Is Singapore’s ‘perfect’ economy coming apart?
Friends in Singapore keep telling us that it ain’t like the good old times in the city. The city apparently as friendly and as habitable as it was a decade ago. This piece in the Asian Review details the challenges facing Singapore.
The first problem is the familiar challenge of blue-collar manufacturing jobs disappearing: “Midlevel jobs in manufacturing and multinational companies are disappearing, and being replaced by technology and financial services roles, which are easier to fill with younger, more affordable migrants. Singaporeans like Aziz struggle to get back into the workforce. Only half of retrenched over-50s are reemployed full time within six months. Nearly three-quarters of people laid off in Singapore last quarter were what the country classifies as professionals, managers, executives and technicians, or PMETs.”
However, because of white collar part of the Singapore (tech companies, Financial Services companies) continuing to flourish, the cost of living continues to rise. “The bottom 20% of Singaporean households have an average monthly shortfall of S$335 between their incomes and outgoings, according to the government’s latest economic survey. Living costs have risen. Water bills are up 30% since 2017; medical costs have increased 10% in just over five years, an acute problem in a population that is aging rapidly.”
Challenge #3 is slowing GDP growth: “Technological disruption is breaking the link between economic growth and earnings. Growth has slowed to its lowest level since the 2009 financial crisis tipped the island into recession.”
All of these challenges obviously create political issues: “The depth and pace of economic progress established the political legitimacy of the PAP for generations. The party has never been out of power. Lee Kuan Yew’s son, Lee Hsien Loong, is the current prime minister….”The PAP’s legitimacy has depended not primarily on electoral performance or democratic accountability. Its primary source of legitimacy has come from economic performance,” says Donald Low, who spent 15 years in senior government roles and is now an associate partner at consultancy Centennial Asia Advisors. “I think the social compact is fraying. The PAP’s capability to ensure upward social mobility as long as you work hard and get an education, that ability has been seriously eroded.””
Citing Yeoh Lam Keong, former Chief Economist of GIC, the author then makes a a set of really interesting points which connects what is ailing Singapore to what is happening in the rest of the world: “The roots of Singapore’s current problems, Yeoh believes, were planted in the 1990s, when its politics lurched rightward. In line with the prevailing neoliberal thinking, the government moved toward a more market-based approach to the pricing and ownership of HDB flats. Many citizens bought houses, taking advantage of a government scheme that allows citizens to use the savings in their Central Provident Fund — a compulsory pension scheme — to do so. Property prices were booming, so in theory this meant that they would have a valuable asset in retirement, which they could sell or borrow against.
However, HDB houses are sold as leaseholds, and the leases are ticking down. The value of many older homes has peaked, and their owners face a retirement with a depreciating asset and a diminished pension pot. That means the signature social policy has gone from one of the most successful public housing initiatives of the 20th century, to a liability for some elderly citizens, Yeoh said. “It’s a time bomb.”
Perhaps a more consequential policy decision was made in the belief — and up to that point, the experience — that growth would continue to drive social mobility and job creation.
“They thought that they wanted to maximize welfare by maximizing growth. They had one huge policy lever, which was immigration,” Yeoh says.
A state scheme to set up Singaporeans with housing assets is backfiring; thanks to a stagnant market in HDB sales, many elderly homeowners are now, in fact, saddled with liabilities. (Photo by Ken Kobayashi)
Between 2000 and 2010, Singapore’s immigrant population nearly doubled from 755,000 to 1.3 million, not counting foreign-born citizens given permanent residence status. As of June 2019, Singapore’s population was composed of 3.5 million citizens, 530,000 permanent residents and 1.7 million foreign workers, students and dependents.
“Relative to the base population, you haven’t seen that anywhere else. It’s unimaginable. It depressed permanently the wages of all those at the bottom,” Yeoh says.
Singapore has no statutory minimum wages, and labor unions have little power, so there was nothing to cushion the blow. A generation whose incomes had loosely tracked the country’s growth suddenly found it accelerating away from them.
“You’re earning your adult life in a middle-income country, and you end up having to retire … in one of the richest developed countries in the world,” Yeoh says. “It’s like working in the Philippines and retiring in London.””