Cover Story: SingaporeÂ’s changing directionby Bob BrowningNews Weekly
, September 23, 2000
Bob Browning recently visited Singapore and found a country that, having achieved remarkable material success, is trying to redirect itself for the next stage of its development. It seems inevitable that some of the centralised direction of the economy and the polity will be relaxed.
Singapore's Central Provident Fund (CPF) is the state-run personal savings system which has been much admired in other countries. Some in Australia see it as a social security system alternative, especially in regard to Medicare.
The CPF system comprises nearly all of what Singapore provides its citizens in the way of welfare. It aims to enable citizens to pay for their health care and finance their retirement. It is also used to finance home ownership â€” or, in most cases, a 99 year lease on an apartment in the huge complex of Housing Development Board high density building.
The Fund also creates a pool of domestic savings much of which is invested overseas to help build Singapore's large foreign reserves. Domestic savings through the CPF buffered Singapore remarkably well during the Asian financial crisis. It put Singapore in a unique position in S.E. Asia at that time. Being able to defend its currency and invest extensively in new infrastructure ensured that Singaporeans did not suffer the sort of economic plummet that many others in the region endured â€” the World Bank stated at the time that many countries hit by the crisis â€średiscovered poverty on a massive scaleâ€ť.
The CPF system requires all the workforce except many of the self-employed, to put aside, together with the employer contribution, nearly half their gross wage. There are currently 1.6 million CPF account holders out of a population of about 3.2 million resident citizen Singaporeans.
Before the Asian financial crisis, employees put in 20 per cent of their wage and their employers another 20 per cent. To cope with the crisis â€” and on-going globalisation â€” the Government reduced the employersâ€™ contribution to 10 per cent. The move aimed to make Singapore and, in particular, its so-called government-linked corporations (GLCs) more internationally competitive and hopefully better able to save and create jobs. The GLCs are estimated to account for about 70 per cent of Singapore's GDP. Temasek Holdings Ltd. owns the big Singapore conglomerates and more than 1,000 other companies on behalf of the Finance Ministry.
Six to eight per cent of each individualsâ€™s CPF savings goes into a Medisave Account. Other proportions of an individualâ€™s CPF savings go into an Ordinay Account which can be drawn upon for home buying, and a Special Account which is for longer term investment for retirement. Ordinary Account savings currently earn 2.5 per cent.
Some of the Special Account can be invested by the fund member directly or through a private management fund to gain a higher rate of interest than the government-managed segement. But personal or privately managed investment involves higher risk. The latest CPF data (Business Times, August 30, 2000) shows that nine out of ten CPF member who invested directly lost money in the stockmarket. They would have done better by leaving their money under low return CPF management.
But even the state-run investments are not entirely risk free. Christopher Lingle, one of Singaporeâ€™s economic rationalist critics, replied on line to a Business Week (April 5, 2000) article arguing that the custodians of its mandatory CPF scheme had considerable exposure in â€śthe crisis-torn economies of Indonesia, Malaysia, and Thailandâ€ť. He claimed that â€śthe tight control on information and the unlikely prospect of a parliamentary inquiry renders assessment of Singaporeâ€™s affairs to be as daunting as was Kremlinology during the Soviet eraâ€ť.
Lingle fled Singapore a few years ago to avoid reprisals for writing a moderate criticism of the Government in the international press. Singaporeâ€™s original and on-going Peopleâ€™s Action Party (PAP) government treats political opposition vigorously. It has a habit of suing Opposition members and other critics into financial oblivion. It also keeps the legal powers used decades ago against communist and communalist insurgency. Its Internal Security Act permits indefinite detention without trial in its Whitley Detention Centre which is has been criticised for its "psychological" interrogation techniques reportedly copied from the Israelis.Health and welfare
The Medisave Account within the CPF can only be used for hospital or medical treatment at a public hospital or â€śpolyclinicâ€ť where treatment of costly serious emergency or chronic conditions is substantially subsidised by government out of general revenue. Medisave can also be used to pay for trauma insurance to cover unexpected, high cost hospital or medical treatment.
If an individualâ€™s savings are not sufficient to cover the cost of medical treatment, unemployment or retirement, he or she can draw by law on the savings of their extended family. This sometimes results in family acrimony. One extended family member recently stabbed another for accessing her savings.
If there is no extended family, and their savings are also inadequate, there is a Provident Fund from which financial assistance may be available. Each public hospital has a committee to judge whether an individual warrants special assistance. Only a tiny minority obtains significant assistance.
