The Star ran an interesting article on Singapore’s income divide recently.  In one part of the article, the author quoted an Asian Newsweek correspondent asking, “If the island’s economy is booming, why are so many citizens worse off than they were 10 years ago?” Despite our economic boom, why is the income gap between the lower middle class and the rest increasing?

The Star didn’t just pluck this out of the air to misdirect the current political drama away from home.  These are real issues that Singapore is facing, issues that are acknowledged by our finance minister, Tharman Shanmugaratnam.

“Last year, managers – the best-paid group – earned 4.86 times more than cleaners and labourers. The gap has widened in 10 years. It was 4.13 times in 1997.” The Star.

Why are we looking at a growing income gap?  Why won’t it stop growing?  Why particularly the lower-middle class?  What can we do about?

What is it that happened approximately 10 years ago that seemed to have caused this situation?  Brief recollections would point to the beginning of all the Free Trade Agreements.  If the Total Trade numbers listed in wikipedia are indeed accurate, the various FTAs indeed boosted the volumes of import-export trade.  But what does FTA have to do with our income gap?

In a recent review of International Economics by Foreign Policy, it points out, “As for whether free trade is beneficial for the poorest in the society, even economists are divided.  Competition drives down wages and makes companies cut corners on  health care for their poorest workers.“  While the review was mainly directed at health-care, it very poignantly pointed out that competition drove down the wages, while companies sought short term contract staff to avoid providing health benefits.

Currently working as a short-term contract staff, I see these exact trends taking place in the IT industry that I am in.  The already competitive IT industry in Singapore is flooded by foreign talents ( yes, they are indeed talented… most of them), making wages in technical positions highly competitive, all thanks to globalization.  At the same time, I’ve observed growing trends of more short-term contracts as well, especially in larger companies.  Very importantly, I need to point out that this is happening in the > $1200 income bracket (after CPF).

When times are good, companies are more willing to hire and acquire additional resources and services.  They are abundantly staffed, and often well facilitated with welfare bonuses.  But when competition stiffens, they will begin to cut cost in order to remain competitive.  The middle or higher managements would decide to start restructuring companies to lay off non-essential positions and provide interim temp staff cover when needed.  Needless to say, welfare bonuses are reduced.  Employees are expected to take care of their own “area-cleaning” instead of engaging cleaning services or aunties.  All these snowball down to those in the lower income groups, when they are unable to find work where they used to.  No wonder there is a growing income divide!

Why won’t this income gap stop growing?  As mentioned before, we have to consider the effects of globalization as part of the problem.  As more and more skilled and unskilled foreign nationals enter Singapore in search of new hopes and dreams, their arrival also bring about fierce competition with the local skilled workers.  Oddly, strange immigration laws have also allowed unskilled foreign nationals (esp China) into Singapore that found employments in the many foodcourts around Singapore. (This I’m sure everyone noticed!)

Secondly, there is the matter of inflation, high oil and food prices.  From a company’s perspective, they will have to operate at higher costs (eg. energy, raw materials etc), which leads to higher costs of their products and services.  In most conservative Singaporean companies, they would seek to reduce costs operationally in order to keep their prices competitive.  The methods and effects as mentioned in the above paragraph about FTA.

Therefore,  MM Lee was right on the money (pardon the pun) when he said that the income gap is not likely to narrow in the near term term.

Why particularly the lower-middle income bracket?  This is largely my perspective.  Because the decisions and methods to lower costs are decided and formulated by those managers and business owners residing in the higher income brackets.

Finally, what are the alternatives and options to address these problems?  This is no doubt a challenging problem even for Singapore’s World Class ministers.  Singapore needs to stay globally competitive through FTAs, and neither can we isolate ourselves from the effects of globalization.   Inflation and high energy and food prices is a world wide phenomenon that the World needs to get collectively get their act together and address.  In the meantime, Singapore can only symptomatically address its poverty problem.

It is time the Singapore government reviews its welfare policies and begin to subsidise those who are currently living in streets, collecting / cutting cardboards, those who are having trouble with three meals a day.  It will be a shame if the Singapore does not begin to look in providing further food, health-care and energy subsidies to those in the lower income bracket given its economic success.  Looking at it regionally, Singapore is in a stronger position to help its citizenry when compared with Indonesia and Malaysia.

While soaring energy prices predicts greater political turmoil in South East Asia, Singapore’s tight authoritarian democracy looks to be in a firmer position to face a potentially oil-induced global economic slowdown.

Personal Notes:

The author is currently taking home slightly more than $1200 a month, but is about to be relegated to the lower or zero-dollar income group in the month ahead due to commencement of university education.  Tough times are ahead, and the author would welcome any reccommendations for part-time positions with flexible commitments and hopefully some fixed income.

The author is IT trained, familiar with JSP and Java technologies, PHP, SQL, and web-design/deployment.  He has a good command of English, and able to handle clients well with a subtle touch of salesmanship.  He also enjoys researching and writing articles across a broad spectrum of interests.

Again, all recommendations for part-time positions will be well-appreciated.  Many thanks, kumsiahs and arigatos!

He can be reached via email, exo_desertfox@hotmail.com.