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Singapore’s Economic and Immigration Policies are Insane


FT article

On Friday the Financial Times carried an excellent article by the eminent and long-standing economic commentator, Samuel Brittan. I have reproduced a screenshot of his article above. I remember as a student at Cambridge, always  looking forward to his articles which came out every Monday.

In this article he talks about economists having “an excessive preoccupation with real gross national or gross domestic product.” He goes on to say that “promoting GDP at all costs would be an insane objective for long-term economic policy. GDP would be maximised by opening a country’s frontiers and promoting mass immigration…so long as there is a net addition to the labour force, the country’s GDP would almost certainly rise, however overcrowded and unbearable the country might be to inhabit.”

Wow- is he talking about us? Clearly Sam Brittan considers that such a policy would be so patently ridiculous that it can serve as what in logic is called a “reductio ad absurdum”. His words perfectly describe the policies pursued by the PAP government in Singapore and echo much of what I have been saying in Singapore since 2009 except I tend to self-censor and Mr Britten doesn’t feel that need.  In the 1990s Singapore began to open the floodgates to the import of labour from Asian low-income countries, nearly doubling our population. As I keep telling you, this has resulted in real wage stagnation for the bulk of the working population and declines for those in the bottom quartile. Particularly because our work force isn’t protected by a minimum wage so wages can keep getting lower and we enjoy minimal labour protections.

Meanwhile returns have soared for the owners of fixed factors of productions such as owners of land and property. This has produced a bonanza for the government which owns nearly 80% of the land. As everyone reading my blog should know by now the majority of Singaporeans do not own property. We have no property owning middle class so no property owning democracy.  90% of us live in public housing leased for 99 years from the government. This sector has seen housing costs rise much faster than incomes while the average size of apartments built by the monopoly state housing supplier has been cut by close to 20%.  The rising cost of housing keeps young couples from getting on the ladder clearly affecting our fertility rates and the PAP openly uses its control over the estates’ freeholds as leverage during elections by threatening to withhold refurbishment and upgrading.

The government is making all this money from the influx to the population but doesn’t use it to improve the infrastructure let alone our daily lives Opening the floodgates means that public infrastructure and amenities, such as the transport system, become ever more overcrowded while waiting lines to see doctors at government clinics have lengthened to several hours. A shortage of beds at government-owned hospitals means that patients often to wait hours or days before being admitted. Until recently lack of school buildings meant that most schools had to serve two sittings to accommodate pupils. Luckily there are few of these double-session schools left.

When these policies are questioned, the PAP government usually responds with the fallacious argument that if Singaporeans oppose curbs on foreign labour then they will have to put up with slower economic growth without any explanation as to how faster economic growth, which has so far failed to produce rising real incomes, will work differently in the future. The people are often told that they need to endure short-term pain for the sake of long-term gain, a consistent cliché in the government’s rhetoric since the 1980s. Yet the pain seems to always be the people’s while the gains accrue to government ministers, who justify higher pay and bonuses on the basis of the economic growth that they have “miraculously” generated. Private property owners are a rare elite who also prosper.

These “insane” policies, which would be rejected by the people in any country with free and fair elections, have had the desired effect of boosting not only GDP growth but also that of GDP per capita. On this measure, Singapore is now one of the highest-ranked countries in the world (though if it is ranked more correctly against comparable global cities such as New York, London, Paris or Tokyo its record even on this measure is far less impressive). This is largely due to the fact that the immigrants have increased the ratio of the employed labour force to total population, since they bring no dependents with them and will be immediately sent home should they lose their jobs. The human rights cost as the imported labourers enjoy almost no protections is also not insignificant.

Samuel Brittan suggests that a less bad approximation would be GDP per worker “but even that borders on the absurd-for it might be maximised by compulsory increases in working hours at the expense of leisure”. It is no coincidence that Singapore has the highest number of hours worked per person employed among 20 advanced countries according to the US Bureau of Labour Statistics. While increases in working hours are not compulsory de jure they become de facto compulsory as with no minimum wage and very few curbs on imported labour Singaporean workers are acutely aware that they can easily be replaced by foreign imports. Very long working hours boost Singapore’s GDP per worker though the effect is not as marked as at the GDP per capita level.

