Some Reflections from Lee Seng Wai on Singapore’s Growth

Regardless of the election outcome, I am worried for Singapore.

by Lee Seng Wai on Monday, May 2, 2011 at 10:43pm

(Foreword: I post this essay knowing that I risk losing the friendship of some of the people I know. But I decided to do it anyway, because I believe the message is important enough to broadcast.

This wall-of-text is an open letter to any Singaporeans that comes across it. It is NOT meant to affect your vote. I did not intend for this to be a pro-PAP essay, but I do not blame you if you read it as such given the message inside. At times it’s going to read like a damning lecture to the middle-class and you will hate my guts. But I hope you can see the message of inspiration embedded within.)

We are days away from voting day. Regardless of the outcome, I am worried for Singapore.

Over the past weeks, a very worrying sentiment has risen up from the ground. We are all rightly concerned about the rising cost of living and the security of our jobs. But I am depressingly worried about the calls to prioritise jobs for Singaporeans, to spend more on welfare by tapping on our past reserves.

How our elections end – whether it is a crushing victory by PAP or the opposition, or a balanced outcome, will in fact matter little to the rest of the world. Come 8 May, it is almost certain that a few international papers will merely note our election results, and after that we will once again vanish almost entirely from the eyes of the international press.

But the sentiments that have risen will continue to manifest inside us after the GE is over. And over time, I worry that it will consume us as well.

“Jobs for Singaporeans first!”

There are foreigners all around us. They work beside us, live beside us, eat beside us. They compete with us for housing, transport, jobs. As a citizen, you have burdens that foreigners don’t – CPF, NS, expensive housing. Sometimes you wonder whether you are second-class citizens in your own country.

A few days ago, I read a proposal that manifested this sentiment: “No employer should be allowed to choose a foreigner over an equally-skilled Singaporean, even if the foreigner is willing to accept a lower pay.” I am sure many will find this proposal quite attractive.

Yes the foreigners are stealing your jobs. NEWSFLASH: Even if you kicked them out, they will continue to steal your jobs from overseas.

Think back about the time when you were studying, perhaps in JC or in university. Chinese, Indian and ASEAN students in your schools were trashing most local students in the exams. These foreigners were really hardworking – there are reports of Chinese students barely able to speak English when they first arrived, and scoring A1 in English when they leave. This is all rather depressing for the local students, so perhaps we should not let these foreign students into our schools to begin with? But that’s merely escapism – put these foreigners in another country’s schools and they will still excel. On an absolute scale, most Singapore students will still be weaker – they just don’t get to see the competition.

The same logic applies in the workplace. Even if your company never hired a single foreigner, that does not mean they have disappeared. It means they are now working for another firm, and it is likely that firm is your competitor. If the foreigners are able to do the same work for lower pay, then that firm will likely strive over yours in the marketplace. Cold comfort isn’t it? Maybe it’s better to have these foreigners in our firm fighting with us, than on the other side fighting against us.

The call for protectionism is strong. It is incredibly seductive. And it is deadly. It is deadly because it risks the livelihood of your firm. The security of your job starts from the security of your firm’s profitability in the marketplace. If your firm is sinking, then it can’t afford to keep you employed for long. At least if your firm is floating, you as an employee have a fighting chance.

The “Singaporean-first” proposal in the earlier section is not only escapism – it is also the vilest form of office politics. In normal office politics, you might sabotage a colleague’s work but at least they get to do some work. In protectionism, you shut them outside the office door.

“That means nothing if I can barely keep my job and my pay is so low!”

Yes the foreigners are depressing your wages. NEWSFLASH: They are willing to work for the same low pay whether they are in Singapore or not. But their existence here helps make sure you actually get paid.

It boils down to the survival of your company in a dog-eat-dog world. Think about the last time you, as a consumer, bought a product. Take for example a carton of milk. There are many brands on the shelf. You might exercise some brand loyalty, but if the cost of one brand is too high compared to its neighbours, chances are that you will switch brands. Throughout this entire process, you will not stop to think how the milk company has structured its business, hired and paid its workers, how many locals are employed etc. All you care about is the quality and price of the milk.

The same decision-making process made by a buyer is happening billions of times everyday. The goods and services of Singapore companies are out being compared with those of other countries. We cannot compete purely on cost in a world of Chinese dominance - if we are going to be more expensive, then we need to better in quality and speed.

But we also cannot ignore cost – and perhaps this is where cheaper foreign labour comes in. We also cannot ignore the possibility that any company requires a critical mass of workers in order to function. There are reports of companies complaining that they can’t attract enough Singaporeans, hence they resort to foreigners. Without the foreigners, will the Singaporean jobs in that company still exist?

“Those fat cat bosses are just roping in cheap labour to support their own oversized pay!”

A fair sentiment. I personally believe that the “overpaid” bosses are actually fairly paid. A firm is a profit-maximising entity. It makes no sense to pay someone more than his value-add to the firm. If your boss’s only contribution to the company is a proposal to slash wages, he’s not worth his pay because anyone (e.g. a facebook warrior like you and me) can propose that. So it stands to reason that those people earning $10k,$100k, etc per month are actually worth that much to the firm.

It also stands to reason that people of your bosses’ calibre are rather rare (or at least rarer than you), because if there were tons of people of your bosses’ calibre, then there wouldn’t be a need to pay them so much.

The real question is not how overpaid the boss is. The real question is - how can you increase your own pay? How can you become the “overpaid” boss?

Improve Yourself

There is a simple answer that I advocate: Improve yourself. Improve your own market-worth until the scarcity value of your own talent lets you rise about the rank and file. Until you qualify for better pay.

If you are a graduate, you have spent nearly two decades in school studying. It must be depressing to start work in society and tussle with foreigners for low wages. But like I’ve tried to explain above, this is because the world itself has changed. It is not your fault that the rise of China and India happens while we are working adults, flooding the market with cheap labour. But it has happened anyway and we have to deal with it. China and India’s rise are not going to be the end – within our lifetimes, we may see the rise of Africa and the other ASEAN countries as well.

But there is a way out of all this. Cheap foreign labor is only cheap because it is not that high up the talent ladder. Talented foreign labor is really expensive because the expats' command so much scarcity value that they can demand expensive benefits. If you can pull off the same work as the talented expats, then the firm will much prefer to hire you over the expat.

Our government is practically begging citizens to upgrade ourselves. If you upgrade yourself, you have less foreign worker competition, because you are cheaper than the expats and their benefits. If we all upgrade ourselves, maybe the company doesn't need to hire another foreigner because together, we can output more than a similarly sized foreign team. Overall you can get higher pay.

The government says they want to increase everyone's wages. Do people think that they can merely sit back and enjoy a higher payout? How many people out there believe that their annual salary increment is a god-given right? A higher salary must be justified by better performance.

If you are turning in the same performance at the same job year-on-year, is your annual increment justified? Or does it make more sense for the company to find a cheaper foreigner to do your job?

A few days ago, I discussed this issue with my ex-classmates who are almost all in the IT sector, and are thus competing with the foreigners at the frontline. My advice to them was this: “Go pick up management skills and strive to become a team leader or project manager. In today’s world, very few products are the work of a single person. Instead, many products are created by teamwork. As long as teamwork is needed, there must be a leader who knows how to manage.” Guys, if you are reading this, I know you are capable of going further. If you think your boss is doing a sucky job, then you can become a better man and replace him.

“But Singaporeans have an unfair disadvantage! We have to live here where we have more burdens. Whereas foreigners don’t have a stake here and go home anytime!”

This is where I believe the frustration is most justified, and where the government is in a bind because there are no easy answers.

The deck is somewhat stacked against Singaporeans. While there are levies and quotas for the lower-skilled foreigners, I believe graduate foreigners do not incur CPF employer contribution costs. So in order to level the playing field, perhaps there should be a 15.5% levy on the pay of a skilled foreigner. But think back about the earlier message about your firm’s viability. Will such a move adversely affect a company’s competitiveness so badly that its products are priced out of the market, that the jobs it creates in Singapore disappears? It is a difficult call to make.

