Speech by Randolph Tan, Nominated Member – 01 March 2017

Mdm Speaker, thank you, for allowing me to join in this debate.

Madam, I strongly support the current Budget proposals. They address ongoing challenges in the economic restructuring process and, despite the changes the last year has brought, reiterate the vision of a secure future that Minister Heng has set out from last year’s Budget.

The circumstances we face are undoubtedly unique, but there are important lessons from the experience of other countries that we only ignore at our peril. We could just as easily become trapped in our own lost decade, exhausting our limited resources on a dispersed agenda without heed to strengthening our economic foundations. Our priority, therefore, should be to provide a footing for future generations that is even more secure than the one we now have.

Madam, to me, this Budget is about seeing beyond the uncertainty, taking leadership responsibility in issues that matter, and possessing the courage of our conviction to complete the restructuring task at hand.

This Budget takes a strong lead in shaping the environmental agenda. We have enjