Saturday, March 07, 2009

Not by wages alone...

A few weeks ago there was this letter[Link] to the Straits Times Forum by former perm sec Ngiam Tong Dow arguing that a CPF cut would be a better strategic move than the Jobs Credit Scheme (JCS). He argued that a direct wage cut would be better than a wage subsidy because "subsidies cannot be sustained for long if our workers are no longer as productive as their peers in other, perhaps hungrier, countries, particularly in a knowledge-based global economy". He argued workers should bite the bullet like they did in 1984 take all the pain and sacrifice to get Singapore out of its current mess. I'm not sure what is so strategic or long term about CPF cuts - the CPF is suppose to be a provident fund for our retirement not an economic tool to bail the economy out everytime there is a recession. Why didn't he propose that landlords slash rents by 40% to help make the economy more competitive? That was what many retailers wanted[link]Why didn't he propose that other costs such as utilities, govt fees, etc be slashed to make Singapore more competitive? Why is it wages ...wages and always wages? A CPF cut is 'undoable' for several reasons - the HDB default is 8% going into this recession and a CPF cut will push many Singaporeans to the 'brink'...we are not talking about just taking 'pain' it will be agony. We are also going into this recession with the highest income gap in our history and the govt is already giving workfare which is a form of wage subsidy out of necessity. There are also many flexi-wage components in our wages today that can be cut by the employers if they choose to do so. Also, if wages are the issue and the businesses need those cuts to retain people, the employer can just initiate wages cut himself. Politically if the PAP is going for elections such a move is completely unwise because many Singaporeans are still waiting for the 'temporary' CPF cuts of 1984 to be restored...and this will be bad political strategy. For a while, I was quite amazed that Ngiam Tong Dow, a former top civil servant, can actually come up with such a suggestion. But the PAP govt itself did not miss this idea because when Minister Lim Swee Say debated MP Low in parliament he tried to counter Low by asking "CPF cut or JCS?"...which would Low prefer? MP Low said neither. Many saw this whole episode as Minister Lim trying to trick MP Low and MP Low not falling for it. I believe Minister Lim was more honest than that. I believe the PAP govt confronted with the current slump saw only 2 options which are 2 ways to do the same thing - cut wage bills of companies. There appears to be a box that the govt is thinking within...I will attempt to identify this box.



Think hard. Where are we today actually? This is our 3rd recession in 10 years! This is Australia's 1st recession in 25 years (hmmm....do we blame people for wanting to migrate there?). When Ngiam wrote that we should cut CPF to be more competitive, what is this economic contest ordinary Singaporeans have signed up for? Is this a slimming contest with a buffet voucher for winners?...Or is it a slimming contest that allows you join another slimming contest if you survive the 1st one? 3 recessions within a decade.... I think Singaporeans will begin to ask fundamental questions about our economy and the old bureaurcat's solution to apply the same old formula to cut CPF and to fight the pain with more pain only serve to remind us how far down the tunnel we have gone applying old formula to grow our economy. Keep wages low relative to productivity, get foreign direct investments and export....and they kept applying this formula as income gaps ballooned and the ordinary Singaporean households become strain due to the rising cost of living. Wages were the only thing they kept low as housing, transport, etc were continuously raised. When wages were not low enough, the PAP govt open the floodgates to foreign workers who came by the hundreds of thousands. We ended up with an income distribution that is only found in 3rd world countries, an economy that was so reliant on export it became the 1st one in Asia to go into recession and right now is the fastest deteriorating economy in the region. Think about it ....if we keep applying this old tired formula, where will we be 2 decades from now? What would life be like for you and your children?! Lets take a step back...and see what is going on.