Yet it is also the government’s goal is to create jobs. What if the only way to create jobs for Singaporeans is to allow companies to import foreign labor so that their overall manpower costs are acceptable?

So maybe the alternative solution is to allow the foreigners to be employed cheaper than the local, and then set a quota on the skilled foreigners instead so that there are still some jobs left for Singaporeans. Yet setting a quota on skilled labor is easier said then done. There are many sectors that require skilled workers (e.g. banking, engineering, law, medicine etc). The demand for their goods/services changes MUCH faster than it takes to produce the worker. This is the problem with producing talented locals –there is a long, long lead time. You need at least 15 years of schooling to produce a graduate – and even then he is specialized in certain fields only. What if that field is not in vogue at the end of the day?

That said, maybe the government could level the playing field at least a little more. Men with NS obligations have their salary during reservist paid for by the government. Maybe more can be done to compensate the employer for the lost productivity during the reservist period? My favourite (and ridiculous) suggestion is to impose a levy whenever a company employs any non-NS men, like Singaporean women, PES E men, and all foreigners. We can all guess how popular such a move will be.

At the end of the day, as much as some people hate foreigners, talented foreigners also pay income tax here. They may not have a stake in the country, but their tax dollars are being used to fund national goods like defence, law & order, roads, workfare etc. They help to bear our burden too.

“We want sustainable economic growth! The system is overcrowded!”

Yes it is the government’s job to improve public transport. And fast. But we should realise one thing - globalisation is not going to slow down and wait for us to improve our public transport. The same applies to housing.

The world is never going to say: “OK Singapore, time out for about 5-10 years so that you can grow your people, trains, buses and houses. We’ll compete after that.” Because if we did take a time out for 5-10 years to halt foreign labour whilst we improve the infrastructure here, it’s not going to be the same world anymore. Singapore, as well as its companies, will not be in the same place when we left off.

I am not going to dwell too much on how cost-effective our transport system is. I suffer with you on our trains during peak periods, but the people I know in other countries report that theirs is worse. One thing I do know through my own tourist experience is that our MRTs fares are amongst the cheapest in the developed world. Are we willing to pay more to improve the capacity of the transport system? If you answer yes, good for you. But do you speak for the poorer folks (especially the ones who can’t access the internet and thus read this essay)? Yet the government has to make a decision on behalf of these people. If public transport is too expensive, these folks might not even be able to get to work.

Digressing a little on HDB prices, there are many complaints nowadays about how people end up with zero CPF when they fully pay up the flat after 30 years (i.e. as they reach retirement age). This puzzles me somewhat because this statement only holds true if your pay never increases for 30 years. As long as your pay rises, you have more CPF contribution so you won't end up with zero CPF. Alternatively you could tap on that CPF to refinance faster so you fully pay off your flat earlier.

How plausible is it to have your pay never increase for 30 years? A productive worker is an asset to any company. As long as this worker upgrades himself via life-long learning and harnesses his experience, he should be eligible for higher pay in the marketplace. Granted, your real pay will be eroded as food, energy, inflation and children costs grow over time. But these are natural facts of life in every country. Even if house prices were lower, the growth of other living costs still has to be contended with, because the price of food, energy and other essentials that we import are all dependent on the global market price.

Yet there are so many calls for less foreign labor competition. Does this mean that people believe that they should be allowed to do the same job all their life, immune from the effects of global competition?

“What’s the point of earning all that money if we have no time and freedom to use it? Not everyone wants heart-burning economic growth!”

Yes you have every right to choose a slower pace. It is your freedom. It is your call.

But you speak only for yourself, not for everyone else. Not everyone thinks like you – there are others who want to sprint as fast as they can. An entrepreneur told me once “In order to succeed, you must first have hunger. Insatiable hunger.” There are local SMEs that aspire to be world leaders.

Singapore should be a land of opportunity. Those who want to fly should be allowed to soar. Those who want to slow down and smell the flowers should be allowed to do so. It will be selfish for one party to force their way over the other. So we should choose policies that allow everyone to compete at their own pace.

What kind of policies should we have to allow Singapore to be the land of opportunity? This is something that as voters you have to decide for yourself. My vote is to have policies that can allow the ambitious to sprint unfettered. Because if you want a slower pace, you (as an individual) can always choose to run slower. You can choose to trade-off career progression for personal time. It is ok to do that. Just don’t force everyone to run as slow as you.

“Why chase all that economic growth if we end up leaving the poor behind? Whose economic growth are we seeking?”

There are heart-tugging stories of the poor, squeezed out of their jobs by the foreigners, saddled by heavy living costs. And yes we should help these people. I am glad to see that Singaporeans are not beasts who abandon our kind. There is a strong call for more welfare. The question is how this welfare is done.

The cold reality of capitalism is that there will always be winners and losers. It is survival-of-the-fittest on the global scale. Not everyone gets to be the front-runner. For every winner, there will definitely be a loser. What we need is a way to give the losers a way or a chance to turn into decent winners.

The saying goes “Give a man a fish, and he’ll eat for a day. Teach a man to fish, and he’ll eat for a lifetime.” In today’s context, it is very likely that we will have to give fishes and teach fishing at the same time.

The sustainable way to help the poor is to allow them to earn a better wage, not to live off ever-increasing subsidies. And the most sustainable way to a better wage is for the poor to upgrade themselves. Hence I support the philosophy to give the poor a chance to upgrade themselves through heavily subsidised training schemes. The PAP does too, although I know there are some who question the efficacy of these training schemes.

It is also necessary to give the poor some fishes, because in a globalised world, the cost of unskilled labour will always be at a low due to oversupply. But the cost of living in a small country like Singapore will continue to go up. A person barely making ends meet is hardly able to find the time to upgrade himself. This is why I support the concept of workfare to top up a person’s pay, and not the minimum wage. With workfare, the cost is borne by the government who spread the cost on everyone (including those job-stealing foreigners who pay income tax). But with minimum wage, companies may choose not to hire the poor at all (a far worse outcome), and you risk clipping the wings of the companies that do toe the line. If your beef with workfare is that the payouts are not enough, that’s a separate debate altogether and I shall not dwell into it for this essay.

It costs lots of taxpayer’s money to fund workfare and subsidised training schemes. The bulk of the government’s tax revenue comes from corporate tax, income tax and GST. Since corporate tax depends on the company’s profits, any policy that could dampen a company’s profitability will reduce corporate tax income. So we should think carefully before implementing any such scheme as it could injure the goose that lays the eggs to feed the poor. SDP’s Tan Jee Say questioned the benefits of our shipyards because 75% of the sector’s workforce are foreigners and the shipyards take up valuable waterfront land. The last time I checked, the majority of Keppel Corp’s profits come from its offshore & marine arm. Keppel Corp’s corporate tax revenue in FY2010 was nearly $600m. More than enough to fund our workfare budget ~1.5 times over.

Income tax and GST are disproportionately funded by the middle class and the rich. So perhaps it makes sense to allow the talented to be able to fly, because the higher they soar, the more tax revenue we can collect to help bridge the rich-poor divide.

“But there are developed countries that can survive well while hardly relying on foreigners for jobs!”

This is true – we need look no further than Japan and Australia. In these countries, the locals do the blue-collar jobs, and dare I say, with pride. They are well-paid - my Australian ex-boss told me that the truck drivers at the mines can be paid more than teachers. “Why can’t this develop in Singapore?” you ask. “Isn’t it a chicken-and-egg issue? Singaporeans don’t want to do these jobs because the pay sucks when you can easily get foreigners to do it cheaply!”

