Wednesday, February 22, 2012

Tharman's 2012 Budget Speech & the Spectre of Government Failure

One of the key features, if not the key feature of the 2012 Budget Speech, is the reduction in foreign worker dependency ratio ceilings (DRCs) and Man-Year Entitlement (MYE) quotas. Stung by the results of the 2011 general elections, the PAP has u-turned on its pro-foreign worker stance and the Minister for Finance has stated unequivocally to businesses that they must reduce their dependence on foreign labour.

Read deeper between the lines, however, and you will see a tacit admission of Government failure. Here are two critical paragraphs in Tharman's budget speech regarding the clamping down of foreign labour inflow:

B.9. However, our increasing dependence on foreign workers is not sustainable. It will test the limits of our space and infrastructure, despite our efforts to build more housing and expand our public transport system. A continued rapid infusion of foreign workers will also inevitably affect the Singaporean character of our society. There is also an important economic reason: the easy availability of foreign labour will reduce the incentives for our companies to upgrade, design better jobs and raise productivity.

C.9. We have no alternative but to slow down the growth of our foreign workforce. Some sectors, such as construction, will require significantly more foreign workers over the next five years, given our major housing and public transport projects. However, economy-wide, we will have to take further measures to avoid an ever-increasing dependence on foreign labour.
Incredible as it may seem, there are several implicit admissions of Government failure in just these two paragraphs of the speech.

1. The PAP Government has failed to match its infrastructure planning with population growth.

This is perhaps the most damning of all the admissions because it recognizes a failure of the PAP Government to perform in an area in which it has almost absolute, complete control. The Government has final authority in the admission of foreigners into Singapore, and it also has the most complete source of information into Singapore's population growth trends. The Government also has full control over public housing policy and transportation policy and controls the decision making process regarding the rate of construction of new housing as well as the timing and amount of investment into Singapore's transportation infrastructure.

Yet, despite near perfect information of the rate of population growth, and complete control over infrastructure investment decisions, the government has failed to roll out enough infrastructure to support the explosion in population growth catalysed by the influx of foreign labour which it explicitly endorsed somewhere around 2003. The result of this has been skyrocketing housing prices, overcrowded public transportation and transportation system failure.

This state of affairs has left the Government scrambling to roll out new construction projects to compensate for the underdevelopment and investment of years past. Paradoxically, the construction rollout coincides with a clamping down on foreign labour in the country, which the construction industry is notoriously dependent on.

This contradiction has been well noted by none other than the president of the Singapore Contractors' Association, Ho Nyok Yong who has recently been quoted in the media saying, We had previously advised the government that the previous reduction in MYE quantum of 40 per cent was quite a lot in the first place. With the government's pipeline of major housing and public transport projects, (the latest measures) seem quite contradictory!'

If the government had been doing its job properly in the first place, it would have brought forward the construction of housing and transportation infrastructure, while moderating the population growth to match the timing of the rollout of housing and infrastructure, so as to prevent overcrowding. Instead, what we have had is a clear case of central planning failure, resulting in overloaded infrastructure, and now a manpower crunch!

2. Foreign workers are not integrating well with Singapore society and are causing problems to the social fabric

As of this time of writing, there is a huge hoo-hah on the internet over a certain PRC scholar, Mr. Sun Xu, for his offensive remark that "there are more dogs than humans in Singapore". This incident is but one of several incidents where the behavior of foreigners has caused outrage and anger amongst Singaporeans, whether because of perceived arrogance and insensitivity of these foreign guests, or because these foreigners are just downright breaking the law.

At the same time, the rejection of the encroachment of foreigners into the space of Singaporeans has cost the PAP some serious political points. The foreign workers' dormitory in Serangoon was said to have been a key source of voter dissatisfaction that contributed to the loss of Aljunied GRC to the Workers' Party in GE 2011.

The Government miscalculated the extent of social externalities that would be caused by the influx of foreign migrants, and has overestimated its ability to smooth the integration of foreigners into Singaporean society. Merely asking Singaporeans to be more 'tolerant' and to `avoid xenophobia' evades the real issues at hand and is unacceptable. The only acceptable option is to scale back of the influx and force immigrants to adapt to the Singaporean way of life, not the other way round.

