Social inequality in Singapore


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.

 

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12 comments on “Social inequality in Singapore

  1. if i were the prime minister, i would support minimum wage, if only to score political points and/or maintain my voter percentage. however, implementing minimum wage merely transmutes the problems to other potential problems (e.g. foreign exchange, unemployment, … etc).

    to really tackle the problem, definitely education must improve. we need to go beyond paper-and-pen exams and **embody** (not just talk about) more on entrepreneurship, creativity, resilience, values … etc.

    even within the current system, teachers can help poorer students by constant encouraging / inspiring them that they can succeed if they work hard and work smart. cultivate discipline and good study habits. cut away distractions. every student should do that, but richer kids can afford to slack, because they have home tutors to “cover” for their (and school teachers’) short-comings. the poorer kids cannot afford to do so. principals and teachers should help the poorer students to cope with such realities.

  2. I am going to be picky here. I dont agree that Singapore believes strongly in free markets and meritocracy.

    On the former, there’s heavy government influence on how the industries move. For instance, the flavour of the year may be Bio Science one year and Engineering another. Is this free market? Not in my dictionary. And the policies tend to favour the MNCs and not entrepreneurship which is why we are told constantly to keep our wages competitive because at this level, we have to compete with China & other developing counties for business.

    On meritocracy, what i have seen so far hasnt been so impressive. The elites fight with the rest of the people for President scholarships, seriously who has the nerves to say no to the sons & daughters of the who’s who in Singapore! They get away with special treatment in NS. And they reward themselves outrageously & tax free (& for some with little accountability) for serving the people.

    Social class does divide, inequality does exist. The rules are the same within but sadly different across. We are like the baboon society where the child inherits the social ranking of the parents unless there’s some divine intervention.

    • Yes, I received comments from several people that our brand of meritocracy is not so pure. There are those who feel ours is based a lot of academic achievements and people once identified as having potential cruise along in their career if they don’t make mistake. Also, that our system disadvantages those in the lower rungs of society.

      Jury is out there, for people to decide.

    • There is a lot of difference between meritocracy (focuses on equality of outputs) and egalitarianism (focuses on equality of inputs).

      Simple example. Exams.

      A meritocratic system just looks at your exam results (output).
      Pass or fail. 1st or 2nd class honours.
      Never mind if you are rich enough to hire the best tutors in Singapore to give you tuition 7 days a week. And that you never had to work part-time to pay for your university education.

      An egalitarian government would look at the inputs.
      Not every family can afford home tuition.
      So let’s make the class size small e.g. 15 students per class in Primary school.
      Small class size. So teachers can spend more time on each student.
      So students don’t need home tuition to understand what they have been taught in school.

      • I thought meritocracy simply means that individuals get their rewards according to their talents, skills and expertise in terms of how they perform within a meritocratic system. So for example, within a meritocratic civil service or organisation, one gets promoted as a result of one’s work performance, not one’s educational qualification though it helps one to get selected to be a civil servant or one’s family background or connections.

  3. Pingback: Daily SG: 15 Sep 2011 « The Singapore Daily

  4. The current way of social inequality serves the existing power well but not at the interest of our country. A country or society can only progress with this constant cycle of the poor ones who are diligent and smart becoming the new rich and those existing rich who loses their competitive edge to become poor, those not in power who are capable rising up to replace those who no longer have the moral right to rule. Only if the society has this in-built and institutionalized system to allow and facilitate this form of social mobility can there be progress and prosperity.

    To break the vicious circle of poverty, more should be invested on the human capital of those non-privileged families, more should be done to reduce as much as possible barriers to entry for new businesses. Stop increasing the GST further more, because GST is good for tax collectors but regressive for the society, favoring the rich at the expense of the poor ones, widening social inequality. In the education system, no one should be condemned prematurely, if they can’t perform academically, there should be ways to uncover the strong areas of these people and the education system should offer ways to train them in jobs that allow them to make full use of their strengths.

    Call me an idealist. If we have no ideals, we’re just like walking skeletons, we’re none better than animals.

  5. Very insight article. Thanks.

    The immediate problem facing Singapore is very high social income disparaties, which is increasing over decades, even as Singaporeans in general are more educated.

    ———————————————————

    There is a document “Key Indicators of the Household Expenditure Survey, 1997/98 – 2007/08” that shows how the bottom 40th income percentile languished while GDP exploded.

    GDP per capita at 1998 was SDG36,229
    GDP per capita at 2008 was SDG55,369

    This represents a 53% increase of GDP per capita over 10 years.
    In the same period, GDP increased by a whopping 88%.

    You can infer the state is getting richer two times faster than the average worker is in singapore, and that GDP increase is largely due to the increase in number of workers in Singapore.

