Hi Mr Tan
The large immigration of foreigners into Singapore is one of the most divisive issues in Singapore today. There are many Singaporeans who are unhappy and bitter about the large number of FT that have been allowed into Singapore. They feel threatened by these foreigners as many of them have proven themselves to be as hardworking and capable as Singaporeans. Their salary expectations are significantly lower. A fresh graduate from NUS for example expects to earn $2,500 to $2,800. A graduate of similar calibre from China or India is willing to work for between $1,500 to $1,800.
The large gap in salary expectations has led to large amount of economic pressure to employ foreigners rather than Singaporeans. The common thinking among many Singaporeans who are employees is that businesses are greedy and immoral. In the pursuit of profit, they would sack their own countrymen and employ foreigners.
The truth however is a lot more complex. All businesses have to operate in a competitive global environment. Consumers value goods based on quality and price; they do not take into account who made them. Within Singapore, if you employ only Singaporeans while your competitors use foreigners, you will not be able to compete. Outside of Singapore, you will lose to global competitors who are willing to use the cheapest source of labour to produce their goods. Hence ultimately if you use a Singaporean only policy to run your company, then your business will most likely fail.
Recently, in response to negative sentiment on the ground, MOM has begun to tighten the issue of the various types of passes. Many speculate that this is window dressing ahead of a widely anticipated election. Regardless of the intent, this is not a viable long term strategy. This is because technologies like the Internet have made it very easy for business to cross national boundaries. As such, if MOM persists with a policy of not allowing foreigners into Singapore, the Singapore economy will eventually be hollowed out.
The emergence of an abundance of cheap and capable foreign labour means that the income of Singaporean workers WILL fall over the next 5 to 10 years. The unemployment rate among workers who are Singapore citizens will also rise. There is no known economic theory or policy which can stop or reverse this. This fall will continue until a new equilibrium is reached. This equilibrium is such that the income of Singaporean workers is comparable to that of workers from India and China. Here it should be noted that there is no magic economic law which states that the income of Singaporean workers must always be higher than those from India and China.
This unpleasant economic truth needs to be communicated to Singaporeans so that they can understand and accept the new economic reality. If the economic reality is hidden behind half-truths like “job redesign” and “productivity improvement”, then the bitterness and resentment will be even greater then the truth is known. I label “job redesign” and “productivity improvement” as half truths as they are completely ineffective ways of addressing the problem. This is because any training or re-design improvements that you do for Singaporeans, you can also apply foreigners. Singaporeans are not so special so that the training or job re-design can only apply to them.
Open and honest communication is also necessary so that Singaporeans do not make the wrong decisions based on unrealistic expectations. At present, there is a property boom in Singapore. Many Singaporeans are borrowing large sums of money to buy property in anticipation of “More Good Years” and the ability to sell the property at a higher price. Eventually the property bubble will burst and there will be a sharp decline in prices. If we superimpose this against higher unemployment and lower wages, then we are setting the stage for a very painful and bitter period for Singaporeans.
Other than open and honest communication about the future, what we also need are policies which moderate or slow the expected decline in income. Also useful would be policies which help people cope and adjust. The following is a policy recommendation which will address many issues simultaneously.
The root of the problem is the salary gap between Singaporeans and foreigners. In recognition of this gap at the low skill level, MOM has implemented a foreign workers levy for maids and other foreigners that work in Singapore under the work permit system. Given the success of this policy, it would now be timely to extend this levy to those in Singapore under the employment pass or permanent resident scheme. The successful implementation of the foreign workers levy for so many years suggest that if it were applied to the employment pass/permanent resident scheme, it would not “chase away the talent”.
With the money collected from the levies, we can then move to restructure the CPF scheme. The Employer CPF contribution can slowly be reduced to 0%. This would be replaced by payment made from the levies collected from foreigners working in Singapore. As the number of foreigners in Singapore increases, this CPF contribution would increase.
By implementing a policy like this, we put substance into the nice-sounding policy announcements that “foreigners are in Singapore for the benefit of Singaporeans”. It would help heal our society which is increasingly being polarized along the lines of Singaporean and Foreigner. Also we moderate the narrowing of the wage gap between Singaporean and Foreigner in a manner that is least painful to Singaporeans.
Aurvandil
Singaporeans to accept low salary but ministers must be paid million dollar salary to stay uncorrupted.
ReplyDeleteREX comments as follows,
ReplyDeleteIt is an interesting proposal from Aurvandil.
i am only wondering, whether the employee levy will raise the operating cost for the bosses, so that his products are not globally competitive and we are back to square one. Maybe the employee levy should be priced somewhat midway so that the FT total salary will float upwards midway to where the singaporean salary will float downward for a equilibrium? The economists could calculate what is a good amount to charge for the levy?
