Questions about SDP’s economic proposals

July 12, 2005
Singapore Democrats

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Letter I

As much as there would be consensus for a rectification of the wage gap, it would be contentious to deem that the imposition of a minimum wage standard would achieve the desired objective.

The drawbacks of a minimum wage is clear: that certain inherently low-paying jobs will be deemed as unviable to be provided, and hence exacerbating the rate of unemployment further. Although the minimum wage law could very well impede exploitation, it is unclear how the figure of $5 is derived by the SDP. Perhaps if a study could be furnished to justify that the designated amount is considered apt and constitute as sufficient compensation for the demands of all present low-paying (for lack of a better term) employment prospects, it would lend greater credence to the argument for the implementation of a minimum wage.

With regards to the retrenchment entitlements proposed, the noble intentions of ameliorating the temporal financial burden by assuming responsibility for the salary foregone is marred by, again, by the viability of the proposal. The financial demands of the proposal would prove to have significant bearings on the fiscal concerns of the
state, which rightly prompts the question whether the proposal is attainable. Even if statistics, along with lies and damned lies, constitute the triumvirate of untruths, statistics would still be a paramount pillar to provide coherence and rally faith to these alternative policies.

The paragraph citing the role of the GLCs warrants another concern. It is proffered that the GLCs ‘be dismantled’ and be superseded by ‘local private companies’- while the promotion of entrepreneurship is commendable, the drastic withdrawal of the government seems a tad unwise. While the pervasiveness of the government in the economic sector does require correction, there are certain industries in which government presence is necessary. Singapore Technologies’ forays into the defence industry should be (grudgingly) accepted as a success; utilities and public procurement may also require the active involvement of the state. Granted, there are considerable excesses in governmental involvement under the ruling party’s regime, but the indiscriminate withdrawal of the state from all industries may in effect render a detriment to the growth of our nation.

The mooting of the Singapore First policy is quite laudable, however, it reeks of an isolationist and nationalist inclination. Globalization is a phenomenon that the nation, and every other state, has to grapple with. To actively discriminate against foreigners, even if they possess a magnitude of greater skills, by having them retrenched before Singaporeans could would reduce the competitiveness of this nation, and induce restraint in potential foreign investments.

However still, it is appreciated that the policy is designed to uphold the value of citizenship, and it should be said that the proposed reforms to the education and political mechanics of the nation could very well achieve this. It is unnecessary to discriminate against foreign talents, instead, the provision of education and favourable circumstances to mould Singaporeans to equal or exceed the par of the former would promptly solve the inequality experienced. If local personnel were considerably more skilled and talented, surely the foreign talent scheme would be acquire redundancy as employers would actively seek local citizens instead.

All being said, these economic proposals, however inchoate, serve to provide a commendation to the SDP. Along with the mooted rectifications to the political system dominated by the ruling party, the SDP is rightly in stead to assume pertinence in Singapore’s politics. Keep it up.

KHAIRULANWARZAINI

Letter II

Issues with SDP’s economic proposal:

1. How does SDP come up with this $5 per hour figure?

2. Given it is the pay for “lowest of the low-skilled employee”, how will such policy impact the wage structure for other low-skilled employees? Naturally, the “more skilled low-skilled employee” will have higher pay to be fair. We can see a cascade effect of pay increment and cost pressure on companies and the economy? Has SDP considered the full impact?

(If the answer is in
http://www.singaporedemocrat.org/manifestodistributionofwealth.html,
I will further comment on separate post.)

The minimum wage proposal is in direct contrast with PAP’s Variable Wage Scheme. The Variable Wage Scheme aim to reduce fixed business cost in salary payment
and encourage the companies to share profit in bonus form in accordance to company’s and individual performance. The minimum wage proposal intends to use legislation to ensure fairness and basic needs of the weakest members of the society. The Variable Wage Scheme intends to strengthen business viability via cost reduction and depend on companies to exercise good faith to share profit with employees where possible. There are pros and cons of both schemes.

