DPM Tharman Shanmugaratnam's Dialogue at the IPS 30th Anniversary Event

Ambassador Tommy Koh: DPM, it is a very great pleasure to moderate this dialogue with you. I requested Janadas to show us these two videos by Nas (Daily) because I agree that in only 53 years, we’ve built a wonderful country. It’s not perfect, but we have so many things that we can be so proud of. The second video is also important, which is to acknowledge that we are not perfect. We do have challenges and one of the challenges is inequality. So I would to begin the dialogue by looking at poverty in the midst of prosperity and the challenge of inequality in Singapore. I believe you would like to make some remarks.

DPM Tharman Shanmugaratnam: It is always a pleasure to be in a dialogue with Tommy. Let me say a few things to start off.

Inequality is important. Social mobility is even more important. Social mobility is at the heart and soul of our ambition. Not just in Government. It must be our ambition as a society. It has been part of our identity, it is part of our identity, it has to be part of the heart and soul of our ambition for the future. I’ll make three points about this challenge of sustaining social mobility, and managing inequality – making sure inequalities don’t become too wide.

The first point I want to make is that it is critical that we sustain a system where everyone is moving up. In other words, before we think about the issue of relativities, which is what inequality is about, we have to first think about how can we make sure that everyone moves up, including those in the broad middle of our society – the middle class. Because once that escalator stops, once the escalator that carries everyone up stops, the problems of inequality and all the problems of “me against you”, “this group against that group”, become much sharper, and this is what has happened in a whole range of advanced countries. Once you get stagnation in the middle of society, over a long period of time, which is what has happened in the US and a range of other advanced countries, inequality becomes a much sharper issue. Much more brittle. And the politics around inequality acquires a momentum of its own which makes it harder to solve the problems of a broken escalator. Once that escalator stops, it becomes a very salient issue: who’s ahead of me, who’s behind me, not just who’s ahead of me and moving further away from me, but who’s behind me and catching up with me. This too, is what we see – in a range of advanced countries – that pervasive anxiety of people in the middle as someone is catching up with them and someone above is moving away from them.

Second reason why we’ve got to keep that escalator moving for everyone is that it makes it much easier to have social mobility with a moving escalator. There are more opportunities, there are new skills to be learnt, new jobs to be obtained. In other words, it becomes much easier to achieve relative mobility when you have absolute mobility. What I get is not just at the expense of someone else; I can move up without someone else moving down, if the escalator is moving up.

That’s the first point I want to make. Singapore has done relatively well on that score so far, because our median wages, and the wages of those in the bottom 20 per cent, have been moving up, unlike many other societies.

The second point I want to make, has to do with social mobility itself, which as I say has been part of our identity and must be at the heart and soul of our ambition. It will get more difficult, it is already more difficult and it will get more difficult, precisely because we have succeeded in the past - because we’ve had waves of mobility, from a population that largely started off poor, like many in this audience, start off poor, did well in education, worked hard, did well in life. So those who were poor, or those whose grandparents were poor, had parents who were not so poor, and they themselves now are no longer poor, or are in fact quite well off, they invest in their children as much as they can so that their children can do well.

It’s in the nature of a meritocracy, it’s in the nature of succeeding in social mobility, that it gets more difficult over time, because those who succeed try to help their children and those who haven’t succeeded find that the odds increase against them doing well in life. It means that we have to work harder at keeping mobility going, by starting earlier in life, in fact starting even in the prenatal months, before a child is born. Starting very early in life and continuing through life, to intervene to help people to do well for themselves. It requires a consistent effort in early childhood, through the school years and in work life, investing in people at regular intervals and taking very seriously the idea that everyone can grow. That growth mindset has to be what defines us. It doesn’t matter where you start, you can grow, you can improve and you can master your job. This is a major challenge, very few countries are succeeding. I just came back earlier this week from Denmark and Finland – both relatively egalitarian societies, culturally, and in their education systems – but they’ve seen social mobility far short from what they desire. In fact, the persistence of social class in even the Nordic societies has been remarkable over the decades - and they are the most egalitarian of the Western societies. We too will face these challenges. We are doing better than most societies for now in terms of mobility, but we’re going to face more of a challenge and we have to focus our minds on that.

