Wednesday, April 11, 2012

Lim Chong Yah : Singapore's Inequality approaching dangerous levels.

"One of the architects of an economic restructuring exercise that overhauled Singapore's wage system in the late 1970s said on Monday that the country now 'needs shock therapy to wake up its economy'.

Professor Lim Chong Yah pointed to growing income inequality, which he says is approaching dangerous levels, and the nation's overdependence on cheap foreign labour.",- Straits Times, 10 April 2011.

In case you don't know who Lim Chong Yah is, he is the author if the most widely used "A" level economic text book when I was a student. He is perhaps Singapore's most prominent economist and very much part of the establishment. The problems Singapore is facing are severe enough for Professor Lim to recommend "shock therapy". Readers of this blog are probably very familiar with the problems highlighted - I've writing about and tracking these problems since 2006. The PAP govt has repeatedly claimed that it is the changes it has made towards the creation of an "inclusive" society are significant and sufficient - we saw this line of thinking again in the recent budget debates. The changes the PAP govt has made are just tweaks to old policies and does little to address underlying problems which are quickly deepening and, in Professor Lim's words, getting dangerous. Professor Lim pointed to a GINI of 0.5 as the "danger level". We are just a shade off this level at 0.47. However, even if this number does not worsen, maintaining this level of inequality over time, we can expect the deleterious effects on our society to spread and deepen.

The "shock therapy" recommended by Professor Lim is to restructure wages - freeze the wages of high income earns and hike the wages of the low income workers (see article below). Wage intervention as suggested by Prof Lim is similar to setting minimum wages which has been done in Hong Kong & Malaysia. Basically, strategy is to get rid of cheap labor and force enterprises to push up productivity. Professor Lim's boldly suggested freezing the pay of top earners while you increase the wages of low income workers t to contain the overall wage bill.

Other interesting ideas that I've highlighted in the blog includes one by Yale economist Robert Schiller to automatically increase progressive tax rates as income inequality increases and use the taxes to mitigate the effects of income inequality through social spending.

In an article published in the Straits Times last year, newl MP Sim Ann outlines the PAP approach to the problem of inequality : Tackling Inequality : Charting our own path. The PAP has a boxed-in approach to solving this problem - they reject increasing direct taxes on the rich, they reject minimum wages and significant changes to current approach to welfare and social safety nets. A few days ago, DPM Tharman warned of Singapore "becoming Taiwan" if we close our doors to foreign labor - he linked the 'stagnant' nominal wages in Taiwan to its close door policy. Not only did he get his facts and logic wrong, Professor Lim points to PAP's policy to import foreign labor as one reason for low wages among a large segment of the work force and a major cause of our income inequality. We are heading towards a dangerous situation yet when a student asked DPM Tharman about the problems caused by PAP's policy to import foreign labor, DPM Tharman redirected him to look at the "problems" in Taiwan.

While some economists feel that Professor Lim's "shock therapy" may be impractical[Link], other similar approaches such as minimum wages has been implemented in every single developed country except Singapore. As the PAP dismisses various ideas due to ideological reasons or for their debatable effects on GDP growth, our income inequality problem stays unsolved and becomes entrenched and the negative effects, both social and economic, will begin to overwhelm the any theoretical disadvantage of various suggestions to lower the income gap or mitigate the effects of the large income gap,

One of the effects the PAP should bear in mind is the tendency of a highly unequal society to vote out the incumbent govt when it loses patience waiting for change. If the PAP believes its own power and support rests on the belief that ordinary Singaporeans are different.from those who occupied Wall Street, the disgruntled people in the Arab Spring and the protesters that have filled the streets all over the world due to inequality, they are perhaps deluded by their successful past. Ordinary Singaporeans will gravitate towards universal values and ideas of economic fairness. The goodwill created from our economic miracle that makes Singaporeans support and tolerate a govt that lies so far out in the ideological spectrum will disappear (if there's still any left).

The PAP has to change itself in order to make the changes that will take us forward. Otherwise, ordinary Singaporeans, will do what you expect ordinary people everywhere to do to bring about change and progress in their lives.