Questions to ponder on:

1. Which way will motivate the employees better?
2. Will companies really share profit with employees in Variable Wage Scheme out of good faith?
3. Will the job market be dynamic enough to pressure companies to share profit to keep good employees from changing jobs?

4. Will the weakest members of the work force receive little profit sharing because they contribute little?

5. Will government’s welfare/aid a better alternative to help the weakest members of the work force compared with minimum wage?

TRI LANDIAN


SDP: Dear Khairulanwarzani and Tri Landian,

Thank you for your comments. We have summarized the points that were made and responded to them below:

Paying minimum wage will exacerbate the unemployment rate.

Such a view is not supported out by facts. Countries such as Australia, Britain, Japan, Korea, New Zealand Taiwan, US, just to name a few, have minimum wage stipulations. And yet, their economies continue to expand and their unemployment rates are not any worse than Singapore’s.

It is the PAP’s favourite line – and a fallacy – that having minimum wage (or for that matter a strong labour movement) will destroy Singapore’s competitiveness. There are many factors that make doing business in Singapore expensive such as office rent (land price), transport costs, telecommunications, etc. Why doesn’t the Government consider shaving the costs of these expenses before it suppresses wages?

Making sure that companies can suppress wages, and thereby increase their profit margins without having to boost productivity and innovation, is in the interest of the Government, especially when one considers that GLCs dominate the domestic sector of the economy. This ensures that the top dogs (cabinet ministers included here) can justify their huge salaries. The Government can continue to report “healthy” GDP growth. In the meantime, however, the poorest of the poor in this country continue to survive impossibly on wages as low as $400 a month. For a better insight on the problem of poverty in this country, please take a look at our report on The Truth About Poverty in Singapore.

In truth, the unemployment rate in Singapore is exacerbated by the influx of foreign nationals which have displaced many locals in the job market. This matter was raised by some academics at the National Technological University who said that most of the newly created jobs were going to foreigners. Of course, the Government responded with their usual threatening stance and this led to the professors withdrawing their statement.

How did the SDP arrive at the minimum wage of $5 per hour?

This is not rocket science. The minimum wage can easily be derived from doing some quick arithmetic about the expenses of daily life: housing loans, PUB bills, meals, transportation expenses, etc. and then seeing what kind of wage would support the barest of necessities.

Assuming that an unmarried, childless worker with no elderly parents to look after works a 44-hour week for four weeks in a month, receiving a wage of $5 an hour. This works out to be $880 a month. After CPF deduction, the take home pay may just be enough for the individual to eke out a very meager existence ($300 for food, $100 for MRT and bus fares, $70 for PUB, plus medical expenses, clothes, etc.) If one is married and has children or has elderly parents to provide for, it is not difficult to see that the amount will be insufficient.

Many argue that a minimum wage of $5 hour is indeed insufficient; maybe a higher amount is required. That can be debated. What the Singapore Democrats are proposing is the baseline amount below which no Singaporean should be forced to live on.

Would paying retrenchment entitlements be too heavy a burden for the state to bear?

We calculated that paying retrenchment benefits for a limited period to help retrenched workers who have bills to pay and children to send to school is a very achievable task for the state. At most we will incur a few billion dollars annually. If this sounds like a lot, think of the $17 billion that the Government pledged to the Suharto government in 1997 and the billions more that it earmarks and spends on failed business ventures (Suzhou) that Singaporeans know little about.

Again a well-managed entitlement system helps rather than destroys the economy. Some of the countries we mentioned pay retrenchment benefits but continue to progress economically. As a note of interest, the wildly successful author of Harry Potter, J. K. Rowling, was a single mother on unemployment benefits who have used her time to write. Today, her books sell in the billions.

The scheme that the Singapore Democrats propose is one where the retrenched worker is assisted on a temporary basis and provided incentives (and penalties) for the recipient to expeditiously find another job.

Will the withdrawal of the state from all the business be detrimental to the economy?

A closer study of GLCs will show that much of the sector is poorly managed and unproductive (for a more extensive discussion on the subject, please read Dr Chee Soon Juan’s: Your Future, My Faith, Our Freedom – A Democratic Blueprint for Singapore).