The third point I want to make is that we have to remember that a good part of inequality in Singapore is actually generational inequality. I’m not even talking about the pioneer generation. Even if you talk about those in their 50s today, say aged 55 and above. Among working Singaporeans aged 55 and above, the majority, in fact, over 60 per cent, have no more than secondary school education. But we succeeded in transforming education and transforming opportunities for subsequent generations – those born later. And that has led to a generational inequality. Those who started earlier with limited education by and large took simple jobs, worked hard, their pay has gone up over time – in real terms, it is much better than in the old days. But they are now at the lower end of the escalator and subsequent generations have moved up. That was a by-product of success, success in transforming our society, but it has led to generational inequality. We have to focus our minds on how we can help older Singaporeans, mature Singaporeans who still have 40 years ahead of them. Those in their mid-50s, those in their mid-60s. To work for as they long as they wish, to work with dignity, to earn a decent pay, with the support of their employers, with the support of the government, and with the support of the public so they are treated with dignity.

Just before I came up, I had to go to the loo. I met a gentleman there, who was holding himself with pride with his uniform. He was the attendant in the gents. We had a chat, I was struck by how good his English was. He started working here 8 years ago – a full time job, all the benefits, started off with $1,200, now earning well above $2,000. His employer had sent him for training, including English language training with Kaplan, even had to sit for a test on a computer. He was working as an attendant but was very pleased to have a chat. He was doing his job with dignity, earning a decent pay that goes up over time, and with an employer that takes him seriously and invests in him together with his team mates. That’s what it takes.

Prof Koh: DPM, the important question is not whether he behaves with dignity, but whether people will enter the lavatory show respect and treat him with dignity.

DPM Tharman: Absolutely.

Prof Koh: And I would say in Singapore, the elite does not show respect for people who work as cleaners, gardeners, petrol station attendants, security personnel. One of the problems in Singapore is that these low wage workers are treated as invisible people. You are one of the few gentlemen who greets him and talks with him. But how many of you did?

DPM Tharman: I think ageism is still an issue in our society and ordinary blue-collar workers also deserve a lot more respect. I don’t think this is only a problem for the elite. It is part of our social culture. We inherited a combination of British institutions and an East Asian culture, both of which quite hierarchical, both of which tended to look down on ordinary manual labour. We’ve got to move beyond that and it means everyone – it means customers, it means ordinary members of the public, it means employers - employers play a critical role - and with the support of the government.

Prof Koh: Thank you DPM, thank you for those three very important points. My first question is about inequality and I would challenge your premise that inequality is a generational problem. You know, the old people like me fade away from the scene, the problem will disappear. It will not. Singapore had become increasingly stratified. We are unequal not only in wealth, income, occupation, housing type, the school you went to, the way you speak. As Janil Puthucheary’s documentary showed us, we live in a very class-conscious society but I want to draw three things to your attention. One, the UN Development Programme (UNDP) has a very well respected index, called the Human Development Index. The Human Development Index describes Singapore as the second most unequal high-income economy, after Hong Kong. And within the space of two days, we had two different reports about Singapore. On 9 October, Oxfam published its annual report on commitment to reducing inequality. Oxfam was very critical of Singapore, demoted us from 69 to 140 something, put us in the bottom 10 countries of the world. I think it is a very unfair report. But two days, later the World Bank published its first Human Capital Index, and the World Bank ranked Singapore number one for the development of human capital. My question to you is how do you reconcile the UNDP’s Index that says Singapore is the second most unequal advance economy, Oxfam’s report on us, and the World Bank’s very salutary report on Singapore.

DPM Tharman: Let me start by saying that I disagree with Tommy that we are one of the more class-conscious societies around. In fact, I would say that if you talk about our social culture, we are much less class conscious than many other societies I am familiar with, partly because we are younger. We are at risk of becoming more class-conscious, and we must resist every tendency in that direction. I just want to mention that point.

Second, I didn’t take the Oxfam survey very seriously, not because of his conclusions. It is just that it was not very good; it was very weak, methodologically. I am someone who takes data and methodology very seriously. I don’t want to spend time criticising it here.

By most conventional measures – the most conventional one is the Gini coefficient, named after an Italian statistician called Gini - before you look at government taxes and subsidies or transfers, Singapore does not have an unusually high level of inequality. In fact, quite apart from the US which has a high rate of inequality, quite apart from the developing world - China and some others have much higher levels of inequality - even amongst the European countries, several including the Nordic countries have a higher rate of inequality before taxes and transfers. They redistribute more, but they have very high taxes for the ordinary person – the ordinary person will pay something like 30 per cent income tax and about 25 per cent VAT. Because they do not have much savings, the VAT of 25 per cent is actually an income tax because you are consuming most of your income. So it is roughly a 50 per cent tax on the ordinary person.

