Last week, I wrote about social mobility in Singapore.
The ST Interview of Associate Professor Aneel Karnani of the University of Michigan in The Straits Times (14 Sep 2011) offers additional thoughts on what’s happening with regards to social inequality in Singapore. Social mobility and social inequality are interlinked. High social mobility is a tool to lower social inequality. According to Professor Aneel, income inequality is an inevitable by-product of free market economics. Technology and globalisation are two major factors why there is increasing social inequality in affluent countries, including Singapore.
Professor Aneel argued why despite being a firm supporter of free economics, he believes some degree of wealth distribution is necessary. A high degree of social inequality would lead to exploitation of the most vulnerable. I would add that having a large number of the underclass desperate for their livelihoods may lead to widespread social unrest and even to the overthrowing of regimes, as seen from the Arab Spring uprisings. Several Arab governments were forced down because of public anger. It was sparked off by a poor and desperate street vendor in Tunisa who burnt himself to death to protest against harassment and humiliation by the authorities. There is high social inequality in the Arab world.
The ST article reported some interesting statistics. 4.2% or 83,400 of employed Singaporeans and residents still earned less than $500 a month, the same way as they did back in 1999. 45,000 households are renting subsidised one- and two-room flats now, an increase from 40,500 in 2008.
Some of the top issues raised by residents at Meet-the-People sessions are rental flats and inability to deal with medical costs and living costs. Recently, an acquaintance told me her father draws $600 a month as a security guard. He works around 8 hours a day. He had previously worked as a food hawker in a market but could not earn much despite working long hours at his stall. Lacking other skills, he switched from being a hawker to become a security guard.
Professor Aneel felt that Singapore needed to debate what it can do to reduce social inequality. Our economy grew 14.5% in 2010 but our gap between the rich and the poor was the second largest among all developed economies, second only to Hong Kong. Our Gini coefficient, which measures income inequality on a scale between zero to one, has risen from 0.43 in 2000 to 0.452 last year despite government transfers of wealth through schemes like Workfare bonus and Growth dividend pay-outs. The Gini average among the developed economies represented by the members of the Organisation for Economic Cooperation and Development (OECD) is 0.31.
Professor Aneel argued that our inequality is even higher if we factor in the large pool of transient blue collar workers who are not captured in the Gini statistics. Many such workers have been brought in as cheap labour, which has suppressed wages at the lower end of the population.
In his Q&A for ST Interview, Professor Aneel said that too much inequality leads to an inter-generational transfer of inequality and no social mobility. He too, believed that education was the way to allow social mobility. But poor children tend not to get a good education, even if schools are free. I share the same sentiments with the Professor.
Another area he argued for is minimum wage, something our government has firmly rejected. He believed that there are many jobs that productivity cannot go up easily. Hence, some form of transfer of payments can be effected through minimum wage. It also prevents the exploitation of labour. Hong Kong and Australia have implemented minimum wage. Singapore has a per capita GDP comparable to Australia and higher than Hong Kong. Are our salaries at the lower income levels equivalent to these countries?
Singapore believes strongly in free markets and meritocracy. These have combined to contribute to our rapid economic transformation over the past four decades. But they do lead to situations where the rich get richer, the poor get poorer. Over time, they lead to higher social inequity and lower social mobility, something that many Singaporeans are experiencing over the last decade.
Our economic model has been one of relentless pursuit of GDP growth. GDP growth determines many things, including civil servants’ and ministers’ salaries and bonuses. We rely on it to grow the economic pie. The pie has indeed grown, but the distribution of it has been unequal. Median income has been fairly stagnant over the past decade but the cost of living has risen sharply, particularly in the last three years and continues to remain high.
Professor Aneel called for Singapore to have its own robust debate on our model of handling social inequality. I feel this would be useful. We need to occasionally pause to review our model of pursuing growth at all cost to see what effects it has had on society. We need to also do a more comprehensive study and debate on minimum wage to see if it can be one of the tools to help deal with social inequality.