The massive explosion of Covid-19 cases has cast the spotlight on migrant workers. Much has already been said about living conditions for these workers and whether this has contributed to the spread of Covid-19. The purpose of this article is not to add to these debates, but to examine how we ended up with such as a vast number of low wage workers, living in a different world from Singaporeans even though they are very much in our midst all the time. What could have been the economic thinking behind this massive influx?
Singapore has seen migrant workers grow from 7% of our workforce since 1970 to 38% today (presented by NMP Associate Professor Walter Theseira at a recent IPS forum). Currently, 72.4% of these migrant workers are on Work Permits (WP) and 14% are on S-Pass (SP). In absolute numbers, the migrant workforce grew from just over 60,000 fifty years ago to a staggering 1.472 million today. The vast majority of 1.234 million are WP and SP holders (Source: MOM & Migration Policy Institute).
WP and SP workers form the lower wage spectrum of our work force. Their numbers are so large now that they occupy almost every area of our social spaces. In 2008, the late Mr Lee Kuan Yew said that he was not convinced on his own party – the PAP’s plan to have 6.5 million population, to be achieved largely through immigration to drive economic growth. “There’s an optimum size for the land that we have, to preserve the open spaces and the sense of comfort,” the late Mr Lee said. Other than occupying our social spaces, the presence of so many low wage foreign workers have depressed the wages of less skilled Singaporean workers, which has in turned caused a great divide between those who have benefited from our economic progress and those whose real wages have stagnated or even regressed in the past two decades.
How did we arrive at this situation of so many migrant workers, many stuck at low wages and with low productivity compared to other developed countries?
I believe it was the obsession with economic growth when the baton was passed from the first generation of leaders. Economic growth is good, but we also need to look at how the growth is derived, whether it is sustainable quality growth and how the benefits are spread across society. Our rapid growth from independence till the 1990s has made many countries and economists praise Singapore as a role model for development. One contrarian view was that of renowned Professor of Economics, Paul Krugman. To him, Singapore’s miracle was based on perspiration rather than inspiration. The growth had come from a very successful mobilisation of the population to participate in the workforce, jumping from 27% in 1966 to 51% by 1990. Professor Krugman warned that Singapore’s workforce participation rate was by then so high that it was unlikely to be further increased significantly. Such ‘sweaty’ economic growth model has its limit. Unless productivity, efficiencies and innovation are raised in the future, economic growth has to be captured through an ever-increasing migrant workforce.
By the 1990s, the ruling party had monopolized parliament with absolute or near absolute monopoly since 1968. The leadership was transferred to our second PM, Mr Goh Chok Tong in 1990. There was an unprecedented loss of four seats to the opposition in GE 1991, a really big deal to a party that will not tolerate any loss or the rise of a serious competitor. Mr Goh had in 1984 promised that Singapore would reach the 1984’s Swiss standard of living by 1999, in per capita GDP terms. The measure of success was to boost up GDP.
The late Dr Goh Keng Swee, architect of Singapore’s economic transformation in our first 2 decades, had since the 1970s till his retirement in 1984, warned of the dangers of growing our GDP through large influx of foreign workers and foreign direct investments. In the Future of Singapore (FOSG) talk in 2017, former Chief Economist at GIC, Yeoh Lam Keong who had worked under Dr Goh, said that Dr Goh frowned upon those who dare suggest growing the economy by boosting immigration. Dr Goh had felt that getting unlimited access to cheap labour would impede the critical need for upgrading and innovation. The first-generation leaders seem well aware of the dangers of large influx of cheap foreign labour and overpopulation. The next generation of leaders however, felt that it was imperative to capture economic growth fast. I believe they must have felt the pressure to retain their super majority control of parliament through continued economic growth.
There were massive infrastructure projects in the 1990s. It opened the doors for a much looser migrant workforce policy to feed the expansion. Foreign workers grew from 311,264 in 1990 to nearly 800,000 in 2000 (a 255% increase in just 10 years). In the mid-2000s, to capture another wave of economic boom, Singapore had another massive round of migrant workforce. The 2009 Global Financial Crisis put a temporary pause but in 2010, our GDP grew a phenomenal 14.7% and the influx continued. Foreign workers numbered 1.3 million by 2010. As infrastructure had been a key part of the economic activities, the construction workforce grew very rapidly in these two decades, from 114,000 in 1996 to some 300,000 in 2019. This numbers will potentially be even higher going forward as the Singapore Business Review recently projected a 3.3% average annual growth in the construction industry from 2019 to 2028. The late Mr Lee Kuan Yew had observed in 2011: “We’ve grown in the last five years by just importing labour. Now, the people feel uncomfortable, there are too many foreigners.” He had estimated that it might take five years for the country to scale back its need for foreign workers, something which the government is still grappling with nearly a decade later and the numbers have continued to increase.