Tuesday, Apr 10, 2012
The Business Times
Local economist suggests second 
wage revolution


By Teh Shi Ning


SINGAPORE - To tackle rising income inequality and an excessive reliance on cheap foreign labour, one prominent local economist is proposing a three-year restructuring plan that includes a wage freeze for top income earners and sizeable pay hikes for the lowest paid.




This 'bold and iconoclastic' proposal seeks to complete the wage revolution of 1979 to 1981, says Professor Lim Chong Yah.

He helmed the National Wage Council (NWC) from 1972 to 2001 and as its founding chairman had a pivotal role in that first, radical three-year wage restructuring exercise.

Then, the NWC had recommended a 20 per cent across-the-board increase in wages a year, including higher contributions to Central Provident Fund accounts and to the Skills Development Fund, which grants companies training subsidies.

Speaking to an audience of about 50 at an Economic Society of Singapore public lecture yesterday, Prof Lim outlined another three-year solution to Singapore's 'two Achilles' heels' - the sharp rise in low-wage foreign workers and rising income inequality - while raising productivity.

This features a sizeable pay hike for the lowest-paid workers, regardless of nationality or age, earning less than $1,500 per month over three years.

He proposes a cumulative 15 per cent rise in the first year, another 15 per cent in the second, and 20 per cent in the third. This increase would be channelled, in equal parts, to the worker's take-home pay, his CPF Retirement Account, and the Skills Development Fund.

At the top end of the income ladder, Prof Lim proposes a three-year wage freeze for those earning $15,000 or more a month.

But he stresses, the intention is not to 'frighten the geese that lay the golden eggs' as there will be no pay cut, pay ceiling or super-taxes imposed.

As for the middle income, he proposes pay hikes ranging from a quarter to a third of that received by the lowest-income group, part of which will go into the CPF Retirement Account. The government should also match contributions to the Skills Development Fund to demonstrate its commitment to the restructuring effort.

Prof Lim envisions all operating details of this proposal being discussed and decided on by the tripartite NWC, as was the case in 1979, to 'forge consensus by the three tripartite social partners'.

He acknowledged readily that national economic restructuring is 'much more difficult' now than it was three decades ago, given the changed political, economic and socio-economic climate.

But he thinks that Singapore still has effective tripartism and a government and civil service with integrity and ability, so what is needed is 'national will' in the face of 'the problems of economic success'.

In response to questions from the floor, Prof Lim said that his proposed scheme is unlikely to have a significant negative impact on unemployment - now at record lows - and that high-quality foreign investment will continue to flow into Singapore in pursuit of strong fundamentals.

Asked about the pace he proposes, which seems swifter than the government's target of a more gradual 30 per cent rise in median incomes in the 10 years till 2020, Prof Lim said that some 'shock' is needed to 'check, halt and if possible reverse' the rise in income inequality. 


36 comments:

Anonymous said...

Let us make PAP history in Singapore. Bye bye PAP and good riddance.

Anonymous said...

"Lim Chong Yah : Singapore's Inequality approaching dangerous levels."

PAP should also know that without Lim Chong Yah or even Lucky Tan telling them what. And also know what to do.

But why didn't PAP do something?

Lucky Tan, do you know why?

Anonymous said...

PAP are little deaf frogs with their heads stuck in the sand.

Or they are terrified of disagreeing with the great leader.

And as LCY (or someone)said in 2007, it is easy to suppress any uprising in SG.

Anonymous said...

I thought DPM Tharman is an economist by training.

Does he need further training by other economists or even a layman?

After all, learning is a never ending process, right?

Anonymous said...

"Lucky Tan, do you know why?"
Anon 11/4/12 09:03

No need to ask Lucky.

I can tell you why lah.

Because at least 60% still think PAP is the best available party to vote for, despite inequality approaching dangerous levels.

That's why. And also that simple.

Anonymous said...

