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Showing posts with label Boston Consulting Group. Show all posts
Showing posts with label Boston Consulting Group. Show all posts

Saturday, June 2, 2012

Bridging the rich-poor gap in Singapore

The recent pay increases are seen by some Singaporeans as a step forward, but critics view them as tweaking, rather than resolving, a fundamental problem.

WHEN Cabinet ministers took turns to rebuff a proposal to push up salaries of lowly-paid workers, most Singaporeans viewed it as good as buried.

Given the strict way the government is run, the revolutionary idea raised by former state economic adviser Professor Lim Chong Yah might well have faced the death sentence.

His think-out-of-the-box way of narrowing the economic gap called for the salaries of low-level workers to be raised by 50% over three years, and those at the top-end be frozen for a similar period.

The widening gap between rich and poor is becoming one of the most pressing problems here today. It threatens Singapore’s social fabric despite its strong GDP growth.

To the PAP, Prof Lim’s suggestion probably smacks too much of socialism.

But according to the professor, this land of record millionaires needs such a solution because it has for years been significantly under-paying its poorer workers.

The rich are becoming richer, and the poor poorer, not the best way to win votes.

The Boston Consulting Group said that 15.5% of Singapore households have at least S$1mil (RM2.4mil) in liquid assets, the highest percentage in the world.

But the earnings of the city’s 20% lowest paid had declined during the past 10 years.

The unequal growth was not due to globalisation or technological change, but the mass influx of foreign workers in the past 10 years, said prominent diplomat Prof Tommy Koh.

He said Singapore had a per capita income similar to Denmark, Finland, and Sweden, yet cleaners in these countries were paid some seven times more than those in Singapore.

Prime Minister Lee Hsien Loong’s response to Prof Lim was a firm “no” and said such pay increases must be matched by a rise in productivity.

That is virtually impossible as this growth slowed to an average 1% a year in the past decade.

However, I’m glad no one said “never” to Prof Lim. Due to the seriousness of the problem, it is unlikely any leader can swear that the concept will not be relooked at one day.

In fact, since Prof Lim’s controversial suggestion, a series of steep pay increases resembling — and even exceeding — his suggestion has been announced — although only for a duration of one year.

Prof Lim’s proposal was for an average of 16%-17% a year for a consecutive three years.

The recent ones included the following:

> SMRT announced that it was raising bus drivers’ salaries by 35%, but for a six- instead of five-day week.

> Public health workers, including nurses, will have had increases of up to 17% from last month.

> Social workers can expect pay rises of up to 15% this year.

> NTUC, the large union movement, announced that non-executive staff will get up to 15.8% in wage increment and adjustment.

> Several thousand junior and mid-level civil servants will get pay increases of between 5% and 15% this year.

The increases are, of course, unconnected to Prof Lim’s proposal but some observers believe the government is worried over, and may be responding to, the growing public unhappiness about stagnant salaries.

In its way, the job market seems to be lending support to Prof Lim’s proposed measures. The economic imbalance is the second worse in the world, next only to Hong Kong.

But Premier Lee disagreed.

“Although we want our workers to earn more, we cannot simply push up Singaporean wages as we would like,” he wrote on his Facebook page.

“The only way for our workers to do better is to compete on knowledge and innovation, upgrade our skills, and stay ahead of the pack.”

Critics, however, say this is near crisis time and it is not sufficient for the premier to stick to a conventional approach.

Meanwhile, the national wages advisory council, of which Prof Lim is former chairman, has for the first time since 1984 recommended a minimum quantum of pay raise.

It suggested S$50 (RM120) plus an unspecified percentage for workers earning less than S$1,000 (RM2,400) a month.

Although critics say it is a far cry from what is needed, it is apparently aimed at drawing a minimum line.
The authorities have always rejected calls for a minimum wage in Singapore.

Ryan Ong of Yahoo Moneysmart commented: “No offence and all, but that’s about as helpful as a pair of blunt scissors.

