SO FAR SO GOOD, BUT WHERE DO WE GO FROM HERE?
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http://www.todayonline.com/articles/65713.aspAugustine H H Tan
[email protected]FORTY years after independence, Singapore can be proud of its economic
achievements. Per capita gross national product, or GNP, rose from US$528
($871) in 1965 to US$25,191 last year - an increase of over 47 times.
...
Per capita income comparisons suggest that there is still plenty of room.
Ireland, with a population of four million, has a per capita income of
US$34,280. Finland, with a population of 5.2 million, has US$32,790 per
capita, while Switzerland, with a population of 7.4 million, has
US$48,230 per capita.
Singapore has a high competitive ranking of third place, according to the
Switzerland-based International Institute for Management Development
(IMD), but it ranks 28th in per capita income. Something is clearly amiss.
What's wrong?Unlike advanced economies, Singapore is investment-driven, particularly by
foreign investment. Investment in machinery and equipment (38 per cent of
total) is closely correlated with the electronic cycle. Investment in
construction and works (47 per cent) is languishing because of the long
downturn in the property sector.
There was therefore negative growth in Gross Fixed Capital Formation for
1998 to 1989 and 2001 to 2003, which resulted in poor economic growth.
Consumption spending did not help, as the wage share of GDP is only about
42 per cent, unlike the advanced countries share of over 55 per cent.
Fiscal policy is normally deflationary because, in view of the openness of
the economy, counter-cyclical deficit spending is regarded as ineffective.
Monetary policy is the outcome of exchange rate policy, which tends to
favour a strong Singapore dollar. The theory is that, weakening the dollar
would not be helpful, because the import content of manufacturing exports
is high at 70 per cent.
The strong dollar policy is also deemed to be necessary for a major
financial centre. Other services tend to be neglected in the scenario and
consequently, business services, tourism and the medical sectors suffered
in the aftermath of the Asian Currency Crisis.
Small countries like Singapore will face increasing economic volatility
due to the accelerating pace of globalisation, quickened by the rapid
ascent of China, the liberalisation of the Eastern European countries and
India.
A giant in the neighbourhoodThe rapid rise of China alone poses severe threats: It took the United
States 130 years to increase its share of global GDP from 1.8 per cent to
27.3 per cent but China will take only 35 years to increase its share from
3.2 per cent (1980) to 20.3 per cent (2015).
What China offers the world is a huge internal market but Singapore's
non-oil exports are mostly electronic semi-manufactures, which can be made
elsewhere, especially in China and India.
What we need to develop is branded goods for the huge consumer markets
that are developing in China and India.
Singapore has opted for high-tech and highly capital-intensive investments
such as chemicals, pharmaceuticals and biotechnology. Unfortunately, the
job creation capability is very limited and the input-output linkages with
the economy small.
Moreover, much of the research and development, or R&D, talent has to be
imported. In the meantime, established companies such as Creative
Technology and Maxtor pulled out their factories, causing about 5,000 job
losses each. The high-tech lab left behind by homegrown Creative
Technology is no consolation.
Herein lies a lesson in growing our own multinational corporations (MNCs):
Their bottom line, and not patriotism, dictates the location of
production.
If this is so, then the investment in our external wing will not assure
Singapore of jobs and dependable income from abroad, as production moves
abroad and even headquarters may not be here for long, as foreign tax
incentives prove irresistible.
Don't think smallSingapore has to brace itself for an industrial hollowing-out process. The
current account surplus amounts to over 30 per cent of GDP, which is
unprecedented!
Profits of MNCs and foreign nationals not re-invested here mean an outflow
of capital. Has Singapore reached a stage where such firms and foreigners
are pulling out more than they bring in? The Government needs to monitor
the situation carefully.
Singaporean investors have taken the Government's "Go regional, go global"
message too seriously. There are Singapore firms that, after establishing
a foothold in China and learning the ropes of doing business there,
re-locate their Singapore factories overseas.
It is time to sit down with our businessmen and talk about what to invest
and how to create jobs here. If everybody thinks that Singapore is too
small, it will grow even smaller.
We also need to learn from other countries like Switzerland about how to
keep unemployment down (4 per cent) even with low economic growth. Foreign workers comprise one-quarter of Switzerland's labour force.When there is a downturn, foreign workers with short-term permits absorb
the impact. Finland, on the other hand, has only 45,000 foreign workers:
Its structural unemployment is consequently more severe - 8.8 per cent.
The Finnish economy is high tech but very volatile: Its fortunes depend
very much upon Nokia. It should also be noted that much of its research is
industry-oriented rather than the frontier type.
Singapore has to move towards "value innovation" rather than solely
patent-producing type innovations.Value innovationDell Computers is a good example of value-innovation, based on a concept
of zero-inventories and removing the middlemen role. "Singapore girl" has
been a highly successful Singapore Airlines value-innovation. Toyota's
Lexus is another example: Providing premium quality at less cost than BMW
or Mercedes Benz.
As the China and India markets grow there will be great opportunities to
exploit, but Singapore has to be nimble enough in policy-making and skills
to take advantage.
The issue of immigrant labour has to be examined carefully. We need
foreign talent but we should not destroy Singaporeans' morale in the
process. It would be an irony if, because of discouragement, homegrown
talent migrates abroad while new talent comes in. Somewhere in there is a
balance. We also need young immigrants to alleviate the ageing problem
without exacerbating structural unemployment in the process.
To sum up, for Singapore, the halcyon days of depending largely on the
MNCs of the world to generate rapid growth are over. They have greener
pastures now and Singapore has to discover niches for itself quickly or
else adjust painfully to a new era of much slower growth.Structural unemployment can only get worse in a slow-growth environment
and the ageing of the population will compound the problem
To alleviate these problems, the Government will have to manage
immigration policy carefully, use macroeconomic policies judiciously, and
draw down the dividends of the problematic external wing to re-distribute
in ways that will not erode the work ethic.
The writer is a Practice Professor of Economics at the School of
Economics and Social Sciences in Singapore Management University (SMU).
His views do not necessarily reflect those of SMU.
Then like that I would make a healthy profit short selling.