"One of the effects the PAP should bear in mind is the tendency of a highly unequal society to vote out the incumbent govt when it loses patience waiting for change."
Lucky Tan

If that can happen, GE 2011 already happened lah. Not only it didn't happen but PAP got a comfortable 60% majority vote and 93% seats.

Some more, 3 months after GE 2011, in PE 2011, a higher 70% voted for candidates closest to the PAP!

And the candidate (Presidential material, you know) closest to the opposition got only 25%!

So how can PAP be voted out?

sgcynic said...

It takes vision, leadership and guts to chart a path and get all on board and moving in the intended direction. With a timid "leader", all one can hope for is copying "best practices" from overseas, take baby steps and make tweaks along the way. That's the way things have been the past decade. Autopilot mode, different chiefs (ministers) "in-charge" of their own turfs an cruising along with no oversight. Wham, bam, let's see what works - this hub, that hub, diversify and become a jack of all trades and master of none. Hard to gain competitive advantage and carve a niche for ourselves eh?

Anonymous said...

The Pimps And Prostitutes
have been selling us out to foreigners very cheaply.

It does not matter what they do.
I'm voting Opposition.
And actively recruiting family, relatives and friends to do the same.

Make no mistake.
The Pro Alien Party will win GE 2016 and form the next government again.
Gerrymandering will guarantee that.

But I'll do every little thing I can to gather votes for the Opposition.
Although I'm not a member of any political party.
Why?
Because Singaporeans deserve better.
My family deserves better.
My children deserve better.

ser guan said...

Why is inequality in income dangerous?

We are not equal in running ability, please check your IPPT results.

We are not equal in academic grades. Some people fail inspite of hard work. Some people pass without studying.

Inequality will always be present even if the PAP is out of power. Inequality is dangerous when the poor is hungry and does not have a roof over their head. If they are not hungry but eating not so tasty food, are they dangerous?

Anonymous said...

The cause of this problem (the huge inequality) is mainly due to the pegging of ministers’ pay to the top Singaporean earners as this will inevitably lead to many top earners have their pay increased exponentially. To justify their exorbitant pay, they have to ensure their organizations make huge profit and one way to achieve this is to freeze or even reduce the ordinary workers’ pay.

Many elites (government leaders and top earners) are aware of this but who like to have their pay cut and risk the reprimand from the supreme leader and the blame from his peers?

Anonymous said...

Lim Chong Yah is the father of Lee Hsien Yang's Singapore wife.
He is as u said a very much establishment man. For him to highlight the danger, it must be real. The pap is in deep trouble. I don't think they are capable of turning the situation around. They have completely neglected this problem for a long time. It is so deeply entrenched and they have still have not come around to their LKY's indoctrinations. This is definitely a problem of the pap's own making. Made worst by their idiotic doggedness.

Anonymous said...

Lucky,
It sounds like a joke to me,since Lim Chong Yah is a relative of the Lee's family,according to our Asian Values,he should have informed PM Lee HL about the imminent danger,since PM Lee HL and his gang,especially his economic czar,Mr Tharman,are telling the people that we should liberalise further and we do not need minimum wage.What is happening?

Kojakbt said...

Lucky, it has been published on TRE :)

http://www.tremeritus.com/2012/04/11/lim-chong-yah-singapores-inequality-approaching-dangerous-levels/

Anonymous said...

PAP should say a big thank you to the 60%, without which PAP will not be govt.

And not to forget, the opposition for being what they are, without which probably there may not be the 60%.

And the opposition, thankfully for being Singaporeans, for what they are.

The rest, do they matter?

Anonymous said...

Just one simple question for Prof Lim whether he agrees fully with our Govt that we cannot afford to have a min wage for our economy ?

Because if our Govt can't even agree to a min wage, how the hell does he expect our Govt or the employers to accept or agree to his proposals ?

Our Ministers pay themselves world class salaries and now he admits that those in the low & mid income group is in serious need of help to bridge the income gap. And now is he not seriously telling us that it is a slap for our PAP govt to have us ended up in such a sorry state of affairs ?

chemotherapy said...

