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Singapore Government

Speech at the Economic Society of Singapore Annual Dinner 2014

Speech at the Economic Society of Singapore Annual Dinner 2014

~ Whiter SG2030 Socio-Economic Model? ~

Professor Euston Quah,
Distinguished Guests,
Ladies and Gentlemen,

Good evening.

Thank you for the opportunity to share some of the challenges that will shape Singapore in 2030.

I chose this topic because from time to time, I thought it useful to lift ourselves out of the current situation, ask ourselves where we may end up, and what we need to do to get to where we want.  
But before I do so, I must, like any good economist, first caveat against the dangers of forecasting. 

Determinants of Success?

It is useful to remind ourselves a little bit of history. 60 years ago, if someone asked an economist which would be the most successful Southeast Asian country by the year 2000, chances were that the answer would probably be Ceylon, Burma or the Philippines. Singapore would not even have featured as we were not an independent country then.

The histories of Ceylon, Burma and the Philippines teach us that success is never pre-ordained or eternal. Neither is ours. Some would say that only the brave or foolish would dare predict the future.  However history favours the brave who can better anticipate and prepare.

Recently, I met a group of international business leaders. I also asked them to name the country they think would be most successful by 2030. Most importantly, I want to know the reasons for their choices. Many chose China, and the US. Some chose Indonesia and India. The top 3 reasons given for their choices were demography, resource endowment and size of markets.  

When I heard their answers, my heart sank for two reasons.  Surely there must be some other considerations beyond economic factors.  If resource endowment and market size determine destiny, then I am sure not many people will give Singapore a fighting chance.  If others only look at resource endowment and market size, then our chance to even try and interest people to conduct business with us will have been cut out from us.

Tonight, in thinking about our future, while we take a hard look at some economic forces, I hope we can also look at the social forces, and geopolitics that will shape our future.  I was taught economics cannot be independent of social and political forces.  There is a limit to “ceteris paribus” / all else being equal – they never do, they always interplay.  

Geopolitics

Let me begin with the most important geopolitical question in the coming decades – the relationship between China and the US.  Economically, the two will have shared interests to build a stable international system for their own people. However, cooperation also comes with competition – not just economic but political and geostrategic.  Will Asian countries and Singapore be forced to take sides?  Will competition for resources and influence lead to conflicts in our neighbourhood?  Will economic strength tempt one to be even more assertive and try to right the perceived wrongs of history?  These are known unknowns with significant impact on the world, our region and Singapore.  Much depends on the Chinese and American leadership to focus on the long term and to find common ground. One can only hope that short term domestic and political pressures will not distract them from their longer term common goals.

Staying Relevant

Shifts in the Southeast Asian region will also have a significant impact on us.  Indonesia is on the threshold of reaching middle class status.  Malaysia is seeking to break into the ranks of developed countries.  Their potential, once unleashed, will generate sufficient momentum to achieve that, even without many positive policy interventions.  The challenge for Singapore is to develop a constructive and complementary relationship with our closest and fast growing neighbours.  Our risk is that if we are unable to create value and lose our strategic weight we can be easily marginalised and relegated to irrelevance – where others dictate what we do and not do, be it economics or geopolitics.  

Competition

Of course, we will not be the only one thinking about how to create value.  Cities in the region will continue to evolve and compete with us.  Our formulae of success can be copied and our existing competitive advantages eroded.   

To keep pace with the competition, we must continually sharpen our thinking. We used to ask which sector will best allow us to succeed – for example, is it manufacturing or services?  Is it IT or biomedical?

Going forward, we need to instead ask ourselves which part of the value chain can we focus and make a living.  Which part plays to our strengths and can help us pull ahead.  For example, in petrochemicals, we cannot talk in terms of sector.  It is too generic. We need to ask which part of the value chain do we have the advantage – from production to services.  Which part of the value chain can stay with us?  These questions have serious implications on how we educate, train and deploy our people.

One point to be clear. We never compete with countries. We compete with cities.  It is a fallacy to console ourselves that we are doing better than other countries. The real issue is if we can compete with the likes of London, New York, San Francisco, Shanghai, Mumbai, KL or Jakarta. Population size has never been our competitive advantage.  First, we have a 2-3 million local workforce. Some of the mega cities have a workforce of more than 20 million.  Second, while we have an ageing population, many of the mega cities have an evergreen younger workforce because they have younger people rotating in and older people rotating out.  The challenge for us is to ensure that we compete on quality of ideas and outcomes; not quantity of inputs or price. We need to compete with skills, experience and creativity, and not to depend on strength in numbers or physical labour.

Connectivity Challenges

To compete with other cities, connectivity is a basic requirement.  But connectivity brings along risks.  An inevitable consequence of being connected to the world economy is the increasing possibility of more intense, more frequent and more connected economic cycles.  

A number of matured economies have structural fiscal imbalances that must be urgently addressed.  Their problem can easily become our problem too.  When their financial systems sneeze, we catch a cold.  In the long term, no one can spend more than what we earn. In the long run, what we invest must generate new productive capacities.  Otherwise, savings which constantly seek higher yields will move into riskier financial products, thereby accentuating the risks of instability in the global economy.

