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Ethos Issue 3, Oct 2007
Rethinking a New Social Compact
for Singapore
Yeoh Lam Keong
To address globalisation’s unprecedented
challenges, Singapore may need to rethink—and not just
tweak—its social safety net.
At the heart of Singapore’s success
in governance lies the strength of its social compact. Since
independence, the majority of citizens, including those at
the bottom of the income pyramid, have enjoyed a steady rise
in living standards. This prosperity has earned the Government
the credibility and mandate it needs to implement difficult
social and economic policies time and again, which in spite
of initial hardship, eventually raises the nation’s
well-being. This virtuous cycle is at the core of Singapore’s
long-term, policy-driven success.
For decades, strong economic growth and
full employment have raised wages and welfare for the majority
of Singaporeans. In the 1990s, our per capita income rose
towards average developed country levels. Since then, however,
a fundamental change has taken place. Median real wages are
no longer rising with robust growth. Instead, they have been
roughly stagnating since 1998. For the bottom 60% of workers,
individual wages have, in fact, cumulatively declined by 7%
to 15% over the last five years through 2006, in spite of
5% to 7% GDP growth and an unemployment rate below 3%. The
poorest and least skilled have been the hardest hit. Median
monthly starting pay for cleaners and labourers has fallen
by nearly a third, from S$860 to S$600, between 1996 and 2006.
While household incomes, especially of the
bottom 30%, have rebounded in 2006, this is due to jobs being
plentiful enough for more family members working longer hours
to bring in more income despite falling wages. Yet the poor
have had to run faster just to stand still. The bottom 30%
of working families have now experienced stagnating real household
incomes for 8 to 10 years. Even the broad middle classes—the
30th to 80th percentile of households—saw a four- to
five-year period of stagnating household income between 2001
and 2005.
GLOBALISATION AND WAGE STAGNATION
Such wage and welfare stagnation is new to modern Singapore.
Yet they are underpinned by the underlying mega-trends of
globalisation, which have taken two major new turns since
the 1980s. The first is the “great doubling”.
For the first time in human history, the globally integrated
labour force is in the process of rising from around 1.5 to
well over 3 billion, driven by economic liberalisation of
the huge populations of China, India, the ex-Soviet Bloc and
newly-reformed emerging economies in Latin America and Asia.
This cheap, massive and increasingly productive labour force
competes for trade, investment and employment on a scale never
before seen.
Since the mid-1990s, the “great acceleration”
has also been raising developed country productivity growth
as IT-driven process innovations spread to service industries
and enable offshore outsourcing or “off-shoring”
of ever more discrete tasks and occupations. So too, Moore’s
law relentlessly pushes down the price of exponentially more
sophisticated IT capital goods and services relative to unskilled
or semi-skilled labour, replacing people with IT systems managed
by smaller, highly skilled teams. This reinforces the “great
doubling”, hollowing out swathes of less skilled, labour-intensive
jobs in both manufacturing and services in rich countries,
even as it creates large numbers of increasingly skills-intensive
occupations globally.
This skills-biased, Schumpeterian job destruction
and creation is leaving behind the less educated and skilled
in developed economies. Unable to adapt and upgrade their
human capital in time, they face increasingly structural long-term
unemployment, which results in wage stagnation or decline.
With social security budgets shrinking, and unable to afford
skills upgrading, they risk becoming permanently marginalised:
a proletarian underclass at the developed core of global capitalism.
By now, many developed economies are beginning
to recognise the all-too-common long-term symptoms—median
wage stagnation combined with sharply rising income and wealth
inequality—despite the strongest global growth and profitability,
and lowest unemployment rates in over two decades. The US
economy, with one of the most productive, flexible and open
labour markets and the world’s most innovative companies,
shows these trends the most clearly. This has also spawned
an insecure middle class increasingly sceptical of globalisation
and susceptible to protectionist or populist policies.
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