Nevertheless, the Singapore Democrats have not advocated the wholesale withdrawal of the Government from business. Successes such as the SIA and, arguably, the PSA could be portfolios that the Government retains. But the Government is involved in all manner of business ranging from ship-repair and -building to supermarkets to child-care centers and even amusement arcades. These are businesses that Singaporeans can, and should, run and businesses from which that the state should gradually withdraw.

The present state of the economy, both domestically and the external wing, cannot justify the continued participation of GLCs. Again to say that Singapore’s economy will suffer without the PAP’s direct intervention is to ignore the successes of other countries whose economies are driven by the people and private enterprise. Unless we’re saying that Singaporeans are a different species of life, there is no reason to doubt the entrepreneurial capability of our people.

The Singaporeans First policy will deprive Singapore of much needed foreign talent.

The question to ask first is: Why are Singaporeans – Singaporeans with much needed talent and skills – leaving the country in such numbers in the first place? (Mr Goh Chok Tong lamented in 1999: “If our best who qualify to work for world-class institutions are not prepared to come back, how can we make our institutions world-class?”) The truth of the matter is that many of these Singaporeans are voting with their feet because they don’t have a say, be it on the education system, high cost of living, job opportunity, and so on. Should we not stem the exodus first before we say we cannot find talented Singaporeans in Singapore?

As for the import of foreign talent, the Singapore Democrats have never advocated that Singapore pursues a xenophobic, closed-door policy. This is made amply clear in our manifesto. What we are against is the indiscriminate recruiting of foreign nationals to help suppress wages so that our economy can remain “competitive”. At the moment foreigners are filling jobs like waiters, sales assistants, bus-drivers, nurses, etc. that Singaporeans can do. The term foreign “talent” is misleading; foreign cheap labour is more apt.

The Singaporeans First policy that the SDP advocates would require Singapore companies to ensure that the positions that they advertise for are filled by foreign nationals only after they demonstrate that there are no Singaporeans who are qualified for the job. This is the practice in countries such as Australia, US, UK, etc. Such a policy would ensure that Singaporeans are not competing unfairly with low-wage workers from the region while at the same time continue to keep our doors open for genuine foreign talent.

If Singaporeans were considerably more skilled and talented employers would prefer to employ locals instead of foreigners.

In theory, yes. In practice, you will always be able to find a foreigner with comparable qualifications and who is willing to accept much lower wages. The decision for the employer then is not hard to make. Singaporeans, having to live with the high cost of living, invariably lose out to the Indian, Chinese, or Filipino worker whose families live in their home countries with much lower costs. This is not to mention the fact that Singaporean males have reservist obligations while his foreign counterpart doesn’t. Given business pressures and competition, it is not surprising that employers will opt for the one who doesn’t have to be away from the office two or more weeks every year.

SDP’s Minimum Wage Plan or PAP’s Variable Wage Scheme?

If the Variable Wage Scheme was adequate, we wouldn’t be seeing a situation where millionaires in Singapore continue to increase and the number of poor and the income they make continue to plummet. Markets are by nature amoral and they exist for one purpose and one purpose only – to maximize profits. There is no obligation to curb excesses. A government needs to ensure that the imbalance does not reach a stage where society becomes dysfunctional (think of Indonesia where the cukongs in cahoots with the military ran the economy much to the detriment of the masses, a situation which finally imploded).

Neither the minimum wage plan or the Variable Wage Scheme is perfect, there will always be abuses of the system. In the main, however, taking a look at current factors, minimum wage is imperative if Singapore’s economic system and is to be sustainable.

Conclusion

If the present set of economic policies put in place by the PAP Government were working, our state of the economy would not be so dismal. Clearly they are not and SDP’s recommendations are the remedy. You may be interested to know that in a study conducted in 2004, NUS Associate Professor Hui Weng Tat made the following recommendations:

· Apply “positive discrimination” in favour of residents

· Tighten eligibility rules for employment pass holders

· Introduce minimum wage

These are the very policies that the Singapore Democrats put forward in the 2001 GE and continue to advocate.