Singapore Democrats

Singapore's economy, as with most economies starting up, thrived on investments from the industrialised world which brought much needed capital, employment and technological know-how. This happened across Asia with the Tiger economies of South Korea, Taiwan, Hong Kong and Singapore.

But as these economies mature they gain experience and expertise, graduating to a more developed status. In the process local companies take root and develop into strong global institutions that can compete with the best on the international stage. Unfortunately this did not happen for Singapore. This subject will be discussed in greater detail in a later Section.

• Share prices on the stock market were taking a beating. The Straits Times Industrial Index fell to a record low (the worst in 18 months) to 2045.58 points. CNN reported this as possibly precipitated by "fear of a recession."
• Fund-raising on the stock market (new investors coming in with money) had also seen a precipitous 50 percent drop, from $9.7 billion in 1993 to $5.2 billion in 1994, and then by another 40 percent to $3.1 billion in the previous year. Analysts did not foresee much improvement in 1996.
• Total trade growth year-on-year crashed from 17.4 percent to 3.1 percent between January and July, on a three-month moving average basis.
• Growth rate of non-oil domestic exports reflected an even gloomier picture: a dive from 18.7 percent in January to 2.9 percent later that year. In fact, it shrank 2.4 percent more than expected for the third quarter in 1996.
• Export of integrated circuits grew a measly 0.3 percent in July of 1996 compared to 27.6 percent in July of 1995 and 72.4 percent in July of 1994.
• The official composite leading index—a reliable predictor of upcoming economic activities—declined for the last three quarters. Singapore Business reported, "The last time this happened, the index fell for a further 2 quarters and he [1985] recession followed..."
• Readers old enough will remember that the retail sector was on a decline. Retail giants such as C K Tang, Galleries Lafayette, Takashimaya, Metro, Robinsons, K-Mart, Lane Crawford, Isetan, and Tanglin Place all reported precipitous drops in profits. Several closed.
• Local firms, such as Aztech System, reported an astounding loss of $17.7 million. Sales in the first half of 1996 were down by 30 percent.
• The growth in the number of visitors to Singapore saw a steady decline from 10 percent per annum in 1992 to 4 percent in 1995.

Just before the recession could manifest itself, the 1997 Asian Financial Crisis happened which triggered a meltdown in markets all across Asia. This really saved the PAP from economic blushes because now Singapore could take refuge behind the regional economic calamity. Indeed the crisis masked a more serious problem within our economic system.

The camouflage did not last long, however. Shortly after the 1997 crisis, Singapore went into another recession in 2001, the second in five years. Clearly there were problems relating to the foundations of our economy.

But rather than taking the necessary steps to rectify the fundamental structural faultlines, the Government simply papered over them. One of the ways it dealt with the growing problem was to rewrite our laws to attract capital—tons of it—from overseas.

The boom

Circa 1998 in the wake of the Asian financial crisis, the Government decided to make Singapore the financial capital of Asia, if not the world. At about that time Switzerland, the Mecca of secretive banking, came under pressure from the European Union to amend its laws to enable greater financial transparency and to provide information on accounts suspected to belong to tax evaders from other European nations.

The PAP Government saw the opportunity and introduced legislation to tighten up secrecy protections in our financial institutions to attract investors and account holders fleeing Switzerland.

In 2001 Prime Minister Lee Hsien Loong, then deputy prime minister, finance minister and chairman of the Monetary Authority of Singapore all rolled into one, met with bankers from all over the world to discuss how Singapore could tailor its laws to become a premier banking centre.

Following the consultations, he introduced amendments to the Banking Act to revise secrecy provisions so that "only very few exceptions have been allowed for the disclosure of information relating to a customer's deposit and funds placed for investment" and that "a person who receives customer information will be required by law to keep the information confidential." The penalty for breaking such a law is a fine of up to $125,000 or three years' jail or both.

In 2004, trust laws were amended to allow foreigners, especially Europeans, to avoid laws in their home countries that regulate inheritance of an estate by family members.

Mr Lee's efforts worked a miracle. Funds from all over the world poured into our banks and financial institutions. At end-2007, the Monetary Authority of Singapore reported that total assets under management reached $1.173 trillion (approximately US$814 billion) up from $150 billion in 1998, an increase of 682% in 10 years. Eighty-six percent of these funds, which include private banking money, came from outside Singapore. Of these 44 percent was from the Asia-Pacific region and 36 percent from Europe.

In 2006, Merrill Lynch and Capgemini reported that the number of “super-rich” Indonesians living in Singapore was a staggering 18,000 (out of 55,000) whose wealth amounts to approximately US$87 billion.[1]

Where did it come from again?

