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The Economic Strategies Committee (ESC) finally released its report yesterday after over eight months of deliberation. The ESC is supposed to include the best brains from the private and public sectors yet all it could come up with as key recommendations were what the Reform Party and its Secretary-General, Kenneth Jeyaretnam, has been saying since at least April of last year.
In our previous press release, “Work Smarter NOT Harder”, dated 25th January 2010, we said that we were delighted that one of our core messages had been taken up by the Government. This was that economic growth had to be driven by productivity growth and not as has happened over the last ten years largely through expansion of the foreign labour force and that we had to improve our dismal productivity record, We have been saying for over a year that the Government’s target should be focusing on raising the majority of Singaporeans’ living standards rather than just maximizing economic growth.
Now, as expected, the ESC has said exactly the same. Further they have said that this can only be achieved by a substantial increase in investment in education and training. The Reform Party, at its Education Seminar on 23rd January 2010, called for a considerable increase in the percentage of GDP spent by the Government on education and that it should rise from an average of 2.8% of GDP over the last five years to between 5 and 6%, in line with other advanced countries. We are glad the ESC, after a considerable period of time, has reached the same conclusions as the Reform Party, but feel that considerable resources could have been saved and the time of some very highly talented and busy people better spent, if they had consulted us earlier and in particular if they had attended our Education Seminar which was free. To save the government much time and expense the Reform Party is prepared to offer the services of its SG, Kenneth Jeyaretnam, as a consultant on economic strategy for free.
We discuss below the key strategies outlined by the ESC:
1. Growing through skills and innovation
The Reform Party has for some time been pointing out the need for us to raise substantially our investment in education. In addition over investment for an extended period will be necessary to compensate for decades of under-investment. As the ESC report points out over 60% of our workers only have secondary education which is much higher than levels in other comparable countries. Other countries’ rates of tertiary enrollment have been rising for some time so even if we substantially boost our current rate of around 33% we will still be playing catch-up. And the quality of our degrees has to be questioned when so many MNCs, and even GLCs, seem to prefer foreign graduates.
Otherwise the Reform Party supports in principle the idea of a high-level national council to boost productivity but worries that this will be just an excuse to create another layer of highly paid bureaucracy without tangible results. We call in our draft manifesto (circulated at our dinner in September 2009) for a considerable rise in the resources devoted to worker retraining as well as raising the level of investment in education. The ESC’s recommendations also carry the worrying implication that the money spent on programmes like SPUR, touted in the last budget as evidence of the government’s commitment to worker retraining, has been wasted or was just a means of keeping the unemployment statistics lower.
The Reform Party advocates a minimum wage as a means of forcing employers to use labour more productively. Raising foreign worker levies (effectively a tax) may be a means of achieving the same goal but does not directly raise or put a floor under the wages of less-skilled Singaporean workers. It may look more efficient on economic grounds but if employers go further afield in search of cheaper and cheaper labour it may nullify the effects of the increased levy and not boost productivity or the wages of low-income Singaporeans. So the Reform Party still prefers a minimum wage on balance though it could be combined with higher foreign worker levies.
2. Anchor Singapore as a Global-Asia Hub
Surely it did not take this long and require so many talented individuals to produce something that any mid-level PR executive could have produced in an afternoon? These have been the government’s aims for some time and it is difficult to see how we are going to be more successful at them just because they have been regurgitated as part of the ESC’s report.
The Reform Party feels that a target of 20-25% for the manufacturing sector as a proportion of the economy is probably neither realistic nor desirable in the medium to long term given Singapore’s limited land and other resources. Instead we should aim for high value-added activities whether in services or manufacturing. The concentration on manufacturing is just part and parcel of this government’s mercantilist obsession which sees exports (saving) as good and imports (consumption) as bad and explains their preference for a low level of domestic consumption (spending by Singaporeans) and such a high level of net exports (fuelling the unproductive growth of our external assets in Temasek and GIC).
3. Build a Vibrant and Diverse Corporate Ecosystem
In our draft manifesto we called for much greater help for Singaporean SMEs and start-ups so the Reform Party would support these aims while worrying over how well this will be implemented and how much will be wasted. $1.5 billion over ten years is “peanuts” in the context of Singapore’s GDP of some $257 billion (about 0.06%) so it is hard to see how it will make much difference. Temasek and GIC have probably been investing much greater sums than this in foreign private equity and venture capital funds.