Another thought - the levy system worked for maids because maids have become a necessity not choice in many families, where both parents work and there are kids and aging grannies to manage etc
rex
"The truth however is a lot more complex. All businesses have to operate in a competitive global environment. Consumers value goods based on quality and price; they do not take into account who made them. Within Singapore, if you employ only Singaporeans while your competitors use foreigners, you will not be able to compete. Outside of Singapore, you will lose to global competitors who are willing to use the cheapest source of labour to produce their goods. Hence ultimately if you use a Singaporean only policy to run your company, then your business will most likely fail."
ReplyDeleteThe reality is more tragic. Products manufactured in Japan are more expensive, but there are still demand for them. How about German cars? To compete on price is the way of developing nations with low value industries and goods. For Singapore to be still competing in this league spells big trouble. It merely betrays the fact that Singapore's centrally planned economy under the PAP has failed to move up the value chain.
To sustain growth this govt has no choice but to regress or stick with low value industries coupled with investments in infrastructures, which explains the large influx of low or medium skilled foreigners in order to sustain the competitiveness of these sunset industries.
Any economic crisis presents opportunity to restructure. The goal going forward should be sustainable economic growth (GNP as opposed to GDP), and proactive pursuit/investment/deployment in & of green carbon-free technology of the future. The govt must take the initiative and not leave it to the private sector.
But I seriously doubt the PAP govt has the political will or vision to carry Singapore forward.
When LKY speaks of Singaporeans being lazy, he has unwittingly pointed out his own failed legacy - an administration of lazy, over-paid ministers, civil servants, and yes-men.
Anon 3.45 pm
ReplyDeleteMost German and Japanese MNCs have long since established global operations to take advantage of lower labour costs.
Taking the Japan automotive industry as an example, cars for the US market are mostly made in Mexico (to take advantage of NAFTA). A large porportion of the Japanese cars in Singapore are made in Thailand (to take advantage of the ASEAN FTA).
Japan and Germany do not have a liberal FT policy. Consequently wages and the the cost of living in these countries is relatively high. This has resulted in the hollowing out mentioned in my original post.
I am more familiar with Japan so I shall use this as an example. In the late 1980s and early 1990s, Japan was an economic powerhouse. It accumulated large trade surpluses with the world. The value of the yen increased tremendously and Japanese workers became the best paid workers in the world. There was a real estate boom which made Japanese real estate the most expensive in the world.
In response to the ever increasing operating costs, many Japanese companies began to migrate overseas. This started a slow but steady hollowing out of the Japanese economy which continues on to this day.
So much so that with the dawn of the new millenium, the economic star of Japan has started to fade. In its place, we have China and India with their almost limitless supply of cheap and hardworking labour.
As mentioned in my orginal posting which Mr Tan kindly put up, there is no known economic policy or theory which can stop or reverse the inevitable economic correction. The call to "move up the value chain" is a political half truth in the same category as "job redesign" and "improve productivity". This is because any policy which Singapore can implement, other countires can study the policy and copy. There is nothing so special about Singapore that only Singapore can do it and no one else in the world can do it.
The best that can be done are polcies to moderate the correction and help Singaporeans adjust to the new economic reality.
Rex
All policies which you can design are at best stop gap measures to lessen the pain and facillitate the adjustment process. There is no magic policy which is without consequence and which can "solve the problem".
We do not hear any business people or employer complaining.
ReplyDeleteThey simply love the low wages!
Its the rentals that they dislike!
With so many people here below 35years.. there is a dire need to keep them all busy with work.
Just have a look along Serangoon road
Toa Payoh, Marine Parade. All are enjoying food and drinks and casually strolling. If wages are low, no one will be able to afford such luxuries.
Housing is a different category.
Everything else is very affordable.
from Botox injections to shark fin's soup. How is this possible?
Low cost wages, mass produced ingredients.
Forget about earning & saving for your 1st million dollars!
i worry for my children's job opportunities.
ReplyDeleteCan anybody remember how Singapore went from a low wage country to a high wage country?
ReplyDeleteWas it workers going on strike for more pay, or was it an act of government?
I'm really surprised we have all forgotten!
Aurvandil's argument that without foreigners Singapore companies will not survive is flawed.
ReplyDeleteFirst, he assumed that employees' salary is the only expenses in the company. There are other cost factors like rentals, utility and government charges. These are all within the government control. Why should the government take market rate in rental when workers have to accept artificially depressed salary? Why should workers shoulder the burden of economic growth alone ?
