In his second of four lectures, Mr Ravi Menon, IPS’ 9th S R Nathan Fellow for the Study of Singapore, highlighted three areas where Singapore can be innovative to manage the country’s shrinking labour force — making domestic services exportable, digitalising its economy end-to-end and leading the charge in Asia on the green economy.
Warning that a failure to innovate could risk economic stagnation, Mr Menon argued that Singapore should capitalise on its resourceful ability to adapt best practices from elsewhere to local contexts. He added that technology and climate change present opportunities for new business models and markets, providing a powerful impetus for innovation.
Exportable Domestic Services
Mr Menon pointed to education and healthcare as two industries that should be turned into major exportable services, underscoring the trust premium that Singapore enjoys in the high quality of its education and healthcare systems. He asked if Singapore should not aspire to be the “Oxbridge of Asia for education and the Mayo of Asia for healthcare”. Mr Menon said that a large external market would provide the scale necessary to make sizeable investments in technology and human capital, thereby raising productivity and wages.
Acknowledging concerns that such a pivot to serve overseas customers and raise wages in these sectors could increase education and healthcare costs for Singaporeans, he contended that Singapore cannot be a high-wage, low-cost economy.
“One man’s cost is another man’s wage,” he explained. Mr Menon argued that Singapore needs to become a high-productivity, high-wage, high-cost economy — where most people can bear the higher costs because they have higher wages and can earn higher wages because they have higher productivity. Mr Menon cited countries, especially in northern Europe, with high labour costs that were also highly competitive.
“It will not be easy and the transition has to be carefully managed,” he said. “But it is worth trying.”
End-to-End Digitalisation
Mr Menon said that Singapore needs to be digital end-to-end to fully reap the benefits of digitalisation. This means two things. First, digitalise each stage of the business process within firms by fully integrating front-end operations with the back end so that transactions are fully “paper-less and presence-less”. Next, ensure that digital systems are interoperable and inclusive across firms.
A comprehensive digital ecosystem, in his view, requires collective governance, common standards, open architecture and inter-operable infrastructure, along with collaboration across government, industry, research institutions and the technology community at large.
Mr Menon shared four key components of such a digital ecosystem — digital infrastructure, digital governance, digital inclusion and digital connectivity.
He described how Singapore has put in place the foundational digital infrastructure needed to enable interoperable solutions and seamless digital services to reach more people and businesses at lower cost and great convenience. He cited examples such as the establishment of a national digital identity for authentication and verification in the form of Singpass, and the facilitation of digital payment transactions with FAST and PayNow.
On digital governance, Mr Menon cautioned against introducing premature regulations that may hinder innovation and potentially derail the adoption of useful technology. Instead, he called for a risk-based approach to regulating new technology, one where regulators need to keep pace with innovation and allow for controlled experimentation.
Mr Menon also emphasised the importance of transparency in fostering trust in a digital economy. Users must be given clear explanations of what their data is being used for, how it is being used, as well as the consequences of decisions made using the data, he stressed. He urged authorities to consider mandating basic cyber hygiene for all businesses engaged in the digital economy, such as installing security patches promptly and anti-virus software. He stressed that these measures are “as essential as fire safety requirements”.
Other issues discussed include the implementing of a digital enabler package complete with PayNow, a bank account accessible via Singpass and a smartphone device for every child in Singapore entering secondary school, as well as Singapore’s digital connectivity initiatives such as the Singapore Trade Data Exchange (SGTraDex), Network Trade Platform (NTP) and digitalPORT@SG.
Singapore: The Vanguard of A Green Economy
Measurement and disclosure of carbon emissions and carbon pricing are two areas where Singapore needs to step up considerably in its push to become a green economy, Mr Menon posits.
Commenting that Singapore’s low carbon tax makes it an outlier among countries that have introduced carbon pricing, Mr Menon stated that carbon levies will have to be raised to help the country meet its climate commitments. Further, he added that the government is currently reviewing both the trajectory and level of the carbon tax to ensure they provide sufficient impetus for emissions reduction and restructuring towards a greener economy. Doing so would give businesses time to start restructuring towards less carbon intensity and avoid sharper, more painful adjustments later on, he added.
