February 14, 2010
I appreciate Mr. Kunju’s reasoned response to my article, one of
the few that I have seen on TR. After all the abuse and the vitriol
that came earlier, this is a refreshing change. However, I don’t
think my position has been accurately portrayed. Mr. Kunju’s own
arguments themselves are also not very clear. (read Bhasakaran
Kunju’s article here)
I do not have any issue with the fundamental point on foreign
workers in the ESC’s report:
The ESC said, as quoted by Mr. Kunju: “We recommend a
progressive increase in worker levies to incentivise companies to
improve productivity”(It also added “…giving companies time to
adjust).
What I said in my article was: “What this suggests is that (a)
the goal is to avoid increasing the proportion of foreign workers
in the workforce (b) this is a secular goal; and (c) companies will
be given time to adjust.
The intent was to clarify that the policy goal is not cutting
back the number of foreign workers per se, but reducing the
dependence on them over time. There is a difference.
With regard to the point on incentives to retain foreign
workers, let me explain:
ESC indicated that companies need to improve skills of ALL their
workers. On page 9, para 27, the report says. “Companies…have to
rely more on technology and innovtion and improve skills among both
their local and foreign employees as a basis for competitiveness
and growth.”
This is only common sense. If you run a company containing both
local and foreign workers, you would want to send them all for
training to improve their skills, not just some of them.
However, in some industries, foreign workers are transient. In
the construction and marine sectors for example, many of they stay
on short term contracts. Then they go home sometimes only after a
few months and are replaced by another cohort of foreign workers.
In such industries, it makes no sense for employers to do much
training or automation, which contributes to their low
productivity. So it’s only logical to incentivise these companies
to reduce the turnover of foreign workers (that is, retain those
that they need for longer) while at the same time reducing their
dependence on foreign workers over time. That way, these companies
will have more incentives to provide more training to the workers
they have, and do more automation. Eventually, Singapore’s
construction industry will be more like say, Australia’s – higher
productivity and a lower proportion of foreign workers, but both
the local and foreign workers that it has will be more productive.
That is the way to go.
On the ERC of 2003:
It is true that the Economic Review Committee was seven years
ago, but contrary to what Mr. Kunju suggests, that doesn’t make
everything it said obsolete. The logic is still valid in the 2003
statement: “‘Without foreign workers manning the night-shifts,
there would be no day-shift jobs for Singaporeans. Production costs
would go up and companies would be forced to move elsewhere, where
workers are cheaper and more readily available.’ Even seven years
later, there are industries where getting rid of foreign workers
would lead to LESS jobs for Singaporeans, not more jobs.
It’s important to grasp this point. Many people have the idea
that the labour market is zero-sum game – that any job done by a
foreign worker is a job taken away from a local worker. This is not
correct.
Remember, a lot of industries face fierce global competition.
Supposing (to put it in stark terms) they were severely restricted
from hiring foreign workers, what would happen? The labour market
for those industries would tighten and wages would rise. And while
local workers would get nearly all the jobs that on, the companies
would soon find themselves at a severe competitive disadvantage
because of their higher wage bills: they would either have to close
down or move to places like malaysia and China. And they would end
up laying off their local staff. For a lot of companies therefore,
the choice is not between hiring local workers and hiring foreign
workers, it is between hiring SOME foreign workers and being forced
out of Singapore, or closing down. Fortunately, severe restrictions
on foreign workers are not being contemplated; rather the aim is to
reduce dependence on them gradually. That’s a sound policy. I am
glad Mr. Kunju also agrees that mass culling of foreign workers
will amount to economic suicide.
On Japan:
Mr. Kunju says: My example of Japan “is severely generalized and
dangerously irresponsible in its own right. This is a puzzling
comment.
Of course he is right to say that “Japan’s economical problems
run deeper than that of a lack of foreign workers” – I hardly
suggested otherwise. The high yen, industrial hollowing out, the
unwillingness of consumers to spend, the high fiscal deficit and
government debt and frequent changes in leadership- all of these
have been among Japan’s problems. But I am not aware of any
economist who says that Japan has been wise to keep foreign workers
largely out of its workforce. Japan’s net immigration has been
almost zero, despite falling birth rates a shrinking of the
population and rising longevity. The result has been rapidly ageing
workforce. 22 percent of Japan’s population is now over 65 years
old. By 2055, the proportion is projected to increase to 40
percent. The high ratio of older workers (which more immigration
could have corrected) has severely hurt Japan’s economic growth.
Paul Hewitt in the journal International Politics and Society
estimates that Japan will lose 0.7 percentage points of growth
every year till 2025.(http://www.globalaging.org/health/world/depopulationeuropejapan.htm)
So the issue here is more about producTION than productivity. My
point is that while Japan’s productivity may be high, it has a
serious problem with production – namely economic growth. And if
economic growth does not grow, incomes cannot grow. And there is a
direct link between Japan’s lack of immigration and its low
economic growth. Mr. Kunju’s statement that in Japan,:”the addition
of foreign workers will only further lower wage rate and hence
reduce consumption as well as incapacitate a work force that is
already lacking in efficiency,” ignores the impact of foreign
workers on production and economic growth. Nor is Japan’s workforce
“lacking in efficiency” as Kunju suggests. As the productivity
numbers show, it IS efficient. There are just not enough productive
workers.
Singapore is also ageing although it is not in Japan’s league in
terms of age profile. But Singapore’s relatively liberal
immigration policy has helped boost its growth. And this has helped
increase incomes and is also positive for productivity.
I cannot see anything “dangerously irresponsible” in what I
said. What IS dangerously irresponsible: it is the call by the
editors of TR for a mass consumer boycott of
“companies/shops/stalls whose staff are mainly foreigners” (see
their post “Temasek Review Helps Singaporean find a job at local IT
startup” on Feb 4) As “Sanevoice” noted in the comments to that
post, this is is a mad idea. Sanevoice’s quote is worth repeating:
“Suppose people support your harebrained proposal and boycott
companies/shops/stalls “whose staff are mainly foreigners”. What
would happen to the Singaporean staff of those
companies/shops/stalls? What would happen to the Singaporean staff
of companies that supply these companies, or who need to buy
components or inputs from them? A modern economy like Singapore’s
is interrelated. It works like the engine of a car. Do you think if
you remove some components of a car engine, the rest of the engine
will work fine?
Do you not realise that by calling for a boycott in your
xenophobic zeal, YOU WILL BE CREATING JOB LOSSES FOR
SINGAPOREANS??” (emphasis as in original).”
If Mr. Kunju thinks my comments on Japan were “dangerously
irresponsible,” I wonder what he makes of this boycott call by TR’s
editors.
Finally, I am glad Mr. Kunju addressed the issue of ettiquette.
I agree that comments posted by readers – even personal attacks –
“shouldn’t be taken personally.” – that’s how it is on the net.
However, when most comments take the form of personal abuse rather
than arguments, when even racist insults appear to be allowed, you
begin to wonder what kind of site this is. I also wish TR would
stop its ad-hominem attacks – the idea that an argument is wrong
not because of what it says, but because of who says it.
I’d therefore like to reiterate that I respect the spirit and
tone of Mr. Kunju’s comment. He did not indulge in personal attacks
like so many others, but addressed the issues. We do not have to
agree, but at least we can disagree in a way that enables people to
learn something from the discussion, no matter what view they may
lean towards.
EDITORS’ NOTE:
The above was initially posted as a comment on TR and
reposted as an article.
http://www.temasekreview.com/2010/02/14/business-times-columnist-vikram-khannas-reply-to-tr-on-the-issue-of-foreign-workers/