Immigration is the Elephant in the Room

Raging Elephant

Elephant in the Room

Yesterday the ST gave us a centre-page spread by two vice-presidents of the Economics Society discussing the rise in inequality in Singapore. The fact that one of them is the Chief Economist at GIC and the other is Director of Planning at Resorts World Sentosa might be a clue that we are not going to hear much that is radical from them. You might want to question what insight they will be able to give you into why your ricebowl doesn’t look like your neighbour’s rice bowl. After all someone from GIC is effectively a civil servant, while Resorts World Sentosa presumably wouldn’t like attention called to the fact that the euphemistically named ‘Integrated’ Resorts probably contribute in a small way to rising inequality.

The writers state that the government’s attempt to minimise the cost of social welfare by focusing only on those in the direst need has exacerbated inequality and led to a more divisive society. I use the word “focusing” somewhat  ironically as many Singaporeans would say that the aim of government welfare policy is to ensure the eligibility criteria are so tough that everyone is excluded.  In fact this is the crux of the PAP theory of your ricebowl  that I like to examine in these pages. However, while the authors argue that an inclusive society is better from everyone’s viewpoint and that this is best achieved by universal social programmes, they make the mistake of assuming that the government is actually interested in inclusivity and fostering social cohesion. There are many who hold by outmoded theories of Darwinian competition (though strangely this belief vanishes when it comes to politics or areas of the economy that the government dominates). MM Lee’s famous words, about Singaporeans needing a spur in their side from new immigrants if they are not to become lazy and complacent, spring to mind.

This brings me on to the most surprising – or perhaps not so surprising if you consider the government connections – aspect of their article.  They discuss the near stagnation in real median incomes of those in full time employment and absolute stagnation for those in the bottom 20th percentile, even on the government’s own highly selective and possibly biased figures.  The use of the base year of 2001 probably flatters what little growth there has been, as incomes declined from a high in 1998 and reached a low in 2001 after the Asian crisis and the end of the dot-com boom. The government’s figures also do not allow for changes in hours worked, which probably rose over this period. For a fuller discussion, please see my article, The Stagnant Society (http://sonofadud.com/2011/10/13/singapore-the-stagnant-society/) for a longer discussion.

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.

In his book 23 Things They Don’t Tell You about Capitalism (http://www.guardian.co.uk/books/2010/aug/29/ha-joon-chang-23-things), the Cambridge development economist, Ha-Joon Chang, uses a comparison between the wages of a bus driver in Sweden and one in India. The Swedish bus driver earns around fifty times as much as the Indian bus driver yet it would be hard to say that he was fifty times as productive or skilful. In fact the Indian bus driver probably has the more stressful job or requires more skill, given the state of Indian roads and the density of traffic. The differential between the Swedish bus driver’s wage and the Indian’s is almost wholly attributable to immigration controls. Of course Swedish wages are high to start with because of their much higher productivity in the traded goods sector which is subject to competition. Employers in the non-tradeables sector then have to pay higher wages to compete for scarce labour. Without being able to bring in foreign labour they have little choice.

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.

Whether we have a minimum wage, or a cap on foreign labour (which amounts to the same thing), this is the Elephant in Room whose emissions are causing the inequality. Unfortunately, we risk the Elephant turning into a Raging Bull if the xenophobic ranting in cyberspace is anything to go by. What we need now, and urgently, is some serious and open and reasoned debate on the future of Singapore.

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