Step one to another 1985 recession?

When I read the article (see below) in Business Times yesterday about the much respected Prof Lim Chong Yah calling for wages for the lowly paid to rise by leaps n bounds over three years and at the same time to cap pays of $15K and above per month for the same period, I thought it was a belated April Fool’s joke.

So I copied the article and circulated it to the usual folks on my email-list with the heading “I don’t believe this!”

What was more unbelievable were two of the three replies I got.

First, from my elder brother, who wrote: “I think Prof Lim has proposed a jolly good idea. I’m sure true Singaporeans and foreigners with goodwill who earn $15000 and more per month will not mind a 3 year moratorium. The government should seriously consider this proposal.”

Second came from a friend with deep family ties to the PAP. :roll:

He wrote: “I actually agree in principle with what Prof Lim is trying to do. Since the PAP decided to make millionaires out of its ministers by using private sector remuneration to justify ministers’ pay, we have been grossly (and increasingly)  overvaluing the worth of those at the top and undervaluing that of the average Joe and those at the bottom ranks of our workforce.

“We copied this predatory practice from the US, which is quite different from the fairer and more social- centric compensation system of the European countries. It has resulted in an ever-widening income gap between the haves and have-nots,  which has been cleverly disguised as  the  effects of globalisation.

“And those articulating this bs are the same people who run our country and businesses – the latter hired guns, not entrepreneurs who put their own money on the line , and who are the direct beneficiaries of this predatory practice.  They also happen to control the press and other media, and there is a danger that this bs may morph into a mainstream value.

“As the saying goes, repeat a bs often enough and you begin to believe in your own bs. But increasing inequality in our society is not sustainable in the longer run, as social tensions must increase as a result, leading to more explosive implications for our society. Prof Lim is indeed a wise man in trying to shock us out of slipping into this malevolent stupor.”

I might have concluded that I am in the minority of one if not for another giddy headed old gal — and makan kaki– like moi who replied thus: “Yeh so what’s the point of me bringing my grand kid to go for kumon, Julia Gabriel in hope he can go to RI, Hwa Chong ha?Better to go for carpentry classes and maybe learn to cha kway teow!!! Come to think of it my part time maid could have come up with the scheme! What is his pay?? Jen the furious.”

Then I discovered that one dot.seng says it all for me. So no, I’m not in the minority in my reaction; certainly not of one; perhaps not even of 10,000!

But then, what’s the use, if the Government buys Prof Lim’s line of thinking and acts on it?

I shudder at that prospect, remembering that Prof Lim presided over the National Wages Council when the Government went on another high-wage policy binge. Hope we won’t see a repeat of that experiment in the early 1980s that led one establishment maverick to blast — after the event. :roll:

“The 1985 recession was a self-created recession. Between 1981-1985, we had a policy in government to uplift from no-skill to high-skill. What the government did was impose very high CPF. The CPF went up to 50%. All costs went up, but at the same time there was no incentive given to encourage companies to upgrade. Just pure punishment.”

Business Times – 10 Apr 2012

Lim Chong Yah suggests second wage revolution

3-year plan to cut income inequality, foreign labour use

By TEH SHI NING

(SINGAPORE) To tackle rising income inequality and an excessive reliance on cheap foreign labour, one prominent local economist is proposing a three-year restructuring plan that includes a wage freeze for top income earners and sizeable pay hikes for the lowest paid.

This ‘bold and iconoclastic’ proposal seeks to complete the wage revolution of 1979 to 1981, says Professor Lim Chong Yah. He helmed the National Wage Council (NWC) from 1972 to 2001 and as its founding chairman had a pivotal role in that first, radical three-year wage restructuring exercise.

Then, the NWC had recommended a 20 per cent across-the-board increase in wages a year, including higher contributions to Central Provident Fund accounts and to the Skills Development Fund, which grants companies training subsidies.

Speaking to an audience of about 50 at an Economic Society of Singapore public lecture yesterday, Prof Lim outlined another three-year solution to Singapore’s ‘two Achilles’ heels’ – the sharp rise in low-wage foreign workers and rising income inequality – while raising productivity.

