Sunday, April 24, 2011

Wall Street Journal on Singapore's reliance on foreigners for economic growth

Source: Wall Street Journal, Jan 12, 2010 (here)

Singapore's Expat Surge Fuels Economic Fears

by Patrick Barta and Tom Wright


Between 2005 and 2009, Singapore's population surged by roughly 150,000 people a year to 5 million—among the fastest rates ever there—with 75% or more of the increase coming from foreigners. In-migration continued in 2009 despite expectations it would collapse because of the global recession.

The influx helped boost Singapore's economy in the short run by creating new demand for goods and services and helping manufacturers keep labor costs low. Developers built apartments and posh shopping centers for the new arrivals.

By some estimates, a third or more of Singapore's 6.8% average annual growth from 2003 to 2008 came from the expansion of its labor force, primarily expatriates, allowing Singapore to post growth more commonly associated with poor developing nations.

At the same time, though, foreign workers have driven up real estate and other prices and made the city-state's roads and subways more congested. Their arrival has kept local blue-collar wages lower than they would be otherwise, exacerbating Singapore's gap between rich and poor.

Some economists say the most damaging effect of the immigration is that the influx appears to be putting a lid on productivity gains, as manufacturers rely on cheap imported labor instead of making their businesses more efficient. Labor productivity, or output per employee, fell 7.8% in 2008 and 0.8% in 2007—a phenomenon that could eventually translate into lower standards of living.


Immigration "kept our economic growth high but, at a tremendous cost," says Kenneth Jeyaretnam, the secretary-general of Singapore's Reform Party, a small opposition party founded in 2008. Relying on foreign labor to help boost growth is unsustainable, adds Choy Keen Meng, an assistant professor of economics at Singapore's Nanyang Technological University. He says a better model would involve the reining in immigration and accepting that Singapore is becoming a more mature economy like the U.S. or Europe, with a long-term growth rate of 3% to 5% a year.

Singapore, unlike many of its neighbors, has a reputation for reliable public services and minimal corruption. Its openness to foreign investment is one reason why gross domestic product is expected to rebound to 4.5% this year, according to the Asian Development Bank, from a contraction of 2.1% in 2009.

Still, Prime Minister Lee Hsien Loong, speaking at a Singapore university in September, said there was a need to be "mindful of how quickly our society can absorb and integrate" new arrivals, and vowed to curb immigration.

The government is also studying immigration as part of a wide-ranging review of the city-state's economic model launched in 2009. Results of the review, due this month,are expected to include steps to diversify Singapore's economy and reduce its reliance on exports to the United States and Europe by boosting domestic consumption, among other things.

Yet people familiar with the government's plans say it is unlikely to press for deep cuts in immigration, and will aim to find other ways to restore productivity growth. Singapore remains committed to a long-term goal of increasing the population to 6.5 million, though it would do so by prioritizing high-skilled residents as opposed to blue-collar workers.

Immigration "is not a weakness, it's a strength," said one person familiar with the long-term economic planning process. "People want to come here, why not make use of that strength?"

Serious cuts to immigration could also generate a backlash from other interests—notably the factory owners and real-estate developers who rely heavily on foreign arrivals. Many employers complain that local Singaporeans, accustomed to a higher standard of living than most other Southeast Asians, are unwilling to take on menial jobs, and are likely to resist further tightening of foreign labor supply.

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