Book summary: Refreshing the Singapore system-Recalibrating Socio-economic Policy For The 21st Century

Summary: This book aims to bring the reader up to date on Singapore's socio-economic development in the first two decades of the 21st century. It looks back to the shifts in policy thinking that have accompanied structural changes to Singapore's society and economy. It looks around to compare Singapore's approach to those of other countries facing similar challenges, situating Singapore's experience in the wider international discourse on public policy. Finally, it looks ahead to how the Singapore System may evolve in the years to come.

Income inequality

Measures of income inequality do not factor in the consumption of public goods and amenities which the state may make available at free or nominal cost, or informal transfers made between members of a family or community, which are especially common in developing countries

What really matters, in fact, is distribution of utility, not distribution of incomes or even equality

Singapore has one of the world’s highest per capita GDP in nominal or PPP, a commonly used metric to compare economic well-being across countries. However, much of its GDP comprises corporate profits, given that many MNC have global or regional HQ in Singapore.

As a result, Singapore’s wage share of wage share of GDP, at around 40% in 2019, is lower than those of many advanced economies. In fact, Singapore incomes are in and around those of advanced economies.

In 2019, Singapore’s median gross monthly income from work of full-time employed residents (including employer CPF contributions) was $4563 or about $55,000 a year. This was higher than HK’s median income, and comparable to the UK’s but some what lower than incomes in the US and Finland before taxes.

The Gini coefficient has limitations as a measure of inequality, especially for comparisons across countries.

A more accurate picture of inequality should take into consideration the dispersion of expected lifetime wealth and not just current income.

Central Provident Fund

The CPF system has also attracted criticism by some members of the public and commentators.

Their concerns generally centre on three issues: CPF withdrawal age, CPF returns and retirement adequacy

The first issue is a visceral one for some Singaporeans. Before 2009, CPF members who turned 55 could withdraw up to half their CPF savings upon turning 55 regardless of whether they were able to set aside the Minimum Sum. This was progressively phased out from 2009 to 2013 due to increases in life expectancy and the concern that some CPF members had insufficient savings to last their lifetime. The introduction of CPF Life along with the progressive increase in PEA from 60 to 65, added further fuel to the notion of that the goalposts were continually shifting, making it more difficult for them to access their own hard-earned money.

Acknowledging this sentiment, the government give members the option of withdrawing up to 20% of RA savings in a lump sum at the PEA, even if they have not set aside the Basic Retirement Sum. The trade off between pension withdrawal age and retirement adequacy has to be carefully considered.

One approach is to tie the statutory pension age to life expectancy increases. Such indexing may help to depoliticize revisions to pension withdrawal age made necessary by increased life expectancy.

Gig economy

Concerns for gig workers include the following:

1)     Do gig workers invest sufficiently in their training and professional development? What are their longer term career prospects?

2)     Are gig workers adequately protected on the job? Do they have sufficient recourse to help if they are not paid or are subject to dangerous or adverse working conditions?

3)     Are gig workers saving enough for retirement, given the irregularities of their income streams and no requirement for them to contribute to CPF apart from Medisave?

The workgroup recommended a Contribute-As-You-Earn (CAYE) model where a Medisave contribution is required as and when a service fee is earned.

Under this model, intermediaries and corporate service buyers who contract self-employed persons would be required to make MediSave contributions to the SEPs MediSave accounts

Another challenge facing freelancers is income volatility, for which new social safety mechanisms may need to be devised.

The pandemic has brought into focus the vulnerability of gig workers to work and income disruptions. One possibility is to set up a CPF savings account for income replacement during periods of unemployment or significant earnings loss

Social Assistance Design

Teo You Yenn wrote:

“When a low-income person goes to the SSO and is asked numerous personal questions about their family lives or how $40 appeared on their bank account statement, or why don’t they get a better-paying job, this adds to their sense of themselves as inferior, unworthy or excluded.

It should be evident that Teo’s critique of the Singapore System is fundamental and cannot be fully addressed by merely adding more programs or layers of support.

The point in question is the residual model of social welfare, which sees the government’s role in social assistance as a las resort in contrast to the institutional model, where state social support is seen as a right to be employed by all citizens in the normal course of living.

