Mr S Iswaran at the MTI Economic Dialogue 2011, 20 Oct 2011

KEYNOTE SPEECH “PROMOTING INCLUSIVE GROWTH IN SINGAPORE” BY MR S ISWARAN, MINISTER, PRIME MINISTER’S OFFICE AND SECOND MINISTER FOR HOME AFFAIRS AND TRADE & INDUSTRY AT MTI ECONOMIC DIALOGUE 2011, THURSDAY, 20 OCTOBER 2011, 6PM, UNIVERSITY CULTURAL CENTRE (UCC), NUS

Professor Tan Chorh Chuan, President, National University of Singapore

Faculty and Students from NTU, NUS and SMU

Ladies and Gentlemen

I am pleased to be here at the 4th MTI Economic Dialogue. Since the inaugural session three years ago, this event has become an important platform for MTI to engage university students like you, and to share the economic thinking behind pertinent issues or policies of the day. It is also an occasion to recognise the achievements of students who have done well in their study of Economics at university.

Book Prize Winners

So let me begin by congratulating the thesis prize winners. The thesis by Ong Eng Hui from NUS presented evidence that superstitious beliefs have a significant impact on condominium housing prices. She found that apartments with unit numbers ending with four – which is deemed unlucky in certain cultures – fetched a lower price, while the reverse was true for those with numbers ending with the more auspicious „eight‟.

The joint thesis by Chan Pheng, Ng Wei Liang and Wong Heng Liang from NTU examined bidder behaviour on a pay-as-you-bid website. They found that behavioural economic theories, such as loss aversion, bounded rationality and the sunk cost fallacy, could explain some of the actions of bidders on the website.

Teo Wei Ting from SMU investigated the relative efficacy of public and private health spending. She found government health expenditure to be less effective than private out-of-pocket health spending in increasing life expectancy, across all national income levels and geographical regions. These works raise interesting questions with regard to private behaviour and the implications for public policy.

I would also like to extend my congratulations to the book prize winners, Desmond Zheng from NUS, Vincent Wong from NTU and Foo Jie Kai from SMU, who have distinguished themselves in their studies.

Singapore’s Approach to Inclusive Growth

One focus of our public policy is economic growth – its attainability and our attitude towards it. And that is also the focus of my speech today – what have we done to make growth inclusive, and what more can we do. I would first like to dispel a myth that seems to have gained currency of late – that the Government has pursued growth at all cost. This is untrue and, indeed, somewhat absurd. The Government’s aim is to build a better life for all Singaporeans – this has been stated quite categorically many times in the past and enunciated yet again, more recently, in the Addendum to the President’s Address at the opening of Parliament. Economic growth confers the wherewithal to achieve that goal. To suggest that there has been a mindless pursuit of growth is to construct a false dichotomy and to confuse the means with the end.

We should also be clear about the nature of growth in our context. As a small open economy, Singapore’s economy is highly exposed to the vicissitudes of the external environment. The global financial crisis, like others before it, is a reminder that we cannot take growth for granted. Our economy, perhaps more so than others, is affected by the business cycle and growth may often have to be opportunistic – we cannot calibrate it by turning a dial up or down to suit our convenience. Large multi-billion dollar investments, like the petrochemical crackers, are few and far between. When such opportunities knock, should we not seize them? The argument to do so is strengthened manifold when we consider the volatility of the global economy, and our domestic labour and land constraints. Economic growth provides the resources, whether through current revenue or past reserves, for us to invest in housing and transport infrastructure, social amenities like hospitals and schools, and to aid the less fortunate.

In Singapore, we strive for quality and inclusive growth. Quality growth, to provide good jobs and opportunities for Singaporeans and to improve their standard of living. Inclusive growth, because we must be conscious of the distribution of benefits across all segments of our society. There are groups of individuals, such as the lower-skilled and the elderly, who face hurdles in tapping into the opportunities arising from economic growth. We are not unique in facing these challenges – both emerging and advanced economies have to grapple with them. In China, the government is doing its utmost to spread the benefits of economic development to rural areas, and to shift the nature of its growth so that more local businesses and workers can benefit. In the US, real median income has declined by 7 per cent over the past decade. There is now an „Occupy Wall Street‟ movement against the so-called top “1 per cent” of income earners, which is driven primarily by frustrations over inequality.

Why have the benefits of growth been spread unevenly? Most economists agree that technological change and globalisation have been key causes. Lower trade barriers, falling communications costs and quantum advances in technology have enabled unprecedented levels of prosperity for those with the skills and networks to exploit them fully. For global cities, like Singapore, where there is a strong concentration of talent and capital, these effects may be even more accentuated. It is telling that while Singapore’s Gini coefficient is higher in relation to other countries, it is actually lower than that of other global cities like New York and Hong Kong.

So how can we ensure that economic growth is inclusive – that it brings benefits to all segments of society? To achieve this in a complex economy, like ours, within a competitive landscape, we need all economic agents – government, individuals and businesses – to play their part. Let me elaborate.

Government Redistribution Cannot be the Only Solution

The Government has a role through the redistribution of income. Governments tax corporations and high earners more and allocate the additional tax revenue to segments of society that need greater assistance, amongst other things. The Scandinavian countries have been aggressive in using this approach – in Sweden, for instance, the top rate of income tax is more than 50 per cent.

In Singapore too, we have numerous programmes to help disadvantaged groups. At the same time, our social policies provide an important foundation for all Singaporeans. These include providing Singaporeans with access to good education, quality public housing and healthcare that is affordable. Our CPF system also encourages individuals to save for their housing and retirement needs while the Government provides subsidies and periodic top-ups to help them meet those needs. While these systems remain fundamentally sound, Government may have to do more as the needs of our society evolve.

