Sunday, June 24, 2012

Myths in the go-slow debate

Jun 17, 2012

Taking economy out of the fast lane may not be all it seems

By Chua Mui Hoong

Singapore is embarked on a national conversation about the model and pace of growth. But sometimes, the debate seems to be at cross purposes.

Take the issue flagged by Prime Minister Lee Hsien Loong on whether Singapore should go for strong growth when it can, or opt for a slower pace. He recently told members of the Economic Society of Singapore: 'I know that some Singaporeans welcome the prospect of slower growth. Some want us to slow down even below our economy's potential.

'They argue that we already have enough material success, and should give less weight to economic factors, and more to social considerations. And that we should spend more on ourselves, and put aside less for the future.'

There are two different questions here. The first is: what pace of growth do we want for Singapore? The second is distributive: what level of social spending can Singapore afford?

The answer to the first is surely obvious: As much growth as we can get, while we can, in a way that does not make life difficult for the more vulnerable.

Past framing of the issue as one between 'growth at all costs' and 'slow growth' is an injustice to both camps. In fact, the debate is riddled with three mutually distorting myths.

Slow growth, less stress

The first myth is that slower growth equals lower stress.

Slower pace of life, fewer foreigners to compete for jobs with locals, cheaper housing with lower demand - what's not to like, then, about slow growth?

But slower growth also means the economy will shrink, some businesses go bust, workers lose jobs. It is the vulnerable workers who will bear the brunt of a shrinking economy: the elderly worker, the middle- aged technician or saleswoman who has worked 20 years in the same small company that folded and may not get another good position. When you lose your job in your 40s or 50s, chances are high that you end up permanently under-employed. You may still get a job, but at lower pay, with reduced benefits and on contract, with reduced hours.

Without a national survey, I cannot say how many Singaporeans seriously want the country to opt for a slow growth path. Those who already have means may find a leisurely pace of life intellectually and emotionally appealing. But the average Singaporean heartlander is still at an aspirational phase: he wants a good job, pay rises, a nice home and prospects for his children.

I am willing to venture most Singaporeans, if asked, would be quite happy with going for growth while the country is able. So long, that is, as they share in the benefits of growth.

Fast growth is unequal, so slow is good

This leads me to the second myth in this debate: the idea that fast growth breeds inequality, and therefore slower growth is better.

It is true fast growth exacerbates inequality. When the economy booms, those earning $100,000 a year may find their income tripling as performance bonuses stack up. Those earning $1,000 a month may get a $50 pay rise. The gap between the top and bottom incomes yawns wider.

But the solution is not to stave off growth. Size and distribution are different concerns. You go for a larger pie first, and then you figure out how to slice it more fairly.

Going slow is a choice

The third myth is the notion that Singapore can choose to go slow or grow fast.

In fact, the choice will be made for us. As PM Lee noted, slow growth is unavoidable. You do not need an economics degree to understand that Singapore's mature economy is at a very high base, which means future growth will be slower. Its limited land and labour also constrain growth.

This is an accepted premise by all sides in this discussion. It is therefore important to understand what critics of 'growth at all costs' are lamenting. They are not saying Singapore should slacken. In essence, they are saying fast growth should be conditional on benefits being spread equitably, and on maintaining quality of life. So there is no point in going for fast growth of say 8 per cent if:

  • The benefits only go to those at the top, say, if incomes grow 8 per cent or more for those at the top, while the majority see their wages stagnate or even drop.
  • Wage rises are wiped out by rising prices. If cost of things like health care, transport and food go up by more than 8 per cent, workers end up worse off than before.
  • Growth worsens quality of life - for example if you need to bring in so many foreigners to grow 8 per cent that the city gets overcrowded, and housing costs go up beyond your affordability.

In other words, it is the impact of high growth, unmitigated by social policies, that is being faulted.

This is not the same as saying slow growth is preferred over fast growth. Rather, it is about saying: Go for growth that is balanced and sustainable, with benefits shared with the majority. If the alternative to 8 per cent growth is growth of 4 per cent, with real wage increases across the board and enough foreigners to fill jobs yet keep Singapore's pleasant living environment, then maybe Singapore should go for 4 per cent, this camp will say.

But in the end, these are hypothetical numbers. Economic growth is a function of inputs: with zero or minus population growth and low productivity, even slow growth will be a challenge. In this set-up, the debate over fast or slow is academic. As a price-taker in a globalised, cut-throat, capitalist world, tiny Singapore would be wise to take its growth when it can, and share the fruits of growth equitably.

Since a slower pace of growth is inevitable, I find it more meaningful to talk about how to prepare better for a world when jobs are harder to come by and incomes stagnate or even fall.

My own view is that our social safety nets have too many holes. The emphasis on self and family as the first line of defence against the usual life risks of unemployment, disability or disease worked well when real incomes grew steadily; the old age support ratio was high, with many young working folks per elderly person; and each successive generation was better educated, drew higher pay and could support their ageing parents.

Each of those three assumptions has broken down. Real incomes at the bottom and middle have see-sawed in the last two decades; the old age support ratio will plunge from six working adults per elderly today to two in 2030; and today's young born in the 1990s will start work and form families amid soaring asset prices, no longer assured of having a better life than their parents born in the 1960s who started on a much lower base.

There is an urgent need to rethink assumptions underlying Singapore's social policy approach, and do the hard policy work of coming up with alternatives, and the even harder political work of convincing people to buy into new kinds of social security programmes that share risks in a different way.

[So we should ask the empowering question: How can we have growth and a more equal distribution of the benefits.]

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