“I guarantee a whole bunch of companies are already reading ‘unspecified percentage’ as ‘nothing’.”

Some Singaporeans welcome the recent pay increases as a step forward but critics view them as tweaking, rather than resolving, a fundamental problem.

But as the debate flows, a dark shadow is appearing on the horizon that can worsen the situation and threaten any prospect of strong pay increases.

The global economy appears to be slowing down as it faces woes from Europe, which Singapore has strongly invested in, and an economic slowdown in China.

More employers are likely to become more concerned about avoiding being pulled down rather than how much to raise staff salaries.

A local daily reported that some industries, including shipping, are already feeling the pinch from the slowing Western markets.

Some are planning measures to reduce costs or retrench workers as a short term solution, TODAY reported.

This puts the squeeze on the government’s social compact of promising jobs and a reasonable living standard to Singaporeans in return for their political support.

The grounds at home and abroad are becoming tougher for everyone.

INSIGHT: DOWN SOUTH By SEAH CHIANG NEE
cnseah05@hotmail.com 


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Mar 17, 2012

Monday, March 19, 2012

Malaysia could go bankrupt by 2019?

Why Malaysia won’t go bankrupt

TRANSFORMATION BLUES By IDRIS JALA idrisjala@pemandu.gov.my
 
The Government is not in dire financial straits right now. By all measures its finances are good, but as in any situation involving finances, this is not to say it cannot be better.

I AM frequently asked why I said Malaysia could go bankrupt by 2019. I have had many queries asking for clarification and this has become one of my transformation blues.

In charting out our transformation journey in 2009, one of the first things the Prime Minister and the cabinet did was to list our current status, say where we want to be and set up a programme for transformation to get us there.

Amongst the many things on the list was a need to rationalise subsidy and so we ran a lab to do this.

During our open day, we engaged the public on the lab recommendation on the subsidy rationalisation. I wanted to be as frank as possible and to make it clear what the consequences of inaction would be.


Perhaps I was too frank but what I said has been misrepresented on a number of occasions, and I have since been saddled and hobbled with an unnecessary problem.

Habitual critics latched on to a small part of one of my first presentations where I said we have to change our spending patterns for sustained fiscal health.

Against a backdrop of several caveats and conditions, I said that we would be bankrupt by 2019 IF we continued to increase our subsidies and borrowings the same way we did before and IF our economy grows at less than 3% annually.

I've worked in Shell for more than 20 years, a company that is famous for its scenario planning techniques.

In layman terms, scenario planning means describing a future that could either be “good, bad or ugly” and doing our best to achieve the “good scenario” and avoid the “bad and ugly”.

My statement was heavily qualified but little or no mention was made of the clear caveats that I had put forward.

I still stand by what I said and it is important that my statement is taken together with the conditions.

This statement has been taken out of context so many times that it really gave me the blues - I have been talking till I turned blue in my face explaining what I meant!

Let me say in the clearest terms that my intention then was to illustrate the consequences of inaction when faced with tough decisions. We cannot continue to subsidise the way we have.

Let me also state that the Government is not in dire financial straits right now. By all measures its finances are good, but as in any situation involving finances, this is not to say it cannot be better. Here's why.

Our debt as at end 2011 is 53.8% of gross domestic product (GDP the sum of goods and services produced in the country) and the budget deficit is better than the 5.4% target of GDP.

Compare this with Greece's debt which stands at 110% of GDP and a budget deficit of 13% and it is obvious that we are not anywhere close to a crisis.

Subsidy rationalisation

Globally, many economists are cautioning the Governments against rising national debts. In 2009 the year for which the figures I used when I talked about subsidy rationalisation we had to increase government spending via our “economic stimulus package” in the face of the world financial crisis caused by the sub-prime mortgage problem in the United States.

