Sunday, January 8, 2012

Slow growth comes with its own perils

Dec 27, 2011

SOME experts have opined that slow growth may not be bad, especially if it allows the Government to tackle some of the nation's woes ('The slow and steady way to grow'; Dec 16).

However, a drop in economic growth from 6 per cent to 3 per cent or 4 per cent would mean zero or negative growth for many companies. Employees of these companies may suffer a pay freeze or retrenchment.

Low growth would cause a multiplier effect in subsequent years. Future investments may be put on hold or trimmed.

When growth slows, there would be less government revenue for welfare services or for subsidising workers' training. One economist said some Western countries grow only at around 2 per cent and yet have good welfare systems. We can have that too, but are we prepared to pay higher taxes?

Also, unlike those countries, we have no natural resources.

A labour leader said that when the economy slows down, workers would have more time to go for training. If the setback the companies face is not a temporary one, would the companies still sponsor the training, and what purpose would the training serve?

An economist said that slow growth may not be bad if it helps narrow the wage gap. A manager with a $10,000 salary, who used to get a $500 salary increase, may now get only $200 because of the slowdown. But the tea lady who earns $800 is unlikely to get a similar increase. The income gap would still widen but perhaps at a slower pace.

Another expert opined that inflationary pressures could ease with slower growth. But when our economy slows down, our export earnings would drop and our exchange rate would suffer, causing imported goods to be dearer. The relationship between growth and inflation is not that straightforward.

It is unrealistic to expect the high growth of 8 per cent to 10 per cent to repeat in the future. On the other hand, slow growth of 3 per cent or lower over the long term would bring about new problems and constraints.

The most serious consequence is: Singapore would slowly lose its international standing and attractiveness as a modern city.

It would be a grave mistake if we voluntarily opted for slow growth when other regional cities might be striving for a growth of 8 per cent or higher. We could lag behind them, but must not be too far off.

Ng Ya Ken

Ben Bernanke spoke on the Economics of Happiness too.  While GDP isn't everything, like money it may not buy you happiness, but it helps.

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