Thursday, 04 February 2010 02:29
The Economic Strategies Committee (ESC) finally released its report
yesterday after over eight months of deliberation. The ESC is
supposed to include the best brains from the private and public
sectors yet all it could come up with as key recommendations were
what the Reform Party and its Secretary-General, Kenneth
Jeyaretnam, has been saying since at least April of last
year.
In our previous press release, “Work Smarter NOT Harder”, dated
25th January 2010, we said that we were delighted that one of our
core messages had been taken up by the Government. This was that
economic growth had to be driven by productivity growth and not as
has happened over the last ten years largely through expansion of
the foreign labour force and that we had to improve our dismal
productivity record, We have been saying for over a year that the
Government’s target should be focusing on raising the majority of
Singaporeans’ living standards rather than just maximizing economic
growth.
Now, as expected, the ESC has said exactly the same. Further
they have said that this can only be achieved by a substantial
increase in investment in education and training. The Reform Party,
at its Education Seminar on 23rd January 2010, called for a
considerable increase in the percentage of GDP spent by the
Government on education and that it should rise from an average of
2.8% of GDP over the last five years to between 5 and 6%, in line
with other advanced countries. We are glad the ESC, after a
considerable period of time, has reached the same conclusions as
the Reform Party, but feel that considerable resources could have
been saved and the time of some very highly talented and busy
people better spent, if they had consulted us earlier and in
particular if they had attended our Education Seminar which was
free. To save the government much time and expense the Reform Party
is prepared to offer the services of its SG, Kenneth Jeyaretnam, as
a consultant on economic strategy for free.
We discuss below the key strategies outlined by the ESC:
1. Growing through skills and innovation
The Reform Party has for some time been pointing out the need
for us to raise substantially our investment in education. In
addition over investment for an extended period will be necessary
to compensate for decades of under-investment. As the ESC report
points out over 60% of our workers only have secondary education
which is much higher than levels in other comparable countries.
Other countries’ rates of tertiary enrollment have been rising for
some time so even if we substantially boost our current rate of
around 33% we will still be playing catch-up. And the quality of
our degrees has to be questioned when so many MNCs, and even GLCs,
seem to prefer foreign graduates.
Otherwise the Reform Party supports in principle the idea of a
high-level national council to boost productivity but worries that
this will be just an excuse to create another layer of highly paid
bureaucracy without tangible results. We call in our draft
manifesto (circulated at our dinner in September 2009) for a
considerable rise in the resources devoted to worker retraining as
well as raising the level of investment in education. The ESC’s
recommendations also carry the worrying implication that the money
spent on programmes like SPUR, touted in the last budget as
evidence of the government’s commitment to worker retraining, has
been wasted or was just a means of keeping the unemployment
statistics lower.
The Reform Party advocates a minimum wage as a means of forcing
employers to use labour more productively. Raising foreign worker
levies (effectively a tax) may be a means of achieving the same
goal but does not directly raise or put a floor under the wages of
less-skilled Singaporean workers. It may look more efficient on
economic grounds but if employers go further afield in search of
cheaper and cheaper labour it may nullify the effects of the
increased levy and not boost productivity or the wages of
low-income Singaporeans. So the Reform Party still prefers a
minimum wage on balance though it could be combined with higher
foreign worker levies.
2. Anchor Singapore as a Global-Asia Hub
Surely it did not take this long and require so many talented
individuals to produce something that any mid-level PR executive
could have produced in an afternoon? These have been the
government’s aims for some time and it is difficult to see how we
are going to be more successful at them just because they have been
regurgitated as part of the ESC’s report.
The Reform Party feels that a target of 20-25% for the
manufacturing sector as a proportion of the economy is probably
neither realistic nor desirable in the medium to long term given
Singapore’s limited land and other resources. Instead we should aim
for high value-added activities whether in services or
manufacturing. The concentration on manufacturing is just part and
parcel of this government’s mercantilist obsession which sees
exports (saving) as good and imports (consumption) as bad and
explains their preference for a low level of domestic consumption
(spending by Singaporeans) and such a high level of net exports
(fuelling the unproductive growth of our external assets in Temasek
and GIC).
3. Build a Vibrant and Diverse Corporate
Ecosystem
In our draft manifesto we called for much greater help for
Singaporean SMEs and start-ups so the Reform Party would support
these aims while worrying over how well this will be implemented
and how much will be wasted. $1.5 billion over ten years is
“peanuts” in the context of Singapore’s GDP of some $257 billion
(about 0.06%) so it is hard to see how it will make much
difference. Temasek and GIC have probably been investing much
greater sums than this in foreign private equity and venture
capital funds.
