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The No-Growth Economy and the Bankruptcy of the PAP Economic Model

On Thursday 14 October The States Times published a synopsis of the Ministry of Trade and Industry’s (MTI) release of the advance estimates of GDP growth in the third quarter of 2021. According to the flash estimate, GDP was 6.5% higher in the third quarter than in the same quarter a year ago, which looks impressive until you remember that GDP in 2020 fell by 5,6% from 2019. In fact, even after growing by 0.8% over the previous quarter, GDP in the third quarter of 2020 was still lower than in the fourth quarter of 2018. This means that the Singapore economy has not grown at all over the last three years. To those who might retort that this is purely the effect of the pandemic, I would point out that the economy only grew by 1.3% in 2019

This undermines the whole raison d’etre of the PAP Government which has always tried to drown out critics of its totalitarian government by boasting about its ability to generate GDP growth. When I met the UK LibDem leader, Ed Davey, he told me that one of his Singaporean fellow students at Oxford, who was there doing the PPE degree, had retorted, when questioned about Singapore’s human rights record, “You can’t argue with 10% growth”. Never mind that the GDP growth is only generated by the import of huge quantities of very cheap foreign labour, who are misled and forced to go into debt and work in slave-like conditions, and by providing tax breaks for MNCs that encourage them to artificially book revenues and profits in Singapore. Ireland has generated even more impressive artificial GDP growth by dedicating its tax policy to the service of US MNCs. Its economy grew by over 25% in 2014, leading Paul Krugman to dub it “leprechaun economics”.

The PAP’s model has always been of imposing extreme austerity on its people through high regressive taxes and fees (though almost no taxes on capital and a top rate on earned income about half that in other rich economies), the forced saving of a very high proportion of income through CPF and its diversion into buying overpriced housing from the Government rather than consumption which would raise imports. Also depressing consumption and raising saving (represented by Government supluses) is the historic easy availability of very cheap foreign labour with no minimum wage and minimal restrictions on hours and working conditions. The aim has always been to suppress domestic consumption and use low labour costs and low taxes to generate a big external surplus which can then be used to build up an enormous and secret stock of foreign assets.

I have been writing about the PAP economic model in my blog for at least ten years and have characterized as the simple model. “Economic Development with Unlimited Supplies of Labour” frost set out by W. A. Lewis in the 1950s, on steroids.

The Government has always relied upon external demand to make up for the artificial shortfall in domestic demand created by its austerity policies but this is no longer working. Exports of both goods and services remain severely depressed and well below 2019 levels, in fact at levels last seen in 2017. The current account surplus rose in 2020 but this was only because the economy was severely depressed (see

With external demand weak the right policy response would have been to boost domestic demand by providing cash payments to Singaporeans and much more help to the unemployed and gig workers, as the Reform Party has consistently called for. However instead the Government chose to double down on its strategy of subsidising exports by paying companies a large proportion of the wages of their Singaporean employees through the Jobs Support Scheme. These wage subsidies would probably be illegal under World Trade Organisation (WTO) rules outside the pandemic and if they continue much longer will undoubtedly attract the attention of the US and EU, who might impose countervailing tariffs were the Singapore economy bigger. Without any transparency in the Government accounts and the Budget, it is difficult to tell how much support the Government really provided to Singaporeans. I have said in my analyses (see here, here, here and here the Budget that direct support to individuals only appears to have been a few billion dollars.

Without the Government providing sufficient stimulus to offset the shortfall in domestic demand, resident unemployment has risen to close to 4%. This may appear lower than US and UK levels but Singapore counts NS men as employed and subsidizes workers to go on short courses of dubious value (other than to provide kickbacks to PAP cronies). Without these artificial aids, unemployment would probably be at least 1.5% to 2% higher.

There has been much talk, from the head of MAS among others, that Singapore has to transition to a high wage high productivity but high cost economy. But it remains just that, talk. The PM and his Government remain addicted to the opiate of cheap foreign labour and vast export surpluses. But the old world of easy growth is gone. External demand is likely to remain weak and while supply chains are snarled by COVID shortages, Singapore’s position will be severely affected. The use of large quantities of migrant labour is unlikely to work as well in future or be politically acceptable. The economy has not grown at all since at least 2018 and probably earlier. The PAP have no answers and no roadmap to get Singapore to the high productivity high wage economy. When will Singaporeans wake up to the confidence trick perpetrated on them daily by a bunch of third-rate con men and pocket liners and realise that almost anyone else can do better?

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