Economists’ commentary on White Paper sparks wide discussion

SINGAPORE — Two commentaries published in the past fortnight questioning some tenets of the Population White Paper have spurred rigorous discussion on the number of foreign workers Singapore requires going forward, whether a denser population is better, and if enough help is being given to companies to restructure.

On Feb 8, four economists, all Vice-Presidents of the Economic Society of Singapore, posted a commentary on the Institute of Policy Studies (IPS) website tackling what they described as “four myths” that have surfaced in the White Paper debate.

The economists — Mr Donald Low, Mr Yeoh Lam Keong, Associate Professor Tan Kim Song and Mr Manu Bhaskaran — disputed contentions which stated that Singapore requires “sufficiently large” injections of foreign labour to prevent businesses from shutting down or shipping out and Singaporean workers from being laid off, and that larger populations create significant benefits for cities, among others.

The authors, who penned the commentary in their personal capacities, argued instead that low labour costs encourage companies to “persist with low value-added production and discourages them from upgrading and improving their business processes”. They added that tighter foreign worker policies will cause businesses that cannot adapt to exit the market, but this will free up “labour and capital resources for the growing, more productive parts of the economy”.

Economists TODAY approached agreed with their comments, and proposed revisiting fundamentals needed for future economic growth and greater focus on building local talent.

Tackling the issue of whether denser populations create more economic benefits for cities, the four Economic Society of Singapore economists wrote that this applies only to certain industries — those that require highly-skilled knowledge workers whose concentration generates innovation. They noted that the White Paper projected increases in the labour force to serve lower-skilled industries, which they felt explained why the Government did not use the “agglomeration effects” argument for increasing the population and density of Singapore.

A critical-thinking mass of local talent needed

Agreeing with the economists’ argument that tightening the supply of foreign workers would mean firms would either have to adapt or move out, Spire Research and Consulting Chief Executive Leon Perera nevertheless felt that there would be no wholesale exit for such companies. Some businesses would stay to meet domestic market demand, but with different cost structures and business models, he added.

Noting that labour costs in many traditional “source” countries like China are also on the rise, Singapore Management University economics Associate Professor Davin Chor said it could become uneconomical to bring in unskilled foreign labour in future; the best way is to restructure and invest in technologies to raise worker productivity.

Addressing the prospect that workers may get laid off and lack the skills to move to other industries, the four Vice-Presidents of the Economic Society of Singapore argued in their commentary that “the economically sound answer” is not to artificially prop up employment, but for the State to directly help the workers whose livelihoods are affected — through unemployment protection, higher wage subsidies through Workfare, skills retraining and upgrading programmes, and one-off social transfers.

“Public policy should be aimed at helping workers and local firms cope with economic restructuring, not at helping uncompetitive firms that rely on cheap foreign labour stay afloat,” they added.

The four economists recognised population policies go beyond economics. “Economics is not, and should not be, the only lens through which we examine, analyse and debate our country’s population policies,” they wrote. “But when we do apply economics analysis, we should try to get it right.”

The second commentary that has generated discussion, written by Bloomberg columnist William Pesek and published on Feb 15, was roundly criticised by academics.

In his column, Mr Pesek wrote: “Singapore’s addiction to population growth sends a simple and disconcerting message: The country has run out of ideas to increase economic vitality, aside from encouraging people to procreate or immigrate. Ponzi demography, indeed.”

Assoc Prof Chor was among those who took issue with the column, saying that almost all sufficiently developed countries with an ageing profile have had to augment their populations. “To say that procreation policies and immigration are a Ponzi scheme misses the point. These policies are needed if developed countries are to sustain the strength of their labour force. The key instead lies in the degree to which such policies are pursued”, which is the bone of contention in the public furore over the White Paper, he said.

SIM University Assoc Prof Randolph Tan added that Singapore’s situation is a result of a decision made some time ago to take advantage of economic growth like other countries have done, “but which in our case stretches our physical limitations”. This is different from a Ponzi scheme, where increasing amounts of resources have to be pumped in to fuel returns to earlier amounts expended and to keep the scheme alive, he said.