Rethinking Singapore’s social compact

Sharpening Singapore's double-edged competitive edge

At the heart of Singapore ’s economic success is its social compact. Since independence, the majority of our citizens, including those at the bottom of the income pyramid, have enjoyed a steady rise in living standards.

This can be attributed to sound fiscal policies and economic planning which has resulted in steady economic growth which has benefited everyone over the years.

At the same time, emerging global challenges are putting pressure on the sustainability of the standard of living to which we have become accustomed. The first of these global challenges is the rapid emergence of China, India, the former Soviet Union and the up and coming economies of Latin America.

These new economic powerhouses are providing a level of competition hitherto unprecedented. The second global challenge is the acceleration of technological development which, among other things, has resulted in the outsourcing of services and processes away from developed countries.

At the same time, the cost of IT-driven processes has fallen sharply in comparison to semi-skilled and unskilled labour.

Although this will result in the creation of new jobs in the long term, in the immediate term it will result in widespread job losses and income attrition in developed countries and its impact is likely to hollow out the earning capacity of many semiskilled and unskilled workers.

The Ministry of Community Development estimates that a family of four needs a minimum income of $1,500 a month to meet basic needs.

Employment from new emerging sectors such as hospitality and leisure will provide some jobs but, at the same time, the IRs could prove to be a double-edged sword. More money coming into the Singapore could have the effect of pushing up the cost of living with the people at the bottom of the pyramid being hit the hardest.

The long term economic future may be rosy but, at least as far as the short term future is concerned, more help might be needed at the bottom end.

Workfare or work subsidies were first proposed by economists such as Milton Friedman and Edmund Phelps. Policies such as these were seen as the most effective way of redistributing skills-based growth to workers at the bottom end of the pyramid. The US experience has shown that this approach can be a effective way of absorbing lower income classes into the labour market.

Existing Workfare benefits of around $100 a month may not be enough to bridge the poverty gap. Inflation is rising and data shows that as far as the bottom 20% of households are concerned, incomes have risen the least.

Consider that in developed countries, on average the cost of raising a child has increased by one third over last five years. Likewise there is the global problem of rising food prices which has been partly spurred by partly growing demand from China and India .

This impacts significantly upon Singapore as a food importer. Also, a weakness of the Workfare supplement is that it doesn’t provide for economic downturns when assistance is most needed.

Whilst we are a long way from having ‘two Singapores ’, a sizable number of our citizens are unable to tap into the opportunities at hand. 2000 years ago the Greek historian, Plutarch was one of the first to highlight the dangers of creating an imbalance between rich and poor and of nurturing an underclass.

Closing the door on globalization is not the solution as protectionist polices would damage the interests of everyone. Likewise tightening immigration policies may help protect low-wage jobs in the short-term but, in the long term, would raise business costs to the detriment of all.

Fine-tuning the current social support system or safety net is the best way to address the distributional effects of globalization.

A policy framework to deal with the problem of wage stagnation and a rising cost of living may be one of the biggest challenges that Singapore has faced to date. We need to reconcile our response with our tradition of non welfareism.

At the same time the challenges that are confronting us today are very different in terms of their shape or magnitude than those that have confronted us before. More is needed than simply a piecemeal, fragmented approach.

Our response needs to be both integrated and holistic. We also need to be creative and innovative and to focus upon areas such as: fine tuning the Workfare provision, employment insurance, medical insurance, retirement benefits, and an expanded and developing a well integrated continuing education and training system. Help doesn’t just come in the form of financial subsidies and incentives, it also comes in the form of opportunities.

It is equally important to remember that most other advanced economies are facing the same problem. Fortunately as a country, we have the resources to deal with the issue.

Also, unlike the UK and many of the European countries we don’t have an existing debilitating welfare infrastructure nor have we nurtured a welfare-centric culture. Whatever approach we adopt, it can be designed from scratch or, to put it another way, from the center outwards. We can customize it and make it compatible with work incentives and human capital investment.

Last year's economic growth figures show we can have the capability to sustain high levels of economic growth and develop a system that offers both a safety net and, at the same time, provides Singapore with a sustainable competitive edge.

Paul FitzPatrick is author of three books, a journalist and runs creative thinking programmes for companies.

Email Paul Fitzpatrick at [email protected]