In our case, there is virtually no income tax for the person right in the middle. You pay GST, 7 per cent and moving up by 2 per cent in a few years’ time. If you own a car, you pay significant COE, ARF and so on. But overall, taxes are far lower on the ordinary person, including the middle class and the lower income group, than any other advanced country. Only Hong Kong is in the same league but Hong Kong is living on borrowed time - the property market has been doing well, but Hong Kong is going to be an aging society like us and they are going to need revenue just like we need revenue.

We are a low tax society, and as a result we have to think very hard about how we use those tax revenues. What we do is to use it very progressively. In other words, target our subsidies and our benefits on the poorest in society, on those who need it the most.

The impact of doing this is not very large on the Gini coefficient. But we have a low tax regime that is highly progressive in terms of where the benefits go. So if you are someone at the bottom twenty per cent of incomes, for every dollar of tax you pay, which is mainly GST, you get back about $4 of benefits. It is a very progressive scheme. That is our system. Where does it end up – after taxes and transfers our Gini Coefficient is something like 0.36 (by the OECD’s methodology) for those who are familiar with this – which is not at the top end of the advanced economies, it’s certainly in the top third but not at the very top end. But critically, I come back to my first point. What matters is not just the relativities, but are people doing better over time? It is no point in being better off than someone else if in fact everyone is stuck in the same place. We have fortunately avoided the situation where you have middle class stagnation and where the lower-income group is also stuck. Everyone has been moving up. The escalator is still moving and we have got to keep it moving, which is why economic policy is fundamental to social objectives. It’s not just social policies, not just redistribution. Economic policy itself is central to our social objectives. How do we reconstruct Singapore for a disrupted world, as ESM put it in his speech? It’s fundamentally economic policy, and if we can do that well, we keep the escalator moving for everyone.

Prof Koh: I think your basic point that upward mobility continues to be strong in Singapore, is a good point and I agree with that. Inequality and poverty are related but they are not the same. So do you mind if I ask you a question about poverty?

DPM Tharman: Please.

Prof Koh: If we take per capita income I think we are one of the five richest countries in the world but there are many poor people in Singapore. There are two kinds of poverty – households that live in absolute poverty meaning that they lack the means to pay for basic human needs and families that live in relative poverty. The concept of relative poverty derives from taking 50% of their median income as the yardstick. Households whose income is below 50% of the median income is considered relatively poor. From the research I have done, I found that there are between 100,000 to 140,000 households living in absolute poverty. According to Ye Kung, 15 per cent, but from my research it looks like between 20 to 35 per cent of our household living in relative poverty. So my question to you is, what are the facts that you have about poverty in Singapore and what can we do to reduce the poverty in Singapore and make sure that people are able to live in dignity and material sufficiency?

DPM Tharman: I share the aspiration that Tommy has laid out – we’ve got to make sure that everyone can live with dignity, at work as well as in the community, and see their lives improve over time. There are poor people in Singapore. There are some who are trapped in poverty. Our challenge is to help them escape that situation - they themselves, their children, and with the support of the community and the government. And this is a task –it’s not an ideological task, it is a practical task. We have got to find every way possible to help them to escape poverty, and to ensure we do not get a persistence of poverty across generations. There is a risk of that happening. There is a risk of it becoming entrenched and passing on from one generation to the next. So we’ve got to work very hard at it, and it is not an easy task because I know of no societies that has actually succeeded. There have been many attempts, particularly in the last 60 years since the 1960s, in the US, in the UK and in Europe. If It is merely a question of redistribution, it improves your Gini Coefficient but it doesn’t get people out of poverty.

So how do we get people out of poverty? How do you shape social culture for the better? How do you raise aspirations amongst the young, even if their parents or their uncles and aunts don’t imbue it in them? It’s a task. It involves teachers, empathetic principals, it involves peers, getting into a positive cycle of aspirations rather than a negative cycle amongst themselves, it involves all of us. So we have to work harder at this task and prevent poverty from being entrenched.

The numbers who live in absolute poverty are much smaller in Singapore compared to elsewhere because our whole society has moved up. And we only have to remember what it was like in the old days. I am not as senior in years as Tommy is but I grew up in the 60s and early 70s. I actually remember vividly what it looked like. At today’s prices, the pay of an average person when we became independent in 1965 was about $550 - it was actually much lower than that (in nominal terms) but I’ve inflated it for today’s prices. For a lower income person in those days it was even lower. The lower-income person then, compared to the lower-income person today, was very much poorer. For those in the bottom 20 per cent, the increase in the standard of living, adjusted for cost of living increases, has been about five times – they are five times more better off now. There are people who are struggling today but think of where we came from. It has been a dramatic transformation.

