Disclaimer: Any opinions and conclusions expressed herein are those of the authors and do not necessarily represent the views of Glyph.
A spotlight was cast on the state of inequality in Singapore since the recent general elections with talks of a wealth and inheritance tax put forth by opposition parties. Not only has it brought forth the salient issue of inequality in this particularly trying period of slow productivity and growth, the COVID-19 crisis and the elections have underscored the perennial issue of inequality.
As inequality is the difference in access to opportunities, outcomes of opportunities themselves and multiple other aspects such as wealth and income, it is a challenge that confronts not just Singapore but many other countries.
As we look specifically at inequality in Singapore, we begin to delve into the whys and the wherefores of inequality including the complications it might pose for the developed and affluent island-city state.
WHY IS IT IMPORTANT TO LOOK AT ISSUES OF WEALTH?
The literature and statistics available on inequality in Singapore is based mostly on income inequality and so have the focus of her inequality issues. However, in today's article, we look deeper into the other side of the picture, which has the same, if not more critical and insidious aspect of equality - wealth inequality.
Wealth consists of all the valuable possessions and money that one has, and which translates into useful economic value. This means the greater the wealth one possesses, the greater the resources and nest egg for consumption of goods at present and in the future. This comes in especially important during unexpected times of economic shocks such as during a crisis like the current one we are facing or due to ill health. It is also an enabler of more opportunities such as starting a new business or funding activities which could accrue to the consumer as real economic benefit.
As an example, parents who have an accumulation of greater wealth or capital can then send their children for higher quality and levels of education which produces more assets per se as these increases their children’s economic value. In economic terms, the children benefit as they gain knowledge, skills and expertise which increases their human capital of which is one of the determinants of labour productivity. Labour productivity is chief in determining the rate of long-term economic growth and wages. In the long run, the gradual increase in rate of economic growth would generate substantial returns for the economy in terms of the increase in GDP per capita. In the same vein, they become useful labour which is one of the primary factors of production to produce an output or goods and services in the economy. It is not hard to see that this sets them up for greater chances of success. And this presents tremendous prospects when such opportunities are accessed widely by society.
HUMAN CAPITAL The resources that the wealthy can avail themselves of set the stage for reproducing similar success and socioeconomic achievement for their children. It enables their children to climb the economic ladder more easily, all the while gaining skills and knowledge that have economic value. This is why it is so important to evaluate the human capital that a country possesses.
In this area, Singapore has no doubt been - and given her emphasis on quality education for all, her highly pragmatic and forward-looking stance to upgrade the skills of her workforce and enhance job resilience - would continue to be one of the high achievers.
The Human Capital Index (HCI) which measures the amount of human capital that a child born today can expect to attain by age 18 with a value ranging from 0 (least) to 1 (most) conveys the productivity of the future generation of workers which is up against a benchmark of complete education and full health. Singapore stands at the top with a total of 157 countries analysed, attaining a score of 0.88 in 2017.
Yet even with this stellar achievement, all is not rosy and perfect when we examine her principle of meritocracy. If meritocracy is meant to enable everyone, regardless of race, religion or class, does it then go back on its words when the wealthy is more able to get their foot in the door to the ubiquitous definition of success: good education, job and house or the "5Cs" - cash, car, credit card, condominium and country club membership, on account of the wealth they possess?
SOCIAL ATTITUDES AND THE GULF PERTAINING TO EDUCATION
Singaporeans have keenly felt the divide between the different ranks even in the realm of education. Education has been credited for being premised upon meritocracy and serving as a social leveller as has been taught right out of the social studies textbook, but what about the outcomes of the supposedly fair access to opportunities? Are we paying enough heed to what happens on the ground?
In a survey conducted by Ipsos in February 2020 this year, poverty, and social inequality surface as one of the top 3 concerns that Singaporeans have. Those surveyed also shared the sentiment that some inequality across the different demographics exists to some degree. Close to one-third of the respondents expressed how social inequality is most apparent between social classes. Unfortunately, this sentiment is neither surprising nor uncommon. One need only think back to the Raffles Girls' School relocation saga where the pronouncement for the reasons of the move backfired in a heated debate on elitism and the whole convoluted issue of condescension and talking down. Raffles Girls' School (RGS) is an independent girls’ school with its own 6-Year Raffles Programme, an Integrated Programme (IP). The programme caters to high-performing individuals with the capacity to excel academically while engaging in other areas of independent learning, providing a broad-based education. It costs more than an education at an average government school which is another cause of concern in exacerbating inequality and unfavourable social attitudes, separating the haves and havenots. RGS' campus used to be on Anderson Road near the Orchard Road district of sky-high estate prices before moving to Braddell Road in Bishan. What instigated the controversy was over the elitist comment purported to be made by an RGS spokesman, referring to other Singaporeans who live in the suburbs or more plainly, away from the luxurious districts, as “ordinary Singaporeans”. This elicited a sense of us versus them, which is evidence of the social attitudes arising from wealth inequality.
