Manu Bhaskaran thinks that the ministerial Committee for the Future Economy recently set up to chart the way in the choppy economic waters ahead for Singapore has its work cut out for it. This is because there are many economic challenges facing the country, some not not fully understood and some perhaps potentially unsolvable. Fundamental reforms will have to be carried out as mere tweaking of the existing system will fall short.
The Prime Minister has set up the Committee for the Future Economy (CFE) to review the economic strategy that has been in place since 2010 and to come up with ideas on how to create good jobs for Singaporeans and help firms to adapt to future challenges. Headed by Finance Minister Heng Swee Keat, it has got off to a cracking pace, with several sub-committees formed and already meeting. The CFE will set the tone for key economic policies in coming years and will therefore play an important role in Singapore’s future development.
So, what are the challenges that the CFE needs to find answers for?
Singapore’s economy is clearly at the cross-roads. Economic growth has slowed, many local companies are struggling, costs have escalated and income inequality is more evident. While there are both cyclical as well as structural elements to these challenges, it is the structural one that should concern us most.
Cyclically, weak global demand is clearly hurting exports which provide about 80% of total demand in the economy. A second cyclical drag is the correction in the real estate sector – as interest rates rise and the supply-demand imbalance worsens, prices will deflate faster and hurt a range of activities in the economy – construction, real estate services and mortgage lending. Some policy support is needed to help Singapore navigate through this rough patch and no doubt the CFE will give its views on this.
However, the global economic cycle will probably turn around and the real estate cycle can be contained through government measures. The structural challenges, however, are more concerning and this is where the CFE has to focus its energies:
- Singapore’s work force is ageing and not growing any more, making rapid growth very difficult to achieve. How then does one ensure that Singapore remains a vibrant economic hub?
- Productivity growth has also stalled. If we do not get this right, competitiveness and future living standards will be compromised. No one seems to understand why this has happened.
- In addition, businesses are complaining about high costs which have depressed their profitability and undermined Singapore’s competitiveness. This goes beyond the rise in labour costs and difficulties in securing workers as a result of the government’s restrictive policies on foreign workers. Ensuring that costs do not get out of alignment with economic reality is a basic we must get right. Yet, something has gone quite fundamentally wrong in our cost structure which we need to understand better and find a solution to.
- One way out of this problem is to foster greater innovation and creativity. Virtually everyone agrees with this but no one seems to fully appreciate why Singapore is struggling on this issue. While there is some progress in the number of start-ups and so on, The Global Innovation Index 2014 report shows how Singapore is quite clever at mobilising resources to throw at innovation but not so adept at extracting real innovation outcomes out of this. This is another quite fundamental weakness in Singapore’s structure and the CFE needs to get to the bottom of this.
- Related to this is the issue of entrepreneurship. It is not that Singaporeans are not entrepreneurial – just like so many other people around the world, there are many Singaporeans who yearn to be their own masters and who want to make their mark on the commercial world. Yet, Singapore has struggled to produce a good number of interesting companies that emerge, grow rapidly and become large and globally interesting. Other small economies such as Taiwan or the northern European economies seem better able to do this than us.
- Another challenge is inequality. All over the world, including in Singapore, we have seen a trend of a widening gap between the top tier income earners and the rest. Many middle class jobs have disappeared and median incomes have not been growing as fast as many hoped for. What can Singapore do to arrest this trend and ensure that everyone benefits fairly from the growth of the economy?
- Such challenges can only grow. Technological changes are coming faster than anyone expected and some of these breakthroughs are likely to displace workers. For example, the expanding use of artificial intelligence and robotics could mean that many even white collar jobs could be replaced by machines. How do we ensure that there are enough good jobs which meet the aspirations of Singaporeans in such a brave new world?
- As the population ages, many other challenges will appear. First, is our retirement funding system so dependent as it is on the Central Provident Fund able to provide for our growing pool of retirees? Or do we need to find ways to reform the system? Second, how do we re-think such issues as retirement age and protection against discrimination against older workers?
In other words, unlike before, many of our challenges are not fully understood and are potentially intractable. Some things are clear though.
First, simply tweaking with the existing models will not do – more fundamental and perhaps even root and branch reforms are possibly needed, taboos may need to be broken. For example, can we get innovation going without allowing more freedom of expression, without amending our hard-headed approach to bankruptcy, without reducing the overwhelming government presence in the economy … ?
Second, the citizenry has become more demanding and questioning. Their expectations are high and they want to have a stake and a say in the system. Can an economic model based on a huge role for multinational companies and government-linked companies but which has not really developed inherent capacity of the indigenous firms meet the aspirations of these Singaporeans?
There really are no easy answers to these questions and whatever the solutions are, there will be some who may feel they will lose out. The CFE certainly has its work cut out for it!
Mr Manu Bhaskaran is partner and Member of the Board, Centennial Group Inc, a policy advisory group based in Washington DC where he heads its economic research practice. He is also an Adjunct Senior Research Fellow at the Institute of Policy Studies. (http://lkyspp.nus.edu.sg/faculty/bhaskaran-manu/) He was invited to write this article for this blog.
© Manu Bhaskaran 2016 All Rights Reserved