Lets start with the Foreign Talent Policy. It was originally sold to us as a policy to attract the best talents from around the world for skills Singaporeans do not have. I think most Singaporeans supported this idea because it made sense - Singapore can only be better off if we brought in the best people. However, the Foreign Talent Policy became a cheap labor policy opening the floodgates to foreign workers to lower labor cost. Our govt policy to bring in foreign labor is not one of moderation - no other country has become so dependent on foreign labor than Singapore except for the oil rich states in the Middle East. The presence of such a large low cost foreign labor force allowed Singapore to grow its GDP - retaining industries that shouldn't be retained and growing industries that shouldn't be expanding if not for cheap foreign labor. These industries compete for scarce resources such as industrial space, transport services, etc causing the other costs of doing business to escalate. Enterprises that are build on the strength of Singaporean labor now have to face rising costs (rental etc) and have no choice but to keep wages low to stay profitable. Allowing the labor force to be so elastic when the other factors of production create distortions in the economy. In 2007, the rentals of industrial and office space escalated to record levels as the economy and there was no corresponding increase in wages. It was also painful for Singaporeans who needed to rent or buy homes when property market shot up to the stratosphere when wages remain flat. It is a no brainer that expanding labor the force by importing labor causes the GDP to shoot up the question is whether this is beneficial to Singaporeans in the long run. We just need to look at what happened in Dubai last month to figure out the downside of such a policy[Link]. What good is GDP growth if it is not sustainable or healthy? We have the type of economy in which things are bad for many Singaporeans when our GDP was growing and things are worse when the growth falters.

Being able to import foreign labor in large numbers and implementing wage based solutions to every economic challenge we face is actually a moral hazard as it takes away the determination to find more sustainable solutions that requires restructuring of our economy. Entrepreneurship and innovation that creates new industries that don't depend on cheap labor remains lacking as we have made little political progress to create the environment that foster these and risk taking associated with entrepreneurship can only happen in a big way when you have certain social safety nets in place. We also need to be less reliant on exports and keep our domestic economy growing. When the Hong Kong population was our size, they had a far more vibrant domestic economy and Finland whose population size is comparable to Singapore has a far bigger domestic economy. Our domestic economy remains small as the disposal income of Singaporeans relative to GDP is small compared with many other countries. We have one of the largest household debt as a % of GDP in the world to service and that takes a toll on spending. It is as if we worked hard to earn the money only to hand it over to HDB for housing - HDB accumulates this to give it to GIC/Temasek to buy risk assets overseas. If we spend more of that money, it will go round in our economy creating jobs and improving the quality of life for Singaporeans. If you spend an extra $10 for a better haircut, your hairstylist may be able to eat better as he uses this to buy better food from the hawker and the hawker has an extra $10 to take his kid for an outing and so on. There is hardly any multiplier effect when we hand this $10 over to HDB to service our debts which than hands it to GIC/Temasek.

"For every one manufacturing worker hired in Singapore, a company can hire three in Malaysia, eight in Thailand, 13 in China and 18 in India" - Goh Chok Tong, 2003.[Link]

Very often when something goes wrong with the economy, our leaders blame Singaporeans for not being productive enough, for earning too much pay compared to their counterparts in Malaysia, India and China. But how does a Singaporean worker competes when he has to incur the cost of paying for the most expensive public housing in the world, utilities rate that is among the highest in the world and ministers along with a civil service that is paid the highest salaries in the world. But think even harder...what has wages got to do with being competitive? Finland has among the highest wages in the world and is the 2nd most competitive economy in the world. What wages have to do with being competitive depends on how successful we are at other aspects of boosting competitiveness. The fact that we have again resorted to cutting wage costs to keep this export dependent economy from sinking shows that we have not been successful anything else...

21 comments:

Anonymous said...

Dear lucky,

I have learnt a lot from your blog. Thank you. However, I think that in this situation, u are over simplifying an extremely complex problem. The problem is not just the PAP. Because of the PAP policies, the problem lies with us.

Let me explain what I feel is the main problem, then give examples. The main problem is that our system is systematically biased towards the obedient, rule followers. Take the education system, I have many ITE, foreigner and SIngaporean friends and I find that the univeristy educated Singaporeans tend to be excessively obedient, very lacking in initiative (general rule, there are many exceptions) and cannot think for themselves. I feel it is because our education system is very biased to ppl who will sit down and do what they are told (homework). We give these ppl more and more oppertunities, so they naturally become better and better. In the army, I was very impressed by the ITE students, much more so than my A-level course mates (again in general, there

are many exceptions). I feel such sentiments are also behind the call for more uni places. Many ppl realize that there is nothing great abt our uni grads and feel they too deserve a place.

Incidentally, I am very, very good at studying.

Such systemetic bias towards obediance is also found throughout the govt service. Anyone who has tried to get a civl servant to favor common sense over rules will understand what I am saying.

Unfortunately, we have created a society where the top, does not deserve its position. Such ppl will defend the system, as the civil servant drawing a 10k salary cannot find anyone else who will be prepared to pay him the same. Yet, the institutionalized bias prevents us from growing our own ppl who can fill the new thinking jobs that the economy requires.