INTERGENERATIONAL MOBILITY, ADVANTAGES, AND INEQUALITY
The inequality stemming from family background, parents' wealth and financial power will trickle down to future generations. Right from the get-go, there are advantages of those who enjoy greater wealth. The results of a survey done by Channel News Asia (CNA) showed that both the upper and lower class felt that knowing the right people helps one become rich. This boils down to social connections and the parents of these people are the ones who wield the financial power to send their children to schools and activities. In selective settings, they meet other children from similar backgrounds whose parents can likewise afford to send them to the same place, fostering a powerful social network. Certainly, other factors like familial and cultural factors play a part in the process but it does not nullify the fact that parents' wealth can and will matter in the people their children meet and the opportunities that are open to them thereafter. Apart from it being just a “birds of a feather flock together” phenomenon, it breeds an unhealthy kind of stigma and has the latent hazard of diminishing the passions of people and their full potential.
This certainly doesn't bode well for unleashing the full capacity of the nation's most essential resource - human capital.
Gathered from groups of nine to eleven-year-olds during an interview conducted by Channel News Asia are the negative labels those perceived as underperforming carry with them. The education stream and the academic flair or the lack thereof could potentially be a detrimental identity marker, deflating the self-worth and esteem of the underperforming. This dampens their motivation, in turn, affecting their achievement including later in life, their jobs, income, and wealth accumulated. Without intervention, the reinforcing cycle continues.
Again, this leads to the aforementioned “flock” phenomenon. How, then, would the less privileged be able to meet ‘’the right people’’?
"It perpetuates through generations "
SO HOW IS THE WEALTH INEQUALITY LIKE NOW?
According to the Global Wealth Report by Credit Suisse in 2019, the mean wealth in Singapore stands at 297,873 USD per adult. Contrast this with the median wealth of 96,967 USD per adult. It is a stark discrepancy with the median being one-third of the mean, if assessed for the equality in the country. This means that wealth is concentrated heavily in the hands of a few, the top percentile in terms of wealth. The Gini index for wealth inequality is 75.7, which is a rather high value.
Furthermore, Standard Chartered's Wealth Expectancy Report 2019 gives us a clear reminder of the issue of intergenerational wealth and the advantages that one is endowed with from his parents. Wealth creators' top financial goals include funding for their children's education and in some countries, this is the topmost priority. It is no exception for Singapore. The report highlights that Singapore's wealth creators are anxious about transferring their wealth to their children. Coupled with the key goal of funding their children's education, it underpins the real complexity of meritocracy and equal access to opportunities. The access may well be equal from a policy viewpoint but due to wealth, it will be different. So too will the objective (success-wise) and social outcomes; the latter resulting from a growing class divide or the pernicious social attitudes and unhappiness that follow.
OUTCOMES AND WHY IT MATTERS
Income inequality would make matters worse for wealth inequality since the higher one's income is, the more comfortably one can set aside money to save, invests or purchase property or land. With this comes the growth in wealth. All this leads to a richer rich and significantly widens the wealth gap.
Meanwhile, the less well-to-do would be more concerned with resolving bread-and-butter issues while the poorest ones will languish in having to weigh their spending decisions and prioritising one area of spending over the other due to the lack of money and their weak financial power. Not only that, there exists a risk that poverty worsens their health and morale while leaving little, if any, for their children and future generations. This perpetuates what is known as a “poverty cycle” and the inequality for generations to come if insufficient intervening measures are taken.
The 2019 Gini coefficient which is 0.452 (the lowest in about 2 decades), higher median income and higher rates of growth of income for those in the 1st to 90th income percentile vis-à-vis those in the top 10% bring heartening news that the government has been tackling inequality and results are slowly showing. Post- government transfers and taxes, the Gini coefficient is further reduced to 0.398.
