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The PAP Sausage Making Machine, Foreign Professors and Our Inferiority Complex


George Borjas

George Borjas

A warning

I have been warning for the past five years about the effect of an open-door foreign worker policy in depressing the wages of native Singaporean workers and in particular low-income workers. I have pointed out both in Reform Party press releases  such as our yearly Budget analysis- see here for 2014- which is never printed or quoted in the Singapore  State Media, and in my blog, Rethinking the Rice Bowl,  (ditto) that the PAP have had one economic model for fifty years for achieving growth which is to add more labour inputs rather than increase productivity.

The sausage making machine

Sausage Maker

In 2013, in response to a comment by the former NMP Eugene Tan that took the title of my previous article, I wrote “When Immigration Stops Being the Elephant in the Room and Becomes the Great White Shark in Your Parliament”:

 The PAP government knows only one economic model. That model which I first pointed out and which these days is explained back to me by taxi drivers is this. It is a sausage-making machine.  You feed in additional inputs of labour at one end of the sausage machine to produce additional units of output, or GDP, at the other. In between there is no rise in underlying productivity. Despite a Budget devoted to productivity in 2010 and Tharman’s promise to raise productivity growth to 2-3% per annum and real incomes by 30% by 2020,the facts show that productivity growth was -2% in 2011 and 0% in 2012. That’s a clear sign for you. Wake up!

 A Nobel Prize-winning economist Paul Krugman exposed this same model in the 1990s when he debunked the Asian economic miracle and that led to the downfall of the Soviet Union in 1990. This is a basic model of economic development that has been around since 1954 when Arthur Lewis first propounded it (“Economic Development with Unlimited Supplies of Labour”). Sooner or later this model just runs out of steam or collapses because there is no innovation. The PAP have just put off  the day of reckoning by opening the floodgates to cheaper and cheaper labour supplies from the developing countries of Asia…

The PAP government is the principal owner of land and capital. By transferring resources from us the workers to themselves, facilitated by the role of immigration in depressing wages and pushing up land prices, that wealth stays out of our hands. Make no mistake, in the last 50 years that wealth could have been used to develop a strong middle, each generation better off than the one before, free universal education, joined up health care, a professional paid army, benefits for the most needy.

Stagnation of median real wages

in 2011, in an article entitled “Immigration is the Elephant in the Room”, where I criticised a discussion on the causes of rising inequality and the stagnation of median real wages by the chief economists at GIC and Resorts World Sentosa I wrote:

However they fail to mention the elephant in the room, which is immigration policy or the lack thereof. Undoubtedly the government’s determination to allow our wages to be determined by those in the poorest economies in Asia has played a major part in depressing real wages, particularly for the lower-skilled workers. Not only was there very little restriction on foreign labour, and no restriction at all for those earning more than $2,500 a month, but there appears to have been lax enforcement of what rules there were and ample loopholes. This has been demonstrated by a recent case where an employer was jailed for putting phantom Singaporean workers on his payroll to allow him to bring in more foreign Work Permit holders…

 What we have in Singapore is a situation where the wages of those who can be replaced by cheap foreign labour have been held back or in many cases cut.  Even those with higher-level skills have undoubtedly been held back by competition from third-world graduates from India, China and the Philippines, even Eastern Europe.  Worryingly there are clear indications that advances in software and machine intelligence are starting to make redundant even highly-paid white-collar jobs in areas such as law and financial services that were hitherto relatively protected from foreign competition. But this government’s open door policy to foreign labour has been the main cause of rising inequality in Singapore.

Opening the Floodgate

Floodgates

 

 

In  2013 I wrote an article entitled “Singapore’s Economic and Immigration Policies are Insane” in which I said:

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.

Given my previous extensive writings on the PAP Government’s use of immigration to depress wages and boost profits, I had a strong sense of déjà vu when I received an email from Tan Jee Say yesterday. This contained an account of the conversations he had with his professors at Harvard about the economic effects of immigration. He quotes George Borjas, a labour economist and one who has warned about the consequences of large-scale unskilled immigration into the US, as saying:

There are gainers and losers of a country’s immigration policy. Gainers are the users of immigrant labour namely, employers and consumers. Losers are native workers who compete with the immigrants.”


I can understand why it is tempting for Tan Jee Say to be swayed by the opinions of foreign professors as he is currently at Harvard and in close contact with them.  After all he was PM Goh’s Principal Private Secretary for  a long time and the PAP have always taken their ideas from academics overseas. But I think it is a mistake and even shows signs of a Singaporean inferiority complex. We do not need foreign professors to tell us what our home grown pundits have been saying- in my case for years. I would prefer that Singaporeans started to think for themselves rather than act as sponges for outside influences.  It is also dangerous because the US economy is so different  to ours.

In the article Borjas repeats what I have said previously on many occasions. A frequent argument in favour of immigration, and one used by the PAP, is that immigrants do jobs that native workers shun. However as Borjas rightly points out the main reason why native workers no longer want to do those jobs is because the competition from immigrant workers has reduced wages in those occupations to levels where they are no longer attractive. This has happened to a large extent in Singapore. In many occupations such as construction, cleaning and food services it is cheaper to substitute lower-skilled and less productive foreign labour rather than invest money in automation and continue to employ more productive but more costly Singaporean workers. Our low productivity is a direct consequence of the easy availability of low-cost foreign labour.

While there are some analogies with the US, the Singapore situation is very different. The US has abundant land and is on many measures extremely underpopulated while Singapore is the second most densely populated country in the world (after Monaco). US workers enjoy the protection of a minimum wage and a probably too restrictive immigration policy. While the proportion of immigrants in the US population is around 12% as compared to a proportion of 40% foreigners in Singapore, the US figure includes new citizens whereas new citizens are excluded from the Singapore figure. Excluding PRs and new citizens from the residents figure would undoubtedly take the proportion of foreigners in the employed labour force  in Singapore to well above 50%.

