That is what comes to mind going by DPM and Finance Minister Tharman Shanmugaratnam’s speech at the Labour Movement’s May Day dinner.
“For the remainder of the decade, we expect to see GDP growth ………..about 3 per cent on average, which reflects a new normal in our economy……… However, achieving even 3 per cent growth on average will be an increasing challenge, as our labour force slows in the years to come. We therefore have to focus our efforts on raising productivity and finding every way to do business more innovatively. It is the only way we can sustain increases in Singaporeans’ incomes. It will, by the end of the decade, be the main way that we can grow in the face of a tight labour market, and without ever-increasing dependence on foreign workers.”
The writer has consistently argued that the long term growth potential of the Singapore economy cannot be much higher than an average of 3%, given the natural constraints of a fairly advanced economy with tight capacity. Once again, Mr. Tharman inadvertently proves the writer’s assertions and in doing so, practically admitted that the old capital and labour intensive growth model is exhausted.
PAP’s appear not to know any approach to macro-economic policy than the same capital and labour intensive growth model from the 1960s and 1970s. Growth Maximisation is simply a rehash to overcome those natural constraints by massed use of foreigners and suppression of rates of return on long term savings. The result is very low Total Factor Productivity, a long term problem already evident by Nobel Laureate Paul Krugman’s research in 1994, reiterated by the IMF country report of 2012.
The writer had also consistently argued that any attempt to grow beyond the long term growth potential involves significant socio-economic trade-offs. Strong economic growth pushed by Growth Maximisation beyond the long term potential did not produce an appreciable increase in productivity but did produce immense socio-economic stresses such as elevated cost of living, inadequate healthcare and retirement provisions, income inequality and that mother of all problems, low Total Fertility Rate.
Maximising the “New Normal”
Lim Swee Sway may think Singapore “could regress and become just a normal country with an ordinary economy and ordinary workforce” but it betrays his intellectually deficient “growth at all costs” mentality. For, the “new normal” is very good if it meant quality, productive and equitable economic growth. With its various initiatives, the government suggest the issue of productivity is solely a problem with labour. But macro-economic policies needs major adjustments to provide the fundamental improvements.
Capital and Labour: Since capital and labour use is intensive, it means they are cheap and plentiful. Mr. Tharman helpfully suggests that by 2020, foreign labour force will see negligible increase but the quality of the foreign labour force also needs to be elevated. CPF rates and government indebtedness (so long as proceeds are invested) needs to be raised. Increased wages and capital costs drive out businesses that are over-reliant on intensive use of cheap capital and labour and release resources for more productive use. In short, productivity will increase if wages increased, contrary to what Mr. Lim says.
Rents and property prices: These are massive drags on productivity and desperately needs to be reduced because they are sucking up too much income. Real estate construction and development are notorious for low productivity. High rents sucks up income that can be more productively employed. (This is identified as the biggest drag on UK productivity in comparison to Germany and Scandinavia).
Adjust Corporate Taxes: Unproductive businesses are attracted by low taxes, in combination with cheap labour, without both they are un-viable. These businesses should be driven out by adjustment in taxes so that the use of cheap, unproductive labour is reduced and qualified workers re-allocated to productive work.
Strong Social Safety Net: The most dynamic and innovative industries are also highly volatile and uncertain. The high cost of failure needs to be mitigated by a strong social safety net. Moreover, these industries will also see high turnovers of even the most skilled workers – a strong social safety net provides time and resources for retrenched workers to find better job matches and reduce mis-allocation of labour. Strong social safety net promotes dynamism, innovation and productivity.
No society can hope to be at the fore front of home grown innovation and creativity if that society is subject to highly repressive socio-political measures like Singapore. The physical and psychological limits inferred by such measures circumscribed the necessary pushing of boundaries by creative minds. Command and control modes of government and demands for obedience are incompatible with the equally necessary and messy clash of ideas and opinions. Singaporeans needs to be free to question and to reason but not to follow unthinkingly. If this means it becomes edgy like the West, then that edginess is what creativity and innovation is all about.
Most of the above are fundamentally unpalatable to the PAP. They went mostly against their cherished policies and against their hardcore base. However to “future-proof” the nation, steady high quality economic growth predicated on innovation, creativity and productive is a necessity, not break-neck growth at all cost. Not only policies but society needs to be adjusted and shaped for a good quality “new normal”. For that, those expensive ministers and talents should stop repeatedly following the path of least resistance.
* Chris is a retired executive director in the financial industry who had worked mostly in London and Tokyo. He writes opinions and commentaries on economic and financial matters.