The debate that Lim Chong Yah kicked off is a welcome one. He has argued that if Singaporeis ever to make progress on narrowing the income gap, it is going to require strong affirmative action by the state. He has proposed double-digit increases for the bottom wage earners over a few years coupled with a moratorium on salary increases for top earners.
Predictably, the government has megaphoned its opposition. It will be economic suicide, it says, touting its own plan for improving productivity through financial incentives while gently tightening up on the import of foreign labour instead.
Look away from the specifics and you’ll see a fundamental issue being debated. Look harder and you will see another fundamental issue NOT debated.
Let me begin by dealing with the first.
Ultimately, Lim Chong Yah’s proposal rests on a belief that unless there is sufficient pain, productivity improvements will not be made. The government however is saying let’s make productivity improvements first, income rises will follow.
I think the government believes in the tooth fairy.
Consider the old saying: Necessity is the mother of invention. Unless it becomes really necessary, businesses and employers are not going to put their minds seriously enough into productivity improvements to yield the benefits the government hopes for.
Partly, this is because productivity improvement is much harder than it appears. It is not just a question of making workers do more; it involves redesign of processes, retraining of people and maybe the elimination of certain jobs. All of these involve costs and goes up against much resistance. There are vested interests to overcome.
Just take a simple example from everyday life: our foodcourts. It is just shocking how few Singaporeans clear their trays, relying instead on an army of cleaners to do the job.
The other day, I tried to clear my own tray, and was scolded (yes, scolded!) by an “auntie” for attempting to do so.
She was at her work station sorting out plates, bowls, trays and chopsticks, chucking out swill, and when I approached, she said to me, loudly, “Don’t come.”
She then grumbled that I would only make a mess of her working space. “You people don’t know where to put things, anyhow put, then I have to sort them out all over again.”
In a way, she was right. The design of our foodcourts is such that it cannot easily accommodate self-service in clearing trays. Firstly, the workstation is too small for the customer traffic and the utensils load; the space is constantly overflowing. Secondly, the food served is of a nature that creates lots of spit-outs, and therefore lots of swill, making the clearing process very complicated. Taken together, the messiness that results is a huge turn-off and customers will not want to get near the station.
Therefore, to get to a true self-service culture would require complete redesign of the entire foodcourt layout – sacrificing tables and seats and devoting more space for clearing stations, installation of digesters for swill that customers can feed directly into, and simplification of the food served, in order to reduce messiness.
It’s a huge project and it’s not going to happen unless the alternative – carrying on as usual – becomes painful.
Or take another side of our economy that I know something about: The construction industry. It is shocking how often I see construction workers working for firms that they are not employees of. Many workers are officially employees of “supply companies” who provide labour to contractors in the same way one might hire out a mule. Just as shocking is how rapid the turnover of staff is. Work permits are now typically of one year duration. We’re constantly importing fresh, untrained labour, and as soon as they get any experience or acquire a little bit of English, we throw them out of Singapore.
Between these two realities, there is absolutely no incentive for construction companies to invest in skills upgrade. Why train someone who is not your employee, and who anyway will be out of Singapore by this time next year?
If we’re going to get anywhere, it’s going to require a completely new model. I would say we need to freeze new hires. Those who are here today can stay indefinitely, but there will be no more new workers coming in except as replacement for those who want to go back. That’s the only way to make employers sit up and think hard about upgrading the workers they currently have.
As you can guess, I agree with Lim Chong Yah: productivity improvement is not going to happen without the needed pain. The government’s softly, softly approach is wishful thinking.
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At the same time, Lim and the government are not fully engaging. Lim was talking about narrowing the income gap, but the government sidesteps the question and talks about productivity improvements.
They are actually different things.
You can have productivity improvements that raise the wages of the bottom stratum, but still have top salaries zooming away. They result may not be any happier. As top salaries zoom up, their buying power tends to raise the overall price level in an economy, and so even as bottom wages rise, they may still find things priced out of reach.
Concentration of wealth sucks vitality out from a society. Vested interests that are too entrenched present barriers to innovation, in the same way that monopolistic behaviour stifles competition. There is a public good to be had when income spreads are prevented from getting too wide.
Yet, the sad fact is that the government does not even want this question on the agenda. They chant the mantra that high pay attracts great talent and that great talent means economic growth.
Lim Chong Yah, on the other hand, has proposed a statist way of dealing with the issue: freezing top salaries for a few years. Unsurprisingly, many others have said it will not work.
What I don’t understand is why he has not proposed raising the marginal income tax rate. At 20% for personal income tax (and 17% for corporate tax), Singapore’s is far too low. We should be discussing rates in the region of 35% or more, like other developed countries (see this OECD website and this nationmaster website).
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The issue that is NOT debated is simply this: distribution of wealth and privilege in society follows the distribution of power. Income inequality in Singapore reflects power inequality.
Free up space for independent trade unions, pack away all those paranoid controls against political activity, and I dare say, half the problem will solve itself.