Poverty increasing under PAP’s economic strategy

AHDS Greenway
22 Feb 07

Singapore has been energetic and resourceful in managing globalisation. But like many other countries it is also faced with difficult policy choices as the rich-poor divide has become a serious political issue. Between 2000 and 2005, the real wages of the bottom 40 per cent of households declined. Unless this gap and sense of insecurity is managed with sensitivity, there is potential for undermining Singapore’s current social and political arrangements.

Singapore’s globalisation strategy is based on high growth, encouraging a large number of foreigners to work and settle here, and minimal social safety nets. Singapore’s 2007 budget presented last week reaffirms the government’s determination to continue the current strategy.

Singapore has experienced below-replacement fertility since 1975. For a stable population, the mean number of children per woman must be 2.15. But in 2005, its fertility rate was only 1.25. If the rate stays below 1.5 for several years, it will be difficult to increase it significantly through public policies.

The long period of low fertility, combined with increasing life expectancy, will make for a rapidly ageing society. By 2030, more than one out of four persons in Singapore will be elderly ie above 65.

There will be only 2.2 workers to support each elderly person, compared to 10 workers in 2000. In spite of the rapid increase in the elderly population, the government has relied primarily on the mandatory savings system to finance pensions and health care. Studies have shown that this system, administered by the Central Provident Fund (CPF), is likely to provide 15-25 per cent of pre-retirement income. This is far lower than the two-thirds to three-fourths recommended by experts.

In Japan, Korea and Taiwan, a contested political space and higher priority for social issues have brought multi-tier pension and health care systems, with an important role for social risk-pooling arrangements. No such progress is evident in Singapore. So, the current arrangements, which place a disproportionate burden on individuals, will be felt after the full impact of ageing around 2010.

Moreover, the government has reconciled high growth policies with low fertility rates by encouraging foreigners to take up permanent residence and citizenship, while maintaining the ethnic balance between the Chinese, Malays and Indians. This will create profound changes in the society. The policymakers are, however, confident that the newcomers can be made to conform to Singapore’s socio-political values within a generation.

Singapore’s globalisation strategy is creating significant inequalities and relative poverty. Thus, the ratio of the disposable income of the highest 20 per cent to that of the lowest 20 per cent has increased from 11.4 in 1990 to 20.9 in 2000. Singapore does not publish an official poverty line. The Workfare Income Supplement (WIS) scheme introduced in the 2007 budget for assisting low wage earners has the potential coverage equivalent of about a quarter of the resident labour force. There are many non-workers, particularly the ageing poor. So between a fifth and a quarter of the population may be classified as suffering from relative poverty. Moreover, the tax burden on capital income has been systematically reduced.

Singapore’s globalisation strategy thus remains vulnerable to rapid ageing after 2010; macro-economic shocks, and the uncertain nature of future globalisation. The current strategy is also fundamentally changing society and could potentially adversely impact the present social fabric. Singapore does not have fiscal or governmental constraints when addressing the challenges of globalisation.

It is the particular vision of the society and the style of socio-political management that distinguishes Singapore’s management of globalisation from those of other high income Asian countries. The fundamental dilemma between ensuring Singapore’s competitiveness as a business location on one hand, and meeting society’s needs and expectations on the other, is, however, a real one. Nevertheless, the issues relating to economic growth, for whom and for what, need much more searching scrutiny, and much wider public participation, and greater flexibility in the policy and mind-set than has been the case so far.

The writer is Professor of Public Policy at the National University of Singapore.

%d bloggers like this: