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Stiglitz Gets It Wrong on Singapore: The Real Lessons for An Unequal America


Stiglitz_xx_animI refer to Joseph Stiglitz’s recent article in the New York Times. Stiglitz holds Singapore up as a model of how to achieve rapid economic growth while prioritizing social equity and income equality. He even goes as far as say that Singapore demonstrates that reducing income inequality is a necessary condition for rapid economic growth. At the same time he dismisses concerns over lack of fundamental rights that are taken for granted in democratic countries. These are viewed as at best irrelevant and at worst harmful to the main objective of achieving economic growth and raising living standards for the poor and working classes.

Stiglitz’s article is symptomatic of a long tradition among academics and economists, both on the left and right, though more extensively on the left, to view human rights and freedom as something that can be dispensed with by so-called modernizing regimes. I remember my Director of Studies at Cambridge University, back in 1982, when the first Opposition MP for sixteen years had been elected to Singapore’s Parliament, laughingly dismissing concerns about human rights violations as a few bourgeois intellectuals worrying about their freedoms while only “Harry Lee could achieve growth of 10% per annum”. It was reminiscent of similar adulation in the forties and fifties of the Soviet Union and later of Cuba.

Another Nobel Prize-winning economist, Paul Krugman, has recently written of the difficulty of swimming against the tide of economic orthodoxy, no matter how incontrovertible the evidence on your side. He was speaking about the continued insistence on fiscal austerity despite the economic nonsensicality of such policies but he might as well have been speaking about Singapore.

I  have frequently pointed out that Singapore’s economic growth is based on just adding more inputs, a strategy that would long ago have run into diminishing returns were it not for the ability to access ever cheaper sources of labour inputs from the rest of Asia. Of course I am not in the same league as an economist as Stiglitz (or Krugman) but one would have expected greater scepticism from the international academic community about the Singapore success story. Even those who criticize its track record on human rights feel obliged to praise its economic growth record.

I put this down partly to the factors listed above. However it also reflects the Singapore government’s skill at co-opting leading academics and policy think tanks in the West. Singapore’s policy of sending its top students abroad to study at elite institutions like Cambridge, Oxford, Harvard and Yale also helps to ensure that foreign academics and institutions are fed the “approved” version of Singapore’s development story as well as providing a valuable source of revenue that these universities are loathe to risk alienating by criticising them.

However I shall return to rebutting Stiglitz’s claims about Singapore particularly with reference to its supposed lessons for the US on achieving income equality. In contrast with his clams, my observations as a Singaporean economist, investor, and secretary-general of the Reform Party accord with recent studies that rank our income inequality the second highest among developed countries.

Official data from Singapore are notoriously misleading and incomplete. If judged only by the Gini coefficient, the most widely accepted measure of income inequality, Singapore comes out as much more unequal than the US, particularly when one looks at disposable income rather than at income before taxes and cash transfers. On the latter measure, the OECD figure for the US in 2011 was .376 while Singapore’s was .459 in 2012, but, taking into account in-kind benefits such as health and education, the US Gini falls further to .303. We do not have figures taking into account in-kind benefits for Singapore but since it spends much less as a proportion of GDP on health and education than the US the gap is likely to widen when these are taken into account.  These differences in health and education spending are discussed below.

Moreover, the country’s extremely high Gini coefficient is calculated using only the incomes of Singapore citizens and Permanent Residents. Beneath them is a huge underclass of cheap labour from much poorer countries that is about 30% of the total population. They earn very low wages and are housed often in appalling conditions with very few employment protections. Often they have huge debts to middlemen and employment agents that mean they have no choice but to continue to work for the same exploitative employer. While they may still be better off economically than in their home country the difference is likely to be marginal when all the costs are factored in. Unequal bargaining power and asymmetries of information ensure that most of the benefits accrue to the employer, often a Singaporean Government-Linked Company (GLC). Astonishingly Stiglitz’s article makes no mention of this exploitation

It is in many ways analogous to the position of landowners in the antebellum Southern US who benefited from slave labour while poor farmers who could not afford slave labour were undercut and found themselves unable to compete.

