Saturday, October 22, 2005

New Economic Policy

Although I am usually wary of such things, the 2005-2006 country rankings of economic competitiveness by the World Economic forum is instructive. Nordic countries like Finland and Sweden place highly, with Finland in first place, Sweden third and Denmark fourth. The Economist's Charlemagne column recently compared what it identified as a Nordic social model with the continental (essentially Franco-German) model. It pointed out while countries like Denmark and Sweden spend a lot on reducing poverty and have among the most generous unemployment benefits in Europe (and, let's face it, the world), they remain competitive by having much more flexible labour laws than France and Germany. This might also explain why French unemployment is now above 10% while the unemployment rate in Denmark is 6.4% and in Sweden about 5.9%.

The much more interesting thing is that Singapore ranks at number six, just below Taiwan. So yes, Singapore is competitive, but its competitiveness is not the product, as we are incessantly told by our Dear Leader(s), of artificially depressed wage costs or our effective lack of any social security or unemployment benefit (except for maybe CPF). If that were the case, we would be far more competitive than Sweden. It would also mean that a place like Hong Kong should be topping the competitiveness charts, which it isn't.

Of course this is all deeply unfashionable these days, but I actually do think we need more government spending on things like public health and unemployment benefit. The currnet level of medical coverage, especially for serious and chronic illnesses, is pathetic and I think morally deficient. And if you fear that any rise in welfare provision will bring about the 'erosion of competitiveness' that the government has been warning about for the last three decades, well, just take a look at the World Economic Forum report.

12 Comments:

Anonymous Oikono said...

I believe that in a way, the Singapore government is correct to say that we owe our competitiveness to depressed wages and lack of social security and taxes.

I believe that the crux of the issue lies in the nature of our competitive advantage. Whereas the Nordic countries rely on innovation to generate economic growth, Singapore relies on selling itself as a sweat shop for slightly higher value-added activities

11:08 am  
Blogger Agagooga said...

When the cheaper engineers from India and China come a-calling, we're doomed.

You can't make a populace innovative without making them restless, but then mindless sweatshop drudgery is going the way of the dinosaur.

How then to preserve the mandate of heaven?

3:56 pm  
Blogger Koh said...

The reason why we need to depress wages and have such questionable social security than the Nordic countries so as to remain at least in sixth place, is because our society is both morally and intellectually too sterile and parochial to be able to create.

8:23 pm  
Blogger the truth is rarely pure and never simple said...

"When the cheaper engineers from India and China come a-calling, we're doomed."

They already exist. Half of the engineering freshers in my college are from China.

"I believe that the crux of the issue lies in the nature of our competitive advantage. Whereas the Nordic countries rely on innovation to generate economic growth, Singapore relies on selling itself as a sweat shop for slightly higher value-added activities."

Yes I agree that this is our 'competitive advantage' so to speak, though to call it an advantage is really to mock the meaning of the word. But I think we shouldn't have too many problems in shifting our comparative advantage to knowledge industries. It doesn't really require political liberalisation in my opinion, though. The biggest knowledge-based industries are things like investment banking, corporate law and management consultancy. I can think of many many people working in these industries who couldn't give a fuck about representative government or civil liberties. So really there is no good reason, cynical and power-hungry or otherwise, for the current groupthink surrounding our economic policy. And in deed, depressed wages are not that linked to shit unemployment and other social welfare benefits. The latter is largely a function of a) tax, b) government willingness to take on debt and c) structure of govt spending.

8:51 pm  
Blogger the truth is rarely pure and never simple said...

Oh wait, hoho, this shows my lack of economic training. Of course a) tax will have an effect on costs and therefore our low-cost competitive advantage (or is that comparative advantage...) but I think that at present most of our tax base is corporate tax. We can shift the tax burden to higher income taxation. I think the evidence has shown that, unless tax rates are astronomically high (as they are on the super-rich in France, for example) it has a negligible impact on incentives to work, and is also unlikely to trigger tax emigration.

8:55 pm  
Blogger Agagooga said...

