Sudhir Vadaketh discusses with The Independent Singapore the often-ignored wealth gap in Singapore
There is income inequality and wealth disparity. Which is a bigger sin?
First I would like to emphasise that inequality itself is not a sin. Every capitalistic society will exhibit some inequality as the just rewards for differing work effort. But inequality becomes a problem when taken to an extreme, as it is in Singapore today.
Both are problematic, and related. All else being equal, if you are born into wealth, you probably have a better chance of earning a higher income, because of better access to education, healthcare and nutrition. Similarly, if you have a higher income, you probably have a better chance of growing wealth, for example through investments.
Over the past decade, Singapore has become increasingly concerned with income disparities. Little attention has been paid to wealth disparities. The government does not even publish data on it. When estate taxes were abolished in 2008, Singapore became one of the few countries globally that do not have capital gains (including property) or estate taxes. For the world’s wealthy keen to preserve their wealth and pass it down to the next generation, there is probably no better place.
Credit Suisse estimates that Singapore’s wealthiest 1 per cent hold a quarter of the country’s private household wealth. Wealth Insight reckons that the richest 3 per cent hold some 85 per cent.
If Singapore does not mitigate wealth inequalities, we are simply setting the scene for social and political tensions. Countless political upheavals in modern history have had their roots in wealth inequalities, from the 18th Century French Revolution to the ongoing Arab Spring.
Testimony from the Committee of Inquiry into last year’s riots in Little India has pointed to chronic discrimination against Indian workers as one reason why the alleged rioters got upset. Wealth inequality breeds class consciousness and discrimination.
Warren Buffett said that dynastic wealth is an enemy of meritocracy. Do you agree? Why so?
Certainly. Meritocracy is a system meant to reward ‘effort’, not ‘type’- who your parents are, what ethnic group you belong to etc.
However, in any meritocracy, dynastic wealth confers a huge advantage to its beneficiaries. One has better access to education, healthcare and nutrition, as well as capital for investments.
One can observe its effects in Singapore: wealthy families are able to send their children to much better preschools, as well as so-called elite primary and secondary schools that are clustered in rich neighbourhoods, where the prices of homes have been correspondingly bid up.
These and other factors affect inter generational mobility in Singapore, which is similar to the US- low for the developed world.
In other words, dynastic wealth distorts meritocracies towards rewarding ‘type’ rather than ‘effort’.
Why have Singapore billionaires been somewhat reluctant to give back to society the way Bill Gates and others in America have done?
There are many reasons, some regional, some Singapore specific. In Asian cultures, charitable giving has often taken place along clan or religious lines. The giving is often informal and anonymous. This stands in stark contrast to the kind of celebrity-led, public giving one finds in the US. The latter has produced many examples of individuals taking a very public lead and giving enormous amounts of money away.
Meanwhile, there are also some systemic factors at play, including under-development of the charity and non-profit sectors. These institutional pillars are much better developed in the West. As a result, in Asia at large, there is still more mistrust about charities.
One could also argue that Asia’s billionaires are not as sophisticated in their understanding of the relatively new world of philanthropy- how to give and how to assess impact. This might temper their donations.
Finally, there are also some Singapore-specific reasons. Singaporean society has traditionally been averse to wealth redistribution, partly because of the idea that focusing on equalising life opportunities is enough. Because of the (mistaken) idea that everybody in Singapore starts on a level-playing field, the rich here are perhaps more inclined to believe in the notion that poor people are lazy or inferior, and thus undeserving of help. This arguably makes them less inclined to share their wealth with the less well-off.
All that said, there are some notable examples of Singaporean families actively involved in philanthropy, including the Lee Foundation and the Lien Foundation. Some are also engaged in the sort of strategic philanthropy that Mr Gates has made famous.m
You talked about how transnational migration is peculiar to a country like Singapore. Can you elaborate?
Transnational migrants, also sometimes referred to as third culture people or those with hyphenated identities, are people who might feel allegiance to more than one country or city.
Consider that perhaps less than 50 per cent of Singapore’s population was born in the country. Thus among wealthy citizens naturalised as well as local-born there are probably a high proportion of so-called transnational migrants, owing to our tiny city-states global connectedness as well as our very liberal immigration policies for rich people.
Transnational migrants add to Singapore’s diversity. However, at an aggregate level, Singapore’s wealthy are perhaps relatively more likely to be involved in charitable concerns across different geographies. This dampens their ability to mitigate wealth inequality in Singapore, heightening the case for government intervention.
The official narrative is that getting the rich to park their money here is good for Singaporeans. Has this worked out in practice?
Yes and No. It has been largely good for certain classes of Singaporeans directly servicing the rich. For instance, those who provide services to them, like private bankers, and many others in the broad wealth management industry. Or property developers who have sold on to the rich. Or wealthy Singaporeans who have been able to play the red-hot property market.
But I’m not sure how good it has been for a lot of low to middle-income Singaporeans, who have had to contend with, among other things, rising prices as a result of these pro-rich policies. It is sad that in Singapore today we have economic ghettos: for instance, the entire Marina Bay area is simply out of reach to a huge chunk of Singaporeans. I’m not talking about buying a house there! I’m simply talking about going there, having a drink, eating a meal. Many people cannot afford to.
Most importantly, I disagree with the official narrative that Singapore needs these rich people here in order to seed and grow businesses.
This misunderstands the nature of entrepreneurship. Henry Ford and Bill Gates came from humble origins to build giant companies. Their descendants, billionaires, have not created anything similar.
This also misunderstands modern capital flows. A billionaire does not need to be domiciled in Singapore in order to invest in a business here. Indeed, a wealthy Singaporean is far more likely to invest in a promising Silicon Valley start-up than a mediocre Singaporean one. Ultimately, investment decisions are made, well, on investment metrics. The final mistake in this picture is that rich individuals are actually not the main source of global investment funds’ pension funds are.
All that suggests that in order to boost business growth, Singapore should focus less on attracting billionaires than on fostering a friendly investment climate and an open, innovative environment.
Singapore must always remain open to the world. But that does not have to translate to the kind of pro-rich tax and immigration policies we have today. Some balance is needed.
Sudhir Thomas Vadaketh is a writer. Together with Donald Low, associate dean for executive education and research at the Lee Kuan Yew School of Public Policy, Sudhir is the co-author of an upcoming book, Hard Choices: Challenging the Singapore Consensus, to be published by NUS Press in April 2014.
On March 4th 2014, Sudhir participated in a debate on Wealth Inequality on Channel News Asia, alongside Melanie Oliveiro and Tan Khee Giap. Click here to watch it.