Singapore must achieve more with less


 IN THE aftermath of GE 2011, a new buzzword entered our political vocabulary. Political reporters wrote about the ‘new normal’ of Singapore politics. Being an ‘old normal’, I wondered what was new.

From third world to first: Like any other country in the world, Singapore now competes in a global economy. In such an economy, importing cheap foreign labour is no longer a viable strategy. It is a dead end.

That was until I spoke to NUS undergraduates at a ‘tea chat’ as a guest of the Master of Cinnamon College, one of seven new colleges forming part of NUS’s new University Town. I wanted to understand the mindset of the younger generation compared with the old mindset of my generation.

Except for the few activists of the University Socialist Club, my contemporaries at university were politically passive but not naive. In the political environment we were then in, we thought it prudent to keep our thoughts to ourselves.

In contrast, NUS undergraduates today are more articulate. They have courage of their own convictions, expressing their views vigorously at tutorials or the cafeteria.

Prime Minister Lee Hsien Loong has to deal with an electorate that is vastly different from the old normal of his father’s generation. The command politics of his father no longer works. While Mr Lee Kuan Yew appealed to emotions, PM has now to appeal to reason.

In my synopsis, I posed the question: Though Singapore has held seven general elections, can Singapore be considered a democratic state?

Let me state what we are not. We are not a theocratic state like the Vatican or present day Iran. We are definitely not ideological states like North Korea, Cuba or China.

The western concept of democracy is government of the people, by the people, for the people. China’s emperors had to gain the consent of the people to earn the mandate of heaven to rule. In my view, the core purpose of government is to raise the livelihood of the people.

The People’s Action Party (PAP) has won every one of the seven general elections since independence in 1965. The PAP won the mandate to govern because it delivered jobs and housing. Singapore is almost a model state attracting some of the ablest people in the world to work here. Would they also live here and raise their families?

There are two competing strands in our body politic. The first strand is meritocracy. It is modelled on the Chinese imperial scholar system where the best minds compete in nationwide examinations presided over by the emperor himself. The Singapore President Scholar is akin to the Chinese Imperial Scholar. Both systems aim at identifying the best talent to serve the country.

The second strand relates to the system of selecting leaders. It is modelled on Plato’s Republic. In the Republic, peers select their own leaders until the philosopher king emerges. As the first among equals, he is accountable to no one but himself.

Over time, peer selection breeds a leadership that becomes complacent. Though our state is rooted in meritocracy, we must beware of the dead hand of peer selection. Elitism creeps in imperceptibly.

The recommendation by the ministerial salaries review committee to peg ministerial salaries to the median income of the top 1,000 income earners reflects an elitist mindset which is troubling. If the primary purpose of government is to raise the livelihood of the people, a better statistical measure of livelihood would be the median income of all workers, not just the top 1,000 income earners or the MX9 salary scale of the Civil Service.

Curiously, both the government and the Workers Party accept that ministerial salaries be pegged to high income earners rather than the median of the work force, which is $3,070 a month as at June 2011.

The term first world is the vocabulary applied to wealthy European countries in the early 20th Century. In the early 1900s, Argentina was considered a first world country. Dr (Henry) Kissinger praised Singapore for moving from third to first world. Singaporeans may agree with the first but not the second half of his compliment.

Singaporeans of my generation remember vividly the slums, joblessness, dirt and disease of the 1950s. Through dint of hard work and discipline, we moved rapidly from a labour to a skill-intensive economy. By the early 1970s, we achieved full employment with an unemployment rate of 3 per cent.

The great challenge for us today is that we have reached the limits of our skill-based model of growth. Nothing stands still. The BRIC countries (Brazil, Russia, India and China) are rapidly catching up on the United States, Japan and Europe in the automotive industry. China and Japan are embarking on the design and manufacture of commercial aircraft. But it will take considerably more time to succeed in the production of jet engines, landing gears and constant speed drives – key components of an aircraft.

Singapore has to move from a skill to a knowledge-based economy. The products and services of such an economy are characterised by high technological content. To position ourselves for such an economy, Singapore devotes the greater part of our national budget to education and training.

