http://www.msnbc.msn.com/id/16725528/site/newsweek
Singapore's Rich-Poor Divide
The island's economy is booming. So why are so many citizens worse
off than they were 10 years ago?
By Sonia Kolesnikov-Jessop
Newsweek International
Jan. 29, 2007 issue - Tiny Singapore, with its population of 4.3
million, is often lauded for the way it has embraced globalization
to maximum advantage. In the last decade, the city-state has opened
its doors wide to foreign investment and talent, slashed corporate
taxes, offered incentives to nurture strategic industries (such as
biotech, pharmaceuticals and financial services) and cut free-trade
deals with a host of other countries. The payoff has seemed clear:
over the past three years, Singapore's economy has averaged 7.6
percent growtha staggering pace for an industrialized stateand
created new jobs at a rate any European government would
envy.
There's only one problem: average citizens have yet to reap the
benefits. New statistics reveal that middle-class households have
tasted none of Singapore's spectacular growth, and that the
island's poorest 30 percent are worse off than they were five years
ago. "Although we have seen very strong growth, we're experiencing
this new phenomenon of median real-wage stagnation and low-income
decline," says Yeoh Lam Keong, vice president of the Economic
Society of Singapore.
This predicament is hardly unique. Wages and salaries are
stagnating across the industrial world. What's surprising is that
even a country famous for its smart and transparent leadership has
been unable to prevent the gains of globalization from flowing
mostly to rich individuals and multinational corporations. In its
bid to adapt Singapore's economy to international competition, the
government has tried hard to reduce business costs. This has meant
slashing labor prices, which has helped push wages down. According
to official figures, over the past five years Singapore's
wealthiest 10 percent have seen their income rise by 2.3 percent
annually (and that doesn't include nonwage earnings such as capital
gains or dividends). At the same time, the poorest 10 percent have
suffered a staggering 4.3 percent drop in their salaries each year.
The government has also allowed employers to cut their
contributions to Singapore's Central Provident Fund, which pays for
pensions, public housing, medical expenses and education.
Together, these factors have led to lower-than-expected private
consumption, which has risen by just 3 percent in the past two
years. "Private consumer spending has been the weak link in this
current expansion," says Chua Hak Bin, an economist at Citigroup
Global Markets in Singapore. This has, in turn, stung Singapore's
large retail sector. "It is evident that [they] are not the big
winners from high growth," says Manu Bhaskaran, a director of the
U.S.-based Centennial Group.
Foreign competition is also hurting. Contractor Tan Boon Soo is one
of many Singaporeans feeling the pinch. He installs windows for a
living but laments "cutthroat competition" from contract laborers,
who have flooded the island from places such as Indonesia and
Bangladesh. Unskilled workers like street sweepers and security
guards are also finding themselves undercut by immigrants willing
to work for less. This is forcing native Singaporeans to change
occupations or work harder for less money. "They talk about growth,
but I don't see it," says Tan. "Maybe the bankers are doing well,
but construction has not been. I'm worse off now than I was in
1997."
All this could spell big trouble. "If these trends continue
unchecked," warns Yeoh, "we could begin to get the formation of an
underclass [and] the makings of social instability." Such an
underclass was never part of Singapore's grand plan. Now its
leaders must figure out how to prevent one from emerging without
relying on the kind of welfare programs they often deride. Last
year the government launched an experimental workfare program that
gave low-wage earners bonus pay of up to $780. Now Prime Minister
Lee Hsien Loong's government is con- sidering making the program
permanent in an effort to thin the ranks of the working poor.
"We will try out different forms, but the principle will be the
samehelp yourself [and] we will help you," the prime minister told
lawmakers last November. "It's essential for us to tilt the balance
in favor of lower-income Singaporeans because globalization is
going to strain our social compact."
Lee has already announced that he'll make Singapore's rich-poor
divide a major focus of his annual budget speech next month.
If knowing is half the battle, it could be an important first
step.
© 2007 Newsweek, Inc.