National Conversation : WHY WE CAN'T!

Remember Obama's "Yes, we can" speech. In Singapore context, it is more appropriate to have a "Why we can't..." speech.

Two scores and seven years ago, our forefathers had nationhood thrust upon them. Little in the kitty, no oil in the ground and no gold in our vaults, we had only people with working hands and an island entrepot economy sustained carried on the backs of coolies. This was the humble beginnings of our nation from which our grand metropolis emerged.

Today Singapore is the wealthiest nation on earth....on paper. An average income that surpass Switzerland and per capita wealth that puts the Germans to shame. In just over 4 decades we went from living in wooden attap dwelling to million dollar homes. From worrying about food to worrying about obesity. From vacations in Malaysia to vacations in Europe. Singaporeans drive the most expensive cars in the world. Splurge on the most expensive wines, handbags and shoes - the Sauvignon Blancs, the Louis Vuittons, the Ferragamos. All this material wealth wrought by our worship of the capitalism. Capitalism has delivered, to some, the Singapore Dream. This dream in its most extreme form -  a home in Sentosa Cove, a couple of Ferraris, children in private schools then Ivy League universities. We also have the highest paid leaders in the world.

Along side this vast wealth, among countries in the developed world we see the oldest working cleaners, the lowest paid bus drivers, the lowest paid kindergarten teachers, the lowest paid cashiers and lowest paid factory workers. Its like 2 parallel universe. So is it true our cleaners, bus drivers and cashiers are the least productive in the developed world that is why they are paid so little? Why is it these people deserve so little for doing the same jobs as their counterparts and our leaders are paid triple their counter-parts in other developed countries for doing exactly the same job.

I want to spend some time to explain to you "why we can't" pay these Singaporeans more and our leaders and the rich less under our current economic system.
This is about "why we can't...."

Our wealth is build and always been build on the back of labor that is cheap. Be it the 70s when we started attracting investments from Japan,USA and UK, our main selling point is hardworking people willing to accept low pay. How else do we attract capital?
In the 1980s, the National Wage council pushed wages up too quickly, we immediately see a repercussion - a recession due to loss of competitiveness. In the 90s, Singapore flew on the back of the electronic boom. Wages rose. China emerged as a cheap labor competitor. In order to continue attracting, we started opening the floodgates to foreign workers so that capital will still keep coming.

The heart of this model is dependence on foreign capital as driver of growth. Therefore the need to keep cost of labor low to keep it coming. But there is a clear conflict when China became part of the global eco-system. In order to grow, we have to keep labor so cheap, that growth no longer benefits a large section of the labor force whose wages became stagnant. The Singapore economy and society became split as a result of these changes - those lodge up in the hierarchy benefiting from the capital inflows and profits generated by exploiting this cheap labor. I say exploit because labor rules became relaxed Singapore workers are easy to fire, easy to retrench, no minimum pay protection, no pension, no medical benefits, no union....So the Singapore society became split between high and low income groups, rich and poor, labor and higher management. The PAP style policies to keep growing by importing labor is like a wedge driving the society apart in the center. Those who benefited from the influx hence embrace foreigners and those who suffered from it - now labelled as negative, xenophobic people by the leadership - further driving apart our society apart. The strategy now is to force this group to accept their suffering and their disadvantaged position.

This whole system is unsustainable, just like the slave economies of  Confederate states in old America. When there are 400,000 workers in Singapore cannot make enough wages to support themselves and their families and depend on state Workfare to survive, something is wrong...very wrong. Today there is a band-aid of wealth transfer + workfare costing us $8B per year in social spending. This number will grow as the income gap grows, cost of living rises, and the need for social spending rises. There is nothing in our model - now made worse by dependency on foreign labor- that will lead to a good outcome. If the income gap keep growing, the social spending will rise because these workers cannot make enough when they work and they can't make enough to retire. Like one PAP MP once said these lower paid less educated workers are not going to just die off and solve the problem.

Our current $3B budget surplus will disappear and we will have to eat our reserves to keep going or raise taxes. Like Obama vs Romney hard choices will have to be made. But one thing you cannot do in a system where voting is still used to select leaders is to cut the minimal type of social spending in Singapore. If the govt did not give out Workfare, 400000 workers will not make enough to live - what do you think will happen at the ballot box?

In summary we have an economic system dependent on cheap labor i.e. low wages, this generates the need to raise our social spending, which in turn leads to a shift in our fiscal position from surplus to deficit. It is also an unequal system where there are too many working for low wages and a small number positioned high up in the wealth ladder creating significant advantages for their next generation. It has already destroyed our so-called meritocracy. Wealth transfers + social spending will eventually put us in fiscal dilemma - these should be done as a temporary stop gap measure so that we can find a way out.

How do we break this cycle -> high income gap--> Need for more social spending--> need for more foreign investments---> need more cheap labor---> even higher income gap. The model is generating very bad outcomes for a growing number of wage earners....a rising burden for the state...a social divide that is increasing, The whole sustainability of the system is in question. There is also a falling fertility rate to contend with. This vicious cycle also means the financial outcomes for a growing number of Singaporeans will worsen - unable to retire, shrinking middleclass, worries of medical costs, worries about cost of living.  The social spending merely prevent families from drowning in hopeless poverty putting their heads just above water to take a breath.

The PAP solution to all this IMPORT MORE WORKERS. Look at the cycle...importing more workers is part of the vicious cycle. ..IT WILL NEVER LEAD TO BROAD PROSPERITY...only maintain the advantages of those who are today wealthy.

There are a few ways to break the cycle:

1. Stop importing more foreigners - live with the current size of workforce. No other country needs to expand workforce at the rate we had in the last few years.

2. Generate homegrown industry, drive domestic demand and investment to stop dependence on foreign capital.

3. Innovate, raise productivity and wages.

Unfortunately, none of the above will happen as long as we are in the current economic model. Businesses will pressure govt to stay on the vicious cycle and keep us in this loop. Some Singaporeans who are doing well because they are well positioned do not care about others will lobby to keep this system. Economists such as Lim Chong Yah has recommended wage shock therapy so we can go to (3) innovation, productivity...and force the wage gap to close. He idea and the basic principles of his idea was rejected by the PAP govt that tends to side businesses. But the more we enter the vicious spiral, the harder it is go get out....the more the PAP will stick to the model because problems become harder and harder to solve - they rather not solve it.

"WHY WE CAN'T" .....WE CAN TALK AND TALK...CONVERSE AND CONVERSE until the cow come home. But the boundaries preventing change is all there until we find a leader with strong and great vision to guide us out of this vicious loop. One who is daring to play the hand and not kowtow to businesses' greed for profits but steer them with the right incentives towards a more sustainable model that will result in shared prosperity and ultimately a long lasting prosperity. We cannot expect the workers to always shoulder the burdens of economic growth and companies always to reap the benefits disproportionately. This cannot continue for too long.

The reason WHY WE CAN'T is LACK OF LEADERSHIP and the COURAGE TO CHANGE.