A more recent article with more information on inequality in Singapore. Sustaining the argument that most Third world countries who intend to achieve development through the market system will eventually hit a wall.The optimal alternative to underdevelopment is socialist development.
Singapore’s inequality battle
New Mandala/Australian National University
December 23rd, 2011 by Elvin Ong
There have been growing concerns over rising income inequality in Singapore in the last decade. Based solely on income from work per household member, Singapore’s Gini coefficient has increased from 0.433 in 2000 to 0.465 in 2010. After accounting for government transfers and taxes, it has increased from 0.425 in 2000 to 0.446 in 2010. If returns from investment assets are taken into account, the Gini coefficient is likely to be much higher, as the rich are more likely to have surplus assets that they can invest for returns.
In contrast, the rest of Southeast Asia has similar or less inequality (as measured by the Gini coefficient) as compared to Singapore. According to the CIA World Factbook, Indonesia’s Gini coefficient is at 0.368, Philippines is at 0.458, Malaysia is at 0.462, and Vietnam is at 0.376. Only Thailand has a remarkably higher Gini coefficient at 0.536.
Recent academic work has suggested that high inequality within countries is highly correlated with a whole host of social ills. In the book “The Spirit Level: Why More Equal Societies Almost Always Do Better”, Richard Wilkinson and Kate Pickett argue that high income inequality, rather than low average per capita income, is correlated with social ills such as crime, obesity, teen pregnancy, mental health, and drug addiction.
In Singapore’s case, although social ills are an increasing concern, they are less of a concern than the prospect of a permanent stratification of broader classes in society. Between 2001 and 2011, real incomes for the 20th percentile of the population saw no increase at all, whilst real median incomes only saw an increase of 11%. When placed alongside the statistic of increasing gini coefficient, this means that the rich are getting richer at a much faster pace than the rest of society. In addition, there are also concerns that social mobility has declined, with the less well off trapped in a cycle of poverty.
How should the Singapore government respond to this increasing income inequality?
On the one hand, government rhetoric has been clear and unambiguous. They acknowledge the problem and recognize that there needs to be increased social welfare provision, but abhor the creation of a welfare state such as in the Scandinavian, Japanese, or Australian models. For these government purists, Singapore, as a small country with no natural resources, needs to maintain financial prudence. The nightmare scenario is that increased social welfare provision, coupled with higher taxes to pay for these benefits, will kill the competitive work ethic of the population, make people lazy, and result in a downward spiral of the free-market competitiveness of the Singaporean economy in a globalized world. They point to the debt-ridden countries of Southern Europe and America as examples of this scenario. Most recently, Sim Ann (President’s Scholar, former career senior civil servant and the ruling People’s Action Party (PAP) Member of Parliament) reiterated such a view in a newspaper commentary.
On the other hand, some current and former senior civil servants have been quick to point out the crisis of inequality in Singapore, and strongly urge the government to chart a different course with respect to social welfare provision. Donald Low (former Director at the Ministry of Finance and Civil Service College) and Yeoh Lam Keong (currently Managing Director at the Government Investment Corporation of Singapore) co-wrote a commentary that was also published in the local papers, arguing that a much broader and inclusive social welfare provision strategy should be adopted, rather than targeted benefits for the poor. They point to the success of generous government subsidies in the early years of Singapore’s industrial development, such as mass public housing and almost-free mass primary and secondary education.
These ongoing public debates about the level, type and form of social welfare policy should definitely be encouraged and are unlikely to die down any time soon. Yet one wonders whether these debates miss the point. Rather than debate about policy, the real debate could be about politics instead.
There is a significant agreement amongst political economists who study inequality, most notably the late Michael Wallerstein, that two key factors affect cross-country income inequality – first, the institutionalization and level of collective wage bargaining unions; and second, the role and presence of Left parties in competitive democratic governance. On these two issues, the Singapore story is simple: our unions are crippled due to their inability to strike and their close (some say subordinate) relationship with the ruling PAP; and, Left parties have little ideological traction and salience amongst the population, and are uncompetitive in elections organized under biased electoral rules.
The primacy of politics means that politics often has far-ranging social and economic consequences. At the risk of sounding overly pessimistic, the outlook for the still-authoritarian Singapore on the inequality front strongly suggests business-as-usual continuity rather than hopeful change.