Like other welfare systems around the world, Singapore's CPF is finding it hard to cope with the onslaught of economic globalisation, new technology, and changing demographics. Changes include trends to a longer-living, aged, non-working population, a falling birth rate, the drift of manufacturing jobs to low wage countries with minimal labour, health and environmental protection.
A state-run, pooled personal savings system like Singaporeâ€™s CPF depends on citizens having jobs and earning sufficient money to put aside up to 40 per cent or more of their wage. The system breaks down when these conditions cease to exist. Last month, Singapore decided it needed to top up its Central Provident Fund by $2 billion from state revenue to help its citizens cope with the health care and general living expenses of its retired elderly, low income earners, and unemployed.
Some of the government injection of top-up money will go to help low income earners get a subsidised high density building flat. Some will go to buy trauma insurance for the old. Some will be used to boost individual savings accounts. All Singaporeans who have contributed $100 or more to their CPF account between January 1988 and December 2000 will get CPF top-ups ranging from $500 to $1500. (The Singapore dollar is roughly equivalent to the Australian dollar.)
According to official figures, unemployment has risen to 3.5 per cent. And Singapore's Minister for Manpower Lee Boon Yang recently cited (Business Times, August 30, 2000) a 1995 a survey that had revealed that almost 88 per cent of citizens aged 55 years and above were not achieving adequate savings for retirement. Government tends to blame this on over-spending on housing during peopleâ€™s working lives, and so has lifted the contribution rate to be made to Medisave and Special Accounts. It has thereby reduced the amount going into the General Account which can be used for home purchasing.
The $2 billion that the Government is pumping into the personal savings system is part of a larger injection totalling $3.2 billion which is going to meet changing needs in education as well as in welfare, and health and aged care.
Another social and political challenge comes from the new managerialism which is bent on lean-and-mean international competitiveness. This includes down-sizing for financial efficiency and importing high-skilled labour and mangement from overseas.
John T. Olds is one of a number of American, British, and other foreigners brought in to play key roles in a new wave of economic restructuring. A former J.P. Morgan & Co. managing director, Olds has just completed 10 months as chief executive of the powerful, state-owned Development Bank of Singapore. Given a mandate to shake up the countryâ€™s financial system, one of Oldâ€™s first moves was to shock civil servants and those in government-linked corporations by demoting powerful civil servants from executive posts and bringing in more outsiders to raise DBSâ€™s operations to global standards by whateverr means necessary. He also revealed unprecedented details about $4.1 billion of bad loans in the Bankâ€™s portfolio.
Singapore's original and on-going People's Action Party government founded by London School of Economics and Cambridge-educated Lee Kuan Yew had strong social democratic, welfare state inclinations. But it also had propensities to what economic rationalists call Asian-style authoritarian capitalism. Its mix of socialism and capitalism, statist welfare and wealth creation, served to build national coherence among its diverse racial mix. This was vital to Singaporeâ€™s survival as an independent tiny island nation state, without physical resources (even water) and surrounded by big, none-too-friendly neighbours like Indonesia and Malaysia, seemingly ready to exploit any vulnerablities.
There is no doubt that the PAP has done a remarkable job in ensuring Singapore not only survived but prospered. Singapore has one of the highest per capita incomes in the world and one of the highest home possession rates. It is a beautiful, clean and safe city. The more telling criticisms have been social and cultural rather than material. Former Singapore President C.V. Devan Nair who like many other dissidents feels more secure living abroad has stated:
â€śAlas, we failed to foresee that human ends would come to be subverted for the greater glory of the material means, and our New Jerusalem would come to harbour a metallic soul with clanking heart beats, behind a glittering, technological facade.â€ť
But the PAP is much less concerned with cultural criticisms of its soul than it is with the question of whether the old model on which Singapore survived and thrived will continue to suffice. PAP leaders tend to be obsessed with the ability of Silicon Valley and Taiwan to surge ahead in the age of globalisation with its rapid technological and economic change. Silicon Valley and Taiwan are free-wheeling social and economic environments, vastly different to Singapore. PAP leaders seek to walk a tightrope between the tight control they have always insisted was essential and the freedom which the intellectual creativity and lateral thinking needed in the new economy seems to demand.
It remains to be seen whether Singapore's rote-trained students and workers and conformist political and managerial class can respond to government instructions to become more creative like their more recently successful foreign counterparts. Or will Singapore eventually be forced to re-invent itself, this time paying as much attention to the social and cultural needs of its citizens as it has already shown to their material needs.