    Examining the income data, we see that only the incomes of the top 20th percentile saw their nominal average household monthly incomes keeping pace with GDP per capita increases from 12,091 (1998) to 18,472 (2008).

    This represents a 53% increase over 10 years, same as the 53% increase in GDP per capita over the same period.

    The 61st to 80th percentile saw increase in incomes at 36%.
    The 41st to 60th percentile saw increase in incomes at 30%
    The 21st to 40th percentile saw increase in incomes at 25%
    The 1st to 20th percentile saw negative change of 3%. Yes negative.

    Inflation adjustements are not included.

    ———————————————————

    The ills of social income inequality is magnified even more in a small, dense and congested urban environment. Fact of the matter, wages represent a smaller portion of GDP than other advanced countries by almost 20%. Rents and taxes form more significant components.

    It seems the way the establishment has seek to deal with widening social gap is not to talk about it.
    They rather fill the air time dealing with negativity on the internet than on initatives on dealing with this social divide taking place under their watch.

    If they are questioned, then current transfer payment schemes and the general limitations of government are cited. Other more subtle ways include indoctrinating concepts such as “it is better to have a job and than be poor and be without a job”.

  6. No problem as ““Key Indicators of the Household Expenditure Survey, 1997/98 – 2007/08″ is public data.

    I would like to correct and add some points though:

    1. A 100% correlation between GDP per capita and households incomes is not correct because 1 out of 3 workers in Singapore are non residents whose incomes are not captured in the resident household survey.

    2. By comparing the expenditures and incomes of the 1-20 percentile (which saw no increase in incomes) their, expenditures have been higher than incomes for the 10 year period. Do they all survive on net transfers from the Government? My gut feeling (this needs more research) tells that is a very high ratio of employed households, needing government transfers, for a rich developed country undergoing rapid economic expansion.

    3. It is pointless to discuss incomes and change in real incomes (minus inflation) without taking account how expenditures change with incomes. For example, the 21-40th percentile essentially saw no increase in savings (net of income minus expenditure) over 10 years since both incomes and expenditures increased by 25%. If modest inflation is factored in over 10 years, then this group experienced a decreased in real savings. That is why I suggested 40% of the working households languished by GDP increased by 88% over 10 years.

    4. There is a another wild card to above analysis: both incomes and expenditure data exclude imputed rental of owner-occupied accommodation. What does the data show when inputed rents are included? Are the lower groups income worse off, and if so, how worse off?

    5. Households without working members are not included.

    6. There are many other public documents that are very useful to look at including

    “http://www.singstat.gov.sg/pubn/papers/people/pp-s17.pdf”: Chart 1 Gini Coefficient1 Among Employed Households

    “http://www.singstat.gov.sg/stats/themes/people/hist/hhinc1.pdf”, .Average Monthly Household Income from Work Per Household Member: The 1-70th deciles are drawing from 354 to 2298 in income.

  7. Thx for the article JJ.

    With regard to HK’s higher Gini index than ours, I’ve read an article saying that it’s not a big concern for Hongkongers (ie, possibility of social upheavals). The reason is, most Hong Kongers have this “make money” mentality. They may be poor now but they believe there are opportunities for them to make money and become like Li Ka Shing one day. That is, they feel that there is hope for them to become rich one day. Where there is hope, people will not go to the streets to create social unrest.

    In the case of Singapore, I believe such opportunities are less. Our domestic economy is dominated by the Govt. It’s harder for people to venture out to make money in Singapore.

    In a way, I feel that we are getting the worst of both worlds. We are not exactly a true capitalistic economy because of the heavy intervention by the Govt in our domestic economy, creating unfair competitions. Neither are we a true socialistic economy despite the domination of the Govt in the economy because unlike us, the citizens of a true socialistic economy get plenty of subsidies and welfare.

    In other words, we are screwed in both ends…

  8. A good way to redistribute wealth to build a more egalitarian society is to change the income tax rates. Over the decades, the Government has substantially reduced the tax burden of the super-rich. Today, a person earning $320,000/year attracts the SAME marginal tax rate of 20% as one who earns $3.2 million. Why can’t the marginal tax rate continue to increase beyond 20% for the super-rich (eg. marginal tax rate of 25% for those earning > $500,000 and marginal tax rate of 28% for those earning > $1 million)?? With the super-rich rightly paying the taxes they could easily afford, the Government can do away with GST, which is a regressive tax structure (i.e. the poor pays more GST as a proportion of their income).

    The US is now pushing for the super-rich to pay more taxes. The irony is that in the US, the highest income tax bracket is already significantly higher than in S’pore. We need a righteous person like Warren Buffett in S’pore!!

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