This features a sizeable pay hike for the lowest-paid workers, regardless of nationality or age, earning less than $1,500 per month over three years. He proposes a cumulative 15 per cent rise in the first year, another 15 per cent in the second, and 20 per cent in the third. This increase would be channelled, in equal parts, to the worker’s take-home pay, his CPF Retirement Account, and the Skills Development Fund.

At the top end of the income ladder, Prof Lim proposes a three-year wage freeze for those earning $15,000 or more a month. But he stresses, the intention is not to ‘frighten the geese that lay the golden eggs’ as there will be no pay cut, pay ceiling or super-taxes imposed.

As for the middle income, he proposes pay hikes ranging from a quarter to a third of that received by the lowest-income group, part of which will go into the CPF Retirement Account. The government should also match contributions to the Skills Development Fund to demonstrate its commitment to the restructuring effort.

Prof Lim envisions all operating details of this proposal being discussed and decided on by the tripartite NWC, as was the case in 1979, to ‘forge consensus by the three tripartite social partners’.

He acknowledged readily that national economic restructuring is ‘much more difficult’ now than it was three decades ago, given the changed political, economic and socio-economic climate. But he thinks that Singapore still has effective tripartism and a government and civil service with integrity and ability, so what is needed is ‘national will’ in the face of ‘the problems of economic success’.

In response to questions from the floor, Prof Lim said that his proposed scheme is unlikely to have a significant negative impact on unemployment – now at record lows – and that high-quality foreign investment will continue to flow into Singapore in pursuit of strong fundamentals.

Asked about the pace he proposes, which seems swifter than the government’s target of a more gradual 30 per cent rise in median incomes in the 10 years till 2020, Prof Lim said that some ‘shock’ is needed to ‘check, halt and if possible reverse’ the rise in income inequality.

Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved

About these ads

24 thoughts on “Step one to another 1985 recession?

  1. Auntie Lucia

    Well, although I do agree with your viewpoint.
    But it is likely that cycles do occur and at this point in time, well, it will create a windfall for those plugged into the global economy as they will just structure their income or finances.

    We will see whether this practically socialistic experiment will be implemented.

    Regard

  2. Pingback: Daily SG: 12 Apr 2012 « The Singapore Daily

  3. I don’t agree with our good gentlemanly Professor Lim. It will lead to more problems. Let’s hope the govt not jump at his theory!

  4. Uncle Padaly: thanks for liking my post n also for dropping by. Think Mr Li Yi Shyan, an MOS, has given the 1st response — which thankfully is a loud ‘nyet’ to the good prof’s idea.

  5. Auntielucia;

    it is understandable that You are skeptical about Prof Lim, after all he is the Man who had engineered the National Pay Structure in the National Wage Council if my memory serves me rite, for the past over two decades. Today, the income gap has became more pronounced than ever, is he part of the problem?

    What surprised me was that Prof Lim was not involved in the Ministerial Pay Scheme and Debate; Gerard Ee was appointed to review it. Why was Prof Lim not appointed or involved? Is he not an expert in Wage Matters?

    In any case, raising the Minimum wage without reining in the Inflation Rate will not help the lower income people. As a lay person, me could still understands and feels that even if a worker gets a minimum of a $1200 in salary(gross or nett), an increase of 10% in housing cost and 3% of essential goods and services or a 3% raise in GST, will not do any worker any good, quite the contrary.

    Me am admittedly a very suspicious citizen as far as national policies are concerned, maybe me am paranoid to the extend that me sees every national plan as a scheme. Did Singaporeans benefit much from past state planning?

    patriot

  6. Hi there, I am an Econs student in NTU. I believe the 1985 recession was very much a regional recession. All the countries around us were doing worse, including Malaysia and Indonesia. Of course, our competitiveness was affected due to the appreciation of sing dollar and high wage policy as well. The key is the 1979 economic restructuring was a great success, it moved us away from direct competition with China and Malaysia where their labour wage was only a fraction of ours. Personally, I feel that his proposal is a lot harder to implement now since our economy is already a highly productive one, moving further up will be tougher. Unemployment will also arise with a persistent wage rise and Singapore has no unemployment benefits. Hence, the government will have to fork out a hefty sum from the past reserve to carry out his plan. Though a great fan of Prof Lim, I think his proposal is not really feasible. I foresee no Ministers and NTU Professors will make public comments on this since he is a well respected Professor( even a tutor of our PM when he was young). Hope this will die down soon….