Second,with scarce resources,why should Singapore prop up companies which have to survive on cheap labours ? In Singapore current stage of economic development we should be more selective in the kind of industries we picked. Australia and many other European countries have done well with tight restrictions on foreigners working in their countries. Why can't Singapore do the same. Unless of course our Men in White is not up to the tasks.
Anon 11:15 PM
ReplyDeleteWell said.
But it is not that the Men in White (MIW) is not up to the tasks.
It is due to the MIW taking the easy and simplest way to solve a problem.
As there are no negative political consequences for them by doing so, they do it!
Like in Hokien they said, "ay sai chiak, chiak lah". If can eat, eat lah.
With the exception of rentals, government charges and utility in Singapore are globally very competitive. Corporate taxes are among the lowest in the world and there aren't any strange government charges that you typically find in other countries. GST is refundable if you export aboard and the numerous free trade agreements/tax treaties make it very attractive for companies to base their operations in Singapore. There are also quite a number of government schemes which directly give money to business. Good examples of this would be the various incentive schemes to encourage industries that they want to promote in Singapore.
ReplyDeleteFor rentals, this is restricted by the amount of land in Singapore. Unlike labour, this factor input is not readily importable into Singapore. Singapore has been quietly enlarging the available land area via land reclaimation. This however is hampered by quarrels with Malaysia and Indonesia which have banned the export of sand to Singapore. The lack of land is one of the traditional economic weaknesses of Singapore. To compensate for this weakness, the straegy is to compensate via the other factor inputs.
With regard to promoting "high value" industries in Singapore, this strategy is a half-truth as I previously mentioned. There is nothing so special about Singapore that we can implement a "high value" industry strategy which other countires cannot follow. Here it should be noted that economic development is not a linear process. Other countries do not have to go through the same stages of development. With advances and improvements in technology, countries can leapfrog the development process. For example, Singapore slowly grew the high value added electronics industry in Singapore over a period of about 30 years. China developed an equivalent high value electronics industry in less than 10 years. In doing so, they didn't follow the development path Singapore took over 30 years. Instead they applied the latest technology and leap frogged the development process.
A better comparison would be with Hong Kong with about the same stage of development and salaries and wages roughly the same. If Hong Kong can do it, why can Singapore. Must Singapore resort to mass import of foreign workers to substain the economic development so that a big very bosses and highly paid executives benefits and the rest of the local population suffers.
ReplyDeleteTo answer Anon 10.30 PM on the issue :- "Can anybody remember how Singapore went from a low wage country to a high wage country?"
ReplyDeleteI think the answer lies in the wrong use of CPF as an economic tool.
While the CPF was helpful in supporting the HDB homeownership program in the early days, it was further tilted as an economic tool each time there was an economic crisis. The PAP Govt cannot think of any other easy tool to solve the problem. It has to touch the average Singaporeans' hard earn savings for old age. Each time there is an economic crisis, the buck is substantially passed back to the average commoner. The rich is not affected. The middle income is squeezed downwards.
As a result, we see CPF being used by the the Govt. to support an asset "bubble" in the HDB market [mind you, not the private property market]. In a way, many earlier FTs (from Malaysia) were also "locked" up in our economy because of this HDB asset bubble. Malaysians who used to work here could not take back their CPF unless they quited working here and would not returned. But practically, can we lock-up more FTs and workers here to sustain this "expensive" infrastructure and life style (cost of living). The ordinary foreign worker will not make it and so the PAP Govt is targetting FTs.
CPF had been a cheap source of fund for the Govt. Not only had the HDB bubble been aggravated, it was also channelled and pumped into the expensive infrastructural projects. And the Govt expects to recoup every cent it spent from the average Singaporean. This also make a living here more costly. Everyone need more income but the rise in salary (and/or CPF) cannot be sustained.
And the Govt had captialised on a high CPF contribution rate from the start. It was as high as 25% on both sides (employee + employer). That was the desired level of saving as advocated by Mr Tan K L for saving for the future. In the early days, there was no need to save anymore after CPF deduction (at least in theory), your take home pay is what is available each month to spend. But it could not be sustained, and in the mid 1980s, the Govt started to use the CPF as a handy economic tool. Now costs had gone up but level of compulsory saving is lowered. The Govt. may be rich before, but with the losses in investment by our SWF, I do not know what will happen!
There is complaint about unfair competition from FT or even workers, because they do not have to support a high cost of living back home which is due to an expesive infrastructure. Their housing is also cheaper in a way compared with what they can earned here. They are therefor motivated to work here.
Private developers being captalists also pushed up the cost of living here, but they hit the high and middle income earners more. With the so-called "Swiss standard of living", a plate of curry rice at Sommerset 313 can cost you $10.00.