This article is a few years old, but it illustrates in a nut shell the false promise of capitalist development. Most Third world countries who intend to achieve development through the market system will eventually hit a wall.The optimal alternative to underdevelopment is socialist development.
Singapore’s economic boom widens income gap
By Melanie Lee
(Reuters) – Carol John, 27, doesn’t own a bed. Every night she sleeps on thin mattresses which she shares with her three young children. Outside her one-room flat, a smell of sewage lingers in the common corridor.
Just a few kilometers away, on Singapore’s Sentosa island, Madhupati Singhania relaxes on his $435,000 yacht berthed at the city-state’s swanky One 15 Marina Club.
Income inequality is nothing new in free-market Singapore, but two years of blistering economic growth and a government policy of attracting wealthy expatriates have created a new class of super-rich, while a string of price increases for everything from bread to bus fares have made life harder for the poor.
“I can’t save anything, it’s so difficult for me,” John told Reuters. John, who is unemployed, relies on her husband’s S$600 (US$420) monthly salary and a S$100 government handout.
“We don’t benefit at all from the economy. As far as I know, my husband’s pay hasn’t gone up,” she said.
Singapore’s economy is firing on all cylinders, with a booming construction sector, record tourist arrivals and a fast-growing financial sector all contributing to a gross domestic product set to grow nearly 8 percent in 2007.
But the rising tide is not lifting every boat.
The proportion of Singapore residents earning less than S$1,000 ($690) a month rose to 18 percent last year, from 16 percent in 2002, central bank data released late last month show.
At the same time, the proportion of those earning S$8,000 and above rose from 4.7 percent to 6 percent in the same period.
“When a country becomes richer, you tend to see a widening of income inequality. Over the last few years it has been worse,” said econometrics professor Anthony Tay at SMU university.
Despite sporting a first-world GDP per capita of $29,000 — second only to Japan in Asia — Singapore has an income inequality profile more in line with third-world countries.
Singapore’s Gini coefficient, a measure of income inequality, has worsened from 42.5 in 1998 to 47.2 in 2006, and is now in league with the Philippines (46.1) and Guatemala (48.3), and worse than China (44.7), data from Singapore’s Household Survey and the World Bank show.
Other wealthy Asian nations such as Japan, Korea and Taiwan have more European-style Ginis of 24.9, 31.6 and 32.6.
FAST CARS, BIG BOATS
CIMB-GK Research economist Song Seng Wun believes that growth itself partly explains the widening income gap.
“In an environment where growth is huge, there are lots of opportunities for risk takers, and inevitably, you will get this widening (of the income gap),” he said, adding that those in stable jobs will also benefit, but to a lesser extent.
Opportunity is what attracted Singhania to Singapore. He intends to buy a new 47-foot yacht for $1.3 million.
“You’ve got everything you want in Singapore. You want to buy a fast car, you want to buy a big boat, you want to buy an aeroplane, whatever you need, you can get in this country.”
Singhania, who runs a business consultancy firm, was originally from Mumbai but decided to move to Singapore and become a Singapore citizen, citing its first-world comforts.
The Asian Development Bank blames the widening income gap in Singapore and many other Asia countries partly on globalization, which it said favors the well-educated, and recommended policies to create more equal opportunities and wealth.
Singapore’s government has made the reduction of the income gap a priority, but argues welfare should not be a crutch, and rules out unemployment benefits or a minimum wage.
While the ruling People’s Action Party is in no danger of losing its stranglehold on parliament, the growing income disparity has hurt its credibility.
“There is definitely envy, but this is not enough for civil disturbance,” said sociologist Ho Kong Chong at NUS university.
“These emotions of despair and desperation are missing in Singapore because of the government’s housing policy and transfer payments,” Ho said.
Singapore’s extensive housing program provides owner-financed flats in government-built blocks and the state also provides modest income supplements to those in low-income jobs, although there are no unemployment benefits.
Carol John, who left school when she was 15, does not know much about support schemes. “In the years to come, I’ll just leave it in God’s hands, whatever he gives me, I’ll take it.”
($1=1.448 Singapore Dollar), ($1=.6894 Euro)