The Reform Party would go much further though in dismantling or
privatizing the whole GLC structure starting with the privatization
of GIC and Temasek and giving Singaporean citizens a direct stake,
whether through shares, deferred shares or quasi-equity, in their
assets. We would seek to sell off or break-up most of the GLCs
which control such a substantial portion of economic activity (up
to 60% according to some estimates) which has in our view a
detrimental effect on the growth of a vibrant private sector in
Singapore.
There must be lessons we can learn from countries with a far
superior track record in starting new businesses, such as Israel,
yet the committee does not seem to have considered how we can best
learn from others.
4. Make Innovation Pervasive, and Strengthen
Commercialization of R&D
The Singapore government has been a late convert to the game of
boosting R&D given that most of our competitors have been
aiming to do this for years, with mixed results. Given that China
is massively boosting its R&D spending, as are the US and EU,
it must be doubtful whether Singapore can achieve the necessary
economies of scale or whether we just end up giving wasteful
subsidies to foreign MNCs. The Reform Party is still in favour of
increasing R&D spending but we also want to see the dismantling
of the GLC structure which is out of step with a modern economy,
has held back our private sector and has probably had a stifling
effect on innovation, not least through the diversion of talent
into secure, well-paid employment rather than into more
entrepreneurial roles.
5. Become a Smart Energy Economy
In the Reform Party’s draft manifesto which was circulated to
journalists at our dinner in September 2009 but had been written in
May of 2009, we called for a massive increase in investment in
energy-saving and green technologies. So we are glad that the ESC
also thinks alike.
However the Reform Party has serious doubts over the
advisability of nuclear energy as an option for Singapore given our
limited land area and highly concentrated population. Not only
terrorism but the risk of a catastrophic accident like Chernobyl
probably rules out the nuclear option. Even if the risk is small
(and experience has taught us that extreme events are always
underpriced by the market), its actualization would be likely to
end Singapore’s existence.
6. Enhance Land Productivity to Secure Future
Growth
The Reform Party calls in its draft manifesto for a review of
the government’s role as the owner of approximately 79% of the land
in Singapore so our policies in this area are likely to be much
more radical than anything the committee proposes. We have written
about this in relation to increasing the efficiency of the
provision of public housing and the need to inject more competition
into this sector and would extend the same principles to the
question of how best to promote economic efficiency and increase
productivity.
7. Build a Distinctive Global City and an Endearing
Home
The second part of this phrase suspiciously echoes the title of
the Reform Party’s National Day Speech, “We have built a house but
not a home.” There is little in this part or indeed in the
government’s track record to suggest that it is committed to
building an endearing home for Singaporeans.
The consequences of the last ten years of focusing on economic
growth by the import of cheap labour while not investing enough in
education and training have been dire for the majority of
Singaporeans. The full report states that the “majority of
households have seen significantly higher real incomes over the
decade, with median incomes rising by over 20%”. This is
contradicted by the Household Expenditure Survey 2007/08 released
in December 2009. This shows that the Average Monthly Household
Income of the 1st - 20th, 21st - 40th and 41st - 60th Quintiles
increased from $1,309 to $1,274, $2,778 to $3,476 and $4,207 to
$5,480, respectively, from 1997/98 to 2007/08.
This is a per annum increase of - 0.3, 2.3 and 2.7% respectively
for the above mentioned three quintiles.
After adjusting for inflation at 1.4% per annum, the real
increase was - 1.7, 0.9 and 1.3% respectively. So real incomes of
the bottom 20% fell by nearly 20% (much more if one uses a CPI
weighted by the consumption patterns of the lowest quintile) over
ten years while that of the next 20% increased by just 9% and the
average income of the median quintile rose by only a little more,
14%.
Conclusion
The government’s high-powered ESC has labored for nearly nine
months and produced very little that is very different from what
the Reform Party has been saying since last year.
While it is good to see that the ESC is thinking along the same
lines as the Reform Party, it is difficult to see how many of the
recommendations which essentially are ‘more of the same’ will make
a radical difference to productivity growth and produce a more
innovative economy. We want to see much more radical reform of key
sectors of the economy and of our educational system which we feel
are necessary if we are to move permanently on to a higher
productivity growth path. It is also good that the government and
the ESC have come round to the Reform Party’s view that their
primary goal is to raise the living standards of Singaporeans.
However there must be serious doubts about the government’s ability
to deliver given that the track record in this regard of the last
ten years has been so poor and whether anything more than lip
service is being paid to weaning the economy off its dependence on
cheap foreign labour.
