Comments: Chia Siow Yue
- Ke-young Chu, Sanjeev Gupta, and Vito Tanzi
- Published Date:
- May 1999
I have enjoyed both the Aníbal Cavaco Silva and Alberto Alesina papers tremendously for their excellent analysis, and, in general, I agree with the conclusions. So the value-added I can contribute to this conference, and particularly this session, is on policy design and implementation. I would like to make a few points, and then I would like to discuss the Singapore experience in policy design and implementation.
A point that has emerged in both papers as well as in earlier discussions is the varying degree of social tolerance for inequality. We know that the degree of inequality varies among countries. Sometimes, inequality is a socially and politically sensitive issue; other times, it is less so. Culture is one element that helps explain this diversity in tolerance. For example, in the Hindu caste system, if you are born to a particular station in life, you learn to be content with that lot. But is tolerance of inequality correlated with poverty incidence? In other words, if you have massive poverty, are you more intolerant, or more tolerant, of inequality? I am not clear on that. I think inequality is more tolerable or more acceptable when a society is socially mobile, so that you do not have the same poverty groups remaining in poverty from generation to generation. Social mobility is, therefore, a key factor. I think another key factor is the perception of fairness: when the poor look at the rich, their perception of fairness and justice is important in determining their tolerance for inequality. The poor’s tolerance is less if they perceive that the rich became rich not so much through their own merits but through the privilege of birth, connections, or ill-gotten gains.
The second element concerns the link between equity as measured by output indicators (i.e., income and consumption), and equity measured by equality of opportunity (i.e., opportunity for gainful employment, education, and training). I am not clear in terms of policy what the balance is between the two aspects of equity.
The third element relates to social safety nets. I come from East Asia, where, with the Asian currency crisis, the social safety net has become a critical policy issue. Although much of the traditional social safety net has disappeared from East Asia with the onset of modernization, industrialization, and globalization, the government still plays a role—albeit small—in supplying a safety net. The family and the community are still the backbone of safety nets; for example, in rural households, with massive underemployment, food is shared. The different dimensions of intrafamily parental responsibility for the children, children’s responsibility for elderly parents, and responsibility of siblings for each other—are very much stressed in Asia.
Therefore, the family is the main safety net in East Asia. For example, it is common for Thai girls from northern Thailand to go to Bangkok and work in so-called service industries, including prostitution, and send money back to support the family. Over the last decade, we have seen the phenomenon of Filipino women working abroad as domestics, and sending money back to their families. This is the family safety net in operation. In parts of East Asia, we stress Confucian values—parents must take care of the children, and, when the children become economically viable, they must take care of their elderly parents. However, it is true that some of these values have broken down: in Singapore, we reached the extreme example—new legislation allows aging parents to sue working children for support. So this, too, is the family social safety net.
But the best social safety net is job creation. East Asia has achieved, through very rapid economic growth, a tremendous increase in job opportunities, which has reduced poverty and inequality. In some Asian countries, the practice of lifelong employment has helped cushion poverty.
Government provision of social safety nets is minimal. Stanley Fischer pointed out that he was surprised that even with the crisis, some of the East Asian countries are very reluctant to institute government safety nets. This is because many of the countries look at the role of government as an economic development mechanism rather than as a redistributive mechanism. Countries fear that if too many governmental resources are diverted into redistribution, there will be a crowding out of economic development activities. This fear has been a severe constraint on the development of government safety nets. As I mentioned, however, the policy dilemma now—because growth is in serious jeopardy—is how should governments provide safety nets for the poor under severe budget constraints.
There has also been discussion of the role of the informal sector in terms of its taxable capability and, therefore, of the possibility of moving from the low-income developing country equilibrium of small government with low revenue to a high-income equilibrium of large government and big revenue. I am hesitant to recommend this transition. I think we have to be careful. You can think in terms of four types of government: big and efficient, big and inefficient, small and efficient, and small and inefficient. Of course, we reject the big and inefficient, and the small and inefficient, but do we choose big and efficient or small and efficient? There is no straightforward answer.
I now turn to the Singapore experience in policy design and implementation. Singapore is a small city-state of only 3 million people. However, I see in the World Development Report that many countries in Africa, Latin America, and Eastern Europe have populations not much larger than 3 million. What is characteristic of Singapore is that it is a very globalized country. Singapore has been facing the challenges of globalization for decades. It is not a new phenomenon. In the presence of globalization, our policymaking is characterized by a strong emphasis on human resource development and the quality of governance (including flexibility). Again, this is much the fashion elsewhere these days, but Singapore has faced this issue of quality of governance for several decades.
How does Singapore tackle the problems of social inequity and poverty? Poverty has largely been resolved by decades of rapid economic growth; the incidence of poverty is now extremely low. Let us talk instead of equity. To discuss the policies that Singapore has adopted, I should briefly mention that we have a very paternalistic, benevolent government. You can question whether it is democratic or undemocratic, but it is definitely paternalistic and benevolent.
Singapore’s policies are designed for the long term. The political economy aspects are not dominant because the same government has been in power since 1959. Therefore, the government takes a long-term view, beyond what the electorate wants accomplished within the four- or five-year term of office: The government’s emphasis is on work ethics, education, training, saving and investment, and meritocracy. The last goes against the grain of taking care of the less privileged or the less capable, but it is compensated for by policies directed at taking care of the so-called underclass and by the country’s tremendous social mobility. The local media highlights examples of social mobility, showing the many political, intellectual, and administrative elites who have risen from very humble backgrounds. Such examples give incentive and hope to even the very poor.
Singapore’s primary policy emphasis is to address poverty and social inequities through employment generation. To minimize labor market barriers, there is no minimum wage legislation, and no unemployment insurance. Trade unions take care of the interests of all workers, not just union members, and try to maximize employment creation. We have a tripartite National Wages Council, which represents employers, trade unions, and government. Every year, the council negotiates and decides what is a reasonable wage increase for the economy. In the present crisis, the trade unions have agreed on wage restraint.
The second policy emphasis is to maintain equality of educational opportunity. This equality reduces subsequent inequality of employment and income-earning capacity. Unlike many industrialized countries, Singapore does not have good private schools in good neighborhoods and poor government schools in poor neighborhoods, or poor citizens unable to afford good-quality education: everybody has the same access to good-quality, state-funded education.
The main social safety net Singapore has instituted is what we call the Central Provident Fund. This is not a pay-as-you-go scheme for old-age pensions, but a fully funded system. As many aging societies face the unsustainability of a welfare state, they are examining Singapore as a case study. We have government-subsidized housing and subsidized medical care. But family and community safety nets are very important. Welfare handouts by the government are based on very strict criteria, so as not to be a fiscal drain.