Mr Ravi Menon, Managing Director of the Monetary Authority of Singapore (MAS), staged his debut as the Institute of Policy Studies’ (IPS) 9th S R Nathan Fellow for the Study of Singapore when he delivered his first lecture on Wednesday, July 7. Titled “The Four Horsemen”, his first lecture outlined four fundamental global trends challenging the existing world order — demographics, inequality, technology and climate change.
This is the first of his four-part lecture series, titled The Singapore Synthesis, which will examine how Singapore’s approach will come under pressure from tectonic shifts altering the global landscape. Through his lectures, Mr Menon will share on the steps needed for Singapore to leverage on these shifts and turn them into opportunities.
Ageing Demographics
Mr Menon illustrated how the ageing global population — the increase in the share of seniors in society due to declining fertility rates falling significantly below replacement levels and rising life expectancy — is leading to a sharp rise in old-age dependency ratios, a decline in labour force and slower economic growth. He projected that a greater share of national spending will be diverted to healthcare and socio-economic support for the elderly as the world ages.
According to Mr Menon, with a fertility rate that is just half the replacement rate, Singapore faces a rapidly shrinking workforce. While increases in automation, higher labour force participation among women and raising the retirement age can help ease the manpower crunch, it is not enough to offset the demographic impact on economic growth, he added.
“Immigration and intake of foreign workers is one of the more effective ways to stretch out the effects of sharp labour force decline,” Mr Menon said. “It cannot be a permanent solution because eventually, there will be physical limits to the size of population that Singapore can accommodate. But immigration can help to smoothen the transition and reduce adjustment costs on the economy and society.”
Mr Menon also stressed that too rapid a rate of immigration can threaten a country’s sense of identity and create anxieties of being overrun by foreigners. Integration of migrants is therefore critical.
Rising Inequality
Mr Menon believes that a certain degree of income inequality is inevitable and even desirable in a market economy, pointing out that differentiating rewards and outcomes reflect unequal abilities among individuals and incentivises innovation and hard work. Inequality, however, becomes socially unacceptable and economically inefficient when it leads to increased poverty, middle class stagnation, a widening wealth gap and reduced social mobility, he said.
He highlighted the yawning income and wealth disparity in many parts of the world, wage stagnation in the middle class and displacement of unskilled workers from their jobs by skills-biased technological change.
Notably, Mr Menon attributed increasing property prices as a key driver of wealth inequality, a development he considers to be worrying. He noted that as people’s income rises, they tend to allocate a larger portion of their disposable income to procure property within prime locations. This, in turn, produces rising house prices relative to income, stimulating investment demand for housing, he explained.
“Globally, property has become an investment asset class. Getting on the housing escalator to get rich has become a trend across the major urban centres of the world,” Mr Menon said. This includes Singapore.
In his view, public policies targeted at improving education and access to healthcare, skills training and expanding financial inclusion, among others, could play a key role in alleviating the adverse effects of income inequality.
Technological Disruption
Mr Menon discussed the far-reaching implications of the growing digital economy and the emerging concerns brought about by the rise of technology sweeping across the world.
He drew attention to the absence of a rulebook for the global digital economy and raised the possible need for a “Digital Bretton Woods” to set global standards and protocols for cyberspace engagement, governing international data flows and exercising oversight of data monopolies to ensure a competitive playing field, among others.
Regarding technology’s impact on jobs, Mr Menon said that reducing the need for human labour with automation is not necessarily a negative thing, particularly in labour-short Singapore. The proliferation of robotic automation could transform the construction and cleaning industries and reduce Singapore’s dependence on foreign labour, he elaborated.
While technology is bound to disrupt and displace certain tasks and skills in occupations, jobs requiring social interactions, interpersonal connections and the weighing of ethical dilemmas are likely to remain the preserve of humans, Mr Menon remarked, adding that human factors such as creative imagination, empathy and accountability cannot be commoditised nor automated.
“In an almost ironic way, technology may well help to make us more conscious of what it means to be human and make us better human beings,” he mused.
