Singapore Pulls the Welcome Mat for Foreign Workers

Nearly 18 months after the low point of the global financial crisis, the world seems to be getting back to normal despite the shrill voices who warned that the face of capitalism has changed forever.

Banks and hedge funds are once again making multi-billion dollar profits and are handing out multi-million dollar bonuses thanks to the profusion of cheap credit.

However, there’s one place where the crisis appears to have caused irreparable damage and that is the trade-dependent city-state of Singapore, where the government has made it clear that years of stellar growth fuelled by the import of cheap migrant workers from around Asia are over.

During the last two crisis-hit years, growth slowed to 1.1 percent in 2008 and declined by 2.1 percent in 2009 after four decades of average real growth of more than 8 percent annually.

Following a wide-ranging review of Singapore's economy by the high-level, government-appointed Economic Strategies Committee, the ruling People's Action Party has accepted what many Singaporeans have argued for some time. It is no longer sustainable to grow the economy by expanding the foreign workforce now that foreigners make up more than a third of the nearly 5 million people in Singapore, compared to 1990, when only 14 percent of the then population of 3 million were foreigners.

The influx of foreign workers has caused considerable antagonism among native Singaporeans, not only because they are regarded as taking jobs away from the locals, but also partly because so many of the foreigners are from China. That has raised suspicions that the government is seeking maintain the dominance of the ethnic Chinese, who make up 74 percent of the population but have the lowest birth rate among Singapore's three main ethnic groups. Singapore has one of the lowest fertility rates in the world, at 1.28 births per female. Among the Chinese population, the fertility rate is 1.14, compared to 1.91 among the Malay population and 1.19 among the Indian population.

"We cannot increase the number of foreign workers as liberally as we did over the last decade, or else we will run up against real physical and social limits," the ESC's report states. "Further, if access to labor is too easy, companies will have little incentive to invest in productivity improvements, which will affect our efforts to upgrade the skills and wages of lower-income Singaporean workers."

The solution proposed by the ESC, which was made up of ministers and leading business figures, is to slowly increase the levies that companies must pay to bring in foreign workers and try to increase the productivity of the local workforce, which lags behind that of rival city-economy Hong Kong and other developed nations.

Over the last decade, productivity has grown at just 1 percent a year. The government believes that if that can be increased to 2-3 percent over the next 10 years, Singapore's economy can grow at 3 to 5 percent annually.

The ESC, whose recommendations have been accepted by the government, emphasizes that even this much-reduced annual growth projection is still ahead of the 2 percent-3 percent achieved by most developed economies.

However, Singapore lacks the social safety net that most developed, and a growing number of developing, nations have put in place. With no unemployment benefits, minimal subsidies for healthcare and little in the way of a wider welfare state, the prospect of structurally slower growth is not good news for lower-income Singaporeans.

Theoretically, by increasing productivity and limiting the number of foreign workers, the wages of the poorest Singaporeans should rise. But the government's pledge to allow "all Singaporeans to share in increased prosperity" is based on the same self-help philosophy that has underlined the PAP's economic approach up until now. Despite the ESC's lofty rhetoric, such economic transformations are notoriously difficult to bring about.

The ESC report is thin on actual proposals to promote productivity beyond advocating "up-skilling" and suggesting that a "national productivity fund" and "productivity and innovation center" be established. Previous campaigns to boost Singapore's sagging productivity, including one led by now-retired mascot Teamy the Bee, made little headway.

Some, such as Kenneth Jeyaretnam, the leader of the Reform Party, one of a number of small opposition groups, doubt the government's sincerity.

"There must be serious doubts about the government’s ability to deliver given that the track record in this regard of the last ten years has been so poor and whether anything more than lip service is being paid to weaning the economy off its dependence on cheap foreign labour," he said, in response to the ESC report.

One key problem is that national productivity, like carbon emissions, is an "externality". For any individual company there is no benefit in employing more expensive local workers and training them up when cut-price work gangs from Bangladesh or China can do the job for less.

Yet, as with carbon emissions, it is the nation and the wider world that pay the long-term price for the medium-term profits of the company. Increasing the foreign worker levy is one way to put this "externality" back on corporate balance sheets, the government believes. But it will be very hard for the government to whack up the levy enough to make a difference without stifling economic growth in the short term. For, as the ESC accepts, economic growth has become dependent on cheap migrant labor.

Take the construction sector, which has been a key engine of growth. While most developed nations use high-tech, steel-based construction techniques for major projects, Singapore is still reliant on concrete-based approaches. According to industry experts, this is largely because steel construction requires a highly skilled and therefore expensive workforce. Singaporean construction firms, by and large, prefer using more basic construction techniques that require large numbers of unskilled, cheap workers.

The profusion of imported, unskilled construction workers has in turn stifled the training of skilled local laborers. Weaning construction firms off their diet of cheap foreign workers who are accorded minimal employment rights and convincing them to employ, train and pay more money for Singaporeans will be a fraught task.

Other than the main focus on productivity, the ESC report contains the usual bombast about making Singapore "a leading cultural capital" and "a hub for the arts". The overbearing regime of Lee Kuan Yew and his son, the Prime Minister Lee Hsien Loong, still struggles to understand why a government cannot simply instruct its people to be creative and artistic.

There's a nod to Lee Kuan Yew's long-held fantasy of bringing nuclear power to Singapore and ending the city-state's dependency on importing energy from sometimes quarrelsome neighbors such as Indonesia and Malaysia.

And, with Singapore's ambitious land reclamation plans coming up against the buffers of the Lion City's maritime borders, the ESC report also suggests exploring whether Singapore can become the world's first underground city. In what is already one of the world's most crowded countries, the prospect of extending development below ground level and creating a nation of troglodytes does not fill many with excitement.

Such schemes aside, the government's acceptance that it needs to restructure the economy is welcome if not overdue. But the real challenge lies in conjuring up specific plans and then successfully implementing them.

Finance Minister Tharman Shanmugaratnam, who headed up the ESC, has promised to unveil a "bold" budget later this month to help push toward the goals outlined in the report. That has sparked speculation that, after dipping into its reserves for the first time ever last year to support an economic stimulus package, the government may do the same this year.

Ultimately, the thrifty Singaporean government does not believe in spending its way out of trouble.

But, without investing in the radical reform of the education system and the retooling of the economy, the government's ambitious plans will be hard to achieve.

Ben Bland is a freelance journalist in Jakarta. He was formerly based in Singapore. He blogs at http://www.asiancorrespondent.com/the-asia-file.