The same problem occurs in HDB housing. The generation which has bought houses will not want their property devalued, even if it means sacrificing all the generations following.

While I agree with the direction in which u propose to take the country, there will be a tremendous amount of pain. Not moving will mean stagnation in a

terrible life for our people. I believe the problem is not the PAP, but ourselves. If our generation can rebuild the country it will be something we can truly take pride in.

Anonymous said...

well, the PAP dogs used to believe that a quickie economy wing to grow is to turn Singapore into millionaires' playground - think Casinos, F1 race, Financial Organizations to meet in Singapore.

A mighty social service and sex industry will then add to the GDP. This certainly opens lucrative ground for the local tertiary female students.

Ganga said...


Well, as one big corporation (Singapore Inc) with the businesses being its various departments, the emphasis will always be on reducing costs and increasing profits, isn't it.

If this was really a country, serious attempts would have been made to address all the problems highlighted in the article by now.

The bulk of Singaporeans are merely collateral and they are valued so long as they do not grow old or ask for more wages - woe betide you if you do.

No country that genuinely cares for its people will compare a foreigner working in Singapore and living alone on rental with a family unit of 4 living on the sole income of one and owning their property, and then criticise the latter for not being content with the low pay like the former.

Onlooker said...

The competition of cost but look at it another way.
There have been active manipulation of the currency in our cheaper neighbors, esp china, so that their products will always be cheaper to buy.

Anonymous said...

Singapore growth is through higher input, higher output. It is not productivity or innovation growth. Key components of the higher input are more and cheaper foreign labour and money hub for the foreign rich to park here. The US provided the demand to absorb the higher output. But once the 2 key components is not sustainable in the current bad global business climate, Singapore became much worse than others with agriculture and resource sectors.

But how to have productivity and innovation growth? The Gahmen thought foreign talents are the answer but so far the results are a great disappointment - IT hub, education hub, tourism hub, biotech hub etc.

Now the last bet is the casino hub!!! Just pray this time it works! But with great potential social costs! That's why few countries want to legalise and adopt this option!

Jack said...

yup, even as we woo those so-called high tech/tertiary industries, like pharmaceutics, banking, R&D, to locate to Singapore, our local labor force remain at the bottom rung of the value chain.

There's no value-addedness to our labour force, in terms of innovation-based real skill upgrading (im very pissed off at the same-old formula of "Going for courses = skills upgrading"). The wages remain low because we always remains at the lowest rung of the value chain even we chase after every up and coming new economy.

Indiscriminate import of foreign labour/"talent" compounds the problem.

Talking about competitiveness/unproductive, i think our govt/PAP MPs are very incompetitive and unproductive. Think 3 recessions in 10 years!!? Morally they should have their pay cut down to 10percent!!

taishan said...

The singular lack of ability to propel the economy to a higher plane - a knowledge economy - a high tech society is which causes much of the pain.

That Singapore has always been only a step ahead of its neighbours is hardly compelling.

Think of a product made in Singapore by a Singapore company and the answer is almost zilch.

That the government is unable to push its economy to that of any Western country is damning considering the fantastic amounts of R & D funds invested. A entire revamp of all the R & D institutions is needed.

Seeking opportunistic areas to focus their attention permeates the higher echelon mentality. Despite mouthing platitudes of long term thinking its policies are alway opportunistic in nature.

skeptic said...

Singapore has one of the highest tax rates in the world despite the low income tax.

We are taxed for our consumption through GST. We pay an opportunity cost tax when we do NS. We pay an indirect tax when we are forced to accept the low returns of CPF. And finally, we pay the biggest tax of all when we buy a market 'subsidised' HDB flat from the PAP.

That is how they accumulate all that money to throw at citigroup.

rookielim said...

Lucky, sorry for my ignorant. Instead of acting like a hedge fund and gambling away our CPF and reserve, do you know if our government has buy into recognized brands like Coke and Gillette. I believe this is what Warrent Buffet advocates. I think they may be a better bets, less intrusive and attracts less attention. Perhaps the GIC has done so. But, we will never know as they simply too secretive...

Anonymous said...

I don't understand why the rank-and-file have to make ALL the sacrifices; wage cuts, retrenchment, escalating rentals, rising medical bills, etc etc.

Why the f*** don't the landlords cut their rents?

Why are the bloody landlords soooo insistent on not cutting rents even during a recession?

Tenants should put a notice outside their shops, citing that prices of goods and services cannot fall because landlords insist on high rents even in times of recession.

