For the last three years the Reform Party has been saying that the PAP has only one economic idea. That they have rigidly adhered to this idea for fifty years despite all the evidence that the idea itself is bankrupt. Far from producing an economic miracle the PAP government has no plan for making Singaporeans better off or providing our citizens with a brighter future. In fact they have subjected us to twenty years of austerity and denied us even the most basic financial safety measures as enjoyed by citizens of countries without our wealth. We the citizens of Singapore have built up that wealth through the sweat of our brow for our old age, our children’s and our grandchildren’s future and we have yet to see any return on our investment. We do not enjoy free health care.  We do not even have the right to free schooling and we have little chance of paying off the mortgages on the HDBs that we do not really own.

This one big idea that the PAP has is to produce high GDP growth.  This economic growth is generated purely by adding more inputs of labour and not using those inputs more productively. In other words population increase is not something that is planned to improve our lives but that is absolutely necessary to keep the PAP economic model from stalling and failing. It is an extensive model and as long as there is surplus labour somewhere in the world it can continue to run. However it is becoming clear that in their view there is no upper bound to Singapore’s population as long as they can feed the machine of GDP growth with inputs of cheap labour.

The ultimate irony is that the GDP figures themselves are not ones that any government would even boast of. When GDP per hour worked is used instead of GDP per capita that the PAP likes to extol.  Even the PAP themselves are beginning to admit what the Reform Party has been saying for three years: namely that our productivity is abysmally low.

In fact the proposed population increases will only serve to make our lives more miserable and offer no benefits whatsoever.

We are not surprised that the Population White Paper has set a new target for total population of 6.5 million to 7 million. The former figure is almost certainly an underestimate in any case since if we extrapolate from the population growth rates over the last two years we reach a figure of close to 9 million by 2030. It shows that the ruling party is completely incapable of any original economic thinking.

In the 1990s Paul Krugman pointed out that Singapore’s economic development was based largely on adding more inputs rather than using those inputs more productively and that growth would slow down. However by relaxing the labour constraint the PAP government has kept the profitability of capital from falling despite the dismal productivity record and kept economic growth rates relatively high. This has had little benefit for the median Singaporean worker (http://votingrp.wordpress.com/2010/08/05/gdp-growth-the-living-standards-of-average-singaporean/)

In my rally speech in the by-election I drew attention to a survey from UBS in 2009 (UBS mysteriously dropped Singapore from subsequent surveys), which found the average Singaporean worker’s real income to be around the same as his counterpart in KL and substantially below those in four other Asian cities (Tokyo, HK, Seoul and Taipei).   Since 2009 the Reform Party has continually drawn attention to the fact that Singapore’s high rates of economic growth are no miracle, being based not on underlying productivity growth but merely fuelled by an enormous increase in imports of cheap foreign labour (http://newasiarepublic.com/?p=16013).

There is also a more sinister implication. With the big planned increase in population the people become more dependent than ever on the government to ensure that enough homes are built and infrastructure is improved. Certainly combined with the subsidies for housing that we have criticized, this will continue to push up property prices which is undoubtedly the government’s intention as the ultimate monopoly owner of land in Singapore.

The Government’s Justification

The real economic reasons for the government’s undiminished eagerness to allow in large population inflows have been briefly discussed above and will be the subject of another article to appear shortly.
However the justifications given are full of fallacious reasoning and non-sequiturs.

The White Paper begins by stating the obvious fact that productivity growth is the only way to generate real increases in incomes. The Reform Party has always said that. However the Paper sets a target of 3-5% GDP growth p.a. from now to 2020 without providing any explanation as to why this is necessary or desirable. It then works backward from that to say that with productivity growth of 2-3% p.a. (over ambitious given Singapore’s poor productivity record-GDP per hour worked rose by only 0.1% p.a. over the period 2007-2011 according to the US Bureau of Labor Statistics and the bulk of that appears to have been due to some highly suspicious revisions of prior year data that our Department of Statistics have yet to explain) to say that we will need workforce growth of 1-2% p.a. to reach that target. But why this target in particular? Presumably the likely shortfall in productivity growth will provide an excuse for an even bigger population increase. At our stage of development and given our limited resources of land there is little justification for economic growth to be much in excess of productivity growth plus the growth in the domestic workforce. We are not against allowing in more skilled immigrants and entrepreneurs who can create higher value-added jobs for Singaporeans or immigration to offset our fertility rate which is so far below replacement rate. However the PAP seem to have plucked this growth target out of thin air to justify their projected population levels.

