Professor Lim Chong Yah, the Albert Winsemius Chair Professor of Economics at Nanyang Technological University and one of the key architects who helped overhaul Singapore’s economic system and wage system in the late 1970s, has spoken out very strongly against the current malaise plaguing low income earners in Singapore. He has also proposed raising the lowest incomes by at least 50% over three years, and instituting a wage freeze for top income earners for three years.
Of the wage increases for the lowest income groups, a third of the increase will go to a skills development fund, which the Government will co-fund and which will pay for workers’ retraining, while another third will go into the workers’ Central Provident Fund (CPF) savings.
From 1979 to 1981, Singapore went through a similar wage restructuring exercise where wages were raised cumulatively by 20 percent per year. That was spearheaded by the National Wages Council, which was then chaired by founder Prof Lim.
Professor Lim was promptly taken to task by the establishment
Prof Lim has since been roundly criticized and taken to task by ministers, economists, and many other government and establishment figures for his proposals aimed at closing the income gap. His critics are going all out to make it seem that to increase the wages of the lower income would amount to economic suicide for Singapore and bring the entire economy to its knees.
Prof Lim has stood steadfast against the huge barrage of criticism, which has been directed at him from all quarters of the establishment. His ideas apparently have cut deep into the establishment as well as the economic elite of Singapore, who evidently feel very threatened by what he has proposed. It is almost as if Prof Lim had come close to shattering their iron rice bowls, which are made out of the blood, sweat and toil of low wage earners.
Is attempting to achieve more income equity as well as income equality such a destructive idea that it has the potential to cripple the nation? Or are the establishment circles and the economic elite merely protecting their turf and their ability to exploit the masses, regardless of the long term social cost and the vicious cycle of poverty and hardship that it engenders?
Professor Lim’s “Economic Restructuring II”
Prof Lim Chong Yah first presented his ideas for restructuring Singapore wages at a lecture organized by the Economic Society of Singapore last Monday, 09 Apr 2012. He said that Singapore now needs a “shock therapy to wake up its economy”, and he lamented about Singapore’s chronic addiction to cheap foreign labour, as well as the growing income inequality which according to him has reached dangerous levels.
Dubbing his proposals “Economic Restructuring II”, Prof Lim said that the key solution was to overhaul wages at the lower end of the spectrum, and that this would not have much inflationary impact because the bulk of the extra earnings would be consumed by retraining as well as retirement purposes.
Prof Lim’s proposals aim to substantially increase wages at the bottom end of the scale in a short period of time. This will hopefully then force companies to raise their productivity levels in order to preserve profitability.
Prof Lim attributed the current malaise facing low income earners to an overly liberal foreign labour policy, as well as the government’s fear that Singapore would be uncompetitive without cheap labour.
As a result of the government’s foreign labour policy, the non-resident work force has increased from 300,800 in 1991 to 1.157 million last year, out of which only 1.7 percent earned wages high enough to pay income tax. In addition, Singapore’s Gini coefficient, a globally-used metric of income inequality, was at 0.473 last year, perilously close to the 0.5 mark, which according to Prof Lim is “normally considered a dangerous line to reach, far less to cross”.
Professor Lim counters criticism to his proposals
Amidst criticism that his plan was hard to implement, Prof Lim said that his proposal did not require creating new laws or institutions, but did require national courage. He emphasized: “If the will is lacking, the road is closed. There (will be) obstacles everywhere.”
Prof Lim also said: “(Higher) pay alone (for low income earners) does not increase productivity. However, an underpaid worker is not expected to put his best foot forward.”
In counter to criticism that top talent in Singapore will leave for greener pastures as a result of wage freezes, Prof Lim said “I don’t think they will leave just because they will not get 5 percent more every year”.
He also pointed out that his wage freeze proposals for top earners will in fact have a far milder financial impact on the rich than the extremely hefty taxes that other countries such as the United States are proposing to levy on the wealthiest segments of society.
In my opinion, Professor Lim Chong Yah’s proposals are well overdue and there is a great urgency to recognize the grave imbalances present in our economy.
The government has gotten the whole GLC and MNC sector addicted on the cheap drug of low-cost foreign labour, to the extent where they neglect innovation and productivity because profit margins can be maintained simply by taking this addictive drug in a regular and increasing fashion.
The end result is that productivity has been falling rapidly, and the economy is gradually being hollowed out in an unsustainable manner, because we cannot implement such a liberal foreign worker policy indefinitely without causing massive overpopulation and social upheavals.
In addition, Singaporeans are being displaced and disenfranchised, and wages of locals are also being adversely affected because of the huge influx of foreigners who compete with them for jobs on equal terms and with equal rights. This affects not just low income Singaporeans, but also lower-middle and middle class Singaporeans who face a deluge of competition in the job market as a result of the PAP’s pro-foreigner policies.