Much of this wealth, complains the Indonesian Government, has come from illegal activities in Indonesia.[2] Indonesia has repeatedly proposed the signing of a memorandum of understanding about cooperation with Singapore in handling money laundering. The effort went unrequited until 2006. Whatever information that the Indonesians needed to pursue the financial suspects had to be solicited from the US.[3]

The country’s vice-president, Jusuf Kalla, pointed out that the reason for Singapore’s refusal to sign an extradition treaty with Indonesia was because the Singapore Government wanted to hold on to the billions of dollars of laundered money taken out of Indonesia by fleeing businessmen during 1997 Asian financial crisis.[4] The problem has soured relations between the two states to the extent that the Indonesia authorities have banned sales of sand to Singapore and are threatening to do the same with the export of granite. Several weeks later in April 2007, the PAP Government relented and signed the extradition treaty.[5]

Illicit money may not be the only commodity passing through Singapore. In 2005, the US-based Environmental Investigation Agency released a press statement saying that “the illegal timber trade in Southeast Asia is an international crisis, and Singapore is one of its most important hubs.”[6] It described how a recent seizure of two barges en route to Singapore from Indonesia were packed with illegal endangered wood. “This,” the statement added, “demonstrates that the city-state remains a haven for timber smugglers.”

Make that timber and Filipinas. The Philippines embassy in Singapore reported in 2008 that trafficking of Filipino women in the city-state jumped 70 percent between 2006 and 2007. And this maybe just a "small fraction" of human trafficking problem in Singapore.[7]

Former chief economist at Morgan Stanley, Andy Xie, gave a little more insight into another method of how Singapore creates wealth. Xie had written an email to his colleagues that Singapore was not the success story that everyone thinks it is, calling the city-state an economic failure dependent on illicit money from Indonesia and China: "Actually, Singapore's success came mostly from being the money laundering center for corrupt Indonesian businessmen and government officials.''[8]

The 46-year-old Shanghai-born economist with a PhD from Massachusetts Institute of Technology made the observation after attending the International Monetary Fund and World Bank annual meetings which was held in Singapore in September 2006. Xie added that to “sustain its economy, Singapore is building casinos to attract corruption money from China.” Morgan Stanley very quickly relieved Xie of his position which he had held for nine years.

Financial analyst and Singapore observer, Michael Backman, whom Goh Chok Tong lauded as “an expert in overseas Chinese” in his 1998 National Day Rally speech, added that “Singapore is working hard at making itself more attractive to Chinese mainlanders, be they tourists or individuals, with funds to park…Casinos are being set up. There has even been an influx of mainland Chinese prostitutes into Singapore's quasi-legal sex industry.”[9]

These funds, according to observers that Backman cites, are not always clean. One goes to the extent of saying: “Singapore has truly become the global centre for parking ill-gotten gains. The private banking teams are huge and in practice ask almost no questions.”

Another interviewee said that an acquaintance who made US$13 million from a deal in Indonesia was not enquired as to how the money was obtained despite obviously working in a job that would not have allowed such amounts to have been earned. “Russians, mainland Chinese and Indonesians are pouring money into Singapore. High-end property has risen 30-50 per cent in the last 18 months or so,” another says.

Singaporean officials make all the right noises when it comes to monitoring illicit funds. Through all this the Singapore Government remains largely unco-operative when it comes to meeting international expectations and obligations on money laundering.

So here's the reality: Singapore has, especially in the last decade or so, become rich not through hard work and innovation but by indulging in rent-seeking behaviour. We have become rich through dubious means. The rewriting of our laws to attract tax cheats, laundered money and vice has made us fabulously wealthy. But it has also made us a nation where production of goods and services through innovation and diligence has taken a back seat. All this for the love of money.

That productivity question

All this pumping in of capital can only lead to one thing—an increase in productivity. With the hundreds of billions of dollars pouring into Singapore, the finance industry boomed. Indeed the labour productivity of financial services in the last 10 years or so was head and shoulders above the other industries (see figure below; click here to view the animated clip).

This high productivity level in the financial sector, however, masked a deeper problem with our economy. When the financial meltdown happened at Wall Street in 2008, the infusion of foreign capital came tumbling down and, together with it, our productivity index. Singapore was the first economy to go into a recession that was the worst in all of our existence as a republic. We posted a heart-stopping 12.5 percent contraction of the GDP in the fourth quarter of 2008. This crisis uncovered the rot and revealed the real reason for our declining productivity.

In the last decade or so, not only did the PAP Government steer our country to becoming a tax haven and money laundering centre, it also embarked on the grand policy of opening the flood-gates to foreign workers. Within a period of a few years, Singapore saw its population jump from three million to 4.5 million, with the promise of another 2.5 million over the next several years. Today, of the 5 million people that live and work in Singapore a whopping 38 percent are not Singaporeans. It is not hard to see how the flooding of a population with millions of people will expeditiously and artificially inflate GDP figures.

Incredibly, how the foreign talent policy impacts society and the people of this island has not been debated. Ironically, it was a similar lack of debate over the Stop-At-Two policy, where harsh measures were taken against Singaporeans having more than two children because the Government thought that Singapore could not sustain such a birthrate, that is causing the current backlash of a population unable to replace itself.