When I was in school in the 1950s, only three out my O level class of 40 went on to university. Today, 30 per cent of a primary school cohort enrol in tertiary education. Raising our average educational level from primary to post-secondary should make a world of difference for our international competitiveness.

So I observe with some dismay that the manufacturing share of our GDP dropped from a high of 30 per cent in the 1980s to 20 per cent currently. We need to ask ourselves why our concentration on engineering and science-based education is not yielding dividends in productivity and innovation.

Instead, the employment share of low-wage, low-skilled personal services is rising. Are we overeducating our children? This is a heretical thought contrary to all my basic EDB instincts. In EDB, our article of faith is that the higher the education level, the more rewarding will our jobs become. Our total factor productivity should be rising not stagnating.

In my view, productivity and real wages of the bottom 20 per cent of our work force have not risen because our labour policies allow employers easy access to low wage foreign labour. In national accounting, low wage foreign labour may not be as low-cost as employers believe. If we add the cost of housing, transportation, health and other social services which employers have to provide for their foreign work force, they may be better off training and equipping their Singaporean employees to raise their productivity. Rising productivity enables workers to be paid more. Inflation sets in only when wages are raised without any increase in productivity.

Productivity can only be raised when CEOs leave their comfort zones and take direct charge of the production process. They have to be hands on, not resorting to outsourcing. Productivity should be the key KPI (key performance indicator) for the award of bonuses to CEOs and management.

At the national level, PM is the CEO. Bonuses for the Cabinet should be pegged to increases in the median income of the work force, rather than the GDP.

Like any other country in the world, Singapore now competes in a global economy. In such an economy, importing cheap foreign labour is no longer a viable strategy. It is a dead end.

The 2012 budget is politically adroit, replete with spending proposals which basically are income transfers from the taxpayer to the poorly paid, the disadvantaged and the aged. Income transfers are palliatives, temporary reliefs to abate rising social discontent. They do not help to raise productivity. The real challenge is to grow the economy by raising total factor productivity.

It is not easy. A Japanese scholar pointed out in an article in Japan Echo that the optimum rate of productivity increase achieved by his country averaged 4 per cent annually. We need to remember that the Japanese are one of the most diligent people in the world. Singapore is already straining at the seams with a current resident population of five million. We are embarking on a crash programme to build more MRT lines, hospitals, HDB flats, schools and universities to accommodate the sudden surge in population.

The economic assumption is that we can increase our GDP if we can accommodate more people. In my view, even doubling our population to 10 million people will not make things better. More likely, a larger population can only make matters worse.

We have to grow through raising productivity, not higher headcount. We need to be smart enough to produce more with less. Our higher education levels and superior infrastructure enable us to compete in knowledge-based industries and services. We transformed ourselves in the 1970s from a labour to a skill-intensive economy.

There is one reality our younger generation has to face. In a global economy, you will be competing not only with friends and classmates but with the best and brightest of your generation in India, China, Brazil, Russia and Eastern Europe.

University graduates in China and India are willing to work for a tenth of what our young engineers and scientists expect. If we fail to raise our total factor productivity, Singapore would just be an also-ran in the race to be a knowledge-based economy.

When Sir Stamford Raffles founded Singapore in 1819, his town planner demarcated the town into several ethnic enclaves. Kampong Glam (Malays/Arabs), Chinatown (Hokkiens, Cantonese, Teochews), Little India (Tamils), and Tanglin (Europeans).
Empress Place on the left bank at the mouth of Singapore River was the administrative and civic centre. The British governor presided from the Istana. The Istana where our President and Prime Minister have their offices is the seat of government.

Each racial group was free to conduct their own trades, practice their own religions, set up their own schools, and largely married within their own race and ethnic group.

The colonial government provided the overarching framework of law and order and schooling in the English medium. Being a British colony, the language of administration was English. Access to English medium schools was open to all races. English became the lingua franca acceptable to all the races as none has any in-built advantage over the other.

From 1819 to 1959 when Singapore was granted self-government, our different races lived lives of passive co-existence. Even then, Singaporeans witnessed at first hand the madness of three racial riots in the 1950s-60s. Learning from bitter experience, our government established the inter-religious council and enacted legislation to protect minority rights.