Income inequity and income inequality are urgent issues that need to be tackled fast because of Singapore’s rapidly rising cost of living and escalating property prices. Wages at the lower end of the spectrum have substantially lagged behind the cost of living for nearly two decades now. The poor are facing greater and greater hardship with each passing year. They are being priced out of the property market at an alarming rate.
There is a need to overhaul the Singapore economy so that entrepreneurs, businesses and industries focus on delivering genuine value and quality, and where there is a wholehearted focus on innovation and productivity. We need to rapidly move up the value chain and create high margin enterprises that can afford to pay workers not just a minimum wage, but a dignified living wage.
As we move into the 21st century, we need to abandon the medieval mindset of treating people as economic digits, but instead regard each worker regardless of his position as a valuable contributor who is expected not just to display muscle and brawn, but also brains, initiative and creativity.
There is a need to put political pressure on the government to do the right thing and overhaul its approach to manpower, immigration and economic management, so that we can become a nation with 21st century values.
Here are some criticisms made by ministers, economists and business leaders. Read these and judge for yourself whether they have merit.
Labour Chief and Minister in the Prime Minister’s Office Mr Lim Swee Say said: “This approach is very risky. What is at stake are jobs and structural unemployment. You can push up the wages of low-wage workers by 50 percent in three years, but you cannot improve his skill, his productivity, his employability by 50 percent in three years.” Mr Lim said that if productivity does not increase correspondingly, competitiveness would be lost, which may cause some businesses to close down or re-locate out of Singapore. This in turn would lead to a higher unemployment rate and structural unemployment. As such, Mr Lim stressed that the labour movement’s current productivity-driven approach is more sustainable.
Minister of State for Trade and Industry Mr Teo Ser Luck said: “From the business perspective, it’s not just productivity increase that we need, we need the economy to do well so that revenue can go up. When revenue goes up, you can better afford higher pay for the lower-income. It’s not just the one aspect of just increasing the low-income earner’s salary, it’s actually an overall aspect of whether the economy is doing well, whether you get the demand for your services and products, whether your revenue would increase, whether you can meet the bottom-line that you’ve set for yourself. If you just go outright, intervene, and increase the income of the lower-wage workers, what will happen is that when you increase the cost of operations for businesses, it will eat into the margin. For SMEs, that’s not easy thing to do, because their margin’s already very thin. If they’re suppliers of services, that margin could be wiped out just like that.”
Minister of State for Trade and Industry Mr Lee Yi Shyan said that Singapore must be careful about raising wages without a corresponding increase in productivity. “In a free market system, for it to work well, we have to be very mindful of the interventions we introduce and if you artificially raise it too much … … there are consequences and some of these consequences are not what you want to see,” said Mr Lee.
MP Inderjit Singh, MP for Ang Mo Kio GRC, felt that the proposals were “too complex to implement”, and that “if you freeze (top level) wages, you disincentivize and demoralize your workers”.
Ms Annie Gan, managing director of Jian Huang Construction, said: “You pay (top talent) higher pay because they contribute a lot to the company. If you freeze their wages for three years, why should they work hard?”
DBS economist Irvin Seah said that industries that are relatively dependent on foreign workers will be forced to relocate, leading to structural unemployment for low-wage local workers.
OCBC economist Selena Ling said: “For a lot of small and medium-sized enterprises, the bread and butter issues will come to the fore very fast. If the margins were quite slim to start with, or in a sunset industry, these proposals (to increase low end wages) basically deliver the death blow.”
Ms Stella Tang, associate director at Robert Half International, said: “The policy would be difficult to enforce. If a salary cap (for top earners) was enforced, then companies would need to look at other incentives to attract top talent such as accommodation and education allowances, flights home and bonus arrangements.”
Dr Chua Hak Bin, Bank of America Merrill Lynch economist, said: “The world is now more open to talent, with borders becoming more porous to skilled workers. Putting a lid on wages on such talent, which is a reason for Singapore’s success, spells economic suicide.”
Mr Zainal Sapari, an MP for Pasir Ris-Punggol GRC, said the devil was in the details: “If we can push wages up without eroding competitiveness then its fine, but if it erodes competitiveness then we don’t benefit in the long run.”
Singapore Management University economics professor Hoon Hian Teck worries that Prof Lim’s proposals will lead to a sharp rise in the unit cost of labour, without the benefit of growth to keep pace.
Mr Chan Chong Beng, president of the Association of Small and Medium Enterprises, said: “Having to raise salaries by at least 15 per cent for three years straight will kill a lot of SMEs.”