SINGAPORE'S POPULATION DEBATE

Oct 20, 2012

3 missed chances
 
By phua mei pin
 

COME the end of this month, public consultation on the population draws to a close. Civil servants then start to draft a White Paper due by January to propose a sustainable population strategy for the country.

Eight months after the Government launched a review of its population goals and policies, what has been achieved?

This is what the numbers look like:

Some 2,000 pieces of direct feedback to the Government, which also contacted more than 1,200 individuals.

Four official papers, four sets of recommendations from the non-government sector, about 15 closed-door focus group discussions, three public dialogues and one dedicated website.

And three missed opportunities, based on what this journalist heard and saw.

The first of these involved local small and medium-sized enterprises (SMEs), which let slip a chance to tell Singaporeans how they are hurting from foreign worker curbs.

At one forum last month, Association of Small and Medium Enterprises (Asme) representative Chew Lee Ching was the only one out of 15 speakers to touch on the matter.

"Our members are suffering a lot because of the labour shortage. They are thinking of relocating or closing down altogether," she said.

Her comment drew no response from the other 100 participants, who wanted to talk instead about how to encourage Singaporeans to start families.

Unlistened to, she later slipped out of the forum before it ended.

Forum organisers are reportedly frustrated that SMEs poured out their manpower woes to policymakers but chose not to speak up for themselves at public forums.

At the last and largest forum held last week, there were 220 participants. The only one who spoke on behalf of SMEs was Deputy Prime Minister Teo Chee Hean.

He cited an Asme survey which found that close to a third of SMEs are thinking of leaving Singapore. However, as happened with Ms Chew, the broader audience did not engage on this point.

The matter of foreign labour is no longer just an issue for negotiation between businesses and the Government alone. It involves issues of competition, integration and quality of life that directly impact the wider public.

The business community could have and should have reminded the public of the Singaporean jobs on the line should firms go bust because of manpower shortfalls.

SMEs could have launched a charm offensive to demonstrate how the good outweighs the bad for now. They could have bargained for the time to shift from foreign worker reliance to higher productivity.

Until businesses join in the discussion, their pressures will remain an abstract concern for which Singaporeans at large see no reason to make any compromises.

A second lost opportunity concerned economic growth.

A central question of the population debate has been Singapore's appropriate level of economic growth, and hence how much it needs to top up its workforce to support that growth.

The stance that Singapore can afford to slow down and cut labour force growth became a trendy one to adopt at public forums, with several people supporting that view at each session. Not a single person argued for maximising growth.

Former chief statistician and one-time population planner Paul Cheung made no bones about his view that such thinking was "stupid" - the damage to the drivers of economic growth would be irreversible in a highly competitive world.

However, he spoke at a separate panel for experts and did so at the risk of public flaming. As the months passed, even this vocal advocate for economic growth conceded that population numbers and growth could no longer remain a purely economic discussion.

It had become politicised and the final numbers had to be a negotiated outcome between the public and the Government, he said.

It was left to the Ministry of Trade and Industry (MTI) to put out a paper last month on the consequences of slow growth, namely, higher unemployment and fewer job opportunities.

At a forum the day after the paper's release, held specifically to discuss the economic aspects of the population debate, many participants did not appear to have absorbed the arguments from the MTI paper.

When asked if he had read the paper, one person said, laughing: "Is there really a need to?"

He meant that the forum organisers would surely summarise the paper for the participants.

But his comment also betrayed a lack of interest in tackling the economic dimension of the population debate. That forum was the occasion when many chose to swop ideas for raising birth rates instead.

The Government limited itself to outlining trade-offs and refrained from advocating growth. That left the strong growth argument without a champion, and made for a one-sided discussion.

It could well be that Singaporeans ultimately choose a more manageable pace of economic growth. But without a proper debate, when the costs of slow growth start to sink in, it will be harder to convince members of the public that they took this route with eyes wide open.

Finally, there was a chance in the population debate for new citizens and permanent residents to express their commitment to the country.

Officials who work with companies and community groups say some have made strides in integrating foreigners and locals. But of late, many pro-integration parties have become too browbeaten by anti-foreigner vitriol to share their examples.

Whether it is permanent residents who go for national service, or new Singaporeans who volunteer with charities here, their personal testimonies were desperately needed to remind Singaporeans that these newcomers can be a valuable part of society. That point has to come from new immigrants, not from the Government. Unfortunately, this has not happened.

The three opportunities are lost not only to those who failed to speak up - that is, businesses, growth supporters and new immigrants - but also those in the opposite camp.

On a small island, the fates of all parties are intricately tied up - the pressures of one group, set aside today, will very likely plague another group tomorrow.

If all parties do not have a thorough and open discussion of the trade-offs and alternatives of population policy choices now, it will be that much more difficult to make peace with the consequences when they do come later. It may seem then as if they come completely by surprise.

There is still a week to go before the close of consultation. Interested parties can visit the National Population and Talent Division website at www.population.sg to give their views.

But they need not feel limited to that, and should seize any public or private platform available, such as the Forum pages, to air their thoughts.