Climate Change
Describing the issue of climate change as “the most complex” out of the four challenges, Mr Menon warned that the potential damage to human and natural systems will be severe and likely irreversible should current emissions trajectory continue unabated. Global GDP could be 15% to 25% lower by 2100, he noted.
He also observed a renewed sense of urgency towards the climate agenda despite the COVID-19 pandemic, pointing to an unprecedented number of commitments to carbon neutrality and net zero emissions by governments, corporations, and other institutions in 2020.
While acknowledging that carbon pricing is gaining momentum around the world today, Mr Menon contends that carbon prices need to be much higher to put the world on a trajectory towards achieving the goals of the Paris Agreement. He shared how experts estimate the need to increase prices to between US$100 and US$160 per tonne of carbon dioxide equivalent (tCO2e) by 2030. Currently, most countries that have adopted a carbon pricing mechanism have carbon prices below US$50 per tCO2e, with the exception of some European countries like Sweden and Norway, he said.
Mr Menon emphasised that Singapore would need to do more to address climate change, including raising its climate ambition to reduce greenhouse gas emissions, increasing its carbon price to catalyse carbon mitigation efforts and developing innovative solutions to harness clean energy. He cited as an example ongoing efforts to explore transmission lines to neighbouring countries to tap and trade in the renewable energy they produce.
Countries possessing the technological capabilities and fiscal resources will be able to seize the opportunities brought about by the transition to a net-zero economy, Mr Menon said. He added that Singapore is poised to thrive in a green economy provided it takes “bold, decisive moves”.
Pandemics: A Fifth Horseman?
Given COVID-19’s prolonged grip on the global landscape, Mr Menon considered the potential of pandemics as a possible fifth horsemen, alluding to factors such as urbanisation, climate change, and the increased interaction between humans and animals as risk factors for new pandemics occurring more frequently. The ability of countries to learn and adapt to living in an endemic COVID-19 world is paramount, he explained, adding that pandemic resilience can be a new source of competitive advantage for Singapore, due to a greater premium placed on trust and stability, as well as on countries that can handle crises well with minimal disruption to economic activity in a post-COVID-19 world.
“Global business leaders who talk to EDB and MAS say how Singapore’s handling of the pandemic has strengthened its relative position as a resilient place to do business,” Mr Menon said.
Question-and-Answer Section
During the question-and-answer session moderated by Professor Danny Quah, Dean and Li Ka Shing Professor of Economics at the Lee Kuan Yew School of Public Policy, Mr Menon addressed the topics of meritocracy and inequality. He asserted that persistent wealth inequality leads to an unfair inheritance of advantage. To him, this undermines the equality of opportunity. As an analogy, he explained that life is not a race but instead, a relay — while everyone starts off at the same time, the baton gets passed on at different times.
Earlier in his lecture, Mr Menon had warned about the risk of “hereditary meritocracy” taking root in Singapore, a scenario where the offspring of the rich and powerful in society naturally acquire the accumulated advantages and privileges of their parents — be it in income, wealth, or education. He raised the example of how society may not object to a brain surgeon being paid handsomely for his skills, but would begrudge the surgeon’s children for inheriting his wealth and living extravagant lifestyles without giving back to society.
The solution, in his view, is not to discard meritocracy but rather re-tool it so that the fairness and equality of opportunity is roughly maintained.
Responding to a question on how a small country like Singapore with good governance and a reputation for trust and competence can impart best practices for the rest of the world, Mr Menon cited the Group of Twenty (G20) as an important arena for Singapore to be a facilitator for international cooperative efforts, noting Singapore’s burgeoning role in exercising thought leadership on digital issues.
On the prospects for international collaboration on the four challenges he articulated, Mr Menon expressed hope on pushing the agenda for climate change. On the other hand, he felt that the area of technology would be difficult in securing global cooperative actions due to the sensitivities associated with technology and the distrustful, competitive relationship among the major powers in the digital field.
Click here to watch the video of lecture I.