But we must bear two points in mind. First, government transfers have their limits and should, therefore, be judiciously administered. There is a financial limit imposed by the state of public finances and, if carried too far, transfers extract a social cost through the dampening of the instincts of enterprise, thrift and self-help. Second, for there to be resources to redistribute, we must first have growth. Otherwise, it would be an invidious debate over how to divide a static, or even diminishing, pie. Hence, the other significant role of Government in promoting inclusive growth is to foster an environment that is conducive to growth and sustains our competitiveness.

Individuals as Active and Adaptable Workers

How can individuals benefit from, and contribute to, inclusive growth? First, inclusive growth creates jobs for Singaporeans. We have been relatively successful in this regard, achieving an average unemployment rate of 2.9 per cent over the past 10 years, significantly lower than that in other developed economies.

Second, there must continue to be scope for wage growth for our workers. For some, this can be achieved through productivity gains and the competitiveness of our enterprises. For others, especially among the less skilled, we may need to augment their income with Government resources through programmes like the Workfare Income Supplement (WIS) scheme. WIS encourages low-income workers to remain in the workforce while enhancing their income through Government support. This means higher earnings for workers without a concomitant increase in business costs. The consequent retention of workers in the workforce is one advantage of WIS over alternative ideas like the minimum wage.

In the longer-term, the only sustainable way to ensure wage growth is to ensure that our workers gain the necessary skills to take up higher value-added jobs created by the economy. American labour economist David Autor has found that with the increased use of IT and offshoring around the world, the demand for routine jobs such as typists, telephone operators and bank tellers has fallen significantly. However, the demand for abstract jobs – which tend to deal with information and conceptual work – as well as service jobs, has increased. We may not all be able to do such jobs, but it is important that we continue to train and upgrade as many of our workers as possible to meet the needs of the economy – today as well as tomorrow.

Continuing education and training schemes must therefore be accessible and affordable. The Workfare Training Support Scheme (WTS) provides large subsidies towards the training costs of low-wage workers who receive the WIS. We are also creating vocational schemes in specific sectors where such training programmes will be valued. For instance, EDB has established a specialised Precision Engineering Vocational CET system where craftsmen in the sector undergo intensive training to further hone their technical skills. Both general and sector-specific programmes ensure that there are enough opportunities for workers to upgrade and adapt. The key point is that the Government, working with the unions and businesses, has embarked on a range of training initiatives – pre-employment to continuing education – to endow our workforce with the skills required in a modern and evolving economy. It is equally important that individual workers take full advantage of these programmes to gain skills that will form the basis of productivity and sustainable wage growth.

Businesses Have a Key Role in Fostering Inclusive Growth

What about the role of businesses in an inclusive economy? I believe their role is key, for it is businesses that ultimately make the resource allocation decisions – on who to employ and whether to stay in Singapore and create high value-added jobs or move to a cheaper location. Government can enable, unions can support, but ultimately businesses must deliver.

I would highlight three ways in which businesses can foster inclusive growth. First, businesses can do their part by creating a workplace which is friendly to those who face difficulties in re-entering or remaining in the workforce. It is striking that although our labour force participation rate for men is higher than the OECD average at all ages, the participation rate for women over 40 is lower than the OECD average. For instance, only 51.7 per cent of resident women in their late fifties participate in the labour force while the OECD average is 58.7 per cent. This is a lost opportunity. Companies will need to have progressive HR policies, such as flexible working arrangements, to allow individuals, women and men, to better balance their work and other responsibilities. They must also be prepared to support the development of their elderly workers to keep their skills current. Government can complement this effort by providing financial support to companies seeking to redesign their systems and processes. Government has also introduced legislation, such as the Retirement and Re-Employment Act, which will come into force next year, in support of this effort. But, it is companies themselves that must recognise the benefits of adopting a less traditional approach towards human resource management and adapt to the needs of an evolving labour force.

Second, businesses must recognise that a low-wage strategy is not a sustainable basis for competitiveness in the Singapore context. Rather, it is in our companies‟ long term interest to apply new technologies or business models, create higher value added jobs, and invest in workers‟ training, to gain a durable edge over their competitors.

To help businesses upgrade, the Government has introduced the Productivity and Innovation Credit (PIC) scheme which provides generous tax deductions for investments in six productivity and innovation activities, ranging from automation equipment to personnel training. This should go a long way towards reducing business cost.

Finally, the business community can be a key partner in building up workers‟ skills. Many skills cannot be taught in the classroom, and can only be acquired through on-the-job training. Furthermore, many high-tech industries have expensive and sophisticated machinery, which cannot be economically acquired by CET programmes just for training purposes. By investing in the professional development of workers through in-house training pathways, companies can not only complement Government’s efforts but also build a motivated and dedicated workforce.

Conclusion

Let me sum up. The Government aims for quality and inclusive growth so as to build a better life for all Singaporeans. Quality to create good job opportunities and the potential for wage growth; inclusive to ensure the benefits reach all segments of our society. Inclusiveness cannot be reduced to a single statistic or outcome – it is an economic strategy in which every stakeholder – the Government, workers and businesses – has a role; it is a mindset we must all embrace.

Inclusive growth will also require an openness to learn, experiment and adopt new ideas that are unfamiliar and even challenging. These are important economic issues that we as a society will have to grapple with. I hope that some of you who have the aptitude and inclination will join the public sector and apply your talent and knowledge to help us deal with the challenge of promoting inclusive growth.

With that, I thank you for your attention and look forward to hearing your thoughts and views during the dialogue session later.