From The Straits Times
By Tommy Koh
Published 11 Nov 2010ECONOMICALLY, Singapore has made tremendous progress over the past 20 years. Its gross domestic product has grown from $56 billion in 1989 to $265 billion last year. Its per capita income has risen from $16,000 to $48,000. Its foreign reserves have increased from $38 billion to $263 billion.
Singapore has also done well in the Human Development Index of the United Nations Development Programme, rising from 35 to 23. A few days ago, the Legatum Institute of London ranked Singapore 17th in the 2010 Legatum Prosperity Index, ahead of Japan (18th), France (19th) and Hong Kong (20th).
But there is one area in which the situation in Singapore is sub-optimal.
Singapore believes in inclusive growth. We attach great importance to our social cohesion. We believe in the work ethic and the principle of self-reliance. We also believe that hard-working Singaporeans, no matter how humble his or her job, should earn incomes that would enable them and their families to live in dignity and material sufficiency.
This is, unfortunately, not universally the case in Singapore. Among the top 20 in the Legatum Prosperity Index, Singapore is the second most unequal country, after Hong Kong (as measured by the Gini Coefficient).
The growing income disparity and the hardship of the bottom 20 per cent of our citizenry are a challenge to our social cohesion and to our philosophy of inclusive growth.
According to the 2010 World Bank's Development Indicators, the lowest 20 per cent of Singapore's population account for 5 per cent of the country's income whereas the top 20 per cent account for 49 per cent.
One of the signs of the poverty at the bottom of our society is the number of children who go to school without any pocket money for lunch. The Straits Times Pocket Money Fund benefits 70,000 such children.
Professor Joel Kotkin, a scholar of cities, visited Singapore recently. In an interview with this newspaper published on Oct 13, he said: 'A third of the children in inner city London live in poverty. It is this kind of inequality Singapore should guard against.'
Let us take his warning as a wake-up call. But what is to be done?
We are told not to tamper with the market in regulating wages. The truth is that the market does not work for low-skilled and semi-skilled workers because they do not have equal bargaining power and are competing against an endless supply of cheap labour in the region. I am not suggesting that we close our doors to foreign workers. We should, however, consider tighter restrictions on foreign workers in certain sectors, such as hotels and restaurants.
What would Adam Smith, the intellectual father of the market economy, say? The conventional wisdom is that Smith was against the state intervening in the market. But according to Nobel economics laureate Amartya Sen, this was not Smith's position.
Sen said that Smith was deeply concerned about the inequality and poverty that might exist in an otherwise successful economy. Smith acknowledged the importance of interventions on behalf of the poor and the underdogs of society. In his magnum opus, The Wealth Of Nations, he wrote: 'When the regulation... is in favour of the workmen, it is always just and equitable; but it is sometimes otherwise when in favour of the masters.'
The truth is that all governments regulate markets, especially the market for labour and wages. Immigration restrictions and taxes are two examples. In Singapore, the question is not whether, but how best, to regulate the labour market so that we will have a strong economy and, at the same time, enable all Singaporeans to earn a living wage.
The minimum wage is an imperfect instrument. It does not guarantee a more equal society, as is shown in the United States. It does, however, ensure that workers earn a living wage. I would prefer to rely on the National Wages Council (NWC) and Workfare Income Supplement if they can be made to work for our low-skilled and semi-skilled workers and their families, who form the bottom 20 per cent of our population. We should request the NWC to consider what it can do for these workers. Workfare is an excellent Singapore innovation and we should consider how we can enhance its effectiveness.
If, however, they are less than fully effective, we should have a calm and rational discussion about the pros and cons of the minimum wage. Those who oppose the minimum wage have argued that it will increase unemployment, discourage foreign investment and reduce our competitiveness. I have reviewed the situations in Japan, South Korea and Taiwan, which adopted the minimum wage in 1959, 1988 and 1956, respectively. I have found no evidence in those three cases that the minimum wage has caused an increase in unemployment, reduced foreign investment or reduced competitiveness in those economies.
I acknowledge that the government is already doing a lot for our less fortunate citizens, in education, housing, health care, which are heavily subsidised, and through various financial assistance schemes. But existing programmes may not be enough. We should work together and think of new and innovative ideas on how to boost the incomes of the bottom 20 per cent of our population.
Singapore's founding fathers envisioned building a country that would resemble an olive, with a large middle class and relatively few people at the top and at the bottom. We must not allow the olive to become a pear.
The writer is chairman of the Centre for International Law, NUS. Think-Tank is a weekly column rotated among eight leading figures in Singapore's research and tertiary institutions.
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