While recognising that higher carbon taxes will impose a short-term drag on the economy, Mr Menon reckons that current fears of a loss of competitiveness are overstated. He believes that Singapore can afford significantly higher taxes than currently envisaged and still remain competitive as an economy, citing Sweden’s experience in successfully decreasing domestic greenhouse gas emissions by 26% while growing its GDP by 78% from 1990 to 2017, despite having the highest carbon tax in the world.
Carbon taxes should also be designed equitably, he added, to prevent adverse impacts on lower-income households. Similar to the Goods and Services Tax (GST) offset schemes, Mr Menon suggested distributing parts of the carbon tax proceeds to lower income households through carbon dividends.
Strengthening the Singaporean Core with Global Talent
Mr Menon said that Singapore’s strategy of growing a Singaporean core while attracting foreign talents is “coming under strain” amid growing unhappiness among locals over job competition from foreigners. The anxieties that some Singaporeans feel about the influx of foreigners are real and need to be addressed, he added. At the same time, some foreigners are feeling less welcome in Singapore.
He suggested to continue increasing the minimum qualifying salaries for Short-Term Employment Pass (S Pass) holders and Employment Pass (EP) holders over time, with the S Pass minimum salary raised to around $4,500 from the present $2,500. However, he cautioned against tightening EPs at the higher end as it could lead to the loss of adjacent local jobs.
Mr Menon also recommended doing more to tackle discriminatory hiring in favour of foreigners, by directly punishing the individuals in the firm found to have engaged in such hiring practices. To have a strong deterrent effect, he proposed measures like imposing financial penalties, reducing bonuses and freezing promotions.
Question-and-Answer Section
To kick off the discussion, moderator Mr Chng Kai Fong, Managing Director of the Singapore Economic Development Board (EDB), asked Mr Menon about the challenges that the “broad middle” of Singaporeans — people in their mid-40s and late 50s — face while transitioning into the new innovative economy and how they can thrive amid these economic changes.
Mr Menon replied that Singaporeans need to be comfortable with technology and harbour an enterprising spirit to step out of their comfort zones and seize new opportunities. Doing so would allow them to reinvent themselves despite the dramatic shifts in economic structures. Unlike citizens in small, successful European countries like Denmark who are mobile and can easily uproot to move across jobs, he noted that Singaporeans are not as nimble and flexible when it comes to changing jobs and taking on overseas job postings. He shared that this is due to encumbrances like housing mortgages and children’s education. Stopping short of advocating for full unemployment benefits, Mr Menon believes that the government can support workers who are undergoing training and moving to a new line of work to help ease the transition.
He also advised young graduates looking to thrive and navigate in this changing landscape to join start-ups to learn first-hand what it takes to build a business and enterprise from scratch, adding that it is wonderful training to build character while learning from failure. Expressing concern at the income gap between a polytechnic diploma holder and a university graduate despite little differences in skills level, Mr Menon urged employers and businesses to grant better recognition towards the value of a polytechnic education and focus on assessing the skills level of a job candidate, instead of their education qualifications alone.
Responding to a question on fixing distortions in the labour market, Mr Menon agreed that there seems to be a problem with how rewards are structured in the job market, noting how wages of skilled professionals like technicians, nurses and childcare specialists, are significantly below those in other high-income countries. Addressing this occupational wage inequality entails gradually reducing Singapore’s dependence on foreign labour for these skilled jobs in the middle and allowing wages to rise to a point where it is attractive for Singaporeans to take on these jobs, he added. This, he believes, will raise the status of these jobs and make the middle class much stronger. It will mean, however, that costs will go up.
On maximising work opportunities for older workers and women with care responsibilities to supplement Singapore’s declining labour force, Mr Menon pointed that they could take up gig economy-type jobs from home using digital platforms. He added that the gig economy should shift from the younger group to the older group, as young people should take up full-time jobs to build up their skills and capabilities.
Click here to watch the video of lecture II.