(Delivered in Parliament on 27 February 2020)
Budget Speech 2020
Mr Speaker sir, in 2019, we were considered by the World Economic Forum to be the country closest to the frontier of competitiveness in the world.
However, instead of giving in to the temptation to vaingloriously bask in such rankings, critically looking at the report unveils shortcomings that we can reflect on. The WEF report highlighted room for improvement in respect of promoting entrepreneurship and improving the skills base, for example.
I shall therefore focus my speech on three aspects of national life that pertain to our long-term outlook – vibrancy meaning the quality of the economy; liveability, or the well-being of the people; and sustainability of our fiscal resources; before concluding with directional suggestions that attempt to speak to the challenges we face across all these three dimensions.
Before I begin, I declare my interest as the CEO of a research consultancy that undertakes work in a variety of business arenas, including industry 4.0 spaces.
Vibrancy
Mr Speaker sir, on the back pages of The Economist magazine, they track economic indicators of various countries. Decades ago, Singapore’s GDP growth was consistently among the highest in the region and the world. In recent years, it has been more modest but still better than or the same as other developed countries in the region. In 2019, however, our GDP growth was low against even developed Asian economies like Korea, Taiwan and Australia, let alone the US – and this was before the coronavirus. The government’s forecast for 2020 is, roughly, the same rate of growth.
Sir, while we face the short-term challenge of dealing with the coronavirus, in the mid-term our economy faces deeper structural challenges:
§ 1st, our economy is now heavily dependent on China which was experiencing a growth slow-down, even before the coronavirus;
§ 2nd, our productivity performance goes up and down but is also bifurcated between high-productivity manufacturing and other externally-oriented sectors; and some less productive service sectors; and between an MNC sector with higher productivity and an SME sector that employs two thirds of our workers, with less;
§ 3rd, our SMEs and particularly micro-businesses, will face headwinds not only from the coronavirus but also the more general China slowdown. In fact, as argued in a recent letter in the media from the Chairman of Credit Counselling Singapore, many micro-businesses may become ensnared in a cycle of chronic indebtedness as a result of the economic impact from the coronavirus episode, as happened with SARS in 2003;
§ 4th, while the GDP share of R&D is decent, it is not as high as in some developed countries and there is some evidence that R&D GDP share is linked to Total Factor Productivity. More importantly, beyond the MNC sector, it is not at all clear if R&D is being taken up and commercialised successfully on a substantial scale by our local companies, notwithstanding some take-up of licenses from A*STAR by local enterprises.
§ 5th, we continue to be successful in attracting Foreign Direct Investment or FDI. But we have all come to acknowledge that future FDI inflows may be under threat from anti-globalization trends that my Party Chairman Ms Sylvia Lim spoke about; in particular, the deliberate efforts some countries may take to pull back supply chains to their domestic economies in light of things like the coronavirus and US-China geopolitical tensions. To insulate against this risk, we face the challenge of raising the game of our local firms.
§ 6th, with the rise of uniquely disruptive technologies like AI, autonomous vehicles, the Internet of Things and drones, whole categories of employment may be wiped out practically overnight. The advent of autonomous vehicles may put at risk the jobs of drivers in the taxi and PHC industry. Many jobs in back-end operations and front-end services are also at risk from AI, robots and chat-bots. So one additional challenge is to ensure that our people can keep their heads above tomorrow’s rising waters of employability amidst a sea of economic disruption not seen in generations – not only in respect of skillsets like deep-tech and coding but also soft skills like creativity, leadership, entrepreneurial acumen and resilience. In fact, the authors of the WEF report cited room for improvement for Singapore in skills like critical thinking.
How do we meet the challenge of enhancing our vibrancy, which implies stimulating home-grown innovation and entrepreneurship?
Liveability
The next broad point I will speak on is on liveability. A blind chase for vibrancy of an economy is no full guarantee of the well-being of its citizens. Putting effort into liveability, therefore, is one of the most crucial challenges facing Singapore.
What else can be done to breed confidence that out system will manage liveability in the future? Our Total Fertility Rate has been one of the lowest in the world for years. 29% of young Singaporeans in a recent survey said they would consider migrating in the next five years. I suspect that getting liveability right would make a difference on these fronts.