For those who have not spoken, you still have a chance to have your say in the population debate. For those who have not listened as much, take a moment to consider the other side.

From Istana to Canberra

Oct 11, 2012

The Australian newspaper's foreign editor Greg Sheridan interviewed Prime Minister Lee Hsien Loong at the Istana last month, ahead of PM Lee's visit to Australia that began on Tuesday. Below is an excerpt from the article published in The Australian on Sept 29.
 

LEE Hsien Loong has a reputation something like that of his father, the legendary Lee Kuan Yew. It's a reputation for speaking his mind, sometimes bluntly.

Singapore's Prime Minister is 60 now, long out of his father's shadow. Like his father, though, he sometimes sounds like a lord mayor, when discussing Singapore's new casino, and at other times like a great strategic thinker, a South-east Asian Henry Kissinger.

It is part of Singapore's unique identity to have transformed a tiny island - 500 sq km - into the richest society in South-east Asia, with a per capita income above Australia's, while establishing a reputation for strategic sagacity pretty much unrivalled in the region. Big picture, small picture, macro or micro - PM Lee has a view, and a strategy, at all levels.

(He is in Australia for his second official visit as Prime Minister.) Australians will not be in any doubt about his views on any big issues. In a long interview in his Istana office in the heart of Singapore, Mr Lee gave the strongest endorsement the Gillard government has received from Asia for the policy of rotating 2,500 US Marines through Darwin each year.

"I think the Singapore-Australia relationship is very good," Mr Lee tells me. "We share very compatible strategic perspectives on the region and on America's role in the region."

US pivot

AND specifically on the Marines' presence in Darwin? "It's decided by America and Australia. We are happy that the Americans are present in the region."

But Mr Lee goes further, comparing Australia's policy with Singapore's: "For our part, we have facilitated the visits by American air force and navy units to Singapore. They don't have bases here but they visit frequently and there's a logistics support unit here for their navy ships. We will be helping to keep their ships supplied while they are operating in the region.

"We think it is good that the US presence remains in the region, including the security presence and the Seventh fleet. We are such a tiny area that there are a lot of constraints, but what we can do to help the American presence we will do."

Mr Lee is unambiguous in supporting President Barack Obama's "pivot" to Asia. The only qualification he enters is to observe that "there are some Americans who worked in the previous administration who say they never left".

But overall: "It's good the US administration is focusing on Asia because the US has many interests here, many friends and interests."

In the light of Mr Lee's forthright comments, it is difficult to see how the argument can be sustained that Canberra has hurt its standing in Asia by accepting the Marines.

But Mr Lee also has an excellent relationship with Beijing, of a type any Australian leader would envy.

US-China ties

HOW does he see the US-China relationship unfolding? Can the two giant powers maintain a cooperative relationship?

"I think it will always be a cooperative as well as a competitive relationship, there will be frictions as well as areas of convergence," Mr Lee says.

"I think the powers-that-be on both sides, Chinese leaders and the US administration, after they get elected, have shown they don't want to go on the route of confrontation, whatever might be said during presidential elections.

"But there are issues which are not easy to reconcile. There are political pressures on both sides that you cannot ignore," he says.

"The Chinese have issues and so definitely do the Americans, when it comes to the exchange rate or trade issues.

"There are problems. The biggest challenge is to rebalance strategically in a way that gives the Chinese more space without unsettling things and destabilising longstanding, gradually built-up relationships."

But Mr Lee is clear he is not talking about giving the Chinese, or anyone else, an exclusive zone.

He says: "I don't think it's a matter of ceding space to the Chinese in Asia. I mean, you're not talking about spheres of influence.

"The Americans have been present in the region since the war, since World War II. Other countries continue to welcome their presence.

"But the Chinese will have a bigger role trade-wise, economics-wise and in terms of influence with countries in the region. I think that's something countries welcome. At the same time they want the US to be part of the region. How do you achieve that? That's the challenge.

"I don't think the Americans have done anything against Chinese relations in the region. The Chinese have trade relations with so many of America's major partners. All the (US') major partners now have China as their major trading partner. Australia has China as its major trading partner. So too Korea. So too Japan.

"There is an issue in the South China Sea which is a security issue, and in the other islands which are disputed (between China and Japan), but other than that, the shift is not so much a military shift as a shift in terms of economic weight and political influence."

Maritime confrontations

IS HE worried about recent confrontations at sea between China and various South-east Asian nations in the South China Sea, and between China and Japan over the Senkaku Islands?

"It's sharper, it's definitely sharper," Mr Lee says.

"First of all, everyone thinks there's hydrocarbon there, which is worth a lot, which previously was not so certain.

"Secondly, I think the nationalist pressures are there and no government can be seen to be weak. In Japan there's a contest between the Tokyo governor and the central government as to who can be more zealous in guarding the national interest."

Without being alarmist, Mr Lee is sombre about where this could all lead.

"You could have a mishap at sea and lives could be lost for no rhyme or reason, and the problem could escalate, which would be very bad for the whole region.

"We (Singapore) don't have any direct stake in this because we are not a claimant state, but we do have a stake in the stability and prosperity of the region.

