post-industrial society

The need for a new welfare capitalism: postscript

I wrote a couple of months back about the need for a new welfare capitalism in Singapore. This post supplements it with references to a couple more articles and books, which shed light on my argument.

Essentially I advocated a much more robust approach to ensuring job security and mitigating the necessarily insecure conditions of modern, global capitalism. This would involve unemployment insurance, job training and restructuring, and a minimum wage along with many other minimum conditions; complementary to that, the state would also have to reaffirm meritocracy by investing heavily in early childhood education and care (James Heckman at the University of Chicago is one of the biggest advocates for this, and has quantified, in the US context, the economic, educational, health and crime-reduction benefits of ECEC).

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The politics of the minimum wage: Hong Kong, Malaysia… and Singapore?

Warning: Everyone and their grandmother has written about the pros and cons of the minimum wage. That is not the subject of this piece. Irrelevant comments solely about how the minimum wage is the bee’s knees or devil spawn will be deleted.

Why do countries adopt a minimum wage? Surprise, surprise: there are arguments on both sides for the minimum wage. Economists don’t agree. And it’s no wonder. Wage dispersion and unemployment are affected by many factors other than the minimum wage, so the literature on minimum wage will always be inconclusive. In other words, we’ll never be able to say whether the minimum wage, as a general rule, is a good or bad thing. Rather, the best we can do is to find out whether it helped or hurt in a specific instance where a minimum wage was implemented or raised. And before it’s implemented, we can argue all we like but it is next to impossible to model or predict the likely effects. Even in the UK (whose economy is far better studied than Singapore’s), pre-minimum wage fears of job losses have been recognised even by the Conservatives to have been unfounded. So I think if a minimum wage were ever to be implemented in Singapore, the decision would be taken on political grounds, not econometrics. In this piece, I’m not making any judgement on the merits of the minimum wage; instead, I want to focus on the politics of the minimum wage—what makes the introduction of a minimum wage likely or unlikely.

I don’t think it’ll happen in Singapore anytime soon. Here’s why: our labour movement is well-integrated with the government, and the media and political opposition is weak. Having taken care of three possible sources for minimum wage demands, it is difficult to imagine another source for minimum wage demands to emerge and gain political traction. And the progressive wage model which has recently come into effect (albeit only for cleaners) may, instead of leading up to a minimum wage law, defuse demands for the introduction of a minimum wage.

To the best of my knowledge, in the region the minimum wage has been implemented most recently in Hong Kong (legislated 2010, implemented 1 May 2011) and Malaysia (legislated 2012, implemented 1 January 2013). I’ll take each of those cases in turn. (Myanmar also implemented a minimum wage in 2013, but there’s just too little written on it to work on. The UK implemented theirs in 1999, and two good policy analyses for that can be found here and here.)

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The need for a new welfare capitalism

This piece takes a step back from empirical work and invites the reader to join me in a bit of conceptual exploration, on the way goods and services are produced in a modern economy like Singapore’s, and the institutions that support those people who work to produce those goods and services.

To Singaporean ears, the term “welfare state” epitomizes all that is wrong with the decadent West: a state which saps the industry and drive of its people, rewards idleness and irresponsible fecundity, and yet delivers unemployment, crime, a breakdown of the family unit, and all that at far greater cost to the taxpayer than the Singaporean system. By contrast, we value work so much that we have neither a minimum wage nor an unemployment insurance. We value family solidarity, so we require those in need to turn to their family first—even to the extent of legislating a requirement for children to care for their elderly parents.

But defenders of Singapore’s system neglect a few vital facts. The foundations of our social institutions were laid down when our population was much younger and the occupational structure of our economy was less skill-intensive than it is today. The demographic dividend paid off by keeping healthcare costs and demands on the health system low. Meanwhile, it was possible for (largely healthy, young) workers to switch jobs and sectors in a relatively low-skill economy if they were made redundant. Jobs were fungible and it was a workers’ market in a long boom era of near-zero unemployment. If one were looking for empirical confirmation, I suspect that the CV of a typical 55- or 60-year-old worker nearing retirement today shows a surprising amount of diversity and adaptability in occupational choice.

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Could demographic change drive values change?

Summary: values change is often argued to push fertility rates down. But what about the reverse? That is, low fertility rates could drive values change. Fertility rates could recover in a generation if (for instance) more religious or conservative people have larger families, and their children go on to have larger families as well. But this would have implications for what we might think of as liberal, progressive values.

Some demographers have argued that people in North America, Europe, and East Asia are having fewer children because value systems have changed (for instance, people prize career and independence over family; some articles that argue this are Atoh 2001, Goldstein et al. 2003, McDonald 2000, 2006). This can be explained either purely through cultural change, or with reference to changing incentives. For instance, it’s plausible that having large families in some societies today invites stigma—that’s an example of cultural change. On the other hand, the fact that divorce has become more widespread and acceptable means that women want to ensure financial stability in case of a breakdown in the marriage, which in turn encourages them to stay in the workforce and discourages them from taking breaks to have children—that’s changing incentives. These two sorts of explanations are not mutually exclusive. But what they have in common is that a demographic outcome is a result of changing views on the good life.

And the result? According to Goldstein et al. (2009), in 2002 about 700–900 million people lived in areas with total fertility rates below 1.3 (that is, based on birth rates that year, women would have 1.3 children on average), including many countries in Europe, most of developed East Asia, as well as anywhere between 6–12 provinces in China.

But how about looking at things in reverse? What I mean is, could changing family structures have an impact on value systems? Last Saturday the New York Times carried an article about the disappearance of the liberal Jewish voter bloc—60% of Jewish children in the NYC area live in Orthodox Jewish homes, which means that in a generation they will form a large voting bloc. In that piece, Samuel Heilman argues that as Orthodox Jews gain political influence, they will clash with “American values” (by which he seems to mean liberal-secular values).

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Professor Mahbubani’s $50k homes are only a quick fix

In the midst of the controversy over the NLB it slipped my mind that I’d wanted to respond to Professor Mahbubani’s Big Idea on Saturday. But I came across a takedown of his article earlier today and that reminded me to write. The citations on that piece are excellent and I don’t have much data to add; instead, I wanted to focus on two things in Professor Mahbubani’s piece which may have slipped by a little less noticed.

The first is something on which we agree. There is no way Singapore will be as successful in the next 50 years as it’s been over the last 50. And although he exaggerates how special Singapore’s record is relative to other countries—and even though our median per-individual household income ($2247 monthly) is a far sight from our GDP per capita ($6710 monthly, according to his piece)—it’s true that living standards have improved. This progress is unlikely to be matched because the low-hanging policy fruit has already been harvested, so to speak—we’ve cleared our backlog of people to house, kids to educate and vaccinate, jobs to provide, sanitation to improve, and so on. This sort of unambiguously-good public policy is a thing of the past, and we’ll start to see more trade-offs appearing. Policies will have distributional consequences, favouring some segments of society over others (rich over poor, young over old, and so on). We’ll also begin to disagree on the desirability of policy outcomes (is having more people good or bad?) Because of this, there’s no way our public policies can attract the same sort of public consensus that they have had in the past. And if that’s the case, I believe it to be an argument for greater democratic contestation in Singapore.

The second is something I absolutely disagree with. Professor Mahbubani suggests that Singaporean property developers build cheap housing (homes priced at $50k) in neighbouring countries so that Singaporean families can enjoy space in their living arrangements. Nazi parallels aside (Lebensraum?), here’s why I think it’s a terrible idea:

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