Nice campaign rhetoric by Tharman on inclusive growth strategy but unconvincing

by Yeoh Lam Keong

The strongest case for People’s Action Party (PAP) inclusive growth track record and strategy made by their best minister by far, Tharman Shanmugaratnam.

I think the figures on productivity growth are basically true and show the success of ending labour driven growth and shifting to more productivity driven growth from 2010-2020.

The most impressive is the productivity growth per man hour and real wages for the median wage worker. This seems to be the PAP’s most impressive achievement.

However this achievement, and the efforts at improving social mobility and inclusive growth touted in this video needs to be seen in context, with a number of important caveats:

1. Restructuring labour

After 20 years of excessive “go for growth “ unskilled immigrant labour led growth from 1990-2010, both productivity levels and real wages at median and 20%tile were at extremely depressed / suppressed levels.

If not for this protracted period of excessive immigration and suppression of real wage growth, productivity levels would already be much higher at levels we see in New Zezland, Australia, Canada and Europe for our working classes.

Our construction sector would have only a quarter or a third as many workers and much higher wages, with foreign workers forming probably less than 100k instead of over 300k with correspondingly less pandemic risk.

So the main success over the last 10 years has been to unwind part of this huge two decade policy error, in my humble opinion

This masks the huge amount of catch up still ahead. At the 10% tile level for eg incomes of cleaners may rise from $1000 to $1400 (after Workfare Income Supplement (WIS) Scheme support ). However the living wage or the developed country equivalent (say Germany) is $2000. The first part of the catch up is the also easiest.

Also, we are not restructuring labour intensity fast enough.

Labour force growth due to excessive immigration was 3-4% pa in 1990-2010. It came down to about 1.5% in 2010 to 2020. This is still way too high as developed country average is 0.2 to 1%. If we continue at 1.5%, we will probably hit a terminal population of 9-10 million by 2050-2060

2. Social mobility 

On social policy, increases in wages due to higher WIS support is mainly in CPF which does nearly nothing for poverty. The cash portion needs to rise another $500-600 a month which has been stubbornly resisted by policy makers. Similarly, the support of $300 a month for SSS for elderly is still pathetic. It should be around $600- 800 at least ( current NZ levels ) which is both eminently fiscally affordable and also conforms to the targeted welfare position Minister Tharman is advocating, but not really practicing, sufficiently.

On education policy 20 % of the pre schools in future will still be elite, expensive ( $800-2000 pm ) private pre schools where social mobility will continue to be thwarted. No abolition of PSLE which streams the privileged to better schools through tuition. No targets for smaller average class size that helps weaker pupils. No mention of the fact that PISA scores are not what employers really want in the new knowledge based economy.

3. Strawman on taxes for universal benefits

On advice to be be careful of calling for raising taxes for the rich, Tharman uses a straw man argument. Universal benefits means need to raise taxes not just for rich but also middle class. This causes more not less inequality. Therefore be careful of raising taxes on the rich and universal benefits

“But the idea is always to “try to keep taxes as low as possible on the middle class, and use government revenues to help those who need it most, which is the poor, the lower middle-income group, and to some extent, the middle-income group as a whole”, he said.

However the whole point is that this is not being adequately done. Nobody is arguing for the same level universal benefits for everything, even in healthcare (where the rich always have access to the private healthcare system) but to just do what he said he is trying to do adequately. So In the end the result becomes – both don’t raise taxes for the rich and inadequate even targeted benefits.

Perhaps Senior Minister Tharman, who I and most Singaporeans have immense respect for, might actually be able to do everything he says if he indeed were the Prime Minister most of us want him to be.

Until then, it’s nice campaign rhetoric, but I remain unconvinced.

Yeoh Lam Keong is an ex-GIC chief economist and former adjunct professor at the Lee Kuan Yew School of Public Policy

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