"Asean has some role and Singapore has a role as a member of Asean. If something is happening on our doorstep, we cannot not be involved. We can counsel moderation and restraint and encourage the parties to work towards a code of conduct, which would not resolve the competing claims but at least allow us to manage them without coming to blows."

At its last ministerial meeting in Cambodia in July, Asean was unable to issue any joint statement, reportedly because Beijing had influenced the Cambodian government as host and chair to reject any reference to recent skirmishes at sea, which the Philippines and Vietnam wanted included.

Mr Lee, for whom Asean is central in foreign policy, is blunt in his assessment of this failure. "Yes, it was a setback," he says. "It was no good for us. It cast doubt on our effectiveness and our seriousness."

This was partly salvaged, he believes, by a compromise statement Indonesian Foreign Minister Marty Natalegawa negotiated a week later.

"But nevertheless the damage had been done," Mr Lee says.

"Partly because of a perception that there had been pressures brought to bear which led to intransigent positions being taken, and which led to the inability to agree (on) a consensus statement."

It would be wrong to second-guess Mr Lee, who chooses his words with great precision, but the reference to "pressures brought to bear" can only mean Chinese pressure.

Chinese nationalism

SO WHAT is Mr Lee's assessment of the dynamic force of rising Chinese nationalism?

"If you talk to the Chinese foreign policy establishment, especially the professionals in the Foreign Ministry, they will tell you they are under pressure from public opinion, and particularly from Internet opinion," Mr Lee says.

"And Chinese Internet opinion, like Internet opinion in most countries, is neither moderated nor pro-establishment.

"It's also partly the result of many years of - indoctrination is not quite the word - education, I suppose, of reminding the people of the Sino-Japanese War and all the indignities Chinese people suffered at the hands of the Japanese. In fact they just celebrated the anniversary of the Manchurian incident which led to the Japanese invasion of China.

"Every Chinese knows that date. So do I, so does every Singaporean who studied in Chinese schools in my generation.

"The other element is that the new generation of Chinese have grown up in a period of China's rapid emergence and growing self-confidence.

"They are the ones who are the most vocal in asserting their nationalist righteousness. That is something to be concerned about in the long term. Because the generation who lived through it don't want to go to war again. They know that this is not the 1930s, it's the 21st century and China is a nuclear power and Japan has a nuclear umbrella. The balance is shifting towards China, so why do you want to upset things and precipitate a confrontation?

"The younger generation have not seen the horrors of war, or the turmoil of the Cultural Revolution, and they just see China getting bigger and stronger every day. They just say the time has come for us to take our rightful place. The Chinese government has to take that into account."

Meanwhile, Singapore lives with less apocalyptic realities.

At the worst point in the global financial crisis, in 2008, it recorded a year of negative growth of about 1 per cent. The following year, Mr Lee tells me, it rebounded with an astounding growth rate of 14.5 per cent.

"It was a rebound, it was not a trend," Mr Lee says.

He thinks Singapore this year will have 2 per cent or so growth. He sees Chinese growth slowing in part because of a lack of demand in Europe and the United States. But he gives the impression that if the global economy just sees a bit of slowing, that will not be too bad.

"Our worry beyond that is the transmission of shocks through financial institutions. European banks could be cutting back on lending because they've got more stringent capital requirements and they are big players in Asia, for trade financing and project financing.

"If something really goes wrong in Europe we don't quite know what the knock-on effects will be on the whole global system, on confidence, the financial system, or even the attitude towards globalisation and free trade."

I ask Mr Lee whether he thinks the Western world is suffering a crisis of entitlement spending.

His response is robust: "In America, entitlement spending is a big chunk of your budget. In Britain, it's half the budget. In Europe, it's not just entitlement spending but the whole idea of state welfare, which is entrenched and you cannot undo this. How do you cut back on spending when benefits, once given, cannot be taken back?

"The Germans have done a big restructuring over the last 20 years, but the French have not given up their attitude to entitlements, neither have fundamentally the Spanish or the Italians."

Sense of entitlement

IS THERE a lesson here for Singapore, now as affluent as any European nation?

"We have started with very minimal welfare and we've gone on the basis of growth and high employment and low unemployment. If you're out of a job you can find a new job. You will get help but the help is not something you're absolutely entitled to.

"We have to adjust that without going overboard and ending up where the Americans are or the Europeans are or where the New Zealanders were".

Or where Australia is, I ask.

"Even Labor governments have not quite reformed your labour laws," he says.

Singaporeans, more affluent than ever before, also, perhaps paradoxically, expect more from their Government, according to Mr Lee: "People are not so poor. They think their Government is not poor so they expect the Government to do more for them.

"They're not poor but they feel less well off relatively than others they can see in society. There is that relative sense that 'I should get my entitlement'."

Mr Lee is extremely appreciative of the training facilities that the Singapore Armed Forces get from Australia and he cites joint operations in Afghanistan, and against piracy in the Persian Gulf, as examples of the intimacy and trust between the two nations.

He would like to push the free trade agreement between the two nations a bit further, especially more deeply into air services, but acknowledges: "I think your airlines have other views on that."