The White Paper cites three pillars of the new plan:

1. Maintaining a strong Singaporean core
2. Creating Good Opportunities for Singaporeans
3. High Quality Living Environment

Maintaining a Strong Singaporean Core

The government proposes to convert up to 25,000 PRs into citizens every year while admitting the same number of PRs so as to keep the number of PRs unchanged.  The ostensible purpose is to address the falling birth rate with our fertility rate  (TFR) now having fallen as low as 1.2 per woman. This will result in an enormous rise in the ratio of retired people to the working age population over the next twenty years. However the PAP were the engineer of this precipitous drop in the birthrate when they adopted the Stop at Two policy in the 1970s and the even earlier One is Enough slogan aimed at lower-income mothers with encouragement for sterilization and penalties for having more than two children.  Changing trends in fertility rates has been likened to turning a supertanker. It takes a lot of time and effort. This policy was abandoned in the 1990s and efforts were made to encourage women to have more children. However until very recently the whole thrust of government has been to encourage more immigration rather than invest significantly in encouraging mothers to have more children.

Our spending on education has been among the lowest as a proportion of GDP of advanced countries. Our education system has been neither universal nor free. Despite the recent increase in subsidies the cost of pre-school education continues to be a major concern for many middle-class parents along with the high cost of tuition fees that are seen as necessary if children are to stand a chance of competing in our test-driven system. The recent enhancements to the Marriage and Parenthood package do not begin to go far enough to address these disincentives. In addition the subsidies are oriented more towards those who are already well off through tax breaks like the Working Mothers Child Relief and the Parent Tax Rebate as well as the Child Development Account.

In any case, even if fertility rates do not rise, the reasoning behind the idea that we need a big increase in the total citizen population to reverse a projected drop in the working age population is faulty. We should always try to attract talented and highly skilled workers and those who are creating businesses that employ Singaporeans However it is difficult to see why we need to create many more new citizens than needed to maintain the pool at current levels or allow for modest growth.

Firstly we can to some extent draw on the pool of senior citizens who are currently under-employed to make up for the shortfall in the number of workers below 65. At the moment many of them would like to work for longer but face competition from younger foreign workers. Advances in medicine on the horizon are likely to continue to extend the numbers of years in which they enjoy good health, probably considerably.

Secondly productivity gains may more than offset any labour shortfall, particularly if simultaneously we make more use of the pool of older workers. Allowing business unlimited access to supplies of cheap foreign labour will act as a disincentive to productivity gains. In addition advances in robotics may mean that even unskilled assembly operations can be competitive in high-wage countries and replace low-skilled service workers in some areas while advances in intelligent software mean that even relatively skilled jobs can be automated.  For example there is a big hollowing out of the legal profession in the US because of software advances that replace the need for much repetitive work.

Thirdly at present we do not have a welfare system akin to that in the social democratic countries of Europe or Canada or even the US. Given the austerity that older generations of Singaporeans have endured to build up the assets of Temasek and GIC, it is arguably discriminatory to enfranchise a large number of new citizens who have not made the sacrifices but can expect to reap the rewards of the dividends from those assets.

The policy of admitting so many new citizens also discriminates against our male citizens who have endured the economic loss of two years of National Service for which they are paid slave labour rates. The new male citizens, unburdened by NS reservist obligations and younger than their Singapore counterparts, are also likely to be more attractive to local employers.

Thus the PAP government’s case for admitting so many additional citizens is tenuous at best. It is completely fallacious and betrays a poor understanding of economics to jump from the assumption that with a smaller Singaporean workforce employers may not be able to find enough workers to the conclusion that our young people will have to leave for jobs elsewhere. In fact with fewer workers wages are likely to rise and this may encourage people to have more children thus reversing the decline in fertility rates.

Creating Good Opportunities for Singaporeans?

Another non sequitur is the government’s claim that it is creating good opportunities for Singaporeans through this policy. The argument is that allowing in less skilled workers allows Singaporeans to move up into higher value-added occupations. While specialization and division of labour are obviously key determinants of productivity growth and higher living standards, foreign workers do not just take jobs Singaporeans do not want. Employers can also bring in an unlimited number of employment pass holders and the minimum salary for this starts at $3,000 for young graduates.  They thus compete directly with our graduates despite the men not having had to do NS. The MOM provides no breakdown of how many Employment Pass holders there are within the total number of foreign workers.

In any case, despite the growing number of Singaporeans with tertiary education and in the PMET category, tertiary education is increasingly becoming a minimum level qualification in the global labour market. On top of that there are still a large number of low-skilled Singapore workers and these compete directly with foreign workers. While it may be true theoretically that the gains from replacing them with cheaper foreign workers could compensate them for their job losses or lower incomes this is based on an assumption of full employment and that the government compensates them for their loss. The first assumption does not apply in the real world while the second is not borne out in practice.