I suggest that a better proxy for comparisons between countries would be GDP per hour worked, or productivity. On this measure Singapore ranks near the bottom of twenty advanced countries previously surveyed by the BLS and now by the US Conference Board. While US GDP per hour worked has grown by nearly 6% since 2007, or 1.1% p.a., Singapore’s has only just recovered to its 2007 level.

To illustrate the disconnect between the PAP government’s policies and the people’s welfare, 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 which seems hard to justify given that Kuala Lumpur and other Asian cities continue to be included.

Singapore’s example shows how an authoritarian state capitalist government can win plaudits from a largely ignorant international audience by adopting insane objectives that ignore the welfare of its own people. Back in the 1950s Western commentators were similarly dazzled by the seemingly inexorable rise of the Soviet Union and we all know what happened to that.

7 Comments »

  1. Interesting piece. A few extra titbits, wearing my econs lecturer hat:
    1. GDP per capita is not a good measure of national wellbeing when capital is internationally mobile. Think Ireland, which has one of the highest GDPs per capita (even post crisis) in Europe – but much of this accrues to foreign firms. GNP is a better measure. NNP even more so.
    My guess is that Singapore may now be an overcapitalised economy, driven by tax competition?
    2. Income/hours worked is a better measure, as Sam Brittan points out. Olivier Blanchard did a well-known comparison of US and French living standards: US workers have higher wages, but this is almost exactly offset by the longer working hours and poor retirement and leave arrangements.
    3. How much of Singapore’s income is earned by an internationally-mobile financial services elite? (Same issue for UK, Switzerland etc).
    4. Thinking post-crisis: how good is Singapore’s regulatory system, and what would be the cost to the economy of bank failures? In the case of the UK, Ireland and (especially) Iceland, the growth of the early noughties was illusory, since it should have been offset against implicit insurance costs of underregalated banks too big to fail.

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    • Re point 1 it is certainly true that perhaps 30 to 40% of Singapore’s GDP accrues to MNCs though since American ones especially do not remit their profits to their home countries but leave it in Singapore for tax reasons the differences between GDP and GNP are not that significant. The Department of Statistics always used to draw this distinction but they have ceased doing so as far as I am aware. My worry is that a lot of investment in Singapore is driven by tax arbitrage considerations. Take for instance the huge expansion in Singapore’s pharmaceutical industry which has propped up the manufacturing sector post-2008. Most of that is probably due to tax concessions and could disappear if those concessions are withdrawn. In fact David Cameron was contemplating similar concessions in the UK to pull the industry back. The expansion of our wealth management industry is largely driven by the fact that Switzerland can no longer function as a tax haven because of US and EU scrutiny. Proposals to tax MNCs on where they make their profits rather than where they are based will work to the detriment of small countries that play the tax arbitrage game like Ireland, the Netherlands and Singapore. I pointed out recently that Singapore loses out like the US because profits that MNCs make in Singapore and the region are routed through tax havens like the Netherlands to avoid tax. Both Yahoo and Dell are good examples of this practice but I am sure it is highly prevalent.
      2. Singaporeans work the longest hours in the developed world according to the US figures.
      3. Financial services account for about 11% of the economy so that in itself is not so worrying. However the (over)expansion of manufacturing in recent years is a worry as it appears to be driven largely by tax considerations.
      4. Moodys and S&P both put Singapore banks on negative credit watch recently because of concerns over the property sector and its vulnerability to a rise in US interest rates and were criticised by our central bank, MAS, for doing so. A large part of the banking system is government-owned already (DBS and POSB, to a lesser extent Standard Chartered) so taxpayers are already footing the insurance costs directly.

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  2. “GDP would be maximised by opening a country’s frontiers and promoting mass immigration…so long as there is a net addition to the labour force, the country’s GDP would almost certainly rise”

    If that would be the case, why is there immigration at all, given that there is a net addition to the labor force in the countries where the immigrants come from.

    Please review your economics and get better sources this time — use a textbook to learn, not pundits.

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    • Obviously because the marginal revenue product of the immigrant workers is positive and higher than the wage that Singapore employers have to appear to promise to pay to get them to move to Singapore. Of course these immigrant workers often find that the wage differential is not as high as it appeared due to hidden costs such as debts to middlemen and exploitation by unscrupulous employers including government-linked companies. Maybe you are using a different textbook to learn-I am sure the ones used in Singapore schools have something postive to say about PAP economic policies.

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