One of the benefits of travel is that it expands the mind — or rather, it makes you appreciate just how global the big, overarching political and social issues that vex us on a national level really are.
I visited Singapore last week, where after more than 40 years of stellar growth, which has multiplied income per head 80-fold — bringing it up to and beyond that of the UK — a ‘national conversation’ has been launched on how to tackle the next phase of economic and social development.
Singapore is not only a world away from the UK geographically, but as a small city state of no more than 5.5 million people and with a still relatively authoritarian approach to government, it doesn’t obviously hold many lessons for a mature, and much larger, advanced economy such as Britain.
Yet as this former colony climbs the economic ladder, some familiar social and political issues have begun to emerge. One is growing inequality, and the other is high levels of immigration, problems mirrored in developed western economies. Singapore’s approach to these challenges is therefore instructive.
In Singapore, the two complaints tend to get converted into one. At the bottom of the pile, the influx of cheap, low-skilled foreign labour is widely blamed for depressing wages and for overloading the country’s infrastructure.
Meanwhile, at the other end of the spectrum, highly paid American and European workers, attracted by the country’s low taxes and open economy, are greatly adding to the pressure on house prices, health care costs and other living expenses. There is nothing wrong with inequality as such. It always was, and always will be, part of the human condition.
Spoils of growth
Where it does become a problem, however, is when the spoils of growth get monopolised by a small elite of the talented, educated, and well connected, leaving the great unwashed marooned in a no-man’s land of frozen or declining living standards.
You don’t have to be a follower of Marxist theory to know that left unchecked, these trends will eventually result in major upheaval. Even the super-rich, prime beneficiaries of the process are beginning to sit up and take notice. Globalisation, the more thoughtful of their number have come to recognise, may have unleashed a monster that will generate such extremes of inequality that it will end up undermining the very prosperity it has created.
As a microcosm of this global problem, Singapore offers not just an interesting case study, but also some important clues as to possible solutions.
Low taxes, rule of law, protection of intellectual property rights, intolerance of corruption, and a policy mindset that attempts to facilitate business, rather than, as tends to happen in Europe, hinder it, have helped make this former outpost of empire a magnet for international investment and cemented its position as a gateway to Asia’s fast-growing markets.
Yet rapid growth has brought its own problems, and just lately the locals have been getting restless. There have been demonstrations — pretty much unheard of in a country once notorious for enforced haircuts at the airport for long-haired males — social media has been alive with dissent, and a number of opposition MPs have even been elected to parliament.
The government has responded in two ways. One is to clamp down on immigration, with the imposition of a much more onerous system of quotas and levies on foreign workers. It thereby hopes to limit the downward pressure on wages at the bottom of the scale.
These restrictions obviously don’t apply to high-end workers, who are regarded as vital to future competitiveness and growth. To mitigate this aspect of the inequality problem, the government instead proposes to introduce a more effective social safety-net, though it refuses to call this welfare.
Europe’s mistakes in establishing a system of ultimately unaffordable universal entitlements that undermine work incentives are to be avoided, ministers insist. Rather, they propose targeted spending, particularly on health care for a generation too old to have shared in Singapore’s recent gains.
Yet they also concede that these extra costs will lead to higher taxes, so it might be that Singapore has put itself on a slippery slope. In any case, for a country where state spending has never averaged more than 15 per cent of GDP, this is quite a departure.
None of these remedies would seem to have much relevance to Britain, which doesn’t have the luxury of expanding its entitlement system to address inequality. For Britain, the challenge is the other way around — cutting the leviathan back to affordable, self-menacing size.
Membership of the EU also makes controls on immigration much more problematic. Besides, low-cost labour competition doesn’t these days have to take the form of immigration. It can be sitting at a computer terminal in Mumbai, or simply come in the form of increased automation.
Thus far, the western approach to stagnating low and middle incomes has been to hose the masses down with the intoxicant of easy credit — a kind of ‘let them eat debt’ solution. As we have seen, this was never going to be sustainable.
Ultimately, it is only the supply-side remedies of better education, training and productivity gain — allowing workers and their children to progress up the value chain — that can offer effective long-term solutions, but they take time and planning to work, things western politicians tend not to be good at.
Not so Singapore, whose uniquely Asian mix of free-market economics and aggressive state activism shows every sign of getting these things right, too. The former colony, it seems, still has much to teach its one-time master.
— The Telegraph Group Ltd, London 2013