The Reform Party would go much further though in dismantling or privatizing the whole GLC structure starting with the privatization of GIC and Temasek and giving Singaporean citizens a direct stake, whether through shares, deferred shares or quasi-equity, in their assets. We would seek to sell off or break-up most of the GLCs which control such a substantial portion of economic activity (up to 60% according to some estimates) which has in our view a detrimental effect on the growth of a vibrant private sector in Singapore.
There must be lessons we can learn from countries with a far superior track record in starting new businesses, such as Israel, yet the committee does not seem to have considered how we can best learn from others.
4. Make Innovation Pervasive, and Strengthen Commercialization of R&D
The Singapore government has been a late convert to the game of boosting R&D given that most of our competitors have been aiming to do this for years, with mixed results. Given that China is massively boosting its R&D spending, as are the US and EU, it must be doubtful whether Singapore can achieve the necessary economies of scale or whether we just end up giving wasteful subsidies to foreign MNCs. The Reform Party is still in favour of increasing R&D spending but we also want to see the dismantling of the GLC structure which is out of step with a modern economy, has held back our private sector and has probably had a stifling effect on innovation, not least through the diversion of talent into secure, well-paid employment rather than into more entrepreneurial roles.
5. Become a Smart Energy Economy
In the Reform Party’s draft manifesto which was circulated to journalists at our dinner in September 2009 but had been written in May of 2009, we called for a massive increase in investment in energy-saving and green technologies. So we are glad that the ESC also thinks alike.
However the Reform Party has serious doubts over the advisability of nuclear energy as an option for Singapore given our limited land area and highly concentrated population. Not only terrorism but the risk of a catastrophic accident like Chernobyl probably rules out the nuclear option. Even if the risk is small (and experience has taught us that extreme events are always underpriced by the market), its actualization would be likely to end Singapore’s existence.
6. Enhance Land Productivity to Secure Future Growth
The Reform Party calls in its draft manifesto for a review of the government’s role as the owner of approximately 79% of the land in Singapore so our policies in this area are likely to be much more radical than anything the committee proposes. We have written about this in relation to increasing the efficiency of the provision of public housing and the need to inject more competition into this sector and would extend the same principles to the question of how best to promote economic efficiency and increase productivity.
7. Build a Distinctive Global City and an Endearing Home
The second part of this phrase suspiciously echoes the title of the Reform Party’s National Day Speech, “We have built a house but not a home.” There is little in this part or indeed in the government’s track record to suggest that it is committed to building an endearing home for Singaporeans.
The consequences of the last ten years of focusing on economic growth by the import of cheap labour while not investing enough in education and training have been dire for the majority of Singaporeans. The full report states that the “majority of households have seen significantly higher real incomes over the decade, with median incomes rising by over 20%”. This is contradicted by the Household Expenditure Survey 2007/08 released in December 2009. This shows that the Average Monthly Household Income of the 1st - 20th, 21st - 40th and 41st - 60th Quintiles increased from $1,309 to $1,274, $2,778 to $3,476 and $4,207 to $5,480, respectively, from 1997/98 to 2007/08.
This is a per annum increase of - 0.3, 2.3 and 2.7% respectively for the above mentioned three quintiles.
After adjusting for inflation at 1.4% per annum, the real increase was - 1.7, 0.9 and 1.3% respectively. So real incomes of the bottom 20% fell by nearly 20% (much more if one uses a CPI weighted by the consumption patterns of the lowest quintile) over ten years while that of the next 20% increased by just 9% and the average income of the median quintile rose by only a little more, 14%.
Conclusion
The government’s high-powered ESC has labored for nearly nine months and produced very little that is very different from what the Reform Party has been saying since last year.
While it is good to see that the ESC is thinking along the same lines as the Reform Party, it is difficult to see how many of the recommendations which essentially are ‘more of the same’ will make a radical difference to productivity growth and produce a more innovative economy. We want to see much more radical reform of key sectors of the economy and of our educational system which we feel are necessary if we are to move permanently on to a higher productivity growth path. It is also good that the government and the ESC have come round to the Reform Party’s view that their primary goal is to raise the living standards of Singaporeans. However there must be serious doubts about the government’s ability to deliver given that the track record in this regard of the last ten years has been so poor and whether anything more than lip service is being paid to weaning the economy off its dependence on cheap foreign labour.
Released by Kenneth Jeyaretnam on behalf of the Reform Party, January 25th 2010
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