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FROM THE VALLEY TO THE HIGHLANDS
Strengthening Cost Competitiveness
Let us build on this reputation
to bring in more investments, and create new jobs.
Our Costs are Much Higher
To succeed on a sustained basis,
we must adapt to the reality of stronger competition. Let me explain.
Our standard of living and our
business costs are reaching developed country levels. This is happening
at a time when many lower-cost competitors are emerging. They are
upgrading themselves, and taking us on in several sectors.
In the 70s, 80s and 90s, we learnt
to do what the US, Japan and Europe had been doing, equally well
but at lower cost. So we grew our economy and improved our lives.
Now, China, India and other countries are following the same strategy.
They can produce the same things we make, but cheaper. For every
one manufacturing worker hired in Singapore, a company can hire
3 in Malaysia, 8 in Thailand, 13 in China or 18 in India.
Of course, our wages do not have
to be as low as in China and India. As long as we are more productive,
we can earn more. Also, Singapore offers a better environment for
doing business than most countries. Our pro-business policies, the
cohesion of our society, the discipline of our workforce and the
quality of the Government are real advantages. They allow our workers
to command a premium over workers elsewhere.
But we have to work hard to maintain
the premium, and the premium cannot be too large. Our competitors
are rapidly catching up in infrastructure and skills.
Even our advantage in English
is being reduced. Other countries now realise the economic value
of English. Take South Korea. Not only do parents there want their
children to speak fluent English, they want them to speak without
a Korean accent. But you know, some Koreans cannot pronounce words
beginning with the letter "r", like many Singaporeans.
So, "rubber band" becomes "lubber band". I have
read that for this reason, some Korean parents drag their children
for a tongue operation. The operation makes the tongue longer and
more flexible. This is supposed to help the children roll their
tongues, and pronounce words starting with "r". I suppose
the parents are afraid that their children, when they grow up, may
invite foreign business partners to eat kimchi with "lice"!
Our Speak Good English people
want me to send Phua Chu Kang for that tongue operation. Then he
will stop telling people to "Use Your Blain"!
Migration of White-Collar Jobs
It is not just Singapore wages
and jobs that are under pressure. Millions of workers from lower-cost
economies everywhere are competing for a share of the global action.
Workers in developed countries everywhere will be affected.
This has been happening to blue-collar
workers for many years. But increasingly, white-collar workers are
feeling the heat. For example, many white-collar jobs in America
are migrating to lower-cost economies. Today in the US, 20% of the
long-term unemployed are managers, executives and professionals.
And the jobs which are migrating
to developing countries are becoming more sophisticated. Microsoft
is investing US$400 million in India. These are for highly skilled
activities, not routine work.
Financial institutions are also
outsourcing their back-room work. In the next five years, two million
jobs in financial services will move from developed countries to
emerging economies.
Even architectural tasks such
as the drawing of blueprints are shifting to lower cost centres.
BusinessWeek magazine reported that in the design of a petrochemical
plant by a US company, Filipino engineers collaborate with US and
British engineers. The Filipinos earn less than US$3,000 a year;
the US and British engineers earn up to US$90,000.
In Singapore, we are just beginning
to see the loss of white-collar jobs to other countries. I believe
the full impact will come faster than many people think.
Keeping Jobs Here
Indeed, the head of IBM (Asia
Pacific) cautioned Lim Swee Say that no country should assume that
it can hold on to its current share of the global pie. He said that
MNCs were "deconstructing" their supply chains. "Deconstructing"
means re-distributing their production and jobs across the globe,
to wherever they can be done most cheaply.
For example, just because a bank
is operating in Singapore doesn't mean that its computer systems
need to be built here. The bank does not need to assess its loans
here, or process its credit card bills here. Each task may be done
in a different country, wherever it is cheapest or most efficient.
The IBM man warned that Singapore
should watch our cost structure carefully, if we want to remain
part of the global production chain.
We should take his advice seriously.
We must keep the cost of doing business in Singapore competitive.
We must wake up to the fact that the world has changed, and there
are many lower-cost players around. Do you remember the fairy tale,
Rip van Winkle? Rip van Winkle fell asleep and woke up only after
twenty summers, to find that the world had passed him by. We must
not be like Rip van Winkle. If we slumber for twenty summers, we
will wake up so much glummer. For our companies have flown, and
our jobs all blown!
How can we keep our costs down?
First, make our workers more productive. This way, companies can
pay them well, and yet produce goods here competitively. Second,
keep taxes and Government fees low. Third, keep our rents and land
costs competitive.
All those we have done. This
leaves wages and the CPF.
Wage Reform
Our wages are high, compared
to our competitors. But the problem is not just the absolute level
of wages. It is also the rigidity in our wage system. Too large
a part of our wages is fixed. Too little goes into variable bonuses.
Also, our wages are tied too closely to seniority. Older workers
are paid much more than younger ones for doing the same work. As
a result, an established company finds itself carrying higher costs
than a younger company.
In contrast, many American companies
reward workers based on performance. They hire and fire according
to the needs of the company. They are totally unsentimental about
it.
Personally, I find this system
ruthless. Workers are human beings. They have feelings and families.
They are not machines or robots. But I recognise that it is this
ruthless pursuit of productivity and profit that makes American
corporations unbeatable, when pitted against Japanese companies
with lifetime employment, or European companies bound by rigid labour
laws.
We need to modify our wage model,
and remedy its faults. If a company cannot restructure its wages
when business is tough and it has to cut costs, more workers will
lose their jobs. And the older ones will be the first to go.
We need not follow the US system
all the way. We should continue rewarding seniority and loyalty.
But we should not do it excessively, and we should build up a larger
proportion of performance-linked pay. With a more flexible wage
system, when demand and competition change, companies can respond
quickly. Jobs will be saved.
PSA has carried out such wage
reforms over the last few months. This is to the enormous credit
of its management, unions, and industrial relations officers. It
has been a very difficult and painful adjustment. There has been
a human cost. But PSA workers know they have no choice. Either PSA
adapts, or it is out of business. The jobs of all its workers are
at risk.
In the civil service too, salaries
are being reviewed. They will be trimmed where they have gone out
of line with the private sector.
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