The approach to managing the cost of living is a case in point. Why not develop an approach to policy-making that commits the state to adjust for future conditions by building the adjustment mechanism into policy design, rather than leaving it to future acts of executive discretion which may or may not happen. Right now this is done in some cases, like permanent GST vouchers, but not in others.
One example of this would be adjusting Silver Support for inflation from time to time, based on policy design, rather than leaving it up to the government and Parliament at its discretion. Parliament can still vote against inflation-based increases should fiscal resources be insufficient, so the mechanism can still contain an element of evaluation. But the fact that the design of the policy has a built-in mechanism to recommend changes and adjust based on inflation at certain defined time intervals creates some assurance that yes, society will not leave me stranded in the future one day, this is not just a benefit for today, leaving me uncertain about tomorrow.
This is a specific example to make the general point that if more well-thought-through social protections and stabilizers are built into policy design, it may assure Singaporeans that the society has their back and this may reduce risk-aversity and the focus on short-term income not long-term income. This, in turn, may promote a culture of being more willing to take risks, to reskill, to start a business and possibly even to have children, because one is more confident about the future. Some research suggests that our economic outlook and sense of economic security does impact these behaviours.
And if we fail to address the challenge of liveability, like parts of the US and England, swathes of our people may turn against globalization, which would damage prospects for vibrancy.
Let me note in passing: one could respond to this point by saying that this is a call for profligate spending because it requires spending commitments before we know we have the money to fund it. It is not. It is a call for building into policy design mechanisms that self-correct and have built-in adjustment processes, rather than leaving it purely to future executive discretion. The executive and Parliament can still decide not to go ahead if the money is not there.
Sustainability
Next, I want to talk about sustainability. Vibrancy and liveability are already difficult challenges in themselves. What we must ensure is that policies aimed to address these challenges are sustainable and responsible.
To be sure, it is a good thing that we have large reserves that yield net investment returns or NIR, the largest state revenue stream today, and that can be drawn down in emergencies. Many countries do not have this and have high levels of fiscal debt relative to GDP.
But aren’t there also dangers in going to the other extreme and being too prudent? Could that also lead to a failure to seize opportunities to develop the capacities of our people for the future?
Clearly we have to find the “Goldilocks zone” between these two extremes. An analogy from the business world might be the two extremes of spending too much and running into a cash crunch on the one hand; and not investing enough in the company to develop the capabilities of the employees, new business strategies and IP on the other.
Our reserves have been estimated at over a trillion dollars. Every year, these reserves grow from half of the NIR as well as from land sales and any un-spent surplus from each term of government, among other things.
I am not suggesting drawing down on the reserves at this point.
But in the longer-term is there more scope to slow the rate of reserves growth, so as to release more funds to invest in our people and address the challenges we face in terms of liveability, employability, innovation and so on that I spoke about in the first part of my speech?
Let us bear in mind that during the worst global economic crisis the world had ever seen since the Great Depression of the 1930s, the global financial crisis of 2008, we drew down only a tiny fraction of the reserves.
Should our reserves always go up and up at the same rate? Can we not have reasonable conversations about how to vary the slope of reserves growth while agreeing that the principal should only be drawn down in an emergency? And how, in doing that, we can invest in our people and our companies so as to help them become the most creative, the most resilient, the most innovative and the most entrepreneurial that they can possibly be; so that they can deal with any challenges the world can throw at us with confidence?
If we do use more fiscal resources to do that, we should also recognise that, if our efforts are successful, we may be able to save on social safety net spending later and we may also raise GDP and hence tax revenue, which are good fiscal outcomes. My analogy here would be spending more to make vaccines free or close to free, a subject I have raised a few times in this House, which may have the effect of reducing state spending on hospital subsidies, Medifund and so on further downstream.
Suggestions
Mr Speaker sir, the three dimensions of national life I mentioned are very much interconnected. However, as formidable as the challenges are, they are not insurmountable if we tackle them earnestly. Therefore, I would like to conclude with just a few directional suggestions on how we might address these future challenges from where we are at in this point in time.
Firstly, invest more in local enterprises that can deliver. This was how the Japanese and Koreans built up their world-beating giant firms. For those local firms which can consistently deliver financial and economic growth while safeguarding or growing domestic jobs, to those firms that significantly enhance our economic vibrancy, more support can be provided beyond the caps and limits associated with current economic schemes.