You have a problem paying high prices, go take it up with the landlords, not the shopkeeper.

Anonymous said...

"Why are the bloody landlords soooo insistent on not cutting rents even during a recession?"

Is there a cheaper alternative landlord? If not, take it or leave it.

Anonymous said...

I agree with the first person to give feedback here - singaporeans can improve their own lives and country as long as they break out of this shell of a system that advocates and rewards obedience.

Just take GIC and Temasek for instance. They have taken the brightest and best minds of every generation and do not for once dismiss these scholars as academic genius who know nothing about business; many of them come from elite families savvy in business matters or are themselves exceedingly knowledgeable with international financial practices, having studied in top colleges like Harvard and Cambridge, and worked in major cities like London and New York. I have a few friends like these and they can debate and talk down any genius in the world anywhere, anytime.

Hence, I myself have wondered, in spite of their talented workforce, how our sovereign funds have lost so much of our reserves. The only plausible conclusion, at least where talent is concerned, is that these guys, while talented, probably fall back into the Chinese, Confucius-centric system of obedience once they are integrated into the blue-blood corridors of government power. In there, everything is led top down. Instructions come from your bosses, and despite your brilliant qualifications, your alternative advice, if any, somehow does not get considered. Subsequently, you realise that your plans will only get noticed as long as it sounds like one that the bosses would sanction anyway. And the vicious cycle starts again, despite, ironically, your world-class education that prob came at the expense of the govt.

That, or maybe a bunch of these smart people with out-of-the-world IQ levels managed to abscond with billions in taxpayers' money, a la Nick Leeson or the gamblers in the Danny Ocean movie franchise.

In general, I believe things will be better once these talented individuals make even more effort towards convincing the govt's top brass that their decisions do not always have to be right; they might in certain situations but since even warren buffett has admitted to making (billion-dollar-losing) mistakes these days, it has been proven that no one's perfect, hasn't it?

Anonymous said...

i am truly enlightened. hoepfully more ppl will understand the root of our downfall and find the way to solve this before everything ends in the hand of our present gahmen.

Anonymous said...

Hate to break this to you guys who think we are to blame, The main problem is powers is controlled by one old man who thinks he knows best and thinks that governing Singapore is his familee's rights.

The other thing is too much regulations is killing the entrepreneurship spirit of the Singaporeans. If these scholars are so brainy it is high time for them to come out to the private sector and show their business acumen and strive for the good of Singapore instead still being in the many stat boards.

Yes it is time for Singaporeans to show their balls as to who is the boss.

Anonymous said...

Aiyoo,

Don't Singaporean get it?
PAP's ministers and cronies are legally grabbing millions from our taxpayers dollars, that is 4 times that of developed countries politicians salaries. They got elected in every election.

Why Singaporean cannot stomach a few recession like those citizens of developed countries?

Any Singaporean ever questioned why our Police are equipped with world class airconditioning for their patrol cars? The PAP wants their Policemen to respond only to the central radio control, not the screams for help of the pathetic Singaporeans or tourists.

With the Organ Transplant Act in place, Singapore has 14,000 deaths per year, assuming 1/3 of the deaths are Singaporean between 21 to 59 years of age. The hospitals should have 5,000 x 2 kidneys / year. According to TT Durai, we have 3,000 kidney patients, therefore Singapore has enough kidney for their sick within 1 year. Where are all the kidneys, why does our Doctors have to resort to stealing organs. Is the PAP in the Organ trade too?

Tonight, LKY tried again to tell our Pathetic Singaporeans, GIC's investments are long term, we have records to show that GIC grow by 8 percent annually over the last 25 years. So does Citibank, BofA, Morgan Stanley, RBS, HSBC, etc who shown better results;
When you blow a balloon 8% every year, when it blows and deflates, there is nothing left, why do we have to pay millions to LKY and cronies to lie to us.

Even Lim Swee Say have sold his soul and his poor soul is now drying in LKY's backyard (istana). PAPkwa (Bak-Kwa - BBQ pork)
PAPsoul (Bak-floss - BBQ floss)

Istana is the location LKY called home, and President SR Nathan call office.

One of the Pathetic Singaporean

Anonymous said...