  7. To patriot:

    Prof Lim has retired from the NWC many years ago. After which he begin lecturing in NUS and NTU, no longer active in policy making. With regards to your income inequality issue, its is a global trend upwards. Due to mainly 3 reasons: 1) Globalization leading to competition with cheaper labors from the region and China, pulling our low skill workers’ wage downward. 2)The contagion effect of the high pay from top executives in the developed nation pulling up the top 20% pay. 3) influx of cheap foreign labour to replace our shrinking labour force and grew our economy. Hongkong is a lot worse than us, even China – a communist country not much better. Singapore is a small little red dot with no hinterland, not like HK with China nor Greece with European Unions to bail them out in times of crisis. Malaysia will definitely not help us if we blow up! Therefore, the government constantly increase our reserve and maintain surplus and competitive. Simply because we cannot lost this to compensate our weaknesses. We have maintain a AAA rating by the standard and poor, this is crucial to put us in the world map and attract MNCs to create jobs. If the government build a welfare state, we will end up like Greece with budget deficit, lost our AAA rating and disappear from the competitive global arena. I hope PAP government would explain the rational behind their policy and let the public know how vulnerable we are.

  8. Uncle Patriot, thanks for your comment! U r right that it’s no point raising wages of the lowly paid if we “create” inflation by massive HDB upgrading (n thereby needing more foreign labor); massive n seemingly non-stop infrasturctural works; cutting back COEs n letting the bids go thru the roof; throwing in 50K new HDB flats + granny flats etc; news hospitals etc Add external factors of high oil prices. Then add constant push from all quarters to increase pay of the lowly paid and we are in the vicious circle n grip of spiralling inflation. Judging from what MAS said abt inflation for 2012, we’d better spend our money fast, because at year-end, every $ we have today will be worth only 95-96 cents :( And that of cos wld create another bout of inflation. Shades of Weima Republic be4 Hitler! :( :(

  9. Hi David, may I be so candid as to say your first comment is better than your second? The latter essentially mouths what our Govt often says. As a future leader wannabe, better nurture more original thots lah, little brother.

    Btw, some things which u may not know or have not researched yet about the 70s n 80s include the following 1) CPF freed to be used for private property circa 1980 2) HDB upgrading: $1 billion per year to add 2% to GDP 3) US n UK liberalised their economies n removed forex control which impacted SG greatly n positively 4) fear of Hongkongers ahead of ’97 5) SG government privatisation program.

    I’m sure there are many more seeds cast into the winds back then for which we are now reaping the fruits or the whirlwind (depending on how u view it). But I’m dead cert that in 1979 when China was barely opening up, that sleeping giant wasn’t the prime consideration for our high wage policy. Rather it was probably some advisers thought shipywards were a sunset industry.

    Btw2, contrary to what you thought, two ministers (an MOS n one without portfolio) have come out nicely n gently to say that Prof Lim’s suggestion won’t work. And they are right. In today’s dynamics, one can’t be so prescriptive, especially when the proposal completely overlooks the giant wedge of people earning between $1.5 K and $15K. You just can’t leave them in limbo and don’t figure them in your calculation. :lol:

  10. Auntielucia;

    thank You so much for explaining to David Zhou and save me from having to response to him.

    Btw, David may have had not the time to read and or listen to the rhetoric of reasoning offered for the many State Policies. The State Medias are still drumming them day in day out and me wishes David can spend some times to read or listen to them. Many of the older folks have grown tired of them and as for me, they are irritating. Me prefers the New Media where all angles of any issue are discussed and or debated by the people for objectivity.

