Kenneth Jeyaretnam: Singapore’s problem is that like Japan, it relies largely on adding more inputs to create output rather increasing the productivity of these inputs. This was pointed out, by Krugman and others, in the 1990s when comparing the performance of the Asian “tiger” economies, including Singapore. I have often drawn attention in the past to Singapore’s poor productivity growth and that the PAP government has taken the easy route to impress foreigners and grow the economy merely by adding more low-cost workers. Our economic growth is also extremely unbalanced, like Japan’s in the past and China or Germany now. Singapore runs a huge current account surplus of close to 20% of GDP that is much bigger than either Germany’s or China’s, which are often cited as examples of countries adopting selfish economic policies. Consumption is only about 40% of GDP so investment and net exports comprise about 60% of the economy. This cannot continue indefinitely without the rate of return on new investment falling so low as to be unattractive. The PAP Government have tried to stop this happening by opening the floodgates to cheap and easily exploitable foreign labour but we must be reaching the end of the road here despite the Government’s plans for a 7 million population and their barely concealed desire to increase that target to 10 million or more as soon as they think they can get away with it. A major part of the problem with our unbalanced and unsustainable economic growth is that the PAP Government runs a surplus of about 10% of GDP and together with our forced savings in CPF this is recycled into the purchase of foreign financial assets that earn low or negative returns in S$ rather than being spent on consumption . Already demand for Singapore’s exports is slowing amid the global economic slowdown and the economy is on the brink of recession. Unemployment is rising particularly among graduates who are forced to take lower-paying jobs. A property slump abroad could quickly translate into falling property prices here. Since inflation is domestically generated and is mainly caused by the rising cost of land and rents a property price slump could quickly lead to a scenario where prices are falling. This could lead to the same kind of deflationary spiral we have seen in Japan and that Europe is on the brink of falling into. You might think that this cannot happen because the PAP Government has a lot of room to cut taxes and spend more because of the huge Government and current account surpluses. However much of the Government surplus is income from foreign financial assets. A slump in asset prices and in foreign currencies could cut the value of this income and leave a shortfall in the amounts necessary to repay CPF account holders. We already suspect that something like this has happened and that the value of our reserves has been eroded due to mismanagement. The Government does nothing to dispel these rumours by its desperate desire to hang on to our CPF savings and prevent withdrawals. The PAP is also so desperate that they have revived the defamation weapon and use of illegal assembly laws just in order to try to silence a group of young people who never looked very threatening to start with. Ultimately though, even if the kind of scenario outlined above unfolds, the PAP Government can allow the S$ to depreciate and print money to pay off CPF holders. This should prevent us falling into the kind of deflationary spiral that afflicts Japan. However any such action, even if viewed as a lesser evil, would be expropriation from Singaporeans who have not been given any choice in whether they wish to lend money to the PAP Government for overseas speculation. We have been left holding the risk with no share in the rewards. To the PAP leaders and the heads of Temasek and GIC Singapore is just a gigantic hedge fund that owns a valuable asset which unfortunately comes with a liability of three million native inhabitants. By electing them to office with no checks on their power, Singaporeans have granted the PAP a free option. This is why I call it a “Heads They Win, Tails You Lose Scenario”.
Posted on: Thu, 20 Nov 2014 01:56:31 +0000
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