Business Times – 10 Nov 2011
Climbing the global economic ladder
The real goal of R&D is raising Singapore’s competence to
solve complex problems, putting it ahead of its competitors
By NGIAM TONG DOW
FOR 140 years, from its founding by Sir
Stamford Raffles in 1819 to attainment of self-government in 1959,
Singapore existed as a free port – open not only to merchants but
also immigrant labourers of all races. Our forefathers came from
the Malay archipelago, China, India and the Middle East.
The British colonial administration was relatively benign,
responsible only for governance but not the economy. At the end of
the second world war, the British Empire was in retreat and
withdrew from its military bases east of the Suez in the mid-1970s,
including from Singapore.
The local British administration was basically in maintenance
mode. Other than defence and security, the new PAP government under the leadership of Lee Kuan Yew was
responsible for everything else.
As I have said on another occasion, Mr Lee and his colleagues
could not have inherited a more unpromising city state. Other than
a short flourish during the Korean War boom of 1952, the economy
was stagnating.
Unemployment exceeded 10 per cent. The city was seething with
strikes. The infrastructure was in a state of disrepair. Other than
the Tanglin suburbs, most people were living in slums without piped
water and electricity. Petty corruption and gangsters roamed the
streets.
The first order of business for the new government was to create
jobs. Though the PAP described itself as a
democratic socialist government, its great virtue was that it is
completely free of doctrine or ideology. For our first prime
minister Lee Kuan Yew, what works is what counts.
We have to take the world as it is – not what we wish it to be.
In economic parlance, we are price-takers. Lacking skills, the
first industries we attracted were labour-intensive light
manufactures such as garments, transistor radios, wigs, colour TV
tubes. These industries require manual dexterity rather than
technical knowledge.
In time, we learned that to scale up, we need to skill up first.
Low wage labour was rapidly mopped up by the first wave of
labour-intensive industries. By the early 1970s, we had achieved
full employment. Unemployment fell below the frictional rate of 3
per cent.
Since then, our unemployment rate has been hovering around 3 per
cent. This is, however, not an occasion for self-congratulation. As
there was a shortage of low-wage labour, the turnover of labour –
known as job hopping – reached epidemic proportions. The tripartite
National Wages Council recommended high ‘catch-up’ wage increases
over three years from 1979 to 1981.
We learned a hard lesson. No government can mandate wage
increases. Forcing wages to rise beyond productivity increases led
to the 1985 recession. We were forced to reduce the employer’s
CPF contribution rate from 25 per cent to 10
per cent.
With this across-the-board wage reduction, Singapore was
competitive again. But with a caveat: the economy expanded but did
not grow. To keep our wages low, we imported hundreds of thousands
of low-wage foreign workers. It was an expedient short-term policy
that engenders complacency among employers, unions and the
government alike. The economy expanded but did not grow.
The lesson to learn is that no country can pay itself more than
what its customers are willing to pay. In a global economy, every
economy is a price-taker. The only way to raise wages is to
increase total factor productivity. TFR can
go up only with acquisition of higher skills and knowledge.
Thirty years on, we find ourselves in a pickle. We should have
grabbed the bull by the horns. Instead, the government, business
and unions dodged the issue. Though we had reached the limits of a
labour-based economy, we took the easy way out. A million foreign
labourers poured into Singapore to work in low-end service
jobs.
We found ourselves in a time warp which only now we are
struggling to get out of.
Though I have not seen any scholarly research on the subject, my
hunch is that the value-add of foreign service workers is less than
the economic cost of bringing them in. As the host country, we have
to bear the cost of housing, transportation, health and other
social services.
Without undue modesty, I dare say that Singapore ranks among the
top 10 global cities in the world. We have what EDB calls the pull factor.
My plea is that we should not sell ourselves short. In the
1960s, I served as the EDB desk officer for
the immigration deposit scheme. By depositing $1 million,
entrepreneurial businessmen from Indonesia, Malaysia and Hong Kong
could obtain permanent residence for themselves and their families
in Singapore. They were free to invest their funds in any industry
which could create employment for Singaporeans.
The first factory in the Jurong Industrial Estate was
established by a group of Indonesian Chinese businessmen.
Permanent residents today are no longer required to invest in
industry. Most of them invest in property for capital gains. They
do not create employment opportunities for our young graduates
pouring out of our four universities and six polytechnics. As we
are reaching the limits of expansion, we have to move up from a
skill to a knowledge-based economy. We need to raise our level of
competence.
In my view, the millions of dollars we are now devoting to
R&D is only the means to an end. The end is not inventions or
patents per se. The real outcome is raising our competence to solve
complex problems, putting us ahead of our competitors.
This would be my definition of a knowledge-based economy.
The writer is a former senior civil servant who served as
permanent secretary in several ministries.
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