Pundits in Singapore and abroad celebrate the country’s rise in real GDP per capita since independence in 1965.  But Singapore’s real GDP per hour worked is far less impressive. Singaporeans work the longest hours of any developed country (and nearly 50% more than Americans, who already turn in longer hours than most European countries.)
We also have a much higher proportion of employed population to total population because nearly 40% of our workforce consists of foreign workers who can stay in Singapore only if they have jobs.
Ultimately productivity growth is a necessary but not sufficient condition for real income gains and Singapore comes off markedly worse. Because Singapore is a small city-state of 5.5 million, the only valid comparisons would be with major American cities, and, there, the distinction is even more marked.

Stiglitz also overlooks the many unique ways in which our citizens and economy are controlled by the state. These controls limit Singapore’s usefulness as a model for imitation elsewhere.
For example, the government’s forced savings scheme, the Central Provident Fund or CPF, deducts over a third of workers’ total income and places it in the fund, where it is to be used to pay for housing or for medical bills on a pay-as- you-go basis. That amounts to a regressive savings tax, because contributions are capped at a fairly low level of income and the government has for years paid below-market interest rates on these savings balances.

Americans are unlikely to adopt such a regressive forced savings scheme, which holds down domestic consumption and generates enormous surpluses that have enlarged the state’s sovereign wealth funds, which have virtually no accountability or transparency and often achieve very poor returns, virtually none of which are spent on helping the less well-off. It is not uncommon to see elderly people who are virtually destitute and reduced to collecting cardboard or drink cans for a few dollars.

Singapore’s 90% home ownership is often compared to a level of around 65% in the US. But since the housing is public, the government owns most of the land as well as the construction company responsible for new public housing stock. All such housing is provided via a 99-year leasehold and reverts to the government, so people who have worked all their lives to pay off their mortgages will be put in the position of having to wind up bequeathing properties with little time before expiry and therefore little value. This is not home ownership but quasi-ownership. Blocks of housing only 30 years old are regularly compulsorily purchased, torn down and rebuilt (great for GDP growth and for the government’s income and balance sheet) and the residents re-homed in smaller, high–rise, higher density blocks elsewhere. This results in Singaporeans overpaying for housing of lower quality than they would with competition or a free market in land.

Moreover, the wait list for new apartments is three to four years, and to be eligible for a new flat you typically have to be married. Singles must live with their families until marriage unless they are over 35. No wonder we work such long hours and have such low fertility rates. There are not enough public rental units to make renting a viable option either, thanks to the government’s position as a monopoly owner of land and its conflict of interest between providing sufficient housing and pushing up land prices.

Singapore’s Ethnic Integration Policy obligates me and every other citizen to carry a National Registration Card declaring my race or ethnicity. According to my card, I belong to the Ceylonese minority, and I and other Singaporeans seeking quasi-ownership of public housing are subject to set quotas to “promote a balanced ethnic mix”. I cannot buy in the same estate as my family members if the ‘Indian quota’ there has already been reached. Should I need to sell, the quota may restrict my market and lower the price I receive.
Even with compulsory saving, housing is much less affordable in Singapore than in the US. The ratio of prices in relation to incomes is also much higher, while house sizes have shrunk markedly over the last ten years. Private home ownership remains an unimaginable dream for the majority of our population and more than any other economic indicator demonstrates the lack of democracy and freedoms and the gulf between haves and have-nots in Singapore. This has practical consequences in that the government has not been shy to use its control over housing to threaten voters with the loss of upgrading to their estates and public transport links should they have the temerity to believe they are free to vote for another party.
Stiglitz miscategorises Singapore’s tax system as universal and progressive. He also credits the government of Singapore with intervening favourably at the pre-tax income level in order to help those at the bottom.
But the top income tax rate In Singapore is 20%, and that is only on earned income. There is no tax on investment income or capital gains. Corporate taxes are 17%, and there is no tax on dividends. Yet Singapore has a much higher level of indirect taxes (which are regressive) than the US, including a 7% Goods and Services Tax and much heavier taxes on fuel and cars. And, as I’ve explained, the compulsory Central Provident Fund is itself in fact a disguised regressive tax.