3. The productivity initiatives of years past have largely failed because of businesses' addiction to cheap labour, abetted by the Government's liberal immigration policies

It may not seem like it, but the Singapore Government has been hounding on the importance of productivity for the longest time. As far back as 1972, the Government set up the National Productivity Board. In the 1980s, the Government launched a nationwide productivity campaign (remember Teamy the Productivity Bee?). Then in 1994 Paul Krugman came along and shocked the PAP into action with his paper, "The Myth of Asia's Miracle". Yet another nationwide productivity campaign was launched in the 1990s. And then, in 2001, Lee
Hsien Loong re-emphasised the importance of productivity to the nation in his budget speech. SPRING was formed to re-launch yet another productivity drive, and several budgetary measures were implemented to encourage productivity growth.

The results have been disappointing. Between 2000 and 2008, Singapore posted a subpar productivity growth rate of 1% per annum, far below the stated target of 2-3% per annum. Today, Singapore's manufacturing, services and construction industries lag far behind the leaders in global productivity rankings.

In a Business Times article today (Feb 21, 2012), Citi economist Kit Wei Zheng was quoted as saying that this Budget "may be an implicit acknowledgement that foreign worker levies have not succeeded in either reducing foreign worker dependence or raising productivity."

I wholly agree with Mr Kit. Necessity is the mother of invention, and if they are not forced to innovate or restructure themselves to become more efficient, few businesses will take the initiative to do so. Whether or not giving financial incentives to businesses really encourages innovation is a separate debate altogether. But the subpar performance of domestically oriented businesses on the productivity scale surely cannot point to Singapore's productivity initiatives as a scapegoat.

The conclusion of this argument is clear, and by Tharman's own admission, the liberal foreign worker policies of the last decade must be seen as a direct counteracting force against the entire productivity movement in general!

If this really is the case, then Tharman has admitted to the Government having simultaneously implemented two sets of contradictory economic policies at the same time! If this isn't an example of Government failure, then I do not know what is.


What then has been the source of this Government failure? How could a Government staffed with some of the most highly qualified brains in the country fail to reconcile such a simple issue as population planning with housing supply and infrastructure planning? How could a Government that prides itself in having the cream of an "intellectual class", implement contradictory economic policies at the same time?

Singaporeans would do well to think hard about the political processes of their Government, for some of the economic outcomes it has produced have clearly been absurd, if not harmful, to their country.

Business Times (Feb 21, 2012) "Budget highlights challenges facing policymakers: economists"
Business Times (Feb 20, 2012) "Budget measures carry inflation, risks"
Business Times (Feb 18, 2012) "S'pore to further cut foreign worker inflows"
Singapore Budget Speech 2012


Anonymous said...

This budget has completely abandoned the aspiration to a Swiss standard of Living. Was not the "Foreign Talents" brought in to enable ordinary Singaporeans to enjoy Swiss Living Standard on the cheap?


patriot said...

The Issues on Immigration, Rising Property Prices and the Lack of land and other natural resources were being extensively examined by bloggers since the Mid 2000s. There were much caution raised, however, all were treated as noise, unwarranted worry and or unenlightened view.

Over the years, much protest and criticism have gather momentum and now many have found the Policies unbearable.

GE 2011 saw Alternative Parties gaining more ground and that has knocked some senses into the Regime. Without the voters showing sign of support for the Alternative Parties, Singaporeans are likely to be exploited further.

Me doubts our Rulers are much concerned with our well-being. They knew well that our housing has gotten smaller and more expensive as HDB is the Largest Property Developer in Sin. Public transports were and are packed like sardines in can. Cost of almost everything is on the rise constantly since the 90s.

All the problems the people face today are much due to policies implemented over the last two decades. The REGIME never heeded the people's reasoning and protestation.

The Stop At Two(procreation) Policy was a big blunder. Dare I say that the Large Importation Of Foreigners to settle in Sin is a fatal blunder.