We can never fully insulate ourselves from such forces. We can at best diversify to hedge. For our small economy, diversification has its limits. But we can maintain sufficient financial reserves and depth of talent to help us weather short term uncertainties and fluctuations.

Social Forces – Immigration & Integration

Economic forces do not operate in isolation but interplay with social forces as well.   One of the social challenges arising from the need to compete globally is immigration and integration.  Few cities have been able to reproduce themselves without top up from their hinterland or elsewhere.  We have the same dilemma except we have no hinterland.  In the short term, our concern is to balance integration with opportunity creation for Singaporeans.  In the long term, our question is if we can attract the right type of quality immigrants to join Team Singapore.  It is not a given that others will always want to join us.

Like any cities, our ability to integrate will determine the pace of immigration.  As a city state, our advantage is to be able to control the type and pace of immigration.  But unlike other cities, we don’t pass on the challenge of caring for the economically inactive or less productive to the hinterland. We don’t have one.  We take care of all our own people regardless.  Therein lay our opportunities and challenges.

Identity

How able we can integrate will determine our identity.  Most countries define their identity backward based on exclusivity and commonality of race, language, religion, shared history or ancestry.  We have none of the above in sufficient depth.  Our challenge is to forge a forward looking inclusive national identity based on common values, ideals and vision. If we succeed, we will have unlimited opportunities.  Economic success in the past 49 years has bought us time to build our identity.  We must make good use of it and create depth before the next crisis test us.  

Technology Disruption and Jobs

Fast changing technologies will add to the volatility.  It will create new opportunities for some groups, but others may lose out if they are unable to adapt to the changes.  Our concern is if our middle income jobs will similarly be displaced, accentuating inequality in the process, fracturing our social cohesion and identity.  

Thomas Picketty’s recent book made an interesting observation, even if we may not agree with all his conclusions.  That income inequality has continued to climb upwards with intensifying competition, notwithstanding the efforts by many countries to increase social transfers. The post-war years of reducing income inequality was the result of growing middle class jobs that paid well.  Hence, our real and greater challenge is to strengthen the ability of our middle income earners to compete on the global stage, rather than only arguing about the scale of transfers.  

Caring for our People

Singapore will continue to make social transfers to the extent possible and sustainable to help our low and middle income families to keep pace. Our four principles of transfers will remain unchanged. 

a. Target subsidies for those who need them most rather than universal subsidies for all.  [This is the reason why we apply means-testing for most of our assistance schemes, from childcare to medical and workfare.]

b. Sustainable: to ensure that we do not transfer the burden to future generations.  [This is the reason why we avoid borrowing against the future by taking on debt to finance current expenditure.]

c. Sustainable: to ensure that the most productive segment of the population will continue to support the system and not opt out.  [This is the reason why we keep our tax system progressive yet not discourage effort, especially for the more productive groups.]
  
d. Finally, sustainable to ensure that we do not run down our reserves to leave future generations with less buffer against the vagaries of intensifying economic cycles.  [This is why we have strict rules on the use of reserves and disciplining ourselves to save for future needs.  Some question why we save more than we earn now. In accountancy terms, this is cash flow thinking.  But like good accounting, we should always save for our accrued needs, especially given our ageing population.]

Social Mobility

As we manage income inequality, we also need to keep an eye on social mobility. Like many maturing and matured societies, inheritance can easily accentuate the inequalities of life.  We can never equalise inheritance or endowment.  But we can endeavour to allow our people to have the best opportunities to realise their talents and blessings.  This is the reason why we must continue to push hard for continuous meritocracy.  That one’s fate and achievement is not pre-ordained by one’s initial endowment, or any single achievement in life, but shaped more by one’s talent and continuous efforts.    

Meritocracy by definition rewards those with talent and effort.  There is nothing intrinsically wrong.  It is arguably much better than systems that reward kinship ties and inheritance.  Our challenge is to keep the definition of meritocracy broad to encompass diverse fields of talent and not just academic achievements.  In addition, for those who have succeeded in their respective fields, to realise their responsibility to give back to society and reinforce the system so as to allow others to similarly succeed.  Only so, can we maintain our social cohesion and not have a fractured social system where the winner takes all without due regard to the role society has played in their success.

Family

Beyond giving back to society, we have held our belief that the family must be the first line of support.  But the Singapore family is changing.  We are seeing lower birth rates, smaller family units, more singles, more couples with no children, more family members staying apart, and more divorces. All these mean that society has to step in more often. The question is how we should do this without eroding the values that families must care for each other?  While we risk pool, use society resources, to care for the less able and less fortunate, how do we avoid the problems in other societies where too many pass on their individual responsibility to society?  How do we avoid a situation where too many desire to take the maximum from the system but put in the minimum possible?  