But I cannot understand why our HDB also behave like them to aggravate the asset bubble and cost of living.
And you see what our corporates (GLC companies)are doing. They seek to integrate up the "value chain" prefering to earn "easier" money, so call "value added" service. As a results the lower educated are marginalised. NTUC then say if you are 40 and above, you are redundant already. Give you training and SPUR, so what, our own GLC also "migrate" overseas to earn "easier" money. So you see Singapore has no GLC which is a "construction company". It is easier to collect "worker levies". It is easier to offer " consultancy". And even such "consultancy" companies are targetting to earn "easy" money, only softwares and soft system methodology, as if they are making money as easy as operating the ERP and collecting COE bids.
I see no answer in itself in the above.
Concerned
ReplyDeleteHK has not "done it" so to speak. Being next door to China, the HK people have been the worst hit by the emergence of talented, low cost Chinese workers.
HK has a fairly strict system to prevent the "mainlanders" from flooding into HK. In response to this, HK business migrated many of their operations to Shenzhen and Guangzhou.
There has been no magic formula which has allowed HK to move up the "value added" ladder and preserve the earning power of HK workers. The inevitable economic correction is still occuring and we can eventually expect wages in HK to be comparable to those of in Shenzhen and Guangzhou.
Needless to say, the HK people are bitter about developments. Although HK is part of China, you can frequently hear HK people make unflattering comments about the mainland Chinese and how they do not belong in HK. When they go over to Shenzhen for work or for leisure, you can observe the same superiority complex many Singaporeans display toward foreigners from poorer countries like India and China.
These foreign workers are also responsible for Singapore growth.These foreign workers are also affected by present recession.
ReplyDeleteIf everybody is affected... how come some are benefiting from it?
ReplyDeleteFirstly, I like to thank Aurvandil for his time and contributions, and others like Rex, Concerned, CH Yak etc.
ReplyDeleteSecondly, besides new employment levies to assist those in need, I believe the time has come to raise taxes of the rich and well to do companies/persons as globally such a trend may be imminent. As we all know, sovereign debts are at a staggering proportion to GDP. Examples are Japan, Greece, Italy etc. At the same time, sovereign wealth funds have lost much money and hoping to pump up their asset values by adopting easy monetary policy. I very much doubt they can succeed.
Instead of rich being taxed, the man in the street and a 76 years old retiree are paying to the State in the form of TV, radio licence and yearly increases in property tax.
One final word of caution (my personal opinion), is the State may be gearing up to issue more fines/summons too, to compensate for reduced GST collections, job credit payouts and stimulus spending.
We do not have strong homegrown companies that would anchor their operations in Singapore.
ReplyDeleteThe Japanese and German MNCs may move their labour cost intensive operations overseas, but they remain rooted to their countries for headquarter and high value-added activities. Even the Koreans have their Samsung.
Because of the reliance on foreign MNCs, you see that though having one of the highest per capita GDP in the world, a disproportionally huge chunk of our national income goes to foreign companies as profits, leaving an unusually low share of the GDP cake for the average Singaporeans.
In the near term, what we need to do is to streamline our overheated economy and weed out the low value-added activities that rely excessively on cheap foreign labour. This would also alleviate the problem of overcrowding.
In the longer term, we need to help our local companies to develop their brands and to find niches that they could serve the global economy.
As for jobs that would remain in high-income countries e.g. Singapore, the critical divide will be those types of work that are easily deliverable through a wire (or via wireless connections) with little diminution in quality and those that are not. High-skill jobs e.g. accounting services and investment analysis are already being delivered electronically. Thus our education system needs to emphasis more on soft skills.
teh_si
ReplyDeleteThe strategy to build Singapore based MNCs was tried extensively at the end of the 1990s. We had Singtel buying Optus, DBS buying Dao Heng and SIA gobbling up numerous small airlines. At that time, there was widespread criticism that the GLCs were overpaying for these acquisitions.
20 years on, we can conclude that the strategy has not succeeded. None of the GLCs have become global MNCs. In some instances, some of these acquisitons have run into huge problems when the national interest of other countries were affected (e.g. Shin Corp). As a strategy to build "value added" industry in Singapore, this strategy has been largely ineffective.
On weeding out low value added activies, there is no need for an active policy to do this. Business are already migrating on their own when they operating cost too high. Also, there is no economic law which says that for every business which moves out, a high value added business will magically appear in its place. If the operating costs are too high, no business will appear and all such a strategy will achieve is a higher unemployment rate.