Borjas says that the US minimum wage, which is set on a state-by-state basis, is too low to protect low-wage American workers. However that is still a big improvement over Singapore which has no minimum wage and no real protections for employees against being sacked and replaced by cheaper foreign labour. While Tan Jee Say is on the right track in calling for priority for Singaporeans in hiring this is not sufficient. Reform Party have called for a cap on the total number of foreign workers rather than the current situation where there is practically no upper bound on the number who can come in under the Employment Pass system. We want to replace the foreign worker levy with an auction that will ensure that more of the producer surplus from being able to employ cheap foreign labour is retained by the government and used for the benefit of Singaporean workers. The cap can be raised or lowered in line with economic conditions and to keep wage growth in line with productivity growth.

While it is good to see that some of the most prominent US academics in this field arrive at the same conclusions that I have, it is slightly disappointing to see that Tan Jee Say feels that the analysis of foreigners is more likely to impress Singaporeans than the same conclusions arrived at by a Singaporean economist. Until we can shake off this inferiority complex which has been inculcated by the PAP our people will never receive their just reward in the marketplace irrespective of government policy.

Inferiority complex

5 Comments »

  1. “A frequent argument in favour of immigration, and one used by the PAP, is that immigrants do jobs that native workers shun”.

    Some years ago when I was visiting Norway, I met a student on a summer job. He was assigned to cut grass along the main highway in a small town in Fjordland. I was struck by the fact that his summer students pay was the equivalent of S$3,000 per month. How many Singaporeans, do we think, will refuse this pay (equivalent to what taxi drivers earn, on average) for cleaners or jagas or bus drivers’ jobs?

    Another great fallacy, and a trap which the PAP fall into and are unable to see, is that the more our population increases, the more low-skilled jobs we need, so the more workers we need to import. Its a vicious cycle. The only way to break the cycle is to drastically cut immigration and force businesses and services to compete for available workers. An auction of sorts, where the levy is set by the market, is a good idea. There will be attrition of businesses but that can only be good for Singapore. If biscuits and soft drinks can be made more cheaply in Malaysia, then they have no business being manufactured in Singapore: they take up scarce resources and contribute to the overcrowding ( a non-economist’s perspective).

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  2. While I agree with both your view and Tan Jee Say’s one, it is not constructive to put down another politician who shares the same perspective as you to earn some brownie points. It is also not a fair nor mature to make personal insinuations like “Tan Jee Say feels that the analysis of foreigners is more likely to impress Singaporeans than the same conclusions arrived at by a Singaporean economist”. The meat is the same, what differs is just the way it is cooked.

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    • You misunderstand if you think I’m putting anyone down. That’s not the intention of the article and it is unfortunate that you read it that way. In discussing economic theories we all need to be a little thick skinned and I’m sure TJS is happy with the small part that deals with his Harvard professor. We need, as a Nation, to think more highly of ourselves and shed this idea that only the PAP or similar can rule or come up with sound economic plans.

      As for having the same perspective as TJS- what makes you think that? Of course we at RP did all offer TJS a place on our CEC even top position, when he was negotiating for a Party vehicle before setting up his own. But TJS felt he needed an entrenched Cadre system and disagreed with the perspective of our Party which is purely democratic and believes that select committees which choose a Cadre and voting for each other are an obstacle to democracy being basically a communist system. In fact above all else the one reason that JBJ set up a new Party was to have a clean break with the old structures that the other parties have. Reform Party is a representative democrcay within itself and therefore has no Cadre and closed voting system. However though TJS and his group turned down our offer it hasn’t caused any bad blood.

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      • I am just commenting in the context of this article where the crux of the issue discussed is the same. What happens between you and him in party negotiations is not relevant, nevertheless, it is good to bring it up for discussion in another piece if you want to make known the differences between you and him.

        What I am trying to convey here is that you do no one any favour, including yourself, by trying to read between the lines for things that may not be attributable to him. For all you know, he may not be trying to convey the idea that foreign perspectives are more convincing than local ones, it just happens that he found it useful for this particular case. In any case, you should keep your personal opinion and try to be objective.

        As an outsider, it is painful to watch such infighting taking place, bad blood or not.

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        • Truly, as I said you are reading something into this piece that isn’t there. As I said it is perfectly understandable, as TJS is at Harvard, that he would want to share the opinion of the influencers there. This time it happened to be TJS mentioned but if anyone else had been lauding a foreign professor who I felt was saying what home grown Singaporeans have already said, then they would be mentioned instead. I have to quote the source and it’s not personal. I’m sorry you see it that way and unfortunate that you want to seize on a tiny part of a larger article and turn it into talk of infighting and bad blood? I don’t see any infighting.

          Your feedback is welcome and valuable and as you see I print comments negative and positive. Of course those comments which point to the substantive arguments are always the most valuable in widening out a debate.

          It’s quite an unusual response though and reminds me in fact, of the manner in which civil servants write to foreign press when MPs and Ministers don’t like the way they have been portrayed or imagine a slight. In their case they are hypersensitive not displaying the thick skin necessary. Their action amounts to moves to silence, influence and censor free thought and opinion.

          We don’t need to validate what’s happening in Singapore with the views of overseas academics. We need to have more pride in ourselves. Furthermore it is a long held PAP position that only they are talented or clever enough to run the country. That academics, professors, the elite are the only ones fit to represent the people along with foreign advisors and bodies. I refute this notion. This idea is a dangerous one and effectively blocks a movement of home grown talent and the idea of democracy of the people, by the people rather than leadership from the top.

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