RICHARD HARTUNG
APRIL 23, 2015
As Singapore goes about what some have called a shift to the left, with greater social spending in the 2015 Budget, there has been debate both inside and outside of Parliament on the wider implications of such a change. Among the questions are whether the shift will lead to Singaporeans developing a “crutch mentality” that was eschewed in the past, where the line between individual responsibility and collective responsibility ends, and whether the new policies can address the nagging problem of inequality.
A recent report by the Commission on Inclusive Prosperity, which was co-chaired by renowned American economist Lawrence Summers and the United Kingdom Labour Party’s Shadow Chancellor of the Exchequer Ed Balls, may be helpful in considering these vital issues.
The commission, which examined reforms the US and UK need to undertake to generate more high-wage jobs for the future, espouses the principle of putting people first and recommends new policies for today’s globalised and highly competitive economic environment to reduce the negative impact of inequality.
Several new initiatives in the 2015 Budget are in line with the commission’s recommendations, including the focus on early childhood education, improving the quality of schools, eliminating financial barriers to higher education and providing support for apprenticeship programmes.
However, what is key to achieving inclusive prosperity, according to the commission, is a culture of mutual support and collective responsibility, which is still at a nascent stage of development in Singapore.
Against this backdrop, a recent suggestion by Minister for Culture, Community and Youth Lawrence Wong — that the Republic could look beyond social-welfare spending and re-examine its core economic model to explore how to care for citizens — deserves a deeper look.
Mr Wong’s point is that as the Republic moves into a new phase of development, strengthening society will require a set of principles that run contrary to those that currently guide the economy. Whereas the economy is currently built on economist Adam Smith’s principle of maximising an individual’s interests and profits in a free marketplace oriented towards self-interest, continuing that approach will not lead to common ground to build a strong, cohesive society.
Instead, Mr Wong said, society “almost needs to operate on a reverse Adam Smith principle — that we need to look after the interests of others first”. He added: “I think that’s at the heart of what inclusive innovation is about. It’s about innovating to expand the opportunities for others.”
Since the economy has long been built on the framework of marketplace principles, reversing Adam Smith’s concepts could indeed require major adjustments. The challenge, then, is how to achieve the vision that Mr Wong spelt out in a speech at the Global Social Innovators Forum in November last year.
The Commission on Inclusive Prosperity’s recommendations are instructive. Its key recommendations for Singapore to consider include removing barriers to women’s labour-force participation and aligning the incentives of corporate executives with the goals of fostering more productive capital investment in areas such as machinery or workforce training.
And given Singapore’s focus on productivity, policymakers could do well to consider the commission’s proposal for workers to benefit from increased productivity through profit-sharing and share-ownership schemes, rather than letting returns accrue primarily to shareholders.
[So how is increasing women's LFPR, capital investment in machinery & workforce training, and increase productivity through profit-sharing reversing Adam Smith Principles?
Take for example profit-sharing/stock ownership.
Paying a CEO $50,000 in shares in the company means that if the CEO holds the stock he can get dividends of say 10% or $5000. If he sells the stock, he can get $55,000. If he holds the stock and he receives another $50,000 in shares each year, he could quickly accumulate enough shares to have a passive income. And $50,000 worth of shares is very modest for a CEO.
If you pay a staff in shares, how many shares will you give him? Certainly not $50,000 worth. Say $2000? Say the staff works for 10 years - he would have $20,000 worth of shares. Still less than what the CEO got in one year.]
Alternatives the commission suggested include employee stock-ownership plans, worker cooperatives or gain-sharing programmes, which compensate a broad base of workers depending on group performance. The commission also noted that research by Rutgers University economist Donald Kruse found that profit-sharing plans boost productivity by an average of 4 to 5 per cent.
[I don't dislike the proposals. I just wonder how are these reversals of Adam Smith Principles?]
RETHINKING PROSPERITY
Beyond the work of the commission, policymakers could look at initiatives to shift some emphasis of companies from maximising shareholder value towards putting consumers first. In the services sector, for example, one model could be the new legally binding ethics oath in the Netherlands that requires bankers to put the interests of both clients and society first, and which results in punishment if Dutch bankers break the rules.
On a broader basis, policymakers here could consider working on initiatives to shift the prevailing definition of prosperity to focus on peoples’ actual needs.
In Prosperity Without Growth, University of Surrey Professor Tim Jackson wrote about a macroeconomic framework that reduces the reliance on relentless consumption to drive growth. It would shift the social logic of consumerism so people can fully participate in society without unsustainable material accumulation and unproductive status competition.
Policies to support this shift, Prof Jackson said, could include measuring prosperity by looking at more than only gross domestic product, reinvigorating the social contract, developing community-based sustainability initiatives and reducing the focus on consumerism. Practices to encourage the purchase of more durable goods rather than throw-aways, buying local products instead of brand-name consumer goods and taking domestic holidays are only a few of his myriad ideas.
Making such fundamental changes will take time. With changing demographics and rising uncertainties, however, Singaporeans deserve greater assurance that their future is secure. Making a mindset shift to look after others first and embrace inclusive growth, leveraging lessons from here as well as elsewhere, are useful steps in moving towards the new model that Mr Wong espoused and in making Singapore an even better place to live.
[Buy Local instead of Foreign. Look after others first. Depending on how you define "others", wouldn't buying foreign help others?]
ABOUT THE AUTHOR:
Richard Hartung is a financial services consultant who has lived in Singapore since 1992.
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