Inequality and the Social Compact in Singapore: Macro Trends versus Lived Realities.

AuthorPeng, Nathan
  1. Introduction

    Increasingly divisive levels of inequality are a global problem with profound consequences. With many countries in both developed and developing contexts witnessing growing disparities between the haves and have-nots alike, the potentially disastrous consequences for society, politics, business and productivity can no longer be ignored. Against this backdrop, Singapore's developmental context is shifting as the rate of economic structural transformation slows. The city-state finds itself at a turning point where hard choices must be made to safeguard the social stability previously upheld by breakneck growth speeds. With its policies historically being an object of study for China, Southeast Asia and other developed and developing economies, the learnings from how Singapore tackles inequality will resonate beyond its shores.

    Addressing parliament in February 2018, Singapore's Prime Minister Lee Hsien Loong bluntly observed mat if widening income inequalities were allowed to create "a rigid and stratified social system", "Singapore's politics will turn vicious, its society will fracture, and the country will wither". Sounding the exact same warning in her inaugural speech three months later, President Halimah Yacob noted that inequality had broken the social compact in many countries and Singapore "must tackle inequality" before the problem became entrenched (Yacob 2018). The recasting of inequality as a serious societal problem in Singapore has become increasingly prominent in recent years.

    Although few would question the seriousness of inequality, there is far less consensus on its extent and how to mitigate it. This paper contributes to this debate by juxtaposing empirical trends against the emerging realization that while the normative commitment to meritocracy in Singapore has never slackened, its increasing tension against the lived realities of unequal opportunities is posing a jarring contrast to the narrative of equal life chances. This is taking an increasing toll on Singaporeans' belief in the system's ability to arbitrate life chances based on talent and effort.

    There are three takeaways from this study. First, for Singapore, inequality has become a matter of national survival, tied to the larger social compact of a functioning meritocracy in spite of constructive efforts by the government towards mitigating the ills of what can be called "time two meritocracy". Next, the current incrementalistic approach has not sufficiently addressed the underlying inequality of opportunity and the kinds of "felt inequality" that threaten national cohesion. Finally, it is not the overall state of inequality that matters, but the lived everyday experiences on issues for which no amount of normative justification via meritocracy can assuage, no matter how well entrenched the narrative.

    This analysis makes two theoretical contributions towards understanding the nature of meritocracy in Singapore. It first speaks to the fact that, to maintain a functioning meritocracy across generations, purely emphasizing an equality of opportunity without a healthy degree of equality of outcomes is insufficient. Secondly, contrary to Ian Holliday's (2000) insight that social policy in Singapore is subservient to economic considerations, Singapore's strong economic growth has been predicated on a stable sociopolitical context, and both social and economic policies are subservient to national security considerations for which economic progress was just a means, not an end.

    The next section provides an empirical overview from available data on inequality typically starting from 2000 up to 2018. Most measures reflect how inequality has been generally stable in the five years leading up to 2018 after an increase in the initial years up to 2012. While inequality has increased in absolute terms during this period, this fails to explain the sharp spike in public attention in 2018. To explain the timing of the current backlash, the study qualitatively reviews how Singapore's meritocracy evolved over time to create perceptions of an uncaring brand of elitism. The subsequent section reviews the government's policy responses and explains why the policy shifts have been so incremental. The paper concludes by arguing that, while the principle of not burdening individuals and companies as a way to foster mobility is not wrong, Singapore has reached the point where tackling the gap between the haves and have-nots needs more progressive measures.

  2. Empirical Overview

    To paint a comprehensive picture of the state of Singapore's inequality, this section covers both macro indicators as well as relevant survey data. The selected categories reflect indicators that not only enable Singapore's case to be analysed comparatively (income, consumption, wealth) but also reflect how inequality is perceived in the Singaporean context (intergenerational mobility, education, and sense of belonging). Table 1 provides a summary of the insights drawn.