So we have progressed, but we still have problems. The problems that will always be with us are the relative problems, because you always have a proportion who are less well off than the others. I would not say that is irrelevant. It is relevant. We don’t want relativities to get too wide because it affects the tone of our society.

Prof Koh: DPM, before I take questions from the audience, may I briefly mention another challenge, with the challenge of inequality, challenge of poverty, there is a new challenge in Singapore – this is the challenge of growing intolerance. A mutual friend of ours was recently invited by one of our religious organisations to speak at a conference on a secular topic. He accepted, prepared his paper and then he was disinvited. Why was he disinvited? Because he signed a petition to repeal the 377A. You know, we can disagree, but there is no need to demonise each other. And I would make also a plea to the government to show greater tolerance. I hope that going forward, the government will no longer ban movies, withdraw book grants. Let’s be big hearted. We have reached a stage of political and cultural maturity, where we could accommodate different points of view. It is a plea.

DPM Tharman: No one should feel demonised in Singapore. We are a diverse society, we have to respect each other and make sure that whatever our views on specific topics, there is a solid core of shared aspirations and beliefs that holds us together.

Prof Koh: Let’s take questions from you, who would like to ask the first question?

Dr Paul Tambyah: Hi DPM Tharman, thank you very much for the presentation. I am not an economist so I can’t talk about the economics in such an articulate way but to me, inequality in Singapore, as a healthcare professional, is actually a matter of life and death. I think you may be aware of the data from the Singapore Registration of Births and Deaths 2017, where if you use an ethnic group as a surrogate for income, the average age of death for Chinese Singaporeans is 78 years, compared with 70.6 years for Malay Singaporeans. Now this is a gap of 7.4 years, which is greater than the gap between Caucasian Americans and African Americans. It is also greater than the gap in the UK between minority groups and the White British population. My question is, in a setting in which Singapore has got such great inequalities where people from lower-income die 7.4 years before people from higher-income. Don’t you think that there is something that we need to do about the structural factors which are contributing to this life and death problem of inequality? Thank you.

DPM Tharman: Good, well, useful question. First, whether speaking among economists or those who are epidemiologists, I think we should be very wary of correlation with a single factor. I do not think that it is income per se that leads to a lower lifespan, but a whole set of other factors that may be associated with income. There is a whole complex of factors that are bound up together. I am not talking about the specific example of ethnicity you are talking about, but everyone knows that lifestyle, diet, habits, exercise, the job you do, all of these matter. People who do tough, manual jobs have more problems with healthcare at an elderly age than those who do white-collar jobs. Those who worked in the coal mines in Britain suffered from numerous more chronic problems in older age, compared to those who worked in offices in the City of London. All these factors matter, it is not just income. So we’ve got to address the different factors that contribute to poorer health outcomes in your latter years, and address them in the most practical way. If you ask me, we have a real issue with diabetes and when we say that, it means we have a real issue with diets and habits that are formed early in life and persist through life, and we have to take that extremely seriously. These are practical issues in public health that we have to be concerned about, and when it comes to social factors and family factors, it becomes a bit tougher because you actually have to intrude into people’s lifestyles. That’s why it is so difficult. But we have to; we have to as government and community, help persuade people and incentivise people, and nudge people towards healthier lifestyles. We have to work much harder at it.

Prof Koh: Another question from someone else? Yes, Gillian?

Dr Gillian Koh: Thank you Chairman, good evening DPM. My question is this, it has to do with what more we can do for the low-wage, low-skilled workers. We have a system, a progressive wage model, instead of a minimum wage strategy. That progressive wage model is a wage ladder that is pared to skills, which the government has invested in heavily as well. My question is this, Sir, what is your assessment of the progress which we’ve made using the progressive wage model. I suspect that there will be a lot of discussion tomorrow about whether we should consider a minimum wage model if we just cannot see a lifting up of the people at the bottom to absolute progress and relative progress as well. Just your assessment. The broader question is this – I think there will be people in the room who will say let’s invest more in the quality of opportunities. But on the other hand, there’ll be others who say if the report card is no good, then let us do more in terms of establishing the quality of outcomes. Think about right now, sexy ideas like universal, basic income. Over to you DPM, your assessment.