This had spill-over effects into 2010 as well. But the debt as a percentage of GDP has begun to level off while the budget deficit, again as a percentage of GDP, has begun to significantly decline and as our economy continues to grow. We are reversing the situation.

In a simplified system to assess whether countries are in a sovereign debt crisis, the Boston Consulting Group (BCG) uses a graphical representation to identify countries with a potential problem.

Public debt as a percentage of GDP is plotted on the vertical axis while surplus or deficit in the national budget as a % of GDP is plotted on the horizontal axis.

BCG identifies a potential problem looming if public debt is 100% or over of GDP while simultaneously the budget deficit is 10% or more of GDP (see chart).

The more a country is to the left of the chart and the higher on the vertical axis, the greater the risk of a potential debt crisis but note that a country has to be simultaneously in problem in both areas to be regarded as a big risk.

If you look at Singapore, public debt as a percentage of GDP is 100% in the problem area but only for one of the two criteria but there is hardly any budget deficit to speak of in the republic.

Nobody considers Singapore a financially troubled country.

For Malaysia, it is important to notice that it has moved to the right in 2011 compared with its position in 2009 and 2010 while there is hardly any upward movement. That indicates a move in the right direction.

Based on this analysis, we are better than the United Kingdom, the United States, Spain, Italy, Portugal and Japan, to name a few. We will get into the safe zone soon enough.

The problem I highlighted using 2009 figures, making the caveat that IF debt continued to increase at previous levels we can have a serious problem in 2019 and IF we grow less than 3% annually, does not exist anymore.

Making improvements

Why? Because we are making improvements on both counts.

Firstly, as a responsible Government, in 2010, we began the process of gradually reducing subsidies for fuel, sugar, electricity and so on, knowing fully well that this was unpopular.

Secondly, our GDP grew by 7.2% in 2010 and 5.1% in 2011 and that's an average of 6.2%; we are meeting our Economic Transformation Programme (ETP) target. Of course, we can and should do much more.

As I have pointed out in previous presentations very little of our subsidies amounting to billions of ringgit every year go to the poor, the rich get most of it. We must rationalise the subsidy system not do away with it and cut other extraneous expenditures.

However, we continue to help the poor via our GTP initiatives e.g. Azam programmes and BR1M for the low income households and rural infrastructure programmes.

On the other side of the equation, we must increase government revenue sources by introducing such measures as a goods and services tax (GST) and get more economic activity going. We can exclude necessities from the tax.

We are already succeeding. We have the ETP and we are growing our revenue we had additional tax revenue of RM26bil in 2011. This has allowed us to finance rakyat-centric programmes such as BR1M.

Why, if we continue to make progress by these measures, we may even be able to balance the budget come 2020 even though that will welcomingly surpass our own target.

I know there will be critics who will say that I have changed my mind on the bankruptcy issue. I haven't changed my position vis-a-vis scenario planning.

I always believe in describing the “good, the bad and ugly” scenarios (that hasn't changed) i.e. the “good” scenario is if we successfully implement our ETP, we will achieve high income status by 2020.
The “bad or ugly” scenario is if we don't do anything to avoid it, then we can go bankrupt.

The fact is we are doing a lot of things to transform our country. So, we will not go bankrupt.

With the implementation of the ETP, we must acknowledge that Malaysia is on the right track in transforming its economy. The average annual GDP growth in two years (2010 and 2011) is more than 6%. In 2011, we met our GNI and investment targets, trade reached a record high of RM1.27 trillion in 2011.

We cut our deficit in 2011. In April, our PM will be releasing our ETP and GTP annual reports which provide all the details of our country's achievement.

Let me conclude by quoting Dale Carnegie: “It is tragic when we put off living. We dream of a magical rose garden over the horizon and miss the roses blooming outside our windows”.

Datuk Seri Idris Jala is CEO of Pemandu and Minister in the Prime Minister's Department. Fair and reasonable comments are most welcome at idrisjala@pemandu.gov.my

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