International Business & Economy Singapore should take heed of what this Nobel laureate said

Singapore should take heed of what this Nobel laureate said

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By: 永久浪客/Forever Vagabond

Nobel laureate Joseph Stiglitz wrote an article last week to explain why Trump is able to garner support from the ground (‘How Trump Happened‘).

Prof Stiglitz is an American economist and a professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences (2001) and the John Bates Clark Medal (1979). He is also a former senior vice president and chief economist of the World Bank and a former member and chairman of the US presidential Council of Economic Advisers.

As a person of international importance, he was frequently asked how Trump’s candidacy is able to get this far, despite Trump being the least qualified and worst prepared than Hilary Clinton.

Moreover, some of the behavior exhibited by Trump during his campaign would have ended a candidate’s chances in the past. Yet, Trump survived and could even become a US Republican Party nominee for the US presidential race.

Prof Stiglitz observed that there could be several underlying factors at play.

Soaring inequality

“For starters, many Americans are economically worse off than they were a quarter-century ago. The median income of full-time male employees is lower than it was 42 years ago, and it is increasingly difficult for those with limited education to get a full-time job that pays decent wages,” Prof Stiglitz said.

“Indeed, real (inflation-adjusted) wages at the bottom of the income distribution are roughly where they were 60 years ago.”

So, when Trump says the state of US economy is rotten, a large segment of Americans agree with him. This is because, despite the US GDP growing nearly six-fold over the last 60 years, only relatively few at the top benefited. Inequality soared.

Meanwhile, reforms that political leaders promised would ensure prosperity for all – such as trade and financial liberalization – have not delivered. “Far from it. And those whose standard of living has stagnated or declined have reached a simple conclusion: America’s political leaders either didn’t know what they were talking about or were lying (or both),” Prof Stiglitz said.

Save the rich while do nothing for ordinary citizens

But Prof Stiglitz felt that it is also wrong for Trump to blame all of America’s problems on trade and immigration. He countered, “The US would have faced deindustrialization even without freer trade: global employment in manufacturing has been declining, with productivity gains exceeding demand growth.”

“Where the trade agreements failed, it was not because the US was outsmarted by its trading partners; it was because the US trade agenda was shaped by corporate interests,” he added. “Thus, many Americans feel buffeted by forces outside their control, leading to outcomes that are distinctly unfair.”

US government bailing out the rich bankers while seemingly doing almost nothing for the millions of ordinary Americans who lost their jobs and homes during the 2008 financial crisis may have been a turning point for many voters.

“The system not only produced unfair results, but seemed rigged to do so,” Prof Stiglitz opined.

But Prof Stiglitz also said that Trump’s proposed policies, like tax cuts for the rich and corporations, and launching trade wars, would make a bad situation much worse.

He concluded that the rules of the economy need to be rewritten again to specifically ensure that ordinary citizens would benefit. Politicians in the US and elsewhere who ignore this lesson will be held accountable by voters giving rise to the “Trump phenomenon”, he said.

And the “Trump phenomenon” would cause societies divided, democracies undermined, and economies weakened, he noted.

PM Lee: Don’t worry about inequality rankings

Last year, The Economist published an article about the inequality situation in Singapore (‘The rich are always with us‘).

It said that Singapore is among the world’s most unequal countries, as measured by its Gini coefficient. The comparison may be unfair because Singapore is also a city, and like other cosmopolitan cities (e.g. New York or London), all have high Gini coefficients.

Still, The Economist noted, “But Singapore measures its coefficient rather differently, excluding shorter-term foreign workers and non-working families. And, understandably, it includes employers’ CPF contributions as income. Since these are capped for higher-paid workers, that narrows the income gap.”

The Economist then quoted PM Lee’s speech in 2013, saying that Singapore should not fret overly about its inequality rankings.

“If I can get another ten billionaires to move to Singapore,” he said, “my Gini coefficient will get worse but I think Singaporeans will be better off, because they will bring in business, bring in opportunities, open new doors and create new jobs.”

But it’s not known how these rich immigrants to Singapore like movie star Jet Li, Nepal’s errant former crown prince Paras Shah, commodity trader Jim Rogers, former brash mining magnate Nathan Tinkler and the likes have created new jobs for Singaporeans.

The Economist also quoted Ho Kwon Ping, Chairman of Banyan Tree Group, who talked about the waning faith in meritocracy in an SG50 lecture last year. He warned that “the original social leveller”, the education system, may now “perpetuate intergenerational class stratification”. Only 40% of the children in the most prestigious primary schools live in HDB flats, home to about 80% of all children.

“Singapore’s government, unlike New York’s or London’s, is its citizens’ overall tax authority, and its tax system is regressive. It has no capital-gains or inheritance taxes, and income tax is low: even after a recent rise, the top rate is 22%,” The Economist wrote.

In other words, the Singapore tax system benefits the rich like SMRT CEO Desmond Kwek, who earns about $2 million a year, ex-NOL CEO Ng Yat Chung, who earned at least $16 million while in NOL, ex-Perm Sec Tan Yong Soon cum “French Chef”, who earned more than $1 million a year, ministers and the likes.

PM Lee should take heed of Prof Stiglitz’s advice. If inequality continues to persist in Singapore with the rich and corporations readily taken care of while the ordinary Singaporeans not benefiting, a similar “Trump phenomenon” may just happen in Singapore too.

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