Towards a new Singapore growth strategy

Creating good jobs and high wages for Singaporeans

By: Singapore New Policy Thinking Team [Leong Sze Hian and Loke Hoe Yeong]

Summary

• Our model of funding MNCs in the hope of creating jobs for Singaporeans must change.

• The new competitive environment requires that Singapore review its policies so that it can comply with international trade obligations to help secure jobs for Singaporeans.

• The government must help create a group of local industry champions through acquiring technology to help ensure that we are relevant to the world economy.

• Start-ups are hard to incubate. The pipeline of talents can take a long time to be developed. We must buy start-ups and scale them up from Singapore.

• ASEAN must be our most important trade partner, not the US, not even China. When China eclipses Singapore in competitiveness one day, the ASEAN region would be Singapore’s only hope for continued economic success, especially in the light of greater economic integration in ASEAN from 2015.

While Singapore celebrates the economic successes of the past 50 years, we must start to seriously ponder whether we are in the right direction for the next decades. The government recognises that we must keep Singapore competitive to survive and prosper, but does the trajectory of their economic policies match that aim? Can good jobs and high wages continue be promised for Singaporeans?

Our objective is to position Singapore as a competitive environment for future industrial activities. Singapore needs to be a dynamic, forward looking nation to survive in an innovation driven economy. Economies such as China, Hong Kong and even Malaysia, “will eat our lunch” if we do not restructure and transform our economy as a matter of urgency.

The reliance on multinational corporations (MNCs) will not quench Singaporean’s need for jobs anymore. In 2012, the United States labelled Singapore as a tax haven. Government policies are responsible for this negative label. Our efforts to attract MNCs to set up headquarters in Singapore, through incentives, have yielded little tax revenue but have created good jobs.

Yet, many of these jobs do not go to Singaporeans. In the chemicals and marine industries for instance, the ratio of foreign to Singaporean employers is almost 4 to 1. How many of the 260,000 jobs created for locals in the last 7 years or so, actually went to Singaporeans by birth (excluding the 133,000 new citizens) – against the 320,000 new PRs granted and 470,000 jobs to foreigners?

In short, we have the reputation of being a tax haven, but Singaporeans do not get to enjoy the benefits of such a growth model.

The proposed strategy

Our proposed economic strategy requires the government to create a portfolio of highly selective local firms in selected industries that Singapore can thrive in.

One way to select these local industry champions can be to dissect our national holding company Temasek Holdings. The conglomerate plays little role for the real development of Singapore. It has only been adding more layers of complexity to the issue of ownership. At best, it is a rich holding company seeking returns that may not be accruing to Singaporeans in the foreseeable future.

These local industry champions will not be able to compete immediately. The government will help to acquire technology and market access through deliberate attempts in the mergers and acquisitions (M&A) market. For example, the government can identify the next potential game changer in competitive nations, internalise their technology and access the regional market in ASEAN.

At the same time, we need to construct a stronger technology base in Singapore. We will need to compete with leading destinations around the world on cutting edge technology.

Governments protect domestic markets through preferential treatment. Japan is one such example that enacted difficult environmental standards and laws to protect their goods from foreign competition. Japanese firms also use Japanese suppliers in their international growth. We may not want to go the Japanese way of protectionism, but neither should we go to the other extreme of exposing our local industries entirely to MNCs, as well as to the unpredictability of global forces.

To encapsulate our strategy, it is important to consolidate a fragmented private sector. Consolidation means allowing less competitive firms to fail. This also requires the government to tighten the quota further and grant quotas to firms that can prove innovation. Incentives must be dished to support capabilities, not to merely subsidise their unproductive existence.

It is a dated strategy to use MNCs as vehicles for growth. Singapore has used it for decades. Our GDP has grown tremendously as a result. But now, Singaporeans in general are not getting richer, granted that the richest Singaporeans have been able to profit through real estate speculation.

In this connection, the cumulative real basic wage change from 2008 to 2013 was about -0.1% (the change for each of these years were -2.2, -0.7, 1.1, -0.8, -0.1 and 2.7% respectively – the annualised change was zero).

The strategy for start-ups

The government has been talking about start-ups since the 1970s. To date, we have still not been able to develop a critical mass of start-ups. Our incubators are lacklustre and our venture capitalists are mere financiers. The vision of Silicon Valley seems far from us. Do we continue to develop start-ups or do we embrace international start-ups and scale them up from Singapore? This is a key question. Top ideas are proliferating globally, and some have managed to help solve global resource problems. Membrane desalination was developed in Israel. Cyber-security was brought to light by American start-ups.

It is unclear if we can transform an entire generation of students in time to support our economic growth. But it is clear that we can fund start-ups globally, from Singapore. The condition for funding these start-ups would be that jobs are created for Singaporeans.

The place of Singapore in ASEAN

ASEAN will be the fastest growing region for Singapore in the years to come. There will also come a time when Singapore will lose out in competitiveness to China. Besides seeing a drop in investments and flow of skills and capital, we will also be left with a saturated market. Then, even the US would start to bypass Singapore as a trade destination. Singapore’s only hope, in that situation, would be ASEAN.

Accessing the ASEAN market is difficult because the region has a complex trade network, each with unique customs and regulations. Initiatives to create a single market through the ASEAN Economic Community (AEC) by the end of 2015 have helped change things for the better, but non-tariff barriers to trade are hard to surmount.

We are embedded in ASEAN and we are still the top city in the region, at least for now. We must engage ASEAN more deeply now, and secure Singapore’s position as the gateway for the world to access ASEAN markets.

The solution is not for us to anchor more MNCs in Singapore and get them to set up their headquarters here. This is a futile pursuit unless they come with the promise of high wage and high quality jobs for Singaporeans. We want the research and the design jobs. These skills can never be taken away from Singaporeans.

Singapore New Policy Thinking is an informal think tank that aims to produce the next generation of leaders in Singapore

Leong Sze Hian is a past president of the Society of Financial Service Professionals (SFSP).

Loke Hoe Yeong is Assistant Secretary-General of the Singapore People’s Party (SPP). The views in this article do not necessarily reflect the official position of the SPP.