraladjustmentsattheindividualandhouseholdaswellasbusinessandgovernmentpolicylevels.
Ourrecentsurveyofnumerouslabormarketstudies*showslowlaborproductivityhascharacterizedSingaporeseconomic
growthaslongagoastheearly1970sandasrecentlyasthelastseveralyears.Theheavyrelianceonimportsofforeign
laborhasdepressedwagesforlowwagecitizenworkers,contributingtoourhigherincomeinequality(incomeonlyGiniof
0.46,notincludingwealthinequalitywhichistypicallyhigher)andpovertyrates(20to22%)comparedwithotherrich
countries.
Cuttingbackonlaborimportscandeliverproductivityincreasesinsectorssuchasconstruction,retailandF&Bwhereour
productivitygreatlylagsthatinotherrichcountries.Butthecutbackwillbepainfulforbusinessesandhouseholdswhose
profitsandconsumptionhavebeensubsidizedfortoolongbycheaplaborimports.Ourcapacityforimitation,flexibility
andinnovationshouldhelpusadjustatleastaswellasotherdevelopedcountries.
Productivityincreaseproducingmorewithlessisnottheonlywaytoincome(notjustoutput)growthandhigherliving
standardsandbetterconsumerwelfareforSingaporeans.ThesharesofourGDPderivedfromwagesanddevotedto
householdconsumptionareverylow(3540%)comparedwithotherdevelopedcountries,wheretheytypicallyrangefrom
55%(Korea)to75%(U.S.).Rebalancingoureconomyawayfromexportandinvestmentdrivengrowthtoconsumption,
andfromstatetomarketdrivendevelopment(asChinaisalsotryingtodo)willmeanthatahigherproportionofincome
fromGDPwillflowtoSingaporeans.
Domesticdemandcanalsobeincreasedthroughmoresocialtransfers,whichinSingaporeisagainverylowcomparedwith
otherrichcountries.PublicspendingasaproportionofGDPinSingaporeishalfthatofmanydevelopedcountries20%
versusover40%andlowerthanitwasinourfirstthreedecades.Recentbudgetshaveincreasedgovernmentsubsidiesfor
healthcare(MedishieldLife),training(SkillsFuture)andtheelderly(PioneerGenerationandSilverSupport).Buttheseare
narrowlytiedtospecificexpenditures,manyoccurringprimarilyinthepublicsector,andsodonotpromotespendingbya
broaderbaseofconsumers(themajoritywhoareneitherpoornorelderlynorlikelytoneedorwantskillstraining)that
couldcreatedemandforawiderrangeofgoodsandservicestobeprovidedbyprivateentrepreneurs.
Besidesdirectlyimprovingcitizenwelfare,socialtransfersreduceinequalityandincreasedomesticdemandasnet
recipientsaremostlylowerincomeearnerswhohaveahighermarginalpropensitytoconsumethanthewealthy.More
transfersareaffordablegivenSingaporeslargeaccumulatedpublicsectorsurpluseswhichrepresentdecadesoftransfers
fromhouseholdstothegovernmentchieflyviaCPFmandatorycontributions,annualbudgetsurpluses,andoffbudgetuser
chargesbystatutoryboardsandGLCs.**
InSingaporesearlydecades,thesetransfersenabledtherapidconstructionofworldclassinfrastructure,provisionof
efficientpublicservicesand,mostimportantly,affordablehousingfor85%ofthepopulation,withoutincurring
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9/4/2015

ExpertspointthewayforwardforSingaporeeconomicgrowthYahooNewsSingapore

governmentbudgetdeficitsandpublicsectordebt.Theyalsoarguablycontributedtocitizensoverinvestmentinhousing
relativetootherassets,andrelativetotheconsumptionofother(nonhousing)goodsandservices.
Asaresult,Singaporeansareassetrichbutcashpoor.Thisphenomenonposesproblemsforthesupportofarapidly
ageingpopulationaswellasthehousingandlivingstandards(andperhapsfertilityandemigrationrates)ofyounger
Singaporeans.
RestructuringtheSingaporeeconomyrequiresnotjustmicroeconomicresourcereallocationtoincreaseproductivityatthe
firmlevel.Macroeconomicrebalancingandinstitutionalchangetoboostdomesticdemandarecriticaltoo.Costreduction
mustformpartofthistransformationwithreducedpropertypricesandrentalcostsasanecessarycomponent,aswellas
reducedfeesanduserchargesfortransportation,utilitiesandotherbasicneeds.Togetherwithproductivityincreases,this
rebalancingwillpreserveandevenenhanceSingaporesinternationalcompetitiveness.
Reducingthenumbersandwerecommendanabsolutereductionandnotjustaslowerinflowofforeignworkerswill
removethislongstandingdisincentivetoincreasingproductivity,andalsoreduceexcessdemandpressuresonproperty
andinfrastructurecongestion.WagesoflowerandmediumskilledSingaporeanswillrise,boostingconsumerdemand.
Theselectiveimportingofforeigntalentshouldcontinue,focusingonpermanentimmigrantswhowillstaywithusforthe
longhaultobuildournation.
ThereismuchthatSingaporeansneedtodotoensureasmoothtransitiontobecomingafullyFirstWorldnation.Interms
oflabour,wecouldreverttodoingmoreforourselveslikekeepingSingaporecleanwhichweusedtodowithoutarmies
ofshorttermlowwageforeigncleanerspickingupafterus.Equalisinggenderrelationswithinthefamilycouldraiseour
femalelaborforceparticipation(58%)tothehigherrates(65%)prevailinginmanyotherdevelopedcountries.Wecould
alsoreapwhatsomecallthegenderequitydemographicdividendofhigherfertilityfoundindevelopedcountrieswith
bettergenderequity.
Intermsofcapital,wecouldinvestoursavingsinproductiveassetsandentrepreneurialventures(includingenterprises
cateringtotheservicesneedsofourfellowSingaporeanssuchasworkingparentsandtheelderly)ratherthandevotethem
disproportionatelytopropertyspeculationinthehopesofearningmonopolyrentsandunproductivecapitalgains.
SlowerGDPgrowthwithanabsolutelyfallingnumberofforeignworkerscanimprovethewelfareandqualityoflifeof
Singaporeans.Thechallengeistoadoptadevelopmentstrategybasedonrealisticexpectationsofproductivitygains,
reducednonlaborcosts,highermarketwagesandconsumerspending,andlargerbutsustainablesocialtransfers.
*PangEngFongandLindaLim,Labor,ProductivityandSingaporesDevelopmentModel
**MukulAsher,AzadSinghBaliandChangYeeKwan,PublicFinancialManagementinSingapore:KeyCharacteristics
andProspects
BothinSingaporeEconomicReviewVol.60No.3(2015),SpecialIssueonAFiftyYearRetrospectiveontheSingapore
Economy
PangEngFongisProfessorofStrategicManagement(Practice)attheLeeKongChianSchoolofBusiness,
SingaporeManagementUniversity.LindaLimisProfessorofStrategyattheStephenM.RossSchoolof
Business,UniversityofMichigan.

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