OECD's research show that inequality impacts the behaviour of how the various income groups interact when there is higher inequality in terms of trust, social capital, social unrest, and volatility.
To expand on these consequences, with less trust comes higher transaction costs as businesses feel compelled to seek out legal advice and contracts before reaching a deal with a customer; the negative social capital impacts occurs when one's network of relationships are concentrated in the same income group, and which prevents others from joining in to enjoy similar economic opportunities; social unrest may result from greater social conflict which could possibly hurt the businesses, government and the very society in question; markedly different socioeconomic groups and the disparities in wealth and income can also cause volatility in policy-making as governments are eager to favour the interests of their supporters which may harm wider societal interests.
THE GOVERNMENT'S MEASURES AND STANCE
The redistributive policies that Singapore implement include the progressive wage model (PWM), targeted at increasing the wages of low-income workers through upgrading skills and improving productivity. The set of experiences and qualifications helps them to climb the wage ladder in their respective industries or jobs.
Similar to PWM is the supplementing of income through Workfare Income Supplement (WIS) which is paid to older workers who earn below a specified income level.
These policies not only spur constant upgrading of the workers but augment income and addresses income inequality. As is borne out of the government's emphasis on encouraging work and productivity enhancement, which gives rise to a “productivist” form of welfare system.
The government also utilises means-testing to dole out appropriate financial aid to those in need.
Through its multi-layered or “kueh lapis” approach instead of relying on a poverty line, the Singapore government makes available various financial aid. However, the government is also aware of the pitfalls of providing generous aid and handouts. Problems such as the moral hazard of unintentionally promoting excessive reliance on handouts or creating debt without significant economic improvement in terms of solving unemployment and lack of competitiveness in some countries with substantial public spending may arise. If aid is given excessively without conscious policy planning and this very predicament occurs, it risks getting out of hand or unchecked. While acknowledging the deleterious effects of inequality which includes instability, Singapore places weighty emphasis on providing support in key pillars to support and enhance life which is summed up in her 5-pronged approach of jobs, education, healthcare and transport with social transfers deemed the last line of defence. Welfare policies administered by the state includes Additional and Special Central Provident Fund (CPF) Housing Grants which is replaced by the Enhanced Housing Grant (EHG), higher monthly household income ceilings for potential applicants to buy, take out a loan from Housing and Development Board (HDB) or use the CPF Housing Grant for the purchase of resale flats, Community Health Assistance Scheme (CHAS) and ComCare Assistance.
GOING FORWARD
Given the many potential implications and complications of the country's policies, the government has to balance its pragmatic yet socially grounded strategies in order to pave the way and carve out a better future and a city-state that is able to thrive and yet, as the ruling party says, leaves no man behind.
Undeniably, Singapore's competitiveness would increase much more if the country is not only taking measures to increase economic prosperity and job opportunities, but also adequately adopting wealth redistribution policies and measures. Social equality maintains a strong social fabric and optimizes the maximum potential of every individual.
Harvard economist Richard B. Freeman contend that inequality has a level that is just right. While inequality can encourage growth, over a certain level, it dips to the opposite trend of slowing growth instead. This occurs because those who are measured apart from the top few first-rate in skills and background might put in less effort to attain the seemingly elusive outcomes of the latter group.
There are other theories that suggest a trade-off between inequality and efficiency. They run head-on against other research evidence including those of OECD. The latter argues strongly for the case that excessive inequality is bad for growth. Namely, the ramifications include less investment in education and skills by low-income families as mentioned previously, leading to unequal outcomes, time spent in education and employment, political and social instability, reduction in overall middle class demand for consumer goods or increase in the possibility of fuelling a debt crisis and finally, rent-seeking which reflects an every man for himself mentality to secure as much share of the economic pie as possible without contributing to it.
Indeed, it is an issue with much to think about and evaluate before taking action.
CONCLUSION
Ultimately, the onus is on the individual, the society as a whole and the government to improve the welfare of everyone and the country. But we cannot forget or overlook the widening gap in wealth or income because it does not just end with the individual. It perpetuates through generations and permeates through the social fabric of society. And this is where the problem lies.
It is not just about the mere existence of inequality given how inevitable it is and faced by all, if not most countries. It is, more crucially, about how we tackle the issue and balance the multiple objectives of the country at large.