Tuesday, July 03, 2012

Negative Multiplier Effects of Social Inequality


The above letter [Link]written bay Aloysius Chia explains how income inequality hinders social mobility. I have shown a number of examples of this. There is a big gap in the quality of pre-school education [Link] and at the university level the govt restricts the numbers -richer families can send their children overseas to get degrees and poor families cannot afford this. In every developed country, there is always a path for the highly talented 10-20% of the population but when you have a large income gap, the rest will have to be distributed to the unequal wage structure. Social mobility is necessary but insufficient to address the income inequality.

One lesson we have learnt or should have learnt is not to trade off income distribution for economic growth. There are numerous examples of economies that have slowed down temporary even going into recession then resuming growth after restructuring and finding new engines of growth. But there are few examples of developed economies being able to narrow the income gap after it has expanded in recent history[OECD Paper:Reducing income inequality while boosting economic growth: Can it be done?]. Once the income gap is there what can govts do? Is it sufficient to stop the gap from growing? Is it sufficient to just mitigate the effects of the inequality?


Singapore's income inequality problem is unique among developed countries. Our inequality measured the GINI index is similar to that of USA  However, the effects of the income gap is not the same. The USA is divided into urban, sub-urban and farmland - the income gap between these areas may be large causing the GINI index to be bigger that it is within each of these areas. The place with the closest resemblance to Singapore is Hong Kong which is technically not a nation.


Hong Kong has had a large income gap for a long time. 


You would think that Hong Kong residents would be able to accept this high inequality given it is not a nation and operates laissez faire economy with little govt intervention. The Hong Kong people do not serve NS and do not have reservist duties. It does not have large GLCs that dominate the economic landscape. When the income gap expanded, the Hong Kong govt expanded its social spending to mitigate the negative effects - these include free medical care for seniors, pension for the elderly, support for the poor, unemployment benefits. Hong Kong recently introduced minimum wages successfully without any negative impact to employment. If you view the Hong Kong island skyline from across Kowloon, the numerous ultra-modern skyscrapers reminds you of Hong Kong's success as a financial center. You would think the Hong Kong people in general should be able to accept the system and the outcomes but this is not case.


Today in Hong Kong there is widespread unhappiness due to income inequality. A few days ago more than 100,000 people demonstrated against its the govt and its new Chief Executive Leung. Yesterday, Leung tried to hold a dialogue with residents to demonstrate he will listen to the people but the relationship between Hong Kong leaders and the people is so strained, the meeting deteriorated into a scuffle in which residents chased after him and he had to escorted out by police. This episode shows how strained and polarised a society Hong Kong has become.

Why is Hong Kong's example important to us? Singapore GINI coefficient is 0.47 roughly the level of inequality in Hong Kong 10 years ago. A GINI coefficient of 0.40 is considered a threshold by social scientists at which strong govt action is needed otherwise there is risk of social unrest.  During this last 10 years the Hong Kong govt has done much to mitigate the effects  of income inequality including increased social spending and the recent implementation of minimum wage but it has not been insufficient to halt the polarising effect of the income gap.The lesson for Singapore is if too little is done, we will end up where Hong Kong is today and the people's trust in the govt will disappear. To understand what can happen, we need only to look at Hong Kong.

Prof Lim Chong Yau called his approach to narrow the income gap "Shock Therapy". However, it is only shocking to those who still don't understand the dangerous negative effects of a large income gap and what it will lead to if it is not fixed in the coming years. Small tweaks and reactive approaches means we are doing even less than the Hong Kong govt 10 years ago. We already know the outcome of doing too little, yet the PAP govt refuses to consider alternative ideas even those from the establishment and walks a path that is ideologically attractive to the PAP but leads to social outcomes that will become increasingly unacceptable to Singaporeans.

23 comments:

Anonymous said...

"Negative Multiplier Effects of Social Inequality"
Lucky Tan

But did the votes for opposition multiplied since GE 2011 (ref Hougang BE 2012)?

And just look at what had happened to opposition since GE 2011.

Did the strength of the opposition multiplied since GE 2011?

So what so negative about the Negative Multiplier Effects of Social Inequality?

Anonymous said...

"Today in Hong Kong there is widespread unhappiness due to income inequality. A few days ago more than 100,000 people demonstrated against its the govt and its new Chief Executive Leung."
Lucky Tan

Singapore's Chee Soon Juan could not even get more than 20 people to join him in a demonstration. And that was 4 years ago. And since then, no demonstrations heard from him or anyone else.