But Singapore under Mr Lee is an intimate partner for Australia in South-east Asia. It's a partnership we should work hard to cultivate.

NEWS LIMITED

Other references:

http://www.singapolitics.sg/news/30-years-later-australian-leaders-still-remember-white-trash%E2%80%9D-comment

http://www.channelnewsasia.com/stories/singaporelocalnews/view/267006/1/.html

Manpower realities: Beyond the numbers

by Tan Chuan-Jin

Oct 01, 2012

The recently released data on our population statistics showed that our foreign workforce numbers continue to grow, and some Singaporeans have expressed concern. This is understandable.

On the other hand, companies also remain concerned that the Government is over tightening our foreign manpower policies. Earlier this month in Parliament, we discussed the Work Permit (WP) and S-Pass stock. I explained that while the rate of rejections had increased, foreign-labour numbers were actually still rising, albeit at a slower rate.

I said that it could be seen as a "happy problem" because businesses were doing well enough to demand for more labour, in spite of the tightening.

Two of our Nominated Members of Parliament, both of whom are businessmen, came to speak to me at tea break. Like most of the businessmen we have been speaking to, they were surprised that the stock of S Passes and WP was still increasing. Many of them have been appealing for more foreign workers and feel that we are unreasonably making it difficult for businesses, even though the macro numbers and trends show otherwise.

Our tightening has certainly had an impact and is being felt by companies, but businesses are still expanding or being set up. This demand for foreign manpower is very considerable and many businesses remain prepared to pay the higher costs involved.


GROWTH HAS SLOWED

Let us take a closer look at the present numbers, and see the trend over the last few years. Our WP stock (excluding foreign domestic workers) grew by 20,600 in the first half of this year. Much of the inflow in the past few months was due to foreign construction workers.

The Housing and Development Board, for example, will need about 30,000 construction workers to meet this year's building programme. The cumulative requirement of construction workers could rise to 50,000 within the next few years.

Our Employment Pass (EP) stock contracted marginally (-700), the first half-yearly reduction since 2009 when the recession hit us. I think our adjustments are beginning to be felt at the Professional-Managerial-Executive (PME) level. However, S Passes registered strong growth of 14,200 in the first half of this year. Because of the tightened EP requirements from January, it is likely that companies are using S Passes to bring in the more junior level PMEs. We are taking a close look at this group.

Overall, the growth in foreign manpower (excluding foreign domestic workers) in the first half of this year has slowed to 34,100, which is lower than that of 36,800 in the first half of last year. The slowdown in growth of foreign manpower in sectors other than construction is more obvious: 18,600 in the first half of this year - about 40 per cent lower than the 31,200 in the first half of last year.

We are on the right track in our efforts to reduce dependency on our foreign labour but this will take time.

How much time exactly will depend on many factors, particularly the extent of our tightening measures and how fast companies restructure and improve productivity. And as you can imagine, this will definitely not be overnight.


THE REALITIES

Singapore cannot grow our foreign workforce without limits, given our land, infrastructure and social constraints. But to shrink our foreign workforce altogether will also be quite dire as many of our companies may close, relocate and with that a sharp rise in retrenchments and possibly higher unemployment amongst Singaporeans.

We must therefore rein in the pace of foreign workforce growth, but at a pace that businesses can adjust.

Our productivity effort must continue aggressively. We have often said this, and for good measure. Our rate of job creation outstripped gross domestic product (GDP) growth in the last three quarters (from the fourth quarter of last year to the second quarter of this year), resulting in negative productivity growth over the same period. Without good consistent productivity growth, the competitiveness of our companies, and hence wages will be affected.

Productivity growth must be a key driver for sustainable wage growth. One reason for negative productivity is the availability of low-cost foreign labour - which would explain why the number of foreign workers continues to grow rapidly. Low labour costs make it less urgent for companies to invest in technology and innovation.

This is simply not sustainable. I know that we cannot mechanise everything; some jobs do require the human touch. But I am not aware of any country with high productivity levels which has easy access to low-cost labour.


BEYOND THE NUMBERS

Focusing on numbers tend to gloss over more fundamental concerns. What kind of society do we want? And what would be the look and feel of the economy be to support that? We all agree that there is more to life than GDP growth. It must be so.

However, there are still practical needs to meet. Let me share my top-line objectives and concerns. Firstly, we need to generate enough jobs for Singaporeans - not just the number of jobs, but also quality of jobs, in line with increasing education and expectations. So how do we keep Singapore dynamic enough that we offer a range of possibilities for our people?

Secondly, we need to generate sufficient income to fund the various Government expenditures for Singaporeans. We need to look at what levels of economic growth and what type of growth will help meet these objectives.

As our resident labour force is slowing, we will have to rely more on productivity growth (rather than labour force growth) to fund higher Government expenditures. What percentage of labour and productivity growth do we need to factor in? This underscores why productivity is so important. The higher our productivity, the greater space it affords us to depend less on additional labour inputs.

We are in the process of relooking the structure of our economy and the quality of growth. For example, manufacturing contributes more than 20 per cent of Singapore's GDP, and has led the economy out of recent downturns. It also provides good-skilled jobs for Singaporeans.

