On the Growth Imperative of the Population White Paper

Having completed the reading of the White Paper, I will now look at the underlying logic of the argument that Singapore needs a much larger population to sustain ourselves economically.  This logic I will term as the 'growth imperative'.

Why we need economic growth

A major theme in the White Paper is the need for continued economic growth.  The most obvious reason for this is that we need to fund the retirement of the current generation of working Singaporeans, so as to lessen the fiscal burden of the next generation of Singaporeans.

Economic growth is needed in order to generate the investment returns needed to grow our retirement savings.  This is required both at the individual and the national level.  At the individual level, growth will allow our investment portfolio to increase in value over time.  At the national level, growth is needed so that the government can afford to pay us the above-market interest rates for our CPF savings.

There is one other less savoury reason for the need for economic growth: debt.  Singaporeans are very heavily indebted, as many of us have decided to overpay for housing and private transportation.  Now before we blame the government's policies regarding this, I just want to say that even within the constraints of such policies, we have a measure of freedom of choice, and I would argue that many of us have chosen poorly.  This has resulted in many of us being enslaved to our housing and car loans.  If there is no economic growth, we would have a financial collapse.

Why the need for population growth

Now, in order to achieve economic growth, the White Paper assumes the need to grow our workforce, as can be seen in paragraph 1.7.  So the next obvious question to ask would be this: Why do we need more people to achieve economic growth?

We can answer this question by taking a looked at a simplified version of the standard growth accounting equation that is used in economics:

Economic growth = Growth in capital + Growth in labour + Productivity Growth

In the first decades after independence, the Singapore economy had undertaken massive investments in capital to allow us to move from a labour-intensive economy to a capital-intensive one.  As argued by several US academics in the mid 90s, we have passed the point of diminishing returns in this area, and so while we will undoubtedly continue to engage in capital formation, this can no longer be the main source of our growth.  

We have also tried to improve productivity for several decades with mixed results.  In fact, if we could validly apply to Singapore the analysis done by Northwestern University's Prof. Robert J. Gordon on the diminished growth prospects of the U.S. economy, then it would be arguable that growth via this channel would not be easily attainable.

So this leaves us with only growth in labour as the remaining channel for growth.  This factor has 2 parts: growth in the number of people in the workforce as well as growth in the number of hours worked.  Since there is a natural limit in the latter, the emphasis in recent years towards increasing the former.

Problems with the logic

While I can understand the economic logic of the White Paper, there appears to me to be several problems with the ideas in the plan.

Firstly, while Chapter 2 of the White Paper talks about the need for strong families, our current economic model and its growth imperative are totally incompatible with improving family life.  Making pronouncements regarding the need to 'put families first', as in paragraph 2.6, will just be empty talk unless our economic model is changed in a fundamental way.  No new ideas on how family life can be enhanced have been introduced in the White Paper.  So there is a major contradiction between the pillar about having a strong Singaporean core and the pillar about a dynamic economy.

Secondly, paragraph 3.18 talks about helping older people find work , but this will be futile if you also have a policy of allowing easy access to foreign labour, which we do now.  There will be no economic compulsion to hire older workers.  As we can tell from the incentives given by the government to employers in this area, they have not been successful in materially improving the employment chances of older people.

The 2 points aforementioned form part of the reason why I think the plan will fail to achieve its desired outcomes.

When I next have time, I will look at how increasing our population will further worsen our national vulnerability to systemic shocks and risks.