Income gaps

In 2012, what will be the threat to social stability? In a society that is racially diverse and practising different faiths, it is matter of pride for me as a Singaporean that we have learnt to treat our neighbours as our friends. Future social unrest will arise not from racial or religious differences but from the growing class divide caused by widening income gaps. The top 1,000 earn million-dollar annual salaries while the rest a monthly median income of US$3,070. The gap is untenable.

Paradoxically, this income divide is seeded in our deep belief in meritocracy. In the past, equal opportunities in education have provided the social mobility to enable the bright boy from a poor family to make good. The playing field was level for all students.

The spread of private tuition has changed the educational playing field. During my school days, only the academically weak students of rich parents take remedial tuition. Taking private tuition was not a badge of honour. Today, any parent who can afford the fees will send their children not for remedial but enhancement classes to give their children a head-start over their classmates.

Though there will still be the exceptional individual who triumphs against all odds, more and more of our state scholars will come from upper, middle income families with professional parents. There is no easy answer to the problem of an uneven playing field in our schools. In itself, private tuition is unalloyed free enterprise which society should encourage, not frown upon.

The challenge is to level up, not to level down. One suggestion I have is to make classes for academically weaker children smaller. The student-teacher ratio should be more favourable than in brighter classes so that the teacher can give more personal attention to each student, which is what private tuition is all about.

The elitist among us will invariably ask the question whether this is the right allocation of teaching resources. This was the very question I asked of my late EDB colleague Ong Wee Hock who requested more funds to expand our industrial training centres. The ITCs are the precursor of our ITEs. I had to eat my own words later when our ITC trainees with barely O levels went on to start their own factories producing parts and components for MNCs.

It is hard to find the university graduate who becomes a successful entrepreneur. The prevailing reward system drives our graduates to become bureaucrats/managers both in government and business. White collar jobs pay better than blue collar jobs.

In the early 1970s when we achieved full employment, some of us in the EDB began to ask the question about the critical size of populations. We did some desktop research and found that there were several industrialised European countries with population size of around 5-6 million. These were Israel, Norway, Sweden and Finland. Our town planners went to work and concluded that Singapore with a land area of 670 square kilometres can comfortably accommodate a population of 5-6 million.

Flying on auto-pilot, we allowed in one million foreigners in the last decade. As we arrive at our numerical target of five million, Singaporeans find themselves squeezed on crowded MRT trains and buses. Low wage foreign workers replaced older Singaporean workers in menial jobs.

As our births fell below replacement levels, we resorted to immigration as an instrument to top up the babies that young Singaporean couples are not having. There are also elements of political re-engineering. Submerged in our immigration policies is the belief that to maintain racial harmony, we need to keep the current population balance constant.

I have come to the conclusion that we have been peering at the wrong end of the population telescope. Since the 1970s when job hopping became a bottleneck, computer technology has made many manual operations in production obsolete.

The key is to produce more with less manpower. The window to raise total factor productivity through application of knowledge and training is fast closing with the opening up of India, China and Indonesia. Singapore has lost two decades relying on low-wage, low-skilled foreign labour to drive economic growth.

Our managers and administrators are among the best paid in the world. They will have to get off their high horse and personally lead the drive for higher productivity. Outsourcing is a bad word in my vocabulary. Companies and government ministries should figure out how to train their staff and redesign jobs and processes to achieve more with less.

Grants should not be given to management (consultants) to do a job they are already paid to do. Instead, interest free loans should be given to enterprises with clear roadmaps to re-equip and raise the productivity of their workers.

I am against job credits in any form because they are simply wage subsidies which do not raise productivity in any way. My personal observation is that job credits simply add to the bottom line for payment of bonuses to management who do not have to lift a finger to raise the productivity of their enterprises.
We failed to bite the bullet in the 1980s to restructure our economy. There may be no second chance the next time around.

The writer is a former permanent secretary who has served in several ministries and statutory boards, as well as corporate boards. This is the edited text of a speech delivered at an SICC luncheon talk on 18/3/2012

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