I had an exchange on this subject in this House with then MTI Minister Mr Iswaran in 2017 and I understand his counter-argument that we don’t want to go too far down the path of picking winners. There is a grain of truth there. But some of our existing efforts, like state-backed co-investment for example, could be seen as picking winners anyway.
And why not let the winners pick themselves? This was the philosophy of Korea in the 1960s and 70s, where the state ensured provision of loans to chaebols or large firms which could consistently grow exports and hard currency earnings, and loan support was withdrawn from those that could not consistently deliver those results. While to be sure, not everything Korea did in those decades was correct in hindsight, that policy contributed to the emergence of giant companies like Samsung and LG today.
Conversely, support to local firms that do not demonstrate ambition and performance can be disciplined and focused on competitiveness improvement, job safeguarding and business succession planning.
Sir, this is a call for strategic, results-based spending to develop local entrepreneurs in ways that benefit domestic employment. This is not a call to give away state monies to local firms irrespective of outcomes, and I trust that it will not be referred to as the latter.
Secondly, we know that productivity is partly a function of investment. And we cannot depend only on FDI for this investment in the longer-term.
Can we not do more to tap on our fiscal resources to channel substantial R&D investment into creating IP that is then seeded to local companies in a very substantial and systematic way, but with the IP owned by the state and licensed to the firms, so that the state can nudge these firms to grow in ways that benefit the domestic economy and locals? The areas earmarked for R&D investment in this way can be targeted so as to fill gaps in the global IP landscape in future-ready fields like AI, so as to ensure maximum “commercializability,” as it were.
I know that there are limits to how much we can do under WTO rules and other treaty obligations. But surely there are ways to navigate these obstacles to some degree.
And as I referred to earlier, A*STAR has licensed IP to SMEs but the question is how to upscale this to enhance the commercial impact and provide enablers to ambitious local firms to become world-beating.
Thirdly, many of our talented youth go into the civil service – 26% of autonomous university graduates go into the public service as their first job, according to a Parliamentary answer given in 2018. Can we create a program that mentors and coaches civil servants in their 30s or 40s or 50s who wish to leave the service to become entrepreneurs? Such a program could help them develop skill-sets relating to fund-raising, employee recruitment and retention, marketing and so on – not so much training but coaching and pointing them in the right direction, as well as connecting them with funding sources, including state-backed ones.
After all, we don’t only want locals to get the $7k jobs and the $10k jobs. We also want some locals to create such jobs.
Fourthly, can we undertake a project to map out the categories of jobs at risk from industry 4.0 and then initiate a program to inform workers in these sectors of the imminent risks over the mid and long-term and nudge them to engage in reskilling and career switches to high-growth, disruptive industries?
Perhaps an incentive scheme could be deployed to attract local workers into Industry 4.0 sectors like renewable energy, drones, AI and deep-tech; especially those where the Singaporean core is weak. Having a pool of workers with such training could also help attract both foreign and domestic investment in these high-growth sectors.
Of course, any such move has to be done in tandem with the growth of investment in these sectors, to ensure that jobs and career paths are available to those who join such industries.
Lastly, as part of the Singapore Public Sector Outcomes Review (SPOR), can we adopt independent measures that regularly track the capacities of our people versus other countries, in terms of attributes like resilience, entrepreneurship and creativity? Beyond just hard skills and cognitive intelligence, it is these capacities and capabilities we need to nurture. It is these capacities that will be our surest defence against whatever economic and technology revolutions bring. And tracking them in the SPOR report is a nod to the fact that our policies do play some role, not the main or only role to be sure, but some role in nurturing these capacities and capabilities.
Conclusion
Mr Speaker sir, in conclusion, the future is always uncertain. But there are some epochs in history where there is more uncertainty than average, and we are probably living through one of these.
We are dealing with huge geo-political shifts, massive economic disruption, changing demographics, the existential threat of climate change and the possibility of Black Swan events like disease pandemics.
But uncertainty is never a reason to not make projections and not make bold plans.
Times of change and crisis are also moments for the agile, the resilient and the creative to find new opportunities. Anticipating and adapting to those moments in history like our own that see non-linear change can bring immense benefits, not only in economic terms.
Thank you.