As Prime Minister Lee Hsien Loong rightly pointed out over the weekend, this is one sector where businesses can do more to beef up the industry, particularly on the productivity front. So for this sector and the economy as a whole, how can we generate sufficient good jobs to meet the job needs of locals, while keeping Singapore vibrant and avoiding excessive job creation which would have to be filled by foreigners, which in turn will add stresses to our infrastructure and social fabric? This is tricky because the economy is not simply shaped by dials which we can set.

On the Government's part, the National Productivity and Continuing Education Council has developed sector-specific productivity improvement strategies to help 16 priority sectors embark on productivity improvements and provide productivity-related schemes and funding. We have also just launched a new initiative to boost productivity: The Job Flexibility for Productivity (JFP) initiative for the hotel sector.

Local employees will get more opportunities to work across different functions, gain skills and enjoy higher wages. Foreign work-permit holders will be allowed to perform different job functions. Currently, they can only perform the specific job on their work-permit card. With the JFP, hotels can now do more with their current workforce, instead of having to hire additional foreign workers. The industry can then share the productivity gains with workers as well.

Such measures will be useful, but we cannot stop there. I think the balance of driving forces favours recalibration towards even more moderate foreign workforce inflow, to encourage companies to pursue higher productivity business models and processes and away from labour-intensive growth. We will monitor closely over the next few months and take further measures down the road, if needed.


LOOKING AFTER Singapore and Singaporeans

It is important to again emphasise that our priority is to look after the interests of Singaporeans and Singapore, not just for the present but on a sustained basis for our future.

Creating good job opportunities for Singaporeans does not come automatically because companies will come and go based on opportunities available globally. We need to arm local workers with the right skills so that they can enjoy inclusive growth in Singapore with rising real wages and a better quality of life.

At the same time, I am fully aware of the concerns of too large a foreign workforce. We will increase our infrastructural support to ease the congestion, even as we continue to find the right balance for the labour market. If needed, we will tighten foreign workforce controls further. Companies must do their part and transform.

Let us think hard and discuss this constructively with fellow Singaporeans, employers and workers alike - on how we can navigate this path where we can best provide for our people and society, while calibrating our foreign manpower framework in a complementary manner.

It is not just about numbers, it is about finding that delicate balance that will deliver sustainable wage growth for Singaporeans, growth prospects for businesses, and a societal composition that we can accept.


Tan Chuan-Jin is Singapore's Acting Minister for Manpower. This first appeared as a blog post at momsingapore.blogspot.sg yesterday.

Small states 'need rule-based global system to survive'

Oct 01, 2012

They must be mindful to speak up against violation of rule of law: Shanmugam
 

WASHINGTON - In a fast-changing world troubled by economic and political uncertainties, small states such as Singapore are particularly vulnerable.

For small states to survive and thrive, "a predictable and stable, rule-based international system is crucial", Singapore Foreign Minister K. Shanmugam said in an address to the United Nations General Assembly in New York last Saturday.

"Small states such as Singapore are vulnerable even at the best of times. And these are not the best of times," said Mr Shanmugam, who is also Law Minister.

He cited the recession in Europe and slowing growth elsewhere in the world, saying the combination of weak consumer demand in developing countries and the euro zone crisis could lead to a global recession. Increased protectionism is also a danger to small states dependent on global trade.

"It is, therefore, particularly important for small states to be in an international environment where international law and institutions based on law can flourish," he told the world body.

But as beneficiaries of a stable international system, small states must be mindful not only to support the international rule of law, but to "also speak up against its violation", Mr Shanmugam noted.

He was speaking ahead of a Forum of Small States conference today. Held on the sidelines of the UN General Assembly, the full-day conference marks the 20th anniversary of the informal grouping comprising 105 UN member states each with a population of 10 million or less. Members include Bhutan, Fiji and Belarus.

Chaired by Singapore since its establishment in 1992, the grouping will discuss the role of small states in international relations, including member states' commitment to the rule of law and peaceful settlement of disputes.

Mr Shanmugam said dialogue among countries is essential in an environment where the "global governance structure is fragmented and coordination is difficult".

In dialogue, the respect for rule of law by all parties is crucial. Otherwise, "small states will lose their independence and autonomy, and even the larger and stronger states can never feel entirely secure. A stable international system is critical to our collective security", he said.

Singapore believes strongly in the importance of safeguarding the international rule of law, he added. The Republic has participated in various multilateral negotiations. It has also used international dispute mechanisms such as the International Court of Justice and International Tribunal for the Law of the Sea to resolve disputes.

"Our view is that disputes, including those over territorial sovereignty, can and should be resolved peacefully and in accordance with international law," said Mr Shanmugam.

In his speech, he noted there was growing frustration over the inability of existing multilateral institutions to effectively handle global challenges, giving rise to a greater tendency for countries to turn to smaller, exclusive groups such as the Group of 20 (G-20) for solutions.

However, the G-20 leaves out the vast majority of UN members, particularly small states.