The institutional model is consistent with welfare “universalism”, which Teo advocates. However, a full-fledged embrace of universalism would require the entire edifice of Singapore’s social security and socio-economic policy to shift from one that is centered on self-reliance to one where universal benefits are pervasive, necessitating significantly higher taxes and transfers

Universal Basic Income

Besides affordability, several other caveats about UBI are worth noting.

First, there would be pressure to increase it over time, much like the pressure to increase public assistance rates,

or in other countries, the pressure to continually revise the minimum wage, unless it is indexed to inflation in the first place

Second, some families beset with physical/mental disabilities or chronic illnesses may require more than a basic income to get by,

hence active screening and assessment of needs for additional assistance would still be required even with UBI

Third, some families and individuals need more than just financial assistance to turn their lives around.

The work of the SSOs is more than just financial aid – it involves active help and intervention, in partnership with SSAs, to help families escape from the poverty trap.

Education system

The 2 pressing challenges facing Singapore’s education system are to

prepare citizens for the future economy, so as to enable good employment outcomes, including income growth and to sustain social mobility,

which is expected to become increasingly difficult as wealth accumulates and society stratifies

It is often said that affluent parents can give their children a major advantage in exams and academic performance through expensive tuition, calling into question the legitimacy of an “exam-based meritocracy”.

However, it may well be the examinations are a more effective social leveller than other forms of selection into educational institutions and programs such as cca, interviews and internship experiences.

Children from better-off families are more likely to have exposure to extracurricular pursuits from an early age, besides having better spoken language and interview skills. Some parents are able to give their children access to internships through their business and professional networks.

Ideally, a pivot away from exams and academic achievement should alleviate stress for students and free up more time for other areas of development.

In practice, a challenge is that excelling in cca and non-academic pursuits becomes perceived as a requirement on top of academic excellence.

As then-DPM Tharman put it in the 2015 Budget speech,

“Singapore must become a meritocracy of skills, not a hierarchy of grades earned early in life,”

In short, there must be multiple pathways to career and personal success, and opportunities for late bloomers who take a more circuitous path to success.

Foreign labour policies

To understand Singapore’s labour market and its part in Singapore’s socio-economic system. It is vital to have an appreciation of the size and role of the foreign workforce here.

As at December 2019, prior to the COVID-19 outbreak, Singapore’s foreign workforce stood at 1.43m or about 38% of the employed workforce. Excluding the 260,000 FDW, there were about 1.17m foreign workers, or about 33% of the employed workforce less FDWs.

By comparison, Australia and Switzerland have a foreign born popln share close to 30%, the highest among OECD economies, the % of foreign nationals in the employed workforce in these countries is likely to be lower.

Collectively, foreign workers enable a significantly larger and more diversified economy than would be otherwise possible.

This adds to Singapore’s economic heft, as well as resilience through economic diversification, which also increases the variety of jobs available here.

In practice, foreign workers also compete with Singaporeans for jobs at all skills levels, even if collectively they increase the net demand for local workers by enabling increased economic activity.

The steady growth in the share of PMETs in the local workforce has accentuated competition with EP holders, particular in ICT and finance where foreigners occupy many well-paying jobs

Since 2016, numerous steps have been taken to further contain the foreign worker inflow. These measures have helped moderate the growth in foreign work force.

The number of EP and S Pass holders grew by fewer than 9000 a year on average between 2014 and 2019, down from a yearly average of 30,400 between 2009 and 2014.

The DRC tightening in 2021 and 2023 is expected to constrain S Pass growth in the coming years

At the other end of the skills spectrum, it is harder to determine how many skilled foreigners Singapore should aim to admit, much less to actually achieve a given target.

On the one hand, many foreigners compete with locals for good jobs even though a large proportion cannot, by any stretch of the imagination, be considered exceptional talents possessing skills that Singaporeans lack.

On the other hand, the ease of bringing in foreigners (exceptional or otherwise) to Singapore through the EP route is core to Singapore’s attractiveness to foreign businesses deciding where to locate their global or regional HQ.