In my opinion, this is the overwhelming advantage of vast natural resources, technological expertise and branding. Australia’s vast oil/gas/coal/ore reserves give it the export prowess to support an expensive workforce. Japan’s technological expertise can be seen in its powerhouses of Sony, Mitsubishi etc. Japan’s quality branding and culture creates demand for its Kobe beef, bluefin tuna, and over-priced fruits.

What significant advantage does Singapore have that can equal to these countries? We have Keppel and Sembcorp shipyards as the world’s number 1 and 2 oil rig builders. We rank amongst the world’s top few airports and ports. But other than that? There is nothing to mine or grow here. The only thing we have left is ourselves.

“What’s so bad about drawing on the reserves?”

I’ve spent almost all of this essay explaining why foreign labour is crucial to Singapore. There’s another thing I want to talk about – drawing on past reserves. There are some who think that drawing on past reserves will be the panacea that solves our cost of living issues today.

Theoretically speaking, if the reserves are large enough and are invested properly, you can always draw off a small stipend to help ease the burden of the people, without compromising the growth of the reserves as its value is eroded by inflation.

But the implementation is tricky. Any use of reserves to fund evergreen policies (e.g. an annual cash payout to citizens) is likely to last forever, because no party is likely to succeed in an election on a platform to remove this subsidy. Think about how difficult it will be to remove the Baby Bonus policy if we realise one day that the policy is the wrong way to achieve its intended objectives.

And can such a reserve-funded dividend ever be large enough to make a difference in our lives? If it is a token sum it wouldn’t help you much. But if its payout scales along with living costs, then it is a slippery slope. Such a policy is akin to a fuel subsidy for the population. And we have seen how countries (like our neighbours) that subsidise fuel are now straining under the weight of these subsidies as global energy prices soar. Can Singapore afford to do the same?

This is where I would personally err on the side of caution. The reserves are meant for emergencies. The nature of emergencies is that you cannot really predict their occurrence and their impact. Better to keep it in the bank and deal with today’s (smaller) problems with today’s budget as much as possible. Because when the next crisis hits us (could be the US national debt crisis), we will want to be prepared.

Endgame

“The world does not owe us a living”. A phrase parroted by the PAP until some of us are disgusted. Ask yourself, how true is it? Even if we kept the foreigners out, they will still exist out there fighting against us. If they are not in your company attacking your rice bowl, they’re outside attacking your company’s ricebowl. We cannot tell China and India to stop having babies, or tell them to stop educating their citizens. They have every right to live, just like we do.

No political party or government will ever be able to shield a small country like Singapore from the winds and tides of global competition. To attempt to do so through protectionist measures will only offer us temporary relief. But it will also laden our ships with costly measures and could cost us dearly in these choppy waters, or when the next big wave hits us.

Sometimes our insignificance scares me. Think about it. We are a small country. Our own population is less than 0.1% of the world’s population. How much does the world care about us? I venture that the world cares about Singapore as much as we would care for the ants scurrying across a table. Whether the ants survive or not matters little to us, but it certainly matters a lot to the ant.

Have Singaporeans gone soft? There is a litmus test that you can try. Ask the foreigners (the ones whom everyone accuses of stealing their jobs, not the happy expats) what they honestly think of the Singaporean mentality today. I did my test. It wasn’t pretty.

It is not the point of this article to influence your vote. Even if you throw the PAP out, the new rulers will still take years to dig the tunnels for new MRT trains, and years to build new HDB flats. Your relative costs will continue to be higher than the workers from the emerging economies. In the meantime, the global competition is constantly breathing down your neck. How would you, as a citizen, react?

I sincerely believe there is a way out for all of us. We need to improve ourselves and our value proposition. If we cannot be cheaper, then we must be faster, better, stronger, more efficient. It is not just about more paper qualifications. It is not about working longer hours. It begins with a change in mindset. Think positively. Hunger to learn more. Harness your experience. Take pride in the mastery of your work and skill. Embrace the competition and the challenge that comes with it.

It all starts with you as an individual. I believe Singaporeans can do this. Our forefathers came to this land with next to nothing, and they fought so that we can live like we do today. Their blood flows in our veins. We are capable of greater things.