He called on the international community to support "ongoing and new efforts aimed at strengthening the UN, instead of denigrating it".

Singapore believes the UN's long-term goal should be "an effective system of international law and resilient mechanisms for peaceful dispute settlement".

"This will provide a platform for states under threat to bring their problems before these mechanisms with confidence, rather than trying to resolve them by force," Mr Shanmugam said.

Where did the mammoth US budget deficits come from?

Let's go back about a decade, when budget surpluses were predicted for the foreseeable future. Somehow, the math went terribly wrong, by trillions of dollars. Here's an accounting of what happened.

By Peter Grier, Staff writer / September 28, 2012

What’s the cause of the federal government’s huge budget deficits? That’s a question that is harder to answer in the particular than you might think. The general problem is obvious: Uncle Sam has been spending more money than he takes in. The specific reasons as to why this state of affairs exists are a mix of human decisions, economic circumstance, and the cumulative effect of time.

Context is important here. So let’s start with 2001. That year, the Congressional Budget Office looked out over the decade to come and saw ahead nothing but blue skies and black ink. It predicted that between 2001 and 2011 the US would run budget surpluses totaling $5.6 trillion.

That didn’t happen. Instead, the US racked up $6.1 trillion in deficits over that period. CBO’s prediction was a whopping $11.7 trillion off the mark. How did things go so wrong?

CBO has gone back and studied that, as it happens. In a paper published earlier this year, the group’s economists tried to pull out and compare the reasons for the multitrillion swing.

One big problem was that CBO isn’t magical. Unblessed with the ability to predict the future, it didn’t accurately foresee the economic troubles of coming years, including the crash of the Great Recession. This meant that less tax money came in than anticipated. Overall, CBO says that about $3.3 trillion of its $11.7 prediction error can be attributed to “economic and technical changes” to projected revenues.

Then there were the tax cuts. President George W. Bush instigated most of these, but President Obama also pushed through Congress a payroll tax cut intended to pump money into a moribund economy. Tax cuts accounted for a further $2.8 trillion of the $11.7 trillion discrepancy. (Yes, the big kahuna here is Mr. Bush’s 2001 reduction in income-tax rates, which alone accounts for about $1.2 trillion in revenue foregone over the decade.)

Finally, there are the increases in outflows unpredicted by CBO. Between 2001 and 2011, increased discretionary spending amounted to about $3 trillion. This category includes defense spending related to the wars in Iraq and Afghanistan, homeland security upgrades in the US, spending on food stamps and other hard-times safety net programs, and other general budget categories that are supposed to be approved annually by Congress.

Mandatory spending – a category that includes the Medicare prescription-drug program approved under Bush, the TARP bank bailout, and Mr. Obama’s economic stimulus package – went up by about $1.4 trillion during the period in question. (This type of outflow is called “mandatory” not because we had to do it, but because it results from formulas established by Congress instead of appropriated dollar totals.)

Charles Blahous, a former economic official in the Bush White House who is currently a Hoover Institution research fellow, has rolled all these numbers together into a simple pie chart. His answer to the question “where did the $11.7 trillion go?” is this: 27 percent went away due to projection inaccuracy; 24 percent went to tax cuts; and 49 percent can be accounted for by various forms of increased spending.

Yes, yes, but who’s to blame? It’s election season, after all, and accusations as to which party is responsible for most of this damage are as thick on the ground as October leaves after a windstorm. Asked why the debt has increased during his four years in office during a “60 Minutes” interview last week, Mr. Obama pointed a finger at his predecessor:

“Over the last four years, the deficit has gone up, but 90 percent of that is as a consequence of two wars that weren’t paid for, as a consequence of tax cuts that weren’t paid for, a prescription-drug plan that was not paid for, and then the worst economic crisis since the Great Depression.”

That answer is not accurate. Obama appeared to be talking about numbers that reflect the cumulative debt since 2001, not just his term. According to a White House-produced chart on the national debt, if you take the 10-year period of 2001 to 2011, Bush policies accounted for 55 percent of that figure. Obama-initiated policies such as the stimulus accounted for 11 percent, while the recession took care of the rest.

(The White House chart puts the total debt at $12.7 trillion, not $11.7 trillion, as does the CBO. The White House uses different underlying economic assumptions.)

But even that chart is something of an apples-to-mangoes comparison. Bush was president for eight years, and Obama for three. This is where the passage of time comes in – Bush’s tax cuts in particular had more time to accumulate and thus appear as a bigger part of the overall picture than the later-arriving Obama stimulus package.

Washington Post fact checker Glenn Kessler has looked at this in depth, and made his attempt at adding up who is responsible for the $1.3 trillion 2011 deficit alone. His rough estimate is that economic factors accounted for about 46 percent of this single-year shortfall, while Obama policies accounted for 44 percent, and Bush-era policies for about 10 percent.

Splitting up deficit causes by administration may be politically interesting. It’s possible, though, that it’s effectively pointless, in that it doesn’t lead to a better understanding of the choices that will confront US policymakers in years to come.