Basically, strategy is to get rid of cheap labor and force enterprises to push up productivity. Professor Lim's boldly suggested freezing the pay of top earners while you increase the wages of low income workers t to contain the overall wage bill.

Anonymous said...

I dunno which is worse? Praying that the inequality here will hit the psychological point so that there will be mass civil disobedience on the streets, or hoping that PAP will change so that it will retain its power next election.

What I do know is that I have got to so whatever I can in my little personal capacity to expedite the essential changes.

Talking to relatives, frens and colleagues about the social political issues we face, is one.

Complaining loudly in public places against PAP bad policies, especially within the hearing of other people, eg in train, is another.

Surfacing your issues to REACH and other political parties, is one.

Btw, one fren suggested leaving reading materials about anti PAP bad policies in toilet cubicles.... LOL

Bottom line, do something. Don't let the elite walk all over you!

Anonymous said...

Any Tom, dick and Harry can easily get a PR if they support the PAP MPS. Singaporeans must know how PR status can be easily obtained in this manner. The whole stage is so political that PAP has no respect for its people. Just like Tharman making a shitty speech with no basis. We must know he is a surgeon not an economist. Every word from Tharman is selective excuses given to him before he make the speech. He pre-empted such question will come from the student and thus there is no better way to escape the question by pointing his finger at "Taiwan". On the other hand, Lim Chong Yah is an economist for decades and his speech is well thought and anlaysed. A true speaker talk from observations and experiences with figures to back up. Tharman...just stop at the word, blowing other people candles to make us look brighter. PAP will not dare to go anything beyond such execuses, our students are short-changed under such leadership. PAP is outdated, clueless, in denial and extremely beyond hope to re-engineer Singapore. Voting them out is the best and most sensible option if Singaporeans were to survive for generations.

Anonymous said...

this guy has some good suggestions to tackle what's really making us all moan and groan. check 'em out:
http://wherebearsroamfree.blogspot.com/2012/04/prof-lim-chong-yah-from-pap-camp-thinks.html

i wonder what has made prof lim come out and say such things Now. after all these levels of inequality have been around for at least two years. in fact they were once worse! is he seeing more suffering becos of the Big Gap?

i am certainly fed up with pple flaunting their wealth and these pple's sense of entitlement and lack of manners. got money but no class.

but the best way to get the PAP, n anyone, to Do something is to show them how not doing it will affect them adversely, or what's in it for them.

btw, this piece on wealth disparity is a Superb piece highlighting this, better even than lucky's. check it out:
http://www.tremeritus.com/2012/04/10/wealth-disparity-part-1-the-case-against/

Anonymous said...

Lucky,

There is also a post by Furry Brown Dog entitled "Tharman’s remarks in the context of the evolving foreign talent policy" in furrybrowndog.wordpress.com which offers alternative view.

Anonymous said...

For the benefit of LuckyTan's readers, Prof LimCY and LKY are brothers-in-law...and thus makes him 'uncle' to the good-for-nothing PM...who is the reason why poor leadership begets selfserving policies and in turn begets pathetic outcome for many ordinary sporeans.

I am surprised that Prof LimCY has come out openly to claim "spore's inequality approaching dangerous levels"....
Personally I feel LKY will not agree with his brother-in-law Prof Lim, not when LKY has yet to see any beggars in spore, see families pitching tents along the beach or see the homeless sleeping in HDB void decks. So in this sense, LKY will advice his son, "no worries Loong"

Anonymous said...

Lucky,

You knowledge and your communication (writing) skill is so much better and stronger than our cabinet ministers.

Most of all, you do all these for us FREE!

I am very grateful.

Anonymous said...

//Lim Chong Yah is the father of Lee Hsien Yang's Singapore wife.//

Why the emphasis? You mean got non-singapore wife meh?...

BATAM AGENCY said...

like this

Anonymous said...

There is one group of people who lives in Holland road area, another in East coast who will defend their bunglows to the hilt.

They will not allow any opposition to gain anything more than a 5 seats in the house.

Its PAP all the way for these and also for ah por and ah kongs living in the heartlands..

