Very Wealthy It May Be, but Not All Is Well in Singapore

With the end of 2011, Singapore’s policy makers have ample reason to be satisfied with their economic management, and the results of the long-prevailing business location growth model.

Singapore’s macroec onomic indicators, excepting the inflation rate, exhibited encouraging trends in 2011. Real economic growth is projected at around 5 percent for the year, generating about 100,000 new jobs in 2011, which is equivalent to 2.6 percent of the total workforce. An impressive 61.5 percent of Singapore’s total population was employed.

Still, the inflation rate, measured by the consumer price index, has hovered around 5 percent, while the domestic supply price index surged by 9.3 percent in the third quarter of 2011. These rates are uncomfortably high compared to those that Singapore is normally accustomed to.

The general and presidential elections held in 2011 highlighted the electorate’s growing concern with quality-of-life issues that encompass more than material living conditions. This is apparent across divergent demographic and economic groups. Citizens perceive that their quality of life does not reflect the wide range of options and choices they expect of an affluent country with a per capita gross domestic product of $43,867 in 2010, at current market prices. Their concerns have more recently manifested in demands for greater policy, media and electoral contestability.

There is substantial infrastructure investment currently under way in transport, health, housing and education, which could help narrow the gap between rapid demand increases and the supply response. But much more emphasis needs to be placed on the softer aspects of health care, childcare and education to mitigate concerns about poor quality of life for schoolchildren, as well as working mothers.

The generational shift, particularly as younger citizens have grown up in an affluent environment, has accentuated this perception of quality of life in Singapore. An important element in this perception is that citizens’ upward-mobility prospects are being limited by the presence of disproportionately large numbers of foreign workers, particularly at the professional and executive levels. In the middle of last year, only 63 percent of Singapore’s total population of 5.2 million were citizens, 10 percent were permanent residents and 27 percent foreign workers. The share of foreign workers in the labor force is much higher, and could reach two-fifths of the total labor force by the end of this decade.

Another important element is an increasing recognition of the growing inequalities in income and wealth to which government policies have contributed. Such policies include strong adherence to the business location growth model, with its concomitant rise in foreign workers; light taxation of capital income; and very limited measures designed to provide adequate retirement income and mitigate against retirement income risks.

The population, meanwhile, is aging rapidly due to the ultra-low fertility rate of 1.15 births per woman in 2010 (when 2.15 is the replacement rate) and improved life expectancy.

These trends will lead to an increase in the median age (38 years in 2011) and in age-related social expenditures, whose burden needs to be shared equitably, not disproportionately by the individuals as is currently the case.

Policy makers appear to recognize these concerns, but their actions suggest a continued belief in the adequacy of enacting relatively minor changes in the business location growth model, with its serious reliance on foreign workers; planned infrastructure expenditure; and minor refinements in the mandatory savings scheme (as administered by the Central Provident Fund).

It is the excessive single-minded zeal in pursing these policies, when circumstances require their moderation and the introduction of additional measures, that has led to quality-of-life concerns. More could be done, for instance, by focusing on relative poverty rather than absolute poverty. This policy approach will likely be tested in the coming years as aging accelerates, and the electorate’s expectations and aspirations continue to diverge from the outcomes of the current assumptions underlying Singapore’s social and economic management.

Singapore’s prospects for 2012 depend on the global economy. The euro zone is experiencing a serious economic crisis, and growth in other industrial countries is expected to be anaemic. China and India are also facing challenges in sustaining relatively high growth.

But Singapore is well positioned to benefit from any positive developments in the regional global economies, and to cushion any downside risk. Singapore’s participation in the Trans-Pacific Partnership negotiations — billed as a new-generation preferential economic agreement — is one indicator of its future economic preparedness.

East Asia Forum By Mukul Asher professor at the Lee Kuan Yew School of Public Policy at the National University of Singapore.