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...