Why Singaporeans are paupers in a first world economy

Source: An analysis of the UBS study (Part 3): Why Singaporeans are paupers in a first world economy « Opinion « NEW TEMASEK REVIEW

Until the global financial turmoil in 2008, Singapore has enjoyed 10 years of continuous growth of more than 5% per year.

The Singapore government has always used GDP growth as a basis for citizens to appraise its own performance. Even a variable portion of their multi-million salaries is pegged to the GDP.

Singapore’s GDP figures are indeed impressive: Singapore is ranked third in the world by the World Bank in terms of GDP (PPP) per capita ($49,288). (source: wikipedia)

[PPP = Purchasing Power Parity, GDP at PPP per capita refers to the value of all final goods and services produced within a nation in a given year divided by the average population for the same year]

Only Norway and Luxembourg are ranked higher than Singapore. The United States, Switzerland, Hong Kong, Sweden, Austria, Iceland and Holland are the other countries within the top ten.

In a way, our economy’s sterling performance is a vindication of the government’s ‘growth at all cost’ economic policy. Singapore has a first world developed modern economy.

GDP growth is usually translated somewhat to a better quality of life for the citizens, but not exactly in Singapore’s case.

If we study the indices such as wage level, domestic purchase power and spending power as shown in the UBS study, we will realize that we are ranked way below the developed economies.

Our income gap, as measured by the Gini Coefficient, is the highest among the twenty most developed economies, comparable with the Philipines, Nigeria and Nicaragua. (source: wikipedia)

This means that the gains we have made as a nation from years of economic growth are not distributed evenly across the population. A minority becomes richer, but the rest are not better off. Some even become poorer.

According to a NUS study completed last year, lifetime income inequality has been increasing rapidly especially after the Asian financial crisis. In fact, despite the substantial growth of the economy, the lower income quantile has seen a drop in their real lifetime income. (source: NUS SCAPE)

In a way, we are “paupers” compared to our counterparts in other first world economies? Singaporeans have lower spending power, they are likely to work longer hours and even then, many may not save enough for their retirement. Why is this so?


Influx of foreigners

When MM Lee said recently that foreigners are vital to our economy, he was not exaggerating. Foreigners contribute to almost one third of our workforce. Our economy will collapse without them.

In the past, foreign workers in Singapore consisted chiefly of the low unskilled blue collar workers and the highly skilled white collar professionals. The former do not compete directly with locals as they worked mostly in industries shunned by Singaporeans while the latter helps to add value to our economy and create more jobs in the process.

However in recent years, we are seeing more semi-skilled foreigners entering our labor market. Not only are they competing directly with Singaporeans for jobs, they also have a certain degree of spending prowess which compounds the problem of inflation.

These foreigners took up many jobs which can otherwise be filled by locals such as engineers, mid-level managers, and administrators, leading inevitably to stagnation or even decline in overall wages.

Of course the widespread use of foreigners help to bring labor costs down collectively, contributing to GDP in the process. While other countries are exploring ways to improve productivity, Singapore continue to take the easy way out by importing foreigners en masse to pop up its economy.

Government dominance of domestic economy

The economy of Singapore is a highly developed state capitalist mixed economy. While government intervention in the market is kept to a minimum, the state controls and owns firms that comprise at least 60 per cent of the GDP through state-linked companies such as DBS and Capitaland and its two giant sovereign wealth funds, GIC and Temasek Holdings.

The government is also the largest employer, giving it leverage over the wages of ordinary Singaporeans who are employed in the civil service.

State-linked companies stifle entrepreneurship and retards the growth of small and medium enterprises. Singapore has the lowest number of entrepreneurs and local start ups among the four Asian Tigers.

The state’s only legal trade union, NTUC, controls all facets of the domestic economy from supermarkets, pharmacy chains, medical clinics, food courts, insurance, taxis and even the undertaker business.

Singapore workers have their natural rights forfeited under the government’s “tripartite” arrangement which is strongly pro-business. Strikes and protests are outlawed. Ordinary workers have few official channels to turn to for seeking redress or settling labor disputes.

The government’s overwhelming dominance of the domestic economy leads indirectly to a passive, subservient and risk-adverse citizenry who prefers to earn a low, but fixed, regular income as employees rather than strike it out on their own as bosses.

The brightest college graduates either pursue a professional degree such as medicine and law or take up attractive government scholarships to serve in the civil service upon graduation. Very few Singaporeans aspire to be businessmen, scientists or innovators.

As a result, the population lacks initiative, motivation and creativity, becoming overly dependent on the nanny state to guide, manage and control the economy which also partly explains why Singapore produces less millionaires than Hong Kong and Taiwan. (source: asiaone)

High prices of public housing

Over 85% of Singaporeans live in high-rise public housing built by the government. Though they are meant to be cheap and affordable to the masses, recent price hikes has priced ordinary Singapore workers out of the market.