    David may also like to confirm for himself that the MIWs do not engage the people in the New Media. Maybe the Men In White either regard themselves as superior beings OR the people are not good enuff intellectually for them to talk with and are oni for them TO RULE AND LORD.

    patriot.

  11. Pingback: Analysing Ngiam Tong Dow’s March 2012 speech (Part I) « Thoughts of a Cynical Investor

  12. Franky speaking, whether Prof Lim’s second wage revolution will work or not is a big question mark to me too. Our economic structure today is very much different from 1979. GDP per capita is more than $50,000 as compared to $4000 before. He has his theory to support it, and I don’t think you can prove him wrong either without any empirical evidence. Economy growth may not be sustainable in the long run relaying on quantitative growth alone. I believe in striking the right balance, we do need a fair share of foreign workers and pure qualitative growth is not sufficient. In fact, before 1985 there is a moratorium on foreign labour during the restructuring years. In retrospect, that could be a reason that lead to the loss of our export competitiveness, resulting in the 1985 crisis. Look at Japan and her lost two decades. Partly because of the aging population, which Singapore avoided through immigration policy. Furthermore, Jobs like construction worker and dish washer are shun by most locals, who is going to fill up the gap then?

    With regards to your China threat: China is a great threat to Singapore in 1979. Our government at that time is farsighted enough to make the right move. If we failed to restructure, we will be like Malaysia competing with the cheap Chinese goods today. The 1979 restructuring enable us to move from low skill, low wage and labour intensive economic activities to skill intensive, technological intensive and knowledge intensive occupation. Thereby allowing us to move one step ahead of China. In short, the restructuring itself is highly successful and transform Singapore from a third world to a 1st world economy. (btw, Prof Lim is the Chairman of the Skill Development Fund Advisory Council at that time, engineer the whole restructuring. We ought to give him the credit.)

  13. To patriot,
    I think the political sphere in Singapore is very unique. I feel that Singapore cannot afford to have 2 strong parties like the United states. Even USA has its problem due to its political structure, the Obama Administration face great hindrance pushing forward the right policies due to politics. The millionaire tax, fiscal expenditure on infrastructure rejuvenating etc… Implementation of the right policy is a big problem for the US now. Their political debates are exciting to watching, but full of sound and fury, signifying nothing. One thing good about an efficient government is PAP are able to do the right thing at the right time (most of the time, I don’t think ERP is a good policy), implementation will be a problem if there are two party with different political view compromising the economic development aspect. I believe in the chatham house principle of no attribution. Sometimes, the government need to keep things discussed in the top level or nothing can be implemented when the issue becomes a public debate.

  14. Auntie lucia

    Apologies on the non-lucidness.
    Just wanted to say that if the good Prof views are implemented. it will provide a windfall for the capitalists instead in the coming recession and creation of structural and frictional unemployment.

    Regards

  15. Hi David: I let visitors decide for themselves what your comments show of your quality of knowledge and thinking.

    Let me make just one point” I am shocked n surprised that as an econs student of an elite U (in the SG context) like NTU, you cld actually quote me per capita income of GDP to show how far we’ve come. Many would have preferred median income or PPP. Btw, do u know that when GDP was $4K, Sgreans could buy a 3-room HDB for $10K in Clementi? With 99-yr lease.Today, granny flats in Punggol with 30-year lease sell for $90K.
    Anyway, you’ve got your whole life ahead of you and I hope you will be more questioning while staying appreciative of what Govt has done; without clinging to outdated strategies and policies. When even China and the ME are growing more pluralistic, we can’t just say one party parliaments offer the best of all possible worlds! :roll: :razz:

  16. Auntielucia;

    well said!(to David and his likes).

    Me probably would not had been able to put it so succinctly, your remark above
    was simple, straight to the Point, just beautiful.

    @David Zhou;

    . thank You much too for the interactions!
    Singapore is a young nation in the making, since the Day It was offered autonomy,
    many of us, the LOCAL BORN present senior citizens, have lived and are living with(in)
    It. You may like to find out from your parents and grandparents what it was liked
    before the late 80s.