Moving too aggressively to restrict the inflow of EP holders could spook foreign investment, inflicting a blow to Singapore’s attractiveness and competitiveness from which it would be hard to recover.

Yet, if too little is done, local resentment against foreigners may spill over (it is already a political hot potato) and there may be insufficient effort on the part of businesses to develop local talent. The employment outcomes of university and polytechnic graduates may also be compromised.

Singapore’s Enterprise Mix

MNCs had been the driving force behind Singapore’s economic development since the 1960s, providing jobs, technology, organization, and market access that have enabled Singapore to achieve accelerated economic development.

TLCs are Singapore’s national champions. Corporations such as Singtel, Sembcorp, DBS, and Capitaland are major regional or international players. These companies started from a position of dominance within the Singapore market: leveraging their track record and acquiring expertise with government backing, they spread their wings and made inroads into markets aboard.

SMEs employ about 70% of the workforce and contribute over 40% of nominal value added. They have a critical role to play in the enterprise ecosystem, whether as suppliers or service providers to large enterprises, contributors to the diversity of lifestyle and retail offerings or potential large local enterprises themselves

While MNCs continue to play a major role in Singapore’s enterprise ecosystem, the desire to grow more large local enterprises has gained impetus over the years.

Former Perm Sec (Finance) Ngiam Tong Dow, in emphasizing the need for Singapore to “grow its own timber” observed, “The MNCs have contributed a lot to Singapore but they are totally unsentimental people. The moment you’re uncompetitive, they just relocate.”               

Value capture from foreign investments will increasingly take the form of strategic linkages and the anchoring of capabilities.

MNCs have traditionally anchored industry clusters – building up an ecosystem of suppliers, service providers and clients. As EDB becomes more selective in the investments it brings in, it must ensure that these investments contribute to building up key industry clusters to give Singapore a sustainable competitive advantage.

This refers to strong economic clustering that keeps firms rooted in the ecosystem, much in the way the City of London exerts a gravitational pull on financial and professional services firms

Transforming perspectives

Several shifts in perspectives are required for Singapore’s economic transition, given Singapore’s population and workforce constraints

The first is that a vibrant society, in Singapore’s context, can no longer be defined by youthfulness.

Singapore. Singapore will become an increasingly aged society surrounded by countries with more youthful demographics. It must adapt to become an aged, vibrant society. Mindsets regarding ageing must evolve. The only way to keep the population profile relatively young would be to take in significantly larger numbers of young immigrants, which would be outside the bounds of social and political acceptability

The second is that fewer people in Singapore will look or sound local. Efforts to attract overseas Singaporeans back to Singapore can mitigate this, but only to an extent.

Singaporeans must get used to living and working with people who do not appear or sound local, even if they hold pink IC.

The third is that the perception of what is a good or desirable job will have to change.

Not all Singaporeans can compete globally in high-tech, knowledge-intensive areas, regardless of how good our education system is. Even if foreigners are shut out from Singapore, there is no escaping global competition as much knowledge work can be done remotely. A significant proportion of Singaporeans will need to make a living from high-touch, domestic services jobs.

These will have to be transformed into jobs with good pay and status to simultaneously address Singapore’s foreign worker dependency while meeting the career and wage aspirations of locals

Finally, there must be recognition of the trade-off between Singapore’s openness to foreign professionals and wealth and the location premium that Singapore can command in terms of job opportunities and incomes. If Singapore dials back on global wealth and talent attraction in favour of an economy and society with greater local orientation,

Singaporeans would have to accept a reduction in the range of such jobs and the location-specific premium they could command

Conclusion

The Singapore System would require as SM Tharman has suggested, the core values of both the Left and the Right –

the social empathy and solidarity advanced by the Left together with the ethic of personal responsibility and effort espoused by the Right –

personal effort with collective support, in short.

Consider this vision for Singapore:

a nation abounding with opportunities where citizens find fulfilment in their chosen vocation, assured of collective support for their needs, even as they strive to build better lives for themselves, their families and the community.

We may never fully get there, but it will take a refreshed socio-economic system – faster, fairer, and stronger – to get us closer