During the 2013’s debate on the government’s Population White Paper, we were reminded of this simple formula: Economic growth = Annual Productivity Growth + Growth in Workforce. Singapore’s productivity in recent years have been miserable, mostly flat for the decade of 2011-2020. It even fell by 1.5% in 2019 and is likely to be worse in 2020 due to Covid-19 disruptions and an impending recession. Today, despite recent acknowledgement of our low construction workforce productivity and some efforts to improve on this, we are still lagging very far behind our developed peers such as Australia, Japan, Taiwan, and Hong Kong. For example, Australia’s and Japan’s construction workforce are 3.9 times and 2.8 times respectively more productive that their peers in Singapore. In other sectors that depend heavily on low wage migrant workers such as F&B and retail, our productivity has lagged significantly behind that of Hong Kong, a city state economy like ours.
The trouble with looking at purely GDP numbers is that it is misleading. GDP can be divided into three components – Wage share, Profit share and Tax share. Singapore has now one of the highest GDP per capita in the world but its wage share has been hovering just above 40% for the past few decades, way below those of OECD countries which are around 50% and some even much higher.
The profit share component of GDP would go back to shareholders. In Singapore, the government owns a disproportionately large share of the economy compared to other developed countries. We encourage foreign investments and the profits would have to flow back eventually to where the investments originated from. Prior to Covid-19, the Marina Bay Sands was the most profitable casino in the world. It was generating some US$1.5 billion in earning (EBITA) a year. It is owned entirely by Las Vegas Sands Corp, listed in the USA.
For a long time and up till 2011 when astronomical ministerial salaries became an issue in GE2011, GDP was the measure for how well the civil service did. GDP growth was a key determinant of the bonuses of political office bearers. With the rapid rebound from the Global Financial Crisis, in 2010 the salary bonus for ministers went up to 8 months on a then-super high salary base. When productivity is low, growth in workforce can boost up the GDP growth; so we should also look at the quality of GDP growth, as well as how income growth had been distributed to the median and lower income groups.
I believe that the last three decades of drive to boost GDP numbers through large-scale foreign labour import had masked many brewing long-term structural problems. It has come to a stage where our Singapore Inc. economy is hooked on an ever-increasing base of low wage, low productivity workers to continue with our model for ‘prosperity’. I believe it is this obsession with GDP that impedes bold decisions such as having a national minimum wage.
It is unsustainable. In the same FOSG talk, Yeoh Lam Keong shared a 2014 forecast by IPS: A mere 1.7% annual growth in labour could see Singapore hitting 10 million population by 2050! The 2013 Population White Paper only presented a population scenario of 6.9 million by 2030. What’s beyond 2030 if we continue at this rate? This is quite a frightening thought considering that our imported labour is indeed growing at beyond 1% per annum currently. At a population of 10 million, the IPS forecast was for 3.3 million migrant workers, a 235% increase from currently. This will be on top of regular injection of new citizens and permanent residents. How do we manage the housing and social spaces by then? How do we manage the growing wealth and income inequality that will come? What will our Singapore identity be like then?
We have seen how troubles like that of the Little India riots of 2013 could happen when we overcrowd our small city state with the many people that we currently have, not to mention if we allow it to explode to another 235%! The government now collects some $3 billion per year in workers’ levies. These add significant costs to employers and force them to keep wages of workers low. There has to be big structural changes, initiated by the government to bring us away from the ‘perspiration’ driven model that Paul Krugman warned of in the 1990s. We have to also look at the ‘optimum size’ as advocated by the late Mr Lee that our island can hold and figure a more sustainable quality and innovation-led economic growth. The government has to take the leadership to effect big structural changes to sectors that persistently have this problem of huge dependency on low wage workers.
For too long, we have kicked the can down the road from one generation of leaders to another in the drive to capture GDP growth in the quickest (and lazy) way, even though we had been warned by prominent leaders and economists that such methods will lead to unsustainable population growth, depressed wages for the bottom income earners and social problems associated with vast inequality. We are all feeling the negative effects now in a very real way. Uncomfortable though the changes may be, the time to tackle this escalating problem is now.
Note: The views expressed here are the opinions of the author.