Academic journal article Journal of Southeast Asian Economies

Singapore's Rising Income Inequality and a Strategy to Address It

Academic journal article Journal of Southeast Asian Economies

Singapore's Rising Income Inequality and a Strategy to Address It

Article excerpt

Over the past four decades, numerous accolades have been sung about Singapore's economic success. Despite a bleak economic outlook at the time of its independence, the city-state went on to engineer an astounding transformation from a regional trading port in the 1960s to a low value-added labour-intensive manufacturing base in 1970s and eventually ending up today as a high value-added, technology-intensive manufacturing base as well as a hub for providing professional business and financial services.

The success is not merely just in terms of economics. In almost all social, environmental and political aspects, Singapore has won adulations from not only the developing but also the developed countries. The achievements, however, did not come easy for Singapore. Given the lack of natural resources and absence of a large hinterland, Singapore had to stay ahead of its competition by incessantly upgrading its economic structure and investing heavily to build up its soft and hard infrastructures.

I. Incessant Upgrading of Singapore's Economy since the 1970s

Singapore underwent its "First Industrial Revolution" during the 1960s when it embarked on its export-oriented industrialization efforts to drive economic growth as proposed in the 1961 Winsemius Report. (1) Efforts to upgrade its economic structure started as early as the 1970s. As the economy expanded and approached full employment, dependence on foreign workers grew. By 1970, there were a total of 72,590 foreign workers making up about 11 per cent of the work force. (2) Increasingly, there were worries about the sustainability of the economic growth driven by labour-intensive industries, prompting a shift to capital- and technology-intensive industries. (3) The National Productivity Board (NPB) was set up in 1972 to improve productivity in all sectors of the economy. As a "disincentive" for companies to remain labour-intensive, wages were set to increase in stages under the guidance of the National Wages Council (NWC). Unfortunately, this initial attempt to upgrade the economy was disrupted by the first oil crisis in 1973 and the ensuing word recession in 1974-76. As foreign direct investment (FDI) inflow declined sharply almost by half in 1973, economic growth fell to 6.1 per cent in 1974 and 4.1 per cent in 1975. (4) The fear of recession and unemployment caused the economy to cling on to labour-intensive industries. Consequently, as economic upgrading slowed down, wage increases were delayed and high growth resumed by the late 1970s. (5)

By the 1980s, many national governments began to emulate the success of the four Asian Tigers by abandoning their import-substitution developmental model and "liberalizing" their economies to receive FDI to drive export-led growth. As competition mounted, it became apparent that the shift towards capital- and technology-intensive industries could wait no more. In 1980, the Singapore Government launched the "Economic Development Plan for the Eighties", which heralded the city-state's "Second Industrial Revolution". The plan outlined Singapore's efforts to diversify its economic activities into new information-based services, such as computer, medical, consultancy and warehousing services. (6) To spread the use of information technology (IT) and automation in raising productivity, the government launched the National Computerization Plan (1980-85) in 1980. This was followed by the National IT Plan (1986-91) in 1986. Besides offering incentives to encourage multinational corporations (MNCs) to switch to capital-intensive manufacturing methods, education and training programmes for the labour force were also introduced to upgrade their skills. In addition, to encourage companies to climb up the value chain, the NWC initiated wage increases of about 20 per cent from 1979 for three years in a row. In 1980-84, high economic growth continued with real GDP growth averaging 8.5 per cent per annum. (7) By 1985, however, there was a slowdown in global demand and exports declined drastically. …

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