Actually high taxes affect incentives to hire people to manage your tax and jiggle the balance sheets.

You forget innovation - that's why Finland is top, at least according to the executive summary of the damn 65 pound thing.

10:31 pm  
Blogger the truth is rarely pure and never simple said...

I'm wondering, what is this 'innovation' that management types are always banging on about. I mean, what is it exactly?

Btw if it available online I can probably access it through the Oxford network. Give me the url and I'll try to send it to you. Is it pdf?

11:41 pm  
Blogger chrischoo said...

This comment has been removed by a blog administrator.

12:12 am  
Blogger chrischoo said...

Until Singapore can prove itself by offering more talent for knowledge-based industries, I expect that wages will continue to be depressed. The question about social security is a very fundamental one that needs much more analysis. I don't agree that the government should be willing to "take up debt" or provide a large safety net for the unemployed, simply because this will discourage people from taking low paying jobs and will incur a cost to society. I think there should be more provisions for those that have proven that they've been trying and couldn't get a job, but until these people prove that they've been trying to help themselves, I don't see why tax dollars should be spent on supporting them in any way at all.

Singapore did well because she was able to offer cheap skilled labour, but that edge is quickly eroding in the face of China and India, so in a sense I think that the way forward is to develop our knowledge industries more intensively. This will keep us 1 step ahead of the juggernauts, and keep us competitive.

Wages should gradually rise as these new industries develop, but Singapore is not really there yet.

12:13 am  
Blogger Beach-yi said...

Err..other than China and India, you guys are forgetting the existence of entities like Taiwan and Hong Kong?

Oh wait, they are technically not countries. And both technically belongs to China.

Oooo...Chrischoo, I don't mean to insult you but have you ever read about the freak results that ensue when government tries to ensure unemployed people had really look for jobs before they qualify for social welfare payments? Can try reading the Australian case study for instance.

I always have a problem with people wagging fingers. And assuming lots of things. Economists tends to use alot of assumption in their modelling. And we all know there is no such thing as a perfect competition.

1:02 am  
Blogger the truth is rarely pure and never simple said...

'I don't agree that the government should be willing to "take up debt" or provide a large safety net for the unemployed, simply because this will discourage people from taking low paying jobs and will incur a cost to society.'

Why is 'take up debt' isolated in quotation marks? Debt is a very natural thing for governments to have -- of course too large a PSBR will create inflation, but that doesn't mean that the govt should almost never run a deficit (which seems to be the case in S'pore).

And if a reasonable minimum wage is instituted (and it can be without rise in unemployment cf. the Labour govt's recent raising of the min. wage in the UK)the government can simply ensure that the dole pays less than the minimum wage.

'I think there should be more provisions for those that have proven that they've been trying and couldn't get a job, but until these people prove that they've been trying to help themselves, I don't see why tax dollars should be spent on supporting them in any way at all.'

We *could* have welfare-to-work, but these haven't proved very successful in the US in terms of either reducing unemployment or in helping ppl out of poverty.

Your main issue seems to be with a supposed group of people who will become 'welfare queens' (such a good Reaganism). Well, I think that possibility is one I am willing to live with to ensure that ppl who do need help will be able to get it.

All policies are capable of being abused in some way. Take the fact that state schools in Singapore are heavily subsidised. Some ppl do not use this subsidy properly and spend their schooldays sleeping in class or fondling their friends under the table or whatever. Should the possibility of this abuse constitute an over-riding reason to end such subsidies?

Also, you seem to think unemployment is also the result of some personal failing such as laziness or incompetence or whatever. But it may not always be the case. If a 50-yr old can't find work, or if the only work he can find is serving burgers at McDonald's or cleaning MRT toilets, I'd have to say he wouldn't be morally depraved to prefer living on dole to the other shittier (literally) alternatives.

2:18 am  
Blogger akikonomu said...

"Nordic social model with the continental (essentially Franco-German) model."

Irony, perhaps, that a combination of unabashed Socialist and Welfare State models beat Singapore's free market radicalism hands down in a global competitiveness index?

7:47 pm  

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