The economy of Singapore is at a crossroads. GDP is no longer an adequate measurement of progress. Other yardsticks should be considered as well.
SINGAPORE (Aug 12): By most measures, Singapore has made extraordinary progress since its independence. In 1965, the city state’s nominal GDP per capita, as a comparative measure of standard of living, was around US$500, the same level as Mexico’s. By 2015, GDP per capita was around US$56,000, comparable to those of the US and Germany.
A big part of Singapore’s rapid development is attributed to its chosen economic model for growth: an export-oriented, international business-friendly market. Leveraging its historic and geographical advantages, the city state developed as a key hub for global financial, business and transhipment activities. But the erstwhile successful growth story has hit a snag.
Singapore is grappling with slower growth, as a result of weakening external demand that is exacerbated by the trade war between the US and China. According to advance estimates released by the government, the economy grew a marginal 0.1% y-o-y in 2Q2019, the lowest in a decade. GDP contracted 3.4% on a q-o-q basis, in contrast with a 3.8% growth in the previous quarter, marking its worst performance since 2012.
Market watchers are also not hopeful that Singapore’s services sector, which made up 70% of last year’s nominal gross GDP, will be able to make up for the shortfall. Services grew only 1.2% in 2Q. Already, some economists are expecting a technical recession in the near future, defined as two straight quarters of contraction. That could hurt the local workforce, already struggling with the structural challenges of disruption and ageing, with more retrenchments and fewer job opportunities.
In the face of these economic challenges, how should Singapore change tack? Economists who spoke to The Edge Singapore urge a rethink of economic strategy. In particular, the reliance on foreign direct investment and MNCs’ setting up shop in Singapore may become riskier amid prolonged global trade uncertainties. Instead, Singapore should be serious about developing homegrown enterprises. Local small and medium-sized businesses tend to be more resilient in a time of global economic headwinds.
Another economist calls for bolder leadership and more aggressive measures to tackle long-standing issues in the city state. These issues include housing affordability, retirement adequacy and reducing the cost for small businesses.
There is also a growing consensus that policymakers — and not just in Singapore — should look beyond GDP growth in assessing the development and well-being of the populace. To be clear, economists are not dismissing the use of GDP as a measurement of the country’s economy. But as the country becomes richer, and as the gap between the higher- and lower-income earners widens, a more diverse set of indicators is needed to more accurately reflect what the man in the street is going through in Singapore. That would in turn help shape more inclusive policies.
“There are severe and growing inadequacies around our being overly [reliant on] one measurement: [GDP]. A big reason why we need to [look at complementary indicators] is because it is a demographic necessity,” says Vishnu Varathan, head of economics and research at Mizuho Bank.
“When we are very young and a fairly underdeveloped country, almost any brand of growth is good. But at some point, we need to be a little bit more selective on the type of growth we want [because] as society ages, bequeathing becomes a big part of the economy. And with the shrinkage of the nuclear family, the distribution effect remains very limited, more often than not resulting in a concentration of wealth,” he says. “The capital advantage means that wealth tends to beget wealth far more easily. So, an already uneven playing field tends to get more so [over time].”
While the latest Household Expenditure Survey suggests that the average monthly household income and, more broadly, the living standard in Singapore have risen in the last five years, there are worrisome signs. Those in the top 20% income group saw their average monthly income increase 1.5% a year in real terms, while their average monthly expenditure remained stable. Other groups showed an increase in their average monthly income of between 2.4% and 3%, with average monthly expenditure rising 0.4% to 3% a year. But, households in the lowest 20% saw their expenditure grow 3% a year, even as their income growth lagged at 2.9% a year. In longer-term trends, members in the poorest 20% of households also saw much-faster-growing expenditures than the rest of the groups.
The survey of Singaporeans and permanent residents is conducted every five years.
Finding the real cost
For more than 70 years, GDP has been the most common measurement of economic activity. It is a materialistic interpretation of history, as economist and former National Wages Council chairman Lim Chong Yah puts it in a recent forum. Lim acknowledges that other indicators of a country’s development are important. “Man does not live by bread alone,” he said in response to questions.
One of the biggest problems of relying solely on GDP is that it does not account for the real cost of any activity. For instance, the GDP may measure the growth of the palm oil industry, but it does not take into account the environmental impact that comes with that growth. For another example, overall GDP rises as a certain sector booms, but the figure does not capture how much of the profits are reinvested into research or the upgrading of workforce and facilities.