Only the people who keep pet dogs and ride bicycles on Ubin.. mostly English speaking will vote otherwise..

PAP is here to stay!!

Anonymous said...

Agree.
PAP is here to stay.

Just focus on voting out another GRC first.
Time to make another millionaire-minister unemployed in GE 2016.

I wanna be David Letterman!! said...

How to spot an anti PAP voter:

1)Unemployed
2)Above 45 years old
3)Has taxi license as back up
4)Buys 4D&TOTO faithfully
5)Has a car above 5 years old
6)Has outstanding housing loan
7)Does not participate in CC activty
8)Has 2 kids... boys
9)Furthest holiday destination: BKK
10)Reads TRemiritus/Lucky/Yahoo news


How to spot a ardent PAP voter:

1)Believes CPF LIFE is very good
2)Reads the ST like company circulars
3)Knows his RC members
4)Participates in CC/RC activities
5)Trusts that Gov will have solutions
6)Believes FTs are neccessary
7)Aspires to be a cleaner when retired
8)Has 2 kids...girls
9)Visits CHINA annually since 1988
10)Reads REACH or Town Council letters

Anonymous said...

As long as PAP continues to mass import tsunami of foreigners and permanent residents and
as long as PAP continues to devise policy that benefit the rich and elites only,
the income gap in Singapore is destined to widen.
The poor and middle class have to accept this as their fate since they are born in Singapore as citizens of Singapore because they have no power and therefore no choice to make any change.

Anonymous said...

To anon 18:57

I belong to neither of your top 10 or bottom 10.

I read Economist, Forbes, Times, WSJ, Lucky, Yahoo & other blogs...but never ShitTimes.

I hope you work for PAP..and are feeding these valuable insights to them, via REACH or RC.

Keep up the good work!

Anonymous said...

@Anon 17:53

Eh. It was the HDB dwellers who voted for PAP. The financially secure, like our Lucky, can afford to vote opposition. The poor, like Lucky's mob, talk big but vote PAP because they are afraid to lose what little they have. There are more poor than rich which is why 2016 will be another landslide victory for PAP. From recent actions, I think PAP already realizes this.

Ghost said...

Professor Lim's idea won't work because it assume that money within Singapore would stay in Singapore. That's not going to happen.
Singapore’s GDP has risen these few years based on importing money from overseas. Singapore has been giving citizenships to rich individuals so that they could bring money into Singapore. We don't care how they got their hands on the money as long as the money come into the system. Do you think those rich Indonesians wanted by the Indonesian government would think twice of moving their money overseas if Prof Lim's idea came into being?
Our growth is now based on hot money. And hot money is always the first to go when things get bad.

Anonymous said...

@Ghost 16:21

Yeah, I thought so.

KepCorp & SembMarine cannot be the sole driver of our GDP growth!
Besides manufacturing we produce relatively zero products.

Its financial services, whereby hot money flowing in affects this tool of measurement.. voila! 14%GDP.. amazing what prostituting can earn!

Anonymous said...

//Anonymous said...

PAP should also know that without Lim Chong Yah or even Lucky Tan telling them what. And also know what to do.

But why didn't PAP do something?//

It is very difficult to do any U-turn suddenly as many lives, time, effort and money have already been invested in a bad story that have being sold to many who have bought it.

Anonymous said...

Just came back from taiwan. I noticed that there are very few if no foreign workers at all. The shopkeepers, bus drivers and the hawkers are all local people. Their country is still as vibrant and they have better service compared to singapore. Why must we depend on foreign workers?
The cost of food and transport is about the same in sg. So how did these people survive? I suspect they have an overall lower cost of living compared to sg. No expensive housing and petrol

Anonymous said...

@Anon 11/4/12 09:08

"And as LCY (or someone)said in 2007, it is easy to suppress any uprising in SG."

lol, if the very people that make sure there behinds are safe and sound (police/defence force) joins uprising of the ordinary people (protest/"occupy movement"), then that will be a different matter all together.

cos u gotta remember, most of the people in police/defence force are ordinary people too.

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