Redstar
ReplyDeleteFrom a budgetary perspective, it is probably not necessary to raise taxes in Singapore. As is, Singapore has been consistently accumulating budget surpluses. The only time when we ran a deficit was when we implemented the stimulus measures due to the financial crisis. With the ending of the Jobs Credit program and the recovery in the economy, 2010 should see Singapore accumulating a budget surplus again.
Additonal taxes of any sort will only be useful if the money is used to fund programs which help Singaporeans. If the money goes into the the reserves, then it will only go toward giving money for Temasek and GIC to make more "strategic investments".
Aurvandil
ReplyDeleteI suggest tax increase for ultra rich for the below reasons.
1. To prevent future increases in GST and also immediate reduction in GST to 3%. I don't understand why the unemployed should be paying high GST with no income to support their livelihood. They may resort to crime or kill themselves on the MRT tracks. Now you know why LTA constructing doors for all above ground train stations. In Japan, more than 50% of train accidents are genuine suicide cases.
2. As our population ages, we need a bigger social safety net.
It should be back to Robin Hood good old days when the gahman robbed the rich to give it to the poor. But it is different now; it is reversed . Not only the gahmen is fleecing the poor all sales people are at it too like the insurance agents who are draining and sucking the poor to make them poorer.
ReplyDeleteRedstar
ReplyDeleteAs in all things, there are complexities behind the issues you have raised. Singapore has been trying to move up the “high value” industry of wealth management. As advocated by some contributors to this discussion, Singapore should develop “high value” industry so that Singaporeans can enjoy higher wages.
To develop the wealth management industry, the government has adopted tax policies which are regressive in nature. Good examples of this would be the removal of estate duty and the implementation of ever higher GST. The intent of these tax regressive policies was to attract people in the likes of Bill Gates or Warren Buffet to base themselves in Singapore. These rich people can live in exclusive communities like Sentosa Cove and spend their money in the increasing number of swanky establishments that are out of the budget of most ordinary Singaporeans. They have even built an exclusive terminal (http://www.jetquay.com.sg ) for them to jet in and out of Singapore without having to go through the hassle of going through Changi Airport
Unfortunately despite what many Singaporeans might think, Singapore is really no more than a small city of no great global consequence. As such, we have not been able to attract these global titans to base themselves in Singapore.
Instead we have attracted a host of shady characters whose money comes from questionable origin. For example, Singapore is currently home to a large number of millionaire fugitives from Indonesia. Many of these are from the Suharto years and the Asian financial crisis which ended his rule. We consciously refuse to have a comprehensive extradition treaty with Indonesia as it is deemed to be in Singapore’s national interest to allow this people to remain in Singapore. This was one of the reasons which led to the diplomatic quarrel that resulted in Indonesia banning the export of sand to Singapore. Indonesia wants to extradite these fugitives so that the can recover what is left of the money which was stolen.
Slightly further afield, the son of Thein Sein lives in Singapore. Thein Sein is the general who rules Myanmar and who ordered that machine guns be used on unarmed Buddhist monks during the recent protests. His son goes to an international school in a Ferrari. Most recently when Thein Sein visited Singapore, an orchid was named after him. Many other high ranking members of Myanmar operate in Singapore. Recently, US based NGO Earth Rights International (ERI) released a report which claimed that DBS and OCBC were “offshore repositories” for billions of dollars being siphoned off from the Yadana gas project. DBS and OCBC have denied these claims.
Aurvandil
ReplyDeleteThanks v much for sharing your knowledge. I learned much from your comments.
>> On weeding out low value added activies, there is no need for an active policy to do this. Business are already migrating on their own when they operating cost too high. <<<
ReplyDeleteBut we are actually effectively subsidising labour-intensive low value-added activities to remain here with more than 600k of lower-skilled foreign workers.
teh_si
ReplyDeleteNot sure that it is correct that the labour intensive industries are being subsidied. These business pay taxes like every other business and there are no incentive schemes for them to get money. Aside from the 600k foreigners meniotned in your post, they also employ a substantial number of Singaporeans (100k to 200k).
A strategy of forcing out labour intenstive industries is only useful if there are "high value" industries just waiting to take their place. Also the Singaporeans who have been displaced must have the necessary skill sets to work in these "high value" industries.
If both of these conditions are not met, then all that will happen is that the foreigners will go home. The Singaporeans that remain in Singapore will be unemployed.
As mentioned previously, there is no magic economic law which states that for every "low value" business that migrates, a "high value" business will magically appear.
More often than not,the "low value" business leave because of high operating costs. These high operating costs also affect the "high value" business. To be more competitive, the "high value" business follow the "low value" business and locate themselves in places where the operating cost is low.
Maybe we should look at importing FT ministers.. can be cheaper and more efficient.
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