Someone once said the greatness must withstand the test of time. In our short history, the claim to greatness has been myopically bestowed or should I say claimed based on short term successes.In order to justify the claim, we started off by silencing any opponent who questioned the success. Next we started going down the dangerous road of quick fixes and juctifications.Finally we have started to push the failure to others. From the poor who deserve to be poor,the unemployed who are too fussy and globalisation, thus defending one's greatness. Never have we paused to ask, who put us on this path, who laid the foundation for our failure now and finally who is responsible. The answer to that is the "greatness"

Kaffein said...

For every 1 Singpore PM, I can hire 2.5 US presidents, 5 British PMs, 10 Australian PMs, and probably 20 Japanese PMs.

Take your pick. Just like SBS, MRT and HDB, Singaporeans basically don't have a choice.

As for why wages again? It's the easiest solution for the elites and surfs just follow law. And you would have thought after spending so much on scholarships and million-dollar ministers, one would get better policies?

Instead, you get a bunch of wishy-washy answers and flaky policies (JCS in my opinion is just one of them). And because many Singaporeans don't have a choice in life (think the education system and you'll not be far), don't travel far and wide and don't read alternative thinking, they suck it up.

So I guess what you vote is what you get.

Kaffein

currypuff said...

Hi Lucky.
Sorry to sidetrack a little. I wish to seek your opinion on the counter argument by The Kway Teow Man that JCS is not effective.
Someone here pointed out his comment so I went to his blog to take a look. He is of the opinion that those who argue that JCS is a bad idea don’t understand the motive behind it, which is to help save Singaporeans’ jobs.

These are his points:

The Government is not stupid and knows full well that this scheme will not stop ALL companies from firing staff. That is not the aim.

The aim is to encourage companies in trouble to offload foreigners first. Suppose the boss has both foreign workers (FW) and local staff, and need to cut cost. JCS will encourage him to fire the FW instead of the Singaporean, with a subsidy of $300 a month for 1 year. It’s expensive, but there is no other way.

He supports the government’s policy of importing FW when the economy is thriving and dumping them when times are bad, with insidious schemes like JCS.

He also boo-boo the idea of giving money directly to Singapore workers, asking, do you think a worker would rather accept $300/month and risk being fired, or to keep his job?
So his argument is that although JCS will not prevent retrenchments totally, it will at least help to keep some Singaporeans’ job. This is the best that the government can do since we will not be able to affect the global economy in any way. We can only try to ‘tahan’ until this crisis blows over.
This argument sounds fair. Would you like to comment? Thanks.

Anonymous said...

"So his argument is that although JCS will not prevent retrenchments totally, it will at least help to keep some Singaporeans’ job. This is the best that the government can do since we will not be able to affect the global economy in any way. We can only try to ‘tahan’ until this crisis blows over."

The JCS "at least help to keep some Sporeans' job". This is something the PAP govt keeps insisting. The KTM merely parrots it ad nauseum. But really there is nothing to suggest JCS will or will not help to keep jobs. Also in the first place critics of JCS never posited that JCS will prevent retrenchments totally. End of the day PAP does not know. Fact remains that the JCS is rushed out with no thoughtful studies or analyses to show. (Anecdotes from pro-govt employers and mouthpieces don't count.)

LuckySingaporean said...

currypuff,

I understand KTM's argument very well. He is saying the scheme is plausible, only way to save jobs and no one has thought of anything better.

What critics are saying is this is a costly way to save jobs, the govt has not given evidence that it will be effective and most likely it is not given the demand collapse. The money if used for direct help can actually help far more people for longer periods. It does give Singaporeans a slight edge I'll get to this later...

Actually the debate on JCS should be over - its advertised jobs saving quality almost non-existent. Employers are retrenching at in increasing rate. Yesterday's Business Times' survey found that most plan to retrench in the coming months. The basic fact is this is a crisis of historic proportions. The rate at which the business environment is deteriorating overwhelms what the govt is trying to do with JCS. $4.5B? Worth a try? Actually, it distracts everyone from what Singapore has to do now which is to give direct aid to the jobless. I believe there is no choice because many households entered this recession in bad shape - we had a default rate of 8% at the onset of this crisis, an income gap that is found in developing nations, and a cost of living that ate away the savings of ordinary Singaporeans. Giving taxpayers money to people who are not working is never a good thing, and carries a "moral hazard" but the fact is it is now unavoidable and necessary...because of all the problems the couldn't solve when times were good.

currypuff said...

Thank you Lucky and Anonymous above, for taking time to reply. Thank you also for clarifying your stand on this issue vis-a-vis the official's and the KTM's stance. Cheers.