Aspirations Management

The aspirations of our society are also evolving.  The fruits of our success have sown the seeds of our future challenges.  Today, 1 in 2 Primary One students has at least one parent who is a graduate. The expectation for a child to be a graduate will continue to grow. Today, the median housing type is a 4-room flat and that’s what our median young start off with.  Today, 45% of our households have at least 1 car.  Car ownership has reached middle income strata, unlike other cities where car ownership is more typically at the top 20% of the income spectrum. Today, the median youth is a polytechnic graduate who aspires to be a university graduate.  It will not be too farfetched to think that soon, our median youth is a university graduate expecting nothing less than a managerial job, a car and perhaps a condo.  To top it all, the average Singaporean youth will be above average in many other places.  Whatever aspirations our average youth cannot achieve in Singapore, they may easily achieve elsewhere.

So the tough question are – first, what new opportunities, not just jobs, must we create to fulfil the aspirations of our youths?  Second, what will keep them contributing to Singapore when the world is their oyster? Can we inspire our youths to aspire to contribute and keep the Singapore Dream alive beyond just material pursuits? I think we can. I also see growing number of youths identifying with Singapore as their home regardless.  We need to do more.

Interplay of Forces

These are the key geopolitical, economic, and social forces that will interact to shape our future.  We can exercise our imagination and think of a few possible scenarios that the interaction between forces can produce.  

The aim of this exercise is not to predict the future.  Rather than to ask what the future will look like, we can think about what fundamentals we need to put in place, to “future-proof” our society and be ready for the spectrum of possibilities that lie ahead.  Let me suggest 4 strategies that can serve us well in the road ahead.

Strategy 1 – Little Red Heart

First, we need to connect to the world but stay rooted to home.  More than ever, we need to overcome our geographical constraints.  We need encourage our people to leverage on the skill sets that our education system has equipped them with, to scale the mountains of the world.  Like lifeblood, our people need to flow around to connect with the world and bring back nutrients to Singapore – our heart.  So that we are not just a Little Red Dot, but a Little Red Heart.  This will also be a way for us to fulfil the aspirations of our next generation within and beyond Singapore. While Singapore is the springboard for our success, our challenge is also to instil in our people the sense of nationhood.  That having succeeded here or elsewhere, they will want to contribute back to strengthen our system for future generations of Singaporeans to similarly succeed.  That we will not be just economic sojourners.  That even when Singapore is down, we will come back and make it right again.

Strategy 2 – Constraints into Opportunities

Second, we must continue to turn constraints into opportunities. We never had enough water to sustain our survival and our economic development. We turned water management into a science.  We leveraged on technological advances to fulfil our water needs. Today, we export water supply technology and water management knowhow.  Similarly, what we aim to overcome today in the areas of urban management, energy efficiency, environment and air quality management, and even social management can all become opportunities for us to make a living tomorrow.  The global pace of urbanisation will continue. The challenges of urbanisation will be common to more and more.  Our current constraints in these areas can become our future strengths if we manage our challenges well.  Many of these areas leverage on our skills and experience regardless of age.  They also do not require us to compete on manpower numbers or resource endowments.

Strategy 3 – Standards and Trust

Third, we should leverage on our brand in standards, law and trust.  In a world of intense price competition, the safety of food, the standards of products, the quality of intellectual property protection, the fairness in the system of arbitration, the stability of financial systems and many more areas can play to our strengths.  We should think how our competitive advantage can distinguish us in the global competition.

When I was young, I was always intrigued by why Indian tourists came to our Serangoon Road shops to buy gold from India. Recently, I was tickled to know that the pharmacies in Changi Airport were doing a roaring business.  I did not understand. Could it be that many transit passengers fall sick?  Actually, both these episodes demonstrate the faith that others have in our standards and legal system.  Strangely, it allows us to make a living.

Strategy 4 – Values and Social Compact

Last but not least, we can only achieve all these and more if we have the right social compact and values – leadership, innovation, openness, meritocracy, cohesion and resilience.  We need leadership with 4Cs – committed, capable, connected and clean.  We need our civil service and businesses to continuously innovate and adapt.  Policy and business innovations must complement each other to compete on the world stage.  Darwin said only the fittest survive. But fitness is not just strength but speed of adaptation.  To adapt fast, we must remain open to ideas and talent.  Ideas and talent are attracted to meritocratic systems that protect and reward them.  Then we need cohesive people who understand our challenges, able to stay united, and to take decisive actions to seize opportunities or avert crisis.  Finally, should all else fail, we need resilience.  Resilience is not just about individual fortitude.  But we also need resilience at the system level - where we have conscientiously accumulated our financial and talent reserves to tide us over life’s uncertainties.

Conclusion

To conclude let me share that I have never taken for granted that Singapore will always be around.  While I look forward to celebrating SG50, I always ask myself if we will be able to celebrate SG100.  Let’s work hard to keep this dream of ours alive, to defy the odds of history so that our children and grandchildren can celebrate SG100, SG200 and so forth.  That they can and they want to.

May I invite all ESS members to join us in this endeavour.  To help Singapore and Singaporeans appreciate our challenges and options.  Together we will chart our collective future.  

Thank you and Happy National Day.
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