The indiscriminate employment of foreign workers has contributed massively to the fall in productivity. Dr Chee Soon Juan questioned the economic strategy of relying on foreign talent as early as 2001 in his book Your Future, My Faith, Our Freedom because “it is questionable whether these [foreign workers] are the most motivated, and even the most talented.” He warned that “the economy has not been able to shake off its lethargy despite the social overhaul” and that “the repercussions of this policy of recruiting foreign talent will manifest itself strikingly” if the economy declined.

A few individuals have more recently repeated Dr Chee's concerns. In 2007 retired head of the civil service Ngiam Tong Dow expressed his concern over the matter when he noted that the GDP growth had taken place "largely on infusions of foreign labour."[10] This was problematic especially in the absence of a concomitant increase in labour productivity.

In 2009, Citigroup economist Kit Wei Zheng pointed out that Singapore's rapid growth has, over the recent past, been mostly driven by a massive increase in the workforce and warned that it is clear that "growth powered by importing foreign labour is simply not sustainable."

Even PAP MP and NTUC assistant secretary-general Josephine Teo called on the Government to “re-tune” the foreign talent policy in order to arrest the slide in labour productivity.

How did we miss all these signs of a productivity decline? A major part of the problem, as explained above, was the deliberate move on the part of the Government to make Singapore a money laundromat and tax haven. The sudden infusion of capital led to the impression that economic growth and productivity was still on the path of robust growth.

But whenever anyone broached a subject that the PAP considered sacrosanct, they were insulted and, worse, intimidated. In 2003, three economists from the Nanyang Technological University (NTU) released findings that three out of every four newly created jobs between 1997 and 2002 went to foreign workers. This caused a stir among the locals who were feeling the stress of rising unemployment. Minister Ng Eng Hen castigated the academics for making erroneous claims (but not bothering to explain in detail how the researchers were wrong and what they were wrong about). The professors, whose paymasters were also the Government, rescinded their claims and apologized for their "mistake".

Such authoritarian rule hides problems that would otherwise surface in a more open and democratic economy.

Reality catches up

But even autocrats cannot suppress reality forever. When the proverbial tide receded in 2008, our economic nakedness was badly exposed. Today, everyone is belatedly talking about the productivity problem faced by our economy.

The cause of it by the indiscriminate employment of foreigners is now admitted by the Government. The Economic Strategies Committee (ESC), headed by Finance Minister Tharman Shanmugaratnam, has made tackling productivity decline its priority recommending a raise in the foreign workers' levy to manage the inflow of these workers. The rationale is that this would compel businesses to be more judicious in employing foreigners and take in only the most talented and qualified.

The problem is that in 2001, the Government had appointed another committee called the Economic Review Committee (ERC) led by then deputy prime minister Lee Hsien Loong. In its 2003 report, the ERC promised to “...carefully manage the inflow [of foreign workers] to benefit our economy and our people. An appropriate levy will regulate the demand for foreign workers, and ensure that they complement rather than displace Singaporean workers...” (emphasis added) This "careful" management of foreign worker inflow through “an appropriate levy” has led to our population being made up of 38 percent of non-Singaporeans. In reality, this “solution” is old wine in new skin.

In the first place is there a political will on the part of the PAP to carry out this policy of reducing our dependence on cheap forign labour to its logical conclusion? If it did not do this in 2003 as the ERC recommended, why should we now believe that it would be done in 2010?

Bringing about a value-added and efficient economy driven by an innovative and productive workforce takes more than just economic calculations. It also requires hard political decisions that the PAP is unwilling to make. This will be further discussed in the next part of our programme.

Second of all, how much should the levy be raised? Peg it too high, and businesses will suffer the loss of legitimate employment of foreign talent that is genuinely not available in Singapore because of the added cost. Too low, and the problem of productivity continues.

Conclusion

It is clear that our economy is suffering from an inability to innovate and generate value-added growth, the Government's warm pronouncements of becoming a “global, knowledge-based economy” notwithstanding. Our economy was running out of steam by the mid 1990s.

Observations by Paul Krugman et al that Singapore's economy was fueled primarily by input-driven growth was largely on the mark. The 1997 Asian Financial Crisis masked the decline. In the new millenium, our GDP was given a huge dose of economic Viagra with the amendent of the Banking Act which saw the explosion of new capital in our economy. But this only further masked the structural problem of the economy and postponed the inevitable of an ailing system.

If we bothered to look deeper, ours is an economy that exploits rather than produces. Foreign workers are brought in by the millions to suppress wages and pump up the GDP, millionaires are enticed to come here so that they can buy property whose prices are driven skywards by the island's biggest landowner, the PAP Government. Such is not a sound foundation for an economy. Fundamental changes are needed.

In the next part of our alternative economic programme, the Singapore Democrats will make proposals on how Singapore can tackle these problems outlined in Parts 1 and 2, problems that continue to plague our economy and our workers.

Read also
Introduction: SDP's alternative economic programme
Part 1: The GDP, productivity and you

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