Professor Lim has responded to criticism of his "shock therapy" proposal[Link]:
"'Speaking of free markets, I hope Minister Lee Yi Shyan does not get the cattle market or the fish market mixed up with the labour market, which deals with human beings." - Professor Lim Chong Yah
For a population that is fairly literate in economics, I think people can appreciate the logic of Professor Lim's arguments and understand the risks involved. There are trade offs and uncertainty - we should not over simplify the the current situation and the severity of the problems we face with income inequality, rising poverty and low wages. Today, 400,000 Singaporean workers or 1 in 5 earn less than $1500 [Link] in a city that is the 9th most expensive in the world to live in[Link] surpassing New York, London, Frankfurt and Hong Kong. Unlike the other cities, we have no rural or less expensive areas for the poor to escape the pain of poverty. Singapore has little in the way of safety nets and welfare to mitigate the effects of poverty and large income gap. If we want to avoid welfare spending, we have to get wages up to otherwise there will be severe economic pain among a large segment of Singaporeans. So far nobody denies there is a problem just how to best to fix it and whether it warrants "shock therapy".
The PAP govt which caused this massive problem by importing cheap labor to get fast GDP growth shows very little sense of urgency to fix it even as so many Singaporeans suffer the consequence of their bad policies - the rising anger against the PAP is not due to "poor engagement", poor communication, or other euphemistic reasons cited by the PAP, fundamental changes are needed to tackle this rising resentment and the PAP is still not on the right track.
Remember what we were told when the foreign influx grew from a trickle to a torrent? We were told the large influx will benefit Singaporeans creating jobs and higher incomes for households. Years later, we discovered that this is not true and a growing number of Singaporeans faced stagnant or falling wages and older workers faced structural unemployment. When the wages for low income workers started stagnate, the PAP govt told us that retraining is the key to fixing this and no major adjustment was need for the large influx of foreign labor. More than 10 years later, we there is little progress because low wage workers were simply retrained from one low paying job to another. You ever wonder why the trust between the PAP and the people is so badly eroded?
A few days ago, Minister Lim Swee Say who is also the NTUC chief reiterated the gradual approach of the PAP govt to drive up productivity and have wages follow[Link]. It is not clear how productivity can rise when enterprises still have access cheap foreign labor - what motivates them to invest and upgrade when they can just employ 3rd world labor? Suppose we put this concern aside and assume Minister Lim and other govt agencies succeed at driving productivity up. I want to show you this chart for the only other developed country that has the same level of income inequality as Singapore:
For the last 20 years productivity in USA has been rising and real wages has remain stagnant. This is known as the wage-productivity gap. Where did all the money go when productivity of workers go up? In a society where income inequality is very high, it goes to the top management as excessive compensation packages. During the Reagan era, the power of independent unions declined and along with it the power of ordinary workers to negotiate for better wages. The social and political factors that causes changes in wages to correlate with improvement in productivity have over time disappeared from the American economy and these factors are even more absent here than they are in America, In Professor Lim's words....the labor market simply became the cattle market - the free market can take the cattle market anywhere without much repercussion to people and society but the same cannot be said for wages. There is real pain and social consequences when you just let labor markets behave like the cattle market to be determined by free market forces. Lets not forget the primary purpose of an economy - it is not to maximize GDP growth or be a servant of the free market but achieve outcomes that will improve in the quality of life of ordinary citizens.
"From the business perspective, it's not just productivity increase that we need, we need the economy to do well so that revenue can go up. When revenue goes up, you can better afford higher pay for the lower-income. It's not just the one aspect of just increasing the low-income earner's salary, it's actually an overall aspect of whether the economy is doing well, whether you get the demand for your services and products, whether your revenue would increase, whether you can meet the bottom-line that you've set for yourself. " - Teo Ser Luck[Link]
What Teo Ser Luck said is disconnected from reality, pro-business and relegates the low wage problem further down the list of priorities for the PAP. He is telling us that raising productivity going is not sufficient, we should wait for the economy, revenues and bottom-lines to improve before we do something for low wage workers. Let me ask you what have the economy, business revenues, and business profitability been like the last 15 years? Our GDP growth has been great, business revenues have been expanding and businesses are so profitable that business profits as a % of GDP is at a record high but the wages workers at the bottom 20% have been stagnant or down. Yet Teo Ser Luck is telling us to "double down" on what has already failed to improve the lot of our workers. Where will our poor workers be if we go with what the PAP plans to do 10 years from now....? I shudder to think.
The PAP has a habit of going along a failed strategy even after everyone can see the deleterious effects on our society and people. We just have to go back to what they said about the foreign talent policy as recently as 1-2 years ago to keep prolonging the policy even as the negative effects become apparent to everyone else. When they can no longer deny the problem, they will perform a few tweaks and claim that the problem will be solved and all that is needed is time. But this low wage problem has been with us since the 90s. After denying there is a problem, they will admit it when it is no longer credible to deny it. Then they will make a few tweaks and proclaim that those tweaks sufficient to solve the problem. Those who have thought through the problem know that we are not heading towards a solution but a deepening of the problem- Professor Lim proposes shock therapy, Ho Kwon Ping suggests we "complete the wage revolution" by raising domestic service sector pay[Link] and Tommy Koh supports minimum wage[Link]. But the PAP will not move from its current trajectory because it is deeply entrenched its ideological box - they can't think out of it until the worms eat through wooden walls and show up on the inside - then they will claim nobody could have possibly foreseen the looming disaster ....and these people paid million dollar salaries will deny, delay, resist amd follow old ideas until they are broken beyond repair.