It's a joke to compare Singapore with Hong Kong on such things.

Anonymous said...

"A GINI coefficient of 0.40 is considered a threshold by social scientists at which strong govt action is needed otherwise there is risk of social unrest."
Lucky Tan

If there are so many multi millionaires and billionaires around, even a millionaire will also not feel rich and the GINI coefficient will also be 0.40.

So still got risk of social unrest?

Anonymous said...

GINI coefficient is a relative number or ratio, not an absolute. So not necessary high is bad. It depends on the context.

As an analogy, suppose my sales is $50000 and I make 40% profit, which is $20000.

But if my sales is $5 million and I make only 5% profit, it is $25000, which is better than the business of 40% profit.

So doesn't mean 5% profit is not as good as 40% profit. It depends on the context of the sales value.

Anonymous said...

Who cares about GINI if a person earning $1000 can buy a 5room flat?

Lucky Tan said...

anon16:14,

The GINI is relative and given our large number of workers 400,000 who work full time and don't make enough hence qualify for workfare...it is relative to this level at the bottom.

Lucky Tan said...

anon 16:03, anon 16:14,

10 years ago, HK also had few protests in fact shortly before that they were happily living under colonial rule without democracy.

See how income inequality transform the HK society in the last 10 years. Its going to happen to us.

Nishi said...

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Anonymous said...

Hi everybody!
I'm your Millionaire in Parliament .... I mean Member of Parliament.

As your Representative Millionaire ... I mean Representative in Parliament, let me assure you that Income Inequality does not equal social inequality.

Sure.
You need money to hire private tutors to school your children.
You need money to look after your elderly parents as mandated the law.
You need to pay a tax ... I mean maid's levy, to hire a maid to look after your elderly parents.

But these expenditures do not mean that there is social inequality.
A poor Singaporean pays as much tax as a rich Singaporean.
So rest assured.
This proves we have social equality in Singapore.

DanielXX said...

Singaporeans are just stupid la. 不见棺材不流泪. Only when it hits them personally then they'll cry, but then it's too late already. As one who has been through heaven and near-hell I am now a supporter of greater social equality. I used to believe in meritocracy as I was a beneficiary of it in my younger days but having seen other side of the coin in where I now stay, I know things MUST be changed. If the PAP just keeps on with its cosmetic changes it will be out because the groundswell gets bigger every day. Older people who built up Singapore are being treated like shit, being hit on two front: limited welfare, and skyrocketing inflation.

Veritas said...

Addressing solely the income inequality does not really address the main problem. It is true there are many highly paid professionals earning annual income of hundreds of thousands, and there are cleaners earning S$700. The amount of wealth these wage earners can accumulate over their lifetime is pathetic compared to many of the idle blood suckers.

A small house in Marine Parade is put on sale for $100 million.


PAP's landlordism assures everyone of us that no matter how hard we work, the most idle landlord class will get in front of us even if he does not work for a single day in life.

In the event of asset price correct, PAP will import FT, implement ponzi population growth to infinity.

We are all screwed. The harder we work, the harder parasite screw us.

Veritas said...

I propose something more equitable, instead of re-distribution of income, we need to go for re-distribution of wealth. (You never heard economist mentioning about wealth inequality as that hurts the elites)

While the Ultra-rich may be able to conceal their some of their asset, they are not able to conceal property. I propose a flat land-value tax of 3%.

SG's property tax is the most regressive shit in the world. It is tax base on "rent value". For the same land area, entire HDB with alot of units will pay more tax than a landed property.

Anonymous said...

"SG's property tax is the most regressive shit in the world. It is tax base on "rent value". For the same land area, entire HDB with alot of units will pay more tax than a landed property."
Veritas 3/7/12 21:05

So?

And some more those who own or live in HDB flats are also majority of voters what, tio bo?

And lagi best, PAP can even get majority votes of at least 60% every election!!!

What do you think?

Anonymous said...

Do you know that directors of companies, through the advice of advisory firms, can come up with ingenious ways to circumvent the law by turning the employment contract of low wage workers into contract for service?

Under contract for service, the low wage workers are deemed to function as independent contractors. Thus highly paid directors can avoid paying employer CPF portion, which are supposed to belong to the workers.