“So, the growth in GDP comes at a price. I think it’s important to capture the net growth [through the complement of other indicators],” says Euston Quah, head of economics at Nanyang Technological University. He advocates collecting qualitative data for measurements separate from GDP.
“If we don’t measure [these indicators], then what is development? How does [the economic growth of a country] translate into, maybe, better quality of healthcare or better teachers? We need to collect data around these indicators,” he explains. “GDP measures quantity. These other indicators measure quality.”
Indeed, research over the past decade — notably by environmentalist Bill McKibben, who wrote Deep Economy: The Wealth of Communities and the Durable Future in 2007 — has demonstrated that GDP growth past a certain point is no guarantee of a better quality of life.
“The goal of any government is not just achieving some numerical target from some accounting type of methodology,” says Rob Carnell, ING’s Asia-Pacific chief economist. “This becomes an issue when you get any kind of inequality. The average scores become meaningless because [the gap between the haves and have-nots widens]. In any democracy, you would expect that governments focus on the happiness or general contentment of the population. It ought to be the thing that gets you re-elected time after time.”
More and better data
However, the problem with using social indicators to measure well-being is the lack of a definitive gauge. There is little consensus on which indicators matter the most or how to measure them, though there are global well-being benchmarks, such as the Organisation for Economic Cooperation and Development’s Better Life Index and the United Nations’ Human Development Index. Some countries have gone ahead to implement a version of these indicators. New Zealand, for instance, has been the first to prioritise national well-being ahead of its GDP growth. Can Singapore have its own set of non-GDP indicators?
For a start, economists and researchers point out that more, and quality, data is needed. To be sure, the government does share a substantial amount of data with the public, launching data.gov.sg in 2011, allowing researchers to request for data sets. But more can be done. The Government Technology Agency of Singapore had previously come under fire for publishing only broad, aggregate data, though improvements were made in 2015 to make the data more “understandable to the public”.
“It’s time for more data to be made available to researchers. For instance, we need more data on [the environmental impact on] development sites. We need more [details on] pollution. There is talk about the Pollutant Standard Index being further disaggregated,” says Quah. “Further disaggregation of data such as the number of hospital admissions due to respiratory issues would also [be helpful].”
He explains that breaking up data into specific and separate components can be more reflective of the situation on the ground, which in turn can help shape policies. “We do have various ministries collecting some of these data on the disaggregated level. Maybe it is time for them to put the data together [under one agency]. The data can tell us where we are at for the various types of indicators. And if the indicators are not showing good results, then obviously we want to know why, and what can be done. GDP growth only [gives] one major indicator of the economy’s health,” he adds.
Other economists echo the call for more focus on well-being data, as well as a renewed focus on such indicators as a measurement of the country’s success. “For instance, the household income and expenditure survey is published only every five years with a lag time of one to two years,” says Irvin Seah, DBS Bank’s senior economist.
He points out that real median income growth should be given greater emphasis. “Productivity growth was meant to achieve real median income growth. But somewhere along the line, people ended up looking at productivity as the end goal, rather than the means to an end. In other words, the businesses aim for a certain productivity growth, and [profit growth], but no one talks about the ultimate aim, which is raising median income,” he says.
Former GIC chief economist Yeoh Lam Keong outlines a number of areas that Singapore can look at to improve well-being. “For a start, we need more vigorous poverty measures. The second issue is retirement adequacy. The CPF can be used for housing and healthcare, but we need [more data] on its adequacy for retirement,” he says.
And, as global markets rally, Singapore has to put in sufficient measures to ensure its public housing stays affordable. Lastly, he adds, the healthcare system needs to be kept affordable. The areas that Yeoh highlighted have been persistent concerns in Singapore. With a more uncertain economic outlook, these developmental indicators have become more pertinent in reflecting the needs of the average person in Singapore. Broad growth is simply not going to make these problems disappear, say the economists.
“What we need right now is a national conversation on whether these things are priorities. Then, you can start talking about how a major part of the population thinks this is important. And which data points and which social indicators are important,” Yeoh says. “Then, we have to think about whether we can afford [these initiatives]. Which begs the question of how do you have a conversation about social spending without knowing the fiscal resources available?”
