Jake van der Kamp
South China Morning Post
30 August 2003
The average wages are at least 25 per cent higher in the USA than in Singapore. How did the PAP govt decide Singapore workers are more expensive then those in US?
And here is the latest gem from Singapore, straight from the front page in this diehard bastion of central planning of the leading English language newspaper, Pravda (Party Rendition and Authorised Version of Daily Announcements).
Apparently the Singapore government is worried wages have gone too high and some corrective action must be taken to bring them down.
That finding results in part from what some people in New York told Deputy Prime Minister Tony Tan on a visit there (this counts for detailed policy research in Singapore) and partly from a recent wage survey by the Political and Economic Risk Consultancy (Perc), which rated labour costs in Singapore as higher than those in the United States or Australia.
Perc’s methodology in this survey was to ask expatriates what they thought of labour costs in different countries, another example of the sort of detailed policy research that has little time for hard statistics. The figures from both countries on employee earnings say that average wages are at least 25 per cent greater in the US than in Singapore and this is after taking the highest Singapore numbers I could find.
For the flavour of what you get when basing a labour cost study on expatriate opinion, notice from the table that Perc rates labour costs in Vietnam higher than in Thailand. For a good laugh tell that to people in Hanoi or Bangkok.
You may also wish to note that Singapore’s gross domestic product per capita is 25 times greater than Indonesia’s while Perc says its average labour costs are only 1.6 times as great. This sort of disparity with neighbouring countries is common and suggests that Singapore workers are underpaid for their level of productivity.
But why let the facts get in the way of a good scare story. The Singapore government subscribes to the story and has come up with a way to cut labour costs – cut back contributions to the Central Provident Fund (CPF) from their present level of 36 per cent of employee earnings. This does not mean, by the way, employees will instead get this money. It is their employers who will.
Now if the Hong Kong government were to cut Mandatory Provident Fund contributions in Hong Kong most people probably would applaud. It is dead money anyway. Given the derisory rates of return that the CPF gives Singaporeans, you would think they might share that sentiment.
But Singaporeans do not have to wait until retirement to get their CPF money. They can use their contributions to pay for their homes and other approved investments. Many of them are thus unhappy with the proposed cut. In mortgage payments they will have to make up from their direct income what previously they got from the CPF. It is all rather highhanded and will hurt them.
And who will benefit? To answer this question you must first appreciate two crucial differences between Singapore and Hong Kong. The first is courtesy of the usual central planner’s obsession with making things, Singapore still has 25 per cent of its economy tied up in manufacturing while the figure in Hong Kong is less than 5 per cent.
The second is that 75 per cent of investment in manufacturing in Singapore is foreign investment whereas that figure in Hong Kong is negligible. What will happen in Singapore is foreign employers will take what native Singaporean workers lose through this cut.
There will be a transfer of wealth from the people who worked for it to the multinational corporations (MNCs). This could be excusable if these MNCs then invested the money back in Singapore but the difficulty is capital investment in Singapore is dropping faster than a rock in freefall and has never been lower than it is now, relative to the size of the economy. The MNCs are mostly in exit mode now. They will not put the money back into Singapore. They will just take it home with them.
Then you get to that fuzzy thinking that labour costs are an obstruction to economic performance. If so, Mr Tan, may I ask you what is the point of economic effort? Is it not to improve the prosperity of those who Participate? What sort of an achievement is it if you instead make them poorer?
I have always maintained that Singapore is the one country to have come closest to achieving communism in the classic Marxist sense. This is now unfortunately also showing the classic result of central planning put in practice, a steady grinding down of working class disposable income.