The White Paper also cites Singapore’s poor productivity record and makes reference to government efforts to improve it. It is hard to see the connection between that and population policy. In fact they are inversely correlated since cheapening the cost of labour through making it much easier for businesses to bring in foreign workers is likely to dampen the need for productivity improvements.

High Quality Living Environment

It does not follow logically that in order to create a high quality living environment we need to add another 1.5 million people to our already crowded island. Most Singaporeans would agree that it is rather the reverse. The implication from reading the report is that we have to accept the increase in population or we do not get the investment. The PAP government is still playing catch-up in terms of infrastructure to cope with the current levels of population and many of the figures given imply that they will barely keep pace with the projected rise. For instance the White Paper says there will be a 30% rise in the number of acute hospital beds by 2020 but is silent on plans beyond that. This is just in line with the projected rise in population up to 2030 but which is likely to be a considerable underestimate.  In addition it says land has been set aside for 700,000 new homes without indicating that they will be built.

The White Paper is noticeably silent on how much green space will actually be left after the projected increase in population and how much new land area will be developed.

The RP’s Alternative Policies

A Rational Immigration Policy

While acknowledging the desirability of importing low-skilled workers to allow Singaporeans to be redeployed to higher value-added jobs the reality is that foreign workers compete with Singaporeans across the board and increasingly in PMET occupations. Therefore we would adopt a cap on the total number of foreign workers above a certain salary level that could be varied in line with economic conditions. Entitlements could be auctioned by the government ensuring that they go to the most productive sectors in a manner similar to the way COE is auctioned today.

Minimum Wage

The Reform Party would introduce a minimum wage and stricter regulation of working conditions to protect our low-skilled workers. This would also act as a spur to get employers to use labour more productively.

Child Benefit

We would alter the current Marriage and Parenthood package to reduce the tax breaks and incentives given to better off mothers. In particular we would abolish the Working Mothers Child Relief, which is a big tax break for the wealthy.

At the same time the RP would increase the help given to lower-income families with children through such measures as child benefit payments for lower-income families.  We would abolish fees for education from pre-school through to the end of secondary school and introduce universal health insurance, which would be a big improvement on the current patchwork.

If  necessary we  would raise taxes on single people and no-child families to fund the additional help given to families with children though this would await a review of the true state of the government’s finances.

Invest More in Education
The government currently spends only around 2.8% of GDP on education which is one of the lowest in the world. By comparison Sweden spent some 8% of Gross National Income in 2005 and the UK and the US both spent over 5% of GDP. The Reform Party would raise education spending, make education universal, free and compulsory up to secondary level. We would also look to broaden access to and improve the quality of tertiary education here so that more of the population can study here without having to go abroad which contributes to the brain drain.

The RP would also increase the resources devoted to retraining older workers  so as to make use of this underemployed pool

Conclusion

The paramount focus of any government should be making its citizens better off. The best way to do this is through accelerating the productivity growth of the existing workforce through encouraging automation and investment in education and training. Singaporean business should be encouraged to move into higher value-added activities paying higher wages.

This White Paper signally fails to make any case for why we need to increase our population so markedly to achieve the objective of making the people better off. In fact it is likely to lead to the reverse.   A series of non-sequiturs and glossy photos does not convince anyone. In fact the PAP government is being typically disingenuous in not disclosing the real agenda behind this White Paper.

Kenneth Jeyaretnam

Secretary-General

Published by kjeyaretnam

I'm a Singaporean economist who became an opposition activist. I blog to provide an alternative to the porkies that the Pinkies tell. It just so happens that my alternative is the truth. That's why I've never been sued in any civil or criminal court no matter how hard hitting my criticism. I'm quoted and interviewed and asked to speak across the world but largely censored in Singapore in an effort to silence my political opinions. The left hate me because they think I split their vote and because I eschew their outmoded economic models. Models that don't work. The Right and the Conservatives hate me because I'm a liberal. I'm not sure what the middle think of me. I don't think there are more than a handful of people in the middle, here in Singapore. I'm a Singaporean born and bred, dual heritage, my parents Singaporean established here before the State of Singapore was created. I'm not Eurasian. I read economics at Cambridge and could be broadly described as from the Keynesian school but I believe in interventions. I was formerly a successful hedge fund manager. After economics and politics my greatest interests are history, film and Makan. I run but I run so I can eat like a Singaporean. View all posts by kjeyaretnam