DPM Tharman: Thank you. I think the issue of a minimum wage should be treated as a practical issue. It is not an ideological issue for us, it is a practical issue. In fact, the progressive wage model is in the same league as the minimum wage. We basically focused on the most vulnerable, those whose jobs are renewed by contract, in an industry that is largely outsourced - Cleaning, security, and landscape workers, those who look after the estates.

Has it worked? Five years ago, the average wage of a cleaner, was a little over $900. Today it is over $1,200. An increase by more than a third in five years. Quite significant, and this is quite a large group of workers. For security guards, the increase has been in fact, even larger, more like 36 per cent. Very importantly, as you’ve highlighted, it is not just setting a floor, but designing a ladder of wage increases based on skills and experience. And it is working quite well so far. We have to see whether we have to apply it to more jobs in future. But focus it on the vulnerable and make sure we know who we are trying to help.

The trouble with the minimum wage, and I say this is a practical issue - it’s not a political debate in my mind at all - it’s a practical issue in the US and elsewhere, that a lot of people who benefit from the minimum wage are not people from poor families. They may be youngsters or spouses or anyone who happens to be doing a job at the lower end. But a very significant proportion of them come from middle-income families or even better off. So it’s not very well targeted.

By focusing on cleaners, security guards and landscape technicians, we know who we are trying to help. Our older workers, especially, are disproportionately present in those three jobs, especially cleaners and security guards. It’s one of the ways in which we’ve tried to help our older folk in the workforce.

But the most important strategy, and I have to emphasise this, when we think about all these issues, whether it’s minimum wage or Progressive Wage Model, our most important strategy has to be to keep the escalator going. It means staying competitive, developing capabilities in our economy that will hold us well in the future, and very importantly, keeping the labour market tight. Keeping the labour market tight, that achieves far more for wages than any social policy would do. That’s what leads to wages going up over time, and keeping it up for every category of workers. Not so tight that employers simply can’t find workers at all, because then the demand for workers goes down and Singaporeans suffer. But keep the market tight. That’s a strategy that ultimately is going to lead to wage growth, productivity growth, and that escalator keeps moving.

Prof Koh: DPM, as you know, I’m an advocate of minimum wage but I don’t want to debate you tonight on this issue. Could you in about three minutes sum up what is your most important take away for our friends?

DPM Tharman: The nice thing about these debates and the questions we’ve had – all the questions – is it shows that we are concerned about these issues. We are all concerned about inequality, we are concerned social mobility, we are concerned about every aspect of it – the healthcare aspects, income aspects, and whether we take the trouble to interact with people from all walks of life. We are all concerned about this. The government is concerned, the NGOs are concerned, the academics and think-tanks are concerned and the public is concerned. Singaporeans, by and large, like to make sure that no one is doing too badly and that we can all do well together. I think it is very important that we preserve that. And I say this not just because it is a good thing in its own right. It is a good thing in its own right that we should all take an interest in each other and want everyone to do well. But it is also one of the ways in which social mobility is sustained. The culture of interactions, the ease with which we interact and the way we treat each other, whether we treat each other as equals, as we grow up, and as we go through life, also shapes social mobility, because it spreads aspirations. Aspirations shouldn’t just be the province or the habit of the upper middle class or the wealthy. Aspirations spread through interaction and by having a common culture. And the social mixing is something that also enriches those who start of from better off homes. That’s the beauty of social mixing – it enriches all of us. Let’s keep that in our Singapore culture because it’s a good thing in its own right but it also helps us to keep aspirations moving up for everyone, and each person taking an interest in the other in the same classroom, in the same basketball team or in the same team at work, taking an interest in each other is what helps the whole team to move up. And we must keep the escalator moving up because that is the best way you can get social mobility on the escalator itself.

Prof Koh: Thank you for that important message. DPM, you were recently in Bali for the annual meeting of the World Bank and IMF and I noticed that at the meeting that you chaired, you summed up by quoting a famous “economist” Elvis Presley. I want to conclude this evening by drawing inspiration from your example. I want to close this evening by quoting from a famous “philosopher” whose name is Bob Dylan. In an important essay that Bob Dylan wrote, called Workingman’s Blues, he wrote, “There’s an evenin’ haze settlin’ over the town, starlight by the edge of the creek, the buyin’ power of the proletariat’s gone down, money’s gettin’ shallow and weak, the place I love best is a sweet memory, it’s a new path that we trod, they say low wages are a reality if we want to compete abroad.” Will you please join me in thanking DPM Tharman?

DPM Tharman: That was a beautiful way to end by Tommy, but I cannot resist adding that what should always be in our mind is ‘he ain’t heavy, he’s my brother’.