Tuesday, February 19, 2013

A difference in approach, and not just numbers

Feb 16, 2013

By Janice Heng

EVEN as the People's Action Party (PAP) and the Workers' Party (WP) traded comparison tables and barbed comments in Parliament, a casual onlooker might be forgiven for wondering just what they were disagreeing over.

At first glance, the differences in both proposals may not seem great: a percentage point or two less growth here, some 5,000 more new citizens there.

The headline figures for total population seem furthest apart, with the Government's 6.9 million versus the WP's 5.8 million. Yet the Government has made it clear that its figure is a "worst-case scenario" and meant only for planning purposes.

"There appears to be no consensus on the 6.9 million figure, but the fact of the matter is that the Government is hoping that it wouldn't be 6.9 million, and the opposition wants the figure to be substantially lower than 6.9 million," says National University of Singapore sociologist Tan Ern Ser.

Even the WP's proposal of freezing foreign worker numbers, labelled "drastic" and "risky" by the PAP, might have been misconstrued.

WP Non-Constituency MP Gerald Giam tells Insight his party was not advocating an absolute freeze.

The cap applies only if the resident workforce - citizens and permanent residents - grows by 1 per cent a year, to yield an overall workforce growth of 0.6 per cent.

If that target cannot be met, then the labour pool will still be topped up with additional foreign workers.

In his parliamentary speech, Mr Giam said: "We should strive to keep our foreign labour force constant between now and 2020, depending on our success in growing the local labour force."

Later, when queried by minister S. Iswaran about whether his party wanted a freeze on foreigner numbers, he said it did not see a need for more foreign workers "except if we cannot attain that 1 per cent growth in resident labour force".

Still, does this all mean there is little to choose between the Government's proposal and the WP's? Not so, say economists.

The absolute numbers may not look too far apart. But in reality, the differences are substantial - in the short term and in their implications for the Singapore that will result.

Take the WP's goal of 0.6 per cent overall workforce growth, compared with the Government's intention to grow it by 1 per cent to 2 per cent till 2020, and 1 per cent thereafter.

To the layman, the gap might seem small. But Lee Kuan Yew School of Public Policy Senior Fellow Donald Low points out that the Government's figure is about double the WP's - a "stark difference".

And the reliance on domestic rather than foreign workforce growth will make a Singapore which is tougher on companies.

National University of Singapore economist Hui Weng Tat thinks the WP plan "cannot be immediately implemented, as (it is) too drastic for some businesses", though it could be a feasible stretch target over the next 15 to 20 years.

Wages will have to rise, and business costs will thus go up, says Mr Low. But the pace of economic restructuring will also be accelerated. "The incentive for firms to raise productivity will be sharpened," he adds.

But more than that, the WP's proposal aims at a Singapore with slower growth - and even small changes in growth rates can be significant.

"One percentage point is not a big difference if you are growing at 5 to 7 per cent, but it is quite big if you are growing at 1.5 per cent," says Bank of America Merrill Lynch economist Chua Hak Bin.

Asset prices could fall, and the opportunities and diversity of jobs will shrink, he adds.

For Singapore Management University economist Hoon Hian Teck, slower growth means higher unemployment, a link that he thinks "seems... to not have been fully grasped" in the debate so far.

The historical data for Singapore shows that below a certain gross domestic product (GDP) growth rate - about 6 per cent, he says - the unemployment rate gradually increases.
Even shifting to an era of 3 per cent to 4 per cent GDP growth, similar to the Government's plan, is likely to lead to a period of rising unemployment rates, says Professor Hoon.

"Since holding a steady job is such a fundamental component of a good life... it is a mistake to think that choosing higher economic growth necessarily means neglecting the good life," he adds.

Seen this way, the key choice in the population debate concerns jobs: whether to limit foreign worker inflows and live with higher unemployment, or absorb more workers and enjoy a tighter labour market.

Mr Low, however, does not share that perspective.

He acknowledges that slower growth could lead to higher unemployment, but sees nothing "fundamentally wrong" with slowing down as long as the growth that is achieved is of higher quality and the result of restructuring.

He notes that GDP growth per capita is basically equal to productivity growth, and hence likely to be the same under both proposals, as they assume the same productivity growth rate.

The difference, he says, is that the WP's model allows for growth that is "distributed a lot more evenly", because of the upward pressure it puts on wages. The gains from growth can end up in the pockets of firms, workers or the Government, as profits, wages and taxes respectively.

"The current model of growth that we have is one that is driven largely by profits," says Mr Low. But under the WP's plan, a larger share will go to wages, he argues.
Whether one takes an optimistic view or a cautious one, the WP's plan is not just the Government's plan with the numbers tweaked. It takes a different approach.

But Dr Chua is sceptical about whether the WP's slower growth model can even achieve its stated productivity targets, and hence the high-quality growth Singapore needs to stay relevant. "I think the experience of most countries would show that productivity growth is related to the age of the population," he says. "Maybe Singapore will buck this trend, I don't know. But this is what experience shows."

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