    2.1 Income Inequality: Gini Coefficient

    Singapore's Gini coefficient (1) has been typically higher than other countries. A common caveat against using the Gini to measure Singapore's inequality in a comparative context is that it is unrealistic because of the country's predominantly urban economy. It is often argued that urban inequality tends to be higher than rural inequality, and generally higher than country-level inequality (as measured by Gini), particularly in more developed contexts (OECD 2016a). Given Singapore's duality as both a city and a state, its Gini could be mechanistically higher compared to other countries. (2) Also, city-states are extremely limited in number and those that exist have developed in unique contexts (such as Monaco and the Vatican), making them poor benchmarks.

    A counter to this strand of thought is that regardless of what the "inherent" economic structure of Singapore might be, what matters is the experience of citizens. While there are merits to this argument, Singapore's geographical limitations also mean that it will not suffer from the sort of urban-rural divide and isolation of certain communities seen in other contexts. Whatever its utility in a comparative context, changes in the Gini, particularly before and after taxes and transfers, still serve as useful benchmarks for shifts in overall income inequality levels and the degree of government intervention.

    Figure 1 shows that, after 2000, income inequality rose steadily until 2007, before stabilizing and declining slightly after 2012. Overall, net inequality rose from 2000 to 2018 but progressive transfers and taxes stabilized net inequality, leading to a relative drop after 2013. Specifically, the Gini coefficient before accounting for taxes and governmental transfers increased from 0.442 in 2000 to a peak of 0.482 in 2007, before declining and stabilizing at around 0.458 from 2016 to 2018. After accounting for taxes and transfers, the Gini increased from 0.414 in 2000 to a peak of 0.439 in 2007, before plateauing at about 0.402 over the last three years. In other words, income inequality was relatively stable leading up to 2018.

    Another insight that can be drawn from the Gini data is how far government intervention mediates this inequality. From Figure 2, it can be seen that the effect of government transfers and taxes has essentially doubled since 2000, reflecting increasingly progressive taxation and transfers from the government. In other words, the degree to which government efforts actually lowers inequality has steadily and significantly increased since 2000. These measures are discussed in more detail in later sections.

    2.2 Income Inequality: Top 10 Per Cent versus Bottom 10 Per Cent

    For a more granular look at income differences, this paper examines household income from work (including businesses) per household member. A per household member approach was chosen--as opposed to looking at the whole household--to account for potential differences in household size. Trends from two indicators of household income inequality are of interest here: first, changes in the nominal ratio of the income per household member of the top versus bottom 10 per cent; and second, the cumulative change of real income over the entire period.

    As seen in Figure 3, the income ratio of the top 10 per cent versus bottom 10 per cent increased significantly from 2000 to 2012, growing by 42 per cent, from 18.4 times in 2000 and reaching a peak of 26.3 times in 2012 before stabilizing at around 24 times from 2013 to 2018.

    In terms of real growth for each decile, we see from Figure 4 that cumulative change from 2000 to 2018 is biased heavily towards higher income groups. Each better off decile's income grew faster than those of the poorer deciles, with the bottom five deciles seeing an average growth that was 20.6 per cent less than the top five deciles.

    FIGURE 4 Real Household Per Capita Income Change, by Decile, 2000-18 1st 29.4% 2nd 49.7% 3rd 64.7% 4th 67.5% 5th 69.0% 6th 69.1% 7th 70.8% 8th 73.1% 9th 84.3% 10th 85.5% SOURCE: Singapore Department of Statistics. Note: Table made from bar graph. Although it is true that for the latest five years of data (2014 to 2018) the cumulative real income growth for the bottom deciles outstripped the growth of the top, this was only by an average of 0.7 per cent across the entire period (see Figure 5). So, while the change in direction is commendable, in substantive terms the real income per household member from 2000 to 2018 of the bottom 10 per cent of households only increased by 29.4 per cent, whereas the real income growth for the top 10 per cent was almost three times the figure, at 85.6 per cent. It should also be noted that while the disparity between the bottom and top deciles are large, the third to seventh, as well as the top and second deciles have seen comparatively similar growth in their incomes. This explains why there were no significant shifts in the Gini...

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