With contract for service, the workers can be "hired" and fired without any protection.

Anonymous said...

//DanielXX said...
Singaporeans are just stupid la. 不见棺材不流泪. Only when it hits them personally then they'll cry,//

You are right. Lately, I have begun to hear a lot of complaints & noise not in favour of the how the situation is. Now the sweetener, these people used to tell me how good the government was.

Anonymous said...

Well Lee Kuan Yew did publicly said that income inequality is NOT important. Given Lee Kuan Yew huge influence on the minds of the pap leadership, how much can we expect from the papist Leegime ? To me the solution must lie without the pap in power. Simple as that. Can Singaporeans have the balls to effect this drastic change for their own good ?

Craig Chew said...

2 yr NS and the annual reservist training are impediments to the development of family life and career planning. Do away with 2 yr NS and reservist training or reduce these commitment. Sporeans must wake up and win back unnecessary time wasted in 2 year NS and the annual reservist training. Vote in a party which is sympathetic to these changes.

Anonymous said...

"And some more those who own or live in HDB flats are also majority of voters what, tio bo?"
ANON: 3/7/12 21:15

HDB owns your HDB flat.
We don't own our HDB flats.
We are just renting our HDB flat from HDB.
Please READ your HDB "ownership" documents carefully.

We pay 99 years of rent money upfront to HDB.
By borrowing money from bank.
No risk to HDB.

How much work & time does it cost HDB to update the lessee name (You) in their computers?
How much money do you pay HDB for all the admin & legal paperwork when you "buy" and "sell" an HDB flat?

HDB is the landlord.

So why do you the tenant have to pay for upgrading?
Why do you have to pay a conservancy?

If you rent an apartment from a private property owner, the landlord pays for structural repairs and upgrading.
The landlord pays for the maintenance (like rubbish disposal, swimming pool and etc.)

Singaporeans have one of the lowest home ownership rates in the world.
Estimate no more than 10% Singaporeans own their own property (whether freehold or 99 year lease).

Wake up!

Ng Eng Hou said...

Social inequality in Singapore is hidden like rubbish been swept under the carpet. Everywhere old buildings make way for new ones. Everything on the surface looks so modern. Most people don't feel any inequality unless they're the disadvantaged ones. When I talk to people, most of them don't seem to feel this way, though I somehow feel it, which explains why a lot of people still vote them in.

This current status quo benefits those in power. They're unlikely to care, at most only pay lip service to this.

Anonymous said...

Very Funny Cartoon of Pretend Action Party

http://9gag.com/gag/4550047

I have to say that the two police officers are like the PAP, while the three guys looking for the two assholes but completely missed them are the PAP supporters.
All of them just don't seem to get what has been told to them.

http://wherebearsroamfree.blogspot.sg/

Daniel said...

PAP believes that as long as they can make sure the opposition sucks, they themselves are not required to excel. Just one small step ahead of the competition is enough.

Anonymous said...

Just watch It's a Mad Mad Mad world, all four of them,the Hong Kong version, runs parallel with the problems this place is facing also.

ah lian said...

I clicked on that link to the pre-school article and read the many comments that object to the call for the gahmen to help poor children with pre-school education. Reason: WHY should the rich, via their taxes, help the poor? The rich will help charitable causes, if and when they wish. Using their taxes amounts to communism! Their taxes are for public facilities which they also get to use. Moreover, if the poor know they can't afford to raise their kids properly, they shouldn't expect help, since they make the choice to have kids anyway!!!

Are we a civilized or a barbaric society? Or merely a mercenary one?

There seems to be this warped idea that if the gahmen spend more to care for the needy, it will make the needy want even more.

I guess the gahmen could be seeing things from personal experience. It's the same for them, once they get their multi-million pay, they feel ENTITLED to keep getting more! But see what a decrease in votes can do? Make the MIW take a pay cut! (Even if after that they're still the highest paid in the world.)

Another argument against giving more aid to the needy is that it will eat into our reserves. So, eg, helping poor kids with pre-school educaton so they can start out on an equal footing is bad, but giving 3rd rate foreign students full scholarships is good?!

The gahmen also like to say that once we have economic growth (through letting in hordes of foreigners, but pls learn to live with trade-offs) we can then help the needy. But with our income inequality getting worse, that statement, if not a lie, is at best LAME.