Immigration and the Coming Retirement Crisis

I was prompted to write this blog post because of 2 things:

1. Reading Prof. Vaclav Smil's book entitled Global Catastrophes and Trends: The Next Fifty Years; and
2. Reading commentary on an anti-government website attacking MM Lee's misguided population and eugenics policies for causing the precipitous decline in fertility rates.

Prof. Smil, citing other population studies, noted that there have been no instances of a country whose fertility rate, having fallen below 1.5, had recovered back to replacement levels, irrespective of pro-natal policies. Given that Singapore's fertility rate has fallen to 1.06, it would appear to me that the country has gone way past the 'event horizon'.

If the examples of other countries do indeed show that the fertility decline is irreversible, then it would seem that an aggressive immigration policy aimed at sustaining economic expansion would make a lot of sense. This brings me to my next point.

Policy Failures

That the previous population policy was wrong and had resulted in the current fertility problems is well-known and widely-accepted. Even former top civil servant Ngiam Tong Dow acknowledged as much in his post-retirement speeches and writings. In addition, our failure to raise economic productivity rates is also well-documented and known to anyone who has studied the history of economic policy in Singapore. The flip-side of this failure is an inability to wean employers here off from reliance on cheap foreign labour to sustain economic expansion. This was mentioned in Ngiam's latest book entitled Dynamics of the Singapore Success Story.

Given these facts, the opposition parties and their supporters are not wrong in pointing out that the PAP government's policies were the cause of the current problems. However, my quibble is that pointing out who was at fault does absolutely nothing in terms of finding a solution to the problems.

No Painless Solutions

As far as I can tell, there are 3 possible solutions to the population problem. The easiest is to aggressively import people into the country, which most Singaporeans consider undesirable for various reasons. The second way is to try to encourage more people to have more children, which has been tried with arguably no success.

The third way is to raise productivity, which has also been tried with limited success. If we were to pursue this policy aggressively again, this means cutting off the supply of cheap labour to local employers in order to force a restructuring of their operations and business models to take place. In theory, this will bring severe short-run pains in exchange for longer-term growth in productivity by changing relative input costs and encouraging longer-term capital investments aimed at raising efficiency. This is a course of action that I personally favour. However, given how indebted many Singaporeans are, my question to my fellow citizens is this: Can you take the pain without severely negative financial repercussions?

Retirement Crisis

As I have argued elsewhere on this blog, given how most Singaporeans have over-spent on real estate using our CPF money, we need to sustain Singapore's resident population at current levels in order to prevent a cataclysmic decline in real estate prices. Raising economic productivity allows for growth with a lower population, but this method does not prevent a collapse of the real estate market arising from a lower demand for housing and commercial real estate. Furthermore, even if there is good productivity growth, there is no guarantee that the fruits of such growth will be shared equitably between employers and workers. This could then be yet another impediment towards workers saving adequately for retirement while paying off their mortgages.

Face the Contradiction

Given the bind that we are in, Singaporeans need to recognise the contradiction in our wanting to restrict immigration, and our desire for high real estate prices to fund our retirement. If we are serious about finding a more sustainable solution to the immigration issue, we need to also make attendant adjustments to the way we spend on real estate, our current consumption habits and become more aggressive in saving for retirement. Merely demanding that the government do something about the problem will not change the fact that a lot of us have planned for retirement using assumptions about real estate prices that are contingent upon high levels of immigration.