    As a lorry driver with an income of about a thousand dollars per month
    and my spouse armed with a ‘A level'(Chinese) working then as a clerk drawing about $300,
    we manage to live in a 4 Rm Flat of about 900 sq ft that cost us $18.5Ks. We produced 3 children and
    was penalized for contravening the Stop At Two Policy.
    Of course, over the years, like most other Singaporeans, we worked hard and is at this moment,
    despite going into our twilight years, STILL working.
    Me am no workaholic; in fact whenever, me was abroad, i have plenty of envy at how people in other countries live their ‘golden age’. And they are not FIRST World Countries!

    I FEEL VERY LUCKY TO BE BORN EARLY in Singapore, at least me had the opportunity to enjoy
    much of the GOOD OLD DAYS.

    You could feel happy and lucky too, as I can see that You are able to appreciate very much the quality of the leaders. I too, would be happy IF oni I or at least the majority of Singapore are feeling good about our political leaders.
    Me not so demanding, no need for them to be talented and or benevolent, JUST PLAIN BENIGN AND EFFICIENT WILL DO.

    patriot

  17. Professor Lim in his 70s is an academic and a well known authority in economics. A whole generation of students grew up studying his economics textbooks. He is no ordinary person.

    I may not agree totally with what he says. But then I feel that he is speaking from his heart as a concerned intellectual on our current state of affairs. Maybe he is trying to jolt the govt from its stupor like what Ngiam and Prof Tommy Koh did. I blog on this subject. Pls look out for it. If I commented too much Auntie Lucie will tell me again to reserve it for my blog. Alamak!

  18. Hi Gintai, d’accord re prof lim but u kno even Mao Zedong had his bad days, :roll:
    Will look out for your post. I intend to write about it too ie what is a worker worth to his employer?

    Let there be liberalisation in this, instead of NWC or other govt inspired bodies fixing that worth by fiat as Indonesia is trying to do with its women folk going overseas!

  19. Uncle Patriot, thank u fr yr constant support n compliments. Really appreciate them. But like I said to our younger brother Gintai, when visitors have long expositions of views, mayb best put in own blog and just leave a link in my comment section?

    Incidentally, I am friends with not a few MIW n WIW and I feel they are sacrificing too much of their own personal time and space for a largely unappreciative citizenry, moi included. Because I am just another Sgrean who whines and wines (hic) a lot whenever a good policy gives me bad side effect or when I feel I’ve been left out of the party (with a small p, note!) :lol:

  20. Pingback: Mandarin Ngiam on “elitism”, “social divide”, education etc « Thoughts of a Cynical Investor

  21. I think the crux of the matter is different from the 1980s. Our ongoing problem is now wages that are set too low with cost of living rising way too high. It is unbecoming if we do not take care of the lower income group who are also not the only ones suffer. Apart from wages, we need to control foreign workers. I have been trying to find fellow Singaporeans who share their thoughts on this matter. Not many write on WordPress to share thoughts. I have written mine here : http://daringtochange.wordpress.com/2012/04/19/quick-mrt-thoughts-on-prof-lim-chong-yahs-economic-proposal/ if anyone is interested to have a pop over. Cheers!

  22. Hi Karen, thanks fr yr comments. Btw helping those earning below $1.5 and those who earn nothing, have no family, assets or even a roof over their heads, I know where I would want the Govt to put our money.

    Of cos the world today is different from that of the 1980s but I beg to differ that SG can be a maverick today, as it had been in the past. Go against perceived wisdom and raise wages of the lowly paid without corresponding productivity and we wld have hyperinflation (because the higher paid are more mobile and marketable and so wld demand and get commersurate rises). Local businesses that can’t cope wld fold and MNCs cld relocate. Because unlike the 1980s, we can’t do it better or faster in many things where volume matters– whereas China, India, Indochina, immediate Asean neighbours can do it cheaper, better and faster today, when they could only boast cheaper in the past.

    Rather than bang the drums on helping the lowly paid — whether old or unlucky — thinking Sgreans like you shld work on helping every Sgrean they mentor to become an individual USP. Only when we are of value to our employers, our country and people who matter to us, then do we create value for ourselves.

    Have a gr8 week!

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s