Government monopolies in almost every area of the economy, coupled with government ownership of 80% of the land, ensure that Singaporeans pay much more than Americans for many basic goods such as food and energy.

Stiglitz says the government made sure that wages at the bottom were not beaten down to the exploitative levels they could have been”. This does not square with Singapore’s lack of a minimum wage and basic employment protections. After paying a levy, businesses have virtually complete freedom to bring in workers from low-wage countries.

The results have been predictable. While Singapore’s total GDP has indeed increased much faster than the US, due almost totally to the enormous growth in foreign workers, real wages for those in the bottom 20% of the income distribution have declined in real terms over the last ten years while median incomes have barely risen. The gains are a statistical illusion since, to cite just one instance of the government’s misleading statistics, Singapore’s Consumer Price Index does not accurately track the enormous rise in housing costs.

The government has been spending much less on education as a proportion of GDP on education than the US. Large class sizes and, until very recently double shifts in most schools, mean that parents who want their children to do even moderately well have to as a matter of necessity spend heavily on private tuition.

 

Singapore does not publish figures on public health and education spending, but its government spent a much lower proportion of its GDP on health and education (1.6% and 3.3% respectively in 2013 versus US government spending in the same year of nearly 8% and about 6%) than other developed countries, and it shows. Anyone inclined to envy our education system should know that Singapore still does not have universal compulsory education beyond the primary school levelor free education. Parents still have to pay fees from pre-school through to secondary level and buy their children’s textbooks.  In a BBC report from last month, a primary school teacher was quoted as saying that at his school in a low-income neighbourhood on the first day of school half the class of six and seven-year-olds showed up without textbooks because their parents could not afford them. A host of charities and benevolent societies pay not only for textbooks but also for breakfast and lunch for such children.

In health we have a pay-as-you-go system with a wholly inadequate medical insurance scheme tacked on. If a family member has a serious illness like cancer or heart disease then the cost of treatment is likely to leave the family destitute. We have a ratio of doctors and nurses to the total population which is below that of lower-income countries like Malaysia and Thailand which is shocking when you consider Singapore is just a city and has no rural areas.

In sum, there is no economic miracle in Singapore. It has always had an enviable strategic location. As far back as the late fifteenth century the Portuguese admiral Tome Pires said that whoever controlled the Straits of Malacca had a hand on the throat of Venice. At independence in 1965, Singapore was in the right place at the right time to benefit from the huge expansion in world trade.

The party in power since 1959 has focussed purely on GDP growth that has been achieved by adding more inputs, particularly of labour, rather than combining those inputs more productively.  Economic growth and material gain have always been used to justify the extensive restrictions on basic rights that I have mentioned, yet Western observers, including Stiglitz, too often assume that Singapore’s repression is justified by its economic success, even though a UBS survey in 2009, comparing global cities, put Singaporean median workers’ wages on a par with those in Kuala Lumpur and far behind those of workers in Taipei, Seoul, Hong Kong and Tokyo.  The UBS survey was much criticised by the government. However in the following year Singapore was dropped quietly from the survey. While an illustration perhaps of how Singapore’s economic growth, while not benefitting its own citizens, has led international companies that do business there to be wary of publishing anything that might contradict the government’s success story.  Unfortunately Stiglitz has uncritically adopted that version.

In contrast to the claims in Stiglitz’s article, Singapore is no model for income equality or for generating rising living standards through productivity growth despite the sacrifice of fundamental freedoms.

 

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