In the 1980s, a new four room flat in Bishan cost about $60,000 while the median pay of a fresh graduate is about $1,500. A young couple paying a monthly mortgage of $1,000 will be able to repay the entire housing loan in 5 years time.

Today, a new four room flat under the Design, Built and Order scheme in Bishan cost around $600,000. The median pay of a graduate is only $2,500. How much will a couple need to pay a month in order to service a thirty year loan?

The high cost of public housing means that families have to save more to finance the bank loans which translates to less cash for domestic consumption in the purchase of non-essential goods and services. It is little wonder that Singapore’s domestic purchase power is the least among the Asian Tigers in the UBS study.

We are “paupers” compared to the Taiwanese, Hong Kongers and Koreans because we are unable and unwilling to spend as much as them.

The monopoly enjoyed by the HDB enables them to set prices arbitrarily though the new flats are pegged to the resale markets. There is no incentive to lower the price because there are no competitors.

In a completely free market, HDB will be competing against smaller private firms to build flats at a cheaper price to serve the needs of the buyers who are mainly from the middle and lower income group, thereby bringing down prices considerably.

Lack of social safety net

The Central Provident Fund (CPF) scheme was originally introduced to ensure that Singaporeans have sufficient funds to serve their retirement needs. However, recent studies have shown that most Singaporeans have insufficient funds left in their CPF.

In the government’s CPF Life brochure, it claims that CPF is inadequate to provide a lifelong income to the elderly because they are living longer. (source: MOM) This is only one of the reasons. A more important cause lies in the exorbitant HDB prices which tie up the CPF funds.

Most Singaporeans finance the purchase of HDB flats through their CPF which has become a basic necessity in Singapore since there is no hinterland to retreat to like in Hong Kong.

The government parcels out state land to HDB which built the flats to be sold to its citizens. The selling price is not determined by market forces, but is set by entirely by the government. Nobody knows the cost of the land and building the flats. Is it reasonable for a new 4 room HDB flat to fetch more than $300,000 and still considered “affordable”?

Though health care costs remain heavily subsidized in Singapore, citizens are expected to foot part of the medical bill from their own pockets. A single hospitalization is enough to wipe out one’s lifelong savings. Faced with a grim and uncertain future, Singaporeans have to save more than they can spend, contributing to our low spending power.

Conclusion

Every elected government of the day has an implicit ’social contract’ with the voters. Citizens vote for a government to take care of their interests. To many, this means a roof over their heads, a decent standard of living and provision of basic medical services.

Singapore has one of the highest GDP per capita in the world, but are we living the lives of people in a first world economy? Has the government fulfilled its ’social contract’ to us?

The UBS study has once again exposed the inherent fallacy in the government’s argument that unbridled economic growth will bring prosperity to all Singaporeans.

Besides the high cost of living, all of Singapore’s other economic indices are far away from those of first world countries including our closest competitors in Asia – Hong Kong, South Korea and Taiwan. In fact we are closer to the Russian than the Swiss standard of living.

Singaporeans are “rich” as defined by the assets we possessed – 90% of Singaporeans “own” their homes, but in name only as most of the households are mired in debts due to borrowing from the banks to finance their mortgages. As a result, we have little disposable income to spare – ‘asset rich, but cash-poor’.

With no social safety net to speak of, many Singaporeans cannot afford to retire. They have work well into their twilight years till the day they die. Is this the kind of future you want for yourself and your family?

Many developed countries now realize that the obsession with GDP growth does not necessarily bring happiness and well-being to its people. In fact, high GDP growth has a propensity to cause inflation, rising cost of living, longer working hours and greater stress level for the working population and does not always lead to wealth creation or distribution to the lower income group.

The Sustainable Development Commission in U.K. is now advocating  ”prosperity without growth” to the government in order to engineer a rethink of its economic policies from one which is mainly econometric to one which is more humanistic.

A recent study published by the New Economics Foundation shows that the happiest people on Earth are not from countries with the highest GDP per capital. Costa Rica, with a GDP a quarter of the United States, has the highest Global Happiness Index in the world.

As we stand in a pivotal moment of our history, Singaporeans must decide whether it is worthwhile to continue pursuing high momentum growth at all cost at the expense of the quality of life or refocusing its energy to really achieving “happiness and prosperity” for everybody albeit with less impressive GDP figures.

There is an old Chinese adage: “Resting is merely a preparation to walk the longer journey ahead”. We have come a long way as a young nation and there are still many years ahead of us. What do we really want to achieve together as a people, a community and a nation? Have we lived up to the aspirations of the National Pledge to “build a democratic society, based on justice and equality?” Are we brothers and sisters or are we simply “digits” in the economic machinery which makes up Singapore INC?

A country is not a corporation. Neither are its people shareholders. A nation deprived of purpose, ideals and vision will never survive the test of time. We need to look beyond economic indices and nurture a sense of belonging, pride and patriotism among Singaporeans.  This will only be brought about by a government which truly respect and care for its people.