A more useful way of looking at things could be to reslice deficit numbers into cyclical and structural figures. The cyclical deficit is caused by stuff that varies from year to year, like food stamp spending, which is driven by unemployment. The structural deficit is welded into the structure of the federal budget like steel beams. It reflects chronic problems that only worsen, such as the rising cost of health care.

According to CBO, about $367 billion of the $1.3 trillion 2011 deficit was caused by cyclical stuff. Some $928 billion was structural. This is the part we really need to worry about, according to such budget watchdog groups as the Concord Coalition.

The most important of these structural factors should come as no surprise. They are the aging of the baby boom population, which will drive up the number of people enrolled in Social Security and Medicare; and the continued increase in health-care costs, which makes Medicare, Medicaid, and other government health-care programs more expensive on a per-person basis.

Population aging accounts for 64 percent of the cost growth of Social Security, Medicare, and Medicaid through 2035, according to a Concord Coalition analysis published earlier this year. Thirty-six percent is due to rising health-care costs.

“Borrowing our way through this is not a viable option because the rising cost of Social Security, Medicare and Medicaid is not a temporary blip. It gets bigger with time. Incurring permanently rising debt would result in staggering interest costs and ultimately a total debt burden that would crush the economy,” concludes the Concord Coalition analysis.

When growth outpaces happiness

Oct 01, 2012


CHINA'S new leaders, who will be anointed next month at the Communist Party's 18th National Congress in Beijing, might want to rethink the Faustian bargain their predecessors embraced some 20 years ago - namely, that social stability could be bought by rapid economic growth.

As the recent riots at a Foxconn factory in northern China demonstrate, growth alone, even at sustained, spectacular rates, has not produced the kind of life satisfaction crucial to a stable society, an experience that shows how critically important good jobs and a strong social safety net are to people's happiness.

Starting in 1990, as China moved to a free-market economy, real per capita consumption and gross domestic product doubled, then doubled again. Most households now have at least one colour television set. Refrigerators and washing machines, rare before 1990, are common in cities.

Yet there is no evidence that the Chinese people are, on average, any happier, according to an analysis of survey data that colleagues and I conducted. If anything, they are less satisfied than in 1990, and the burden of decreasing satisfaction has fallen hardest on the bottom third of the population in terms of wealth.

Satisfaction among Chinese in even the upper third has risen only moderately.

Our data was collected by five survey organisations, one of them Chinese, between 1990 and 2011. The surveys focused on urban areas, where growth has been concentrated. Participants were asked about their satisfaction with life as a whole, and their feelings were measured on a scale of one to 10, with 10 representing strong satisfaction.

It is startling to find that Chinese people's feelings of well-being have declined in a period of such momentous improvement in their economic lives. After all, most policymakers would confidently predict that a fourfold increase in a people's material living standard would make them considerably happier.

And yet, piecing the surveys together, we found a U-shaped pattern of happiness over time, with life satisfaction declining from 1990 to the first part of this decade, and then recovering by 2010 to a level somewhat below the 1990 value. What explains the "U" at a time of unprecedented economic growth?

Before free-market reforms kicked in, most urban Chinese workers enjoyed what was called an "iron rice bowl": permanent jobs and an extensive, employer-provided safety net which included subsidised food, housing, health care, childcare, pensions and jobs for grown children. Life satisfaction during this period among urban Chinese, despite their much lower levels of income, was almost as high as in the developed world.

The transition to a more private economy in the 1990s abruptly overturned the iron rice bowl. Hundreds of thousands of Chinese who worked at inefficient and unprofitable state companies were laid off. The loss of jobs also meant the loss of the employer-provided safety net. Growing numbers of rural migrants took city jobs that provided no benefits. Among urban workers still employed, concerns about job security and the continuation of benefits mounted. Life satisfaction in urban areas declined markedly.

Although the rate of layoffs dropped considerably in the early 2000s and unemployment started falling, the Chinese people's concerns about jobs and safety-net benefits persisted.

Worries about job security are reflected in feelings of financial satisfaction. In 2007, only 27 per cent of Chinese in the lowest third of the income distribution expressed satisfaction with their financial situation, down from 42 per cent in 1990. Evidence of a fraying social safety net is indicated by the decline in self-reported health among the bottom third: Those reporting that their health was good or very good dropped to 44 per cent, compared with 54 per cent in 1990.

China's transition has been similar, in several respects, to those of countries in Central and Eastern Europe, for which we have similar life-satisfaction data. In almost all countries, life satisfaction initially declined and then recovered to numbers somewhat below pre-transition levels. The U-shaped pattern in happiness was accompanied by the emergence of widespread joblessness, the dissolution of the safety net and a subsequent modest recovery.

The similarity ends there, however. In Europe, growth initially fell sharply before rebounding, tracking life-satisfaction numbers. In China life satisfaction declined as output and consumption rapidly expanded. The difference shows that economic growth is not enough: Job security and a social safety net are also critical to people's happiness.

What can we learn from China's transition? Certainly not that China should return to socialism and the gross inefficiencies of central planning. But its market transition has given birth to increasing concerns among everyday Chinese about such matters as finding and holding a job, the availability of reliable and affordable health care, and provision for children and the elderly.

To its credit, the Chinese government has taken some steps in recent years to broaden and improve unemployment and pension benefits, as well as to upgrade the health-care system. Even so, the safety net remains in need of substantial repair.

It is noteworthy that, at a time when the need for a strong safety net is under attack in the United States, the world's most fervent capitalist nation inadvertently has demonstrated its critical importance for people's happiness.

The writer, the co-author of Happiness, Growth And The Life Cycle (Oxford University Press, 2011), is a professor of economics at the University of Southern California in Los Angeles.

NEW YORK TIMES

Can cheap gas replace nuclear power?

Oct 01, 2012
 
By Michael Richardson For the Straits Times
 

WHEN a severe earthquake triggered a giant tsunami along parts of Japan's Pacific coastline in March last year, causing extensive damage and a dangerous meltdown in one group of atomic reactors, some analysts predicted it would be the death knell of the nuclear power industry.

The industry, which generates just over 12 per cent of the world's electricity, has certainly taken a heavy hit. Public confidence in nuclear safety has fallen and several major economies have announced plans to phase out atomic power.

The Japanese government said recently that it was aiming to eliminate nuclear power generation by 2040, despite warnings from industry and exporters about the danger of electricity shortages and higher costs.

All but two of Japan's 50 working nuclear reactors are offline for safety checks. Before the meltdown at the Fukushima complex, they supplied about 30 per cent of the country's electricity.

In the wake of the Fukushima crisis, Germany closed seven of its oldest nuclear plants. The government later announced it would shut all plants by 2022. Nuclear power used to provide nearly a quarter of Germany's electricity.

Even France, which depends on nuclear reactors for nearly 78 per cent of its electricity, is to close its oldest plant in 2016, a year earlier than planned.

In a deal with the Greens, France's Socialist Party President Francois Hollande has pledged to cut reliance on nuclear energy for electricity to 50 per cent by 2025.

Yet despite these planned closures and other phase-outs announced by Switzerland and Belgium, a recent survey by the United Nations nuclear agency shows that the industry has substantial growth prospects in the developing world, particularly in Asia, the Middle East and Africa, where electricity supply lags behind demand in many countries.

Projected growth is strongest in East Asia, led by China and South Korea. Both are big energy importers that want to improve energy security while cutting pollution and global warming emissions from coal-fired electricity generating plants.

The panel of international scientists advising the UN on climate change reckons that nuclear power has the largest potential for reducing greenhouse gas emissions at the lowest cost in the electricity generation sector.

In addition to its very low global warming emissions, nuclear power does not emit the noxious gases associated with power plants that burn coal. These gases contribute to air pollution blighting many Asian cities and harming human health.

South Korea generates nearly 35 per cent of its electricity from nuclear plants. Heavily coal- dependent China so far uses nuclear reactors to produce less than 2 per cent of its power.

But this proportion is due to rise fast over the next couple of decades. China's ambitious reactor building programme is set to resume soon. It was suspended following the Fukushima disaster.

China plans to use reactors to generate 5 per cent of its electricity by 2020 and 10 per cent by 2030.

Coal-reliant India also aims to raise its share of nuclear power generation capacity from 3.2 per cent to 9 per cent in 25 years.

At present, 30 countries operate 435 reactors, with a further 62 units under construction.

The annual update by the International Atomic Energy Agency said that of the 29 additional countries considering or planning to introduce nuclear power, 10 are in Asia, 10 in Africa, seven in Europe (mostly the eastern sector), and two in South America.

The new nuclear entrants in Asia include Vietnam, Bangladesh and Indonesia.

Are they making the right decision, given their lack of operational experience and the huge cost of a Fukushima-type accident?

The global energy landscape has changed radically in the past few years. The cost of generating electricity from solar photovoltaic arrays on land and offshore wind farms has fallen sharply in suitable locations, to the point where it is competitive or close to competitive in some areas with nuclear, hydro and coal-fired power.

The United States has also pioneered new drilling methods to extract natural gas from shale rock in large quantities. This is turning North America into a cheap gas exporter and has sent US natural gas prices plummeting.

The benefits of low gas prices may spread to Asia if the US and Canada become major sellers. This would work to the advantage of countries like Singapore, which made the decision years ago to base its electricity generation on gas.

The International Energy Agency predicted in May that gas was "poised to enter a golden age", in which it could be cheaper than coal as a fuel for power generation.

Mr Jeff Immelt, chief executive of US-based multinational General Electric, a leading supplier of energy products, told the Financial Times in July that he thought "some combination of gas, and either wind or solar" power would appeal to most countries.

However, the shale gas revolution has not yet spread to Asia and gas prices in the region remain much higher than those in North America.

Meanwhile, many Asian governments, tired of volatile fossil fuel prices, are seeking constant supplies of base-load power from nuclear reactors to meet rising electricity demand from industry and increasingly affluent households.

They are prepared to finance or guarantee nuclear power's high upfront capital costs, while hedging their bets by using gas or renewable energy whenever it is affordable and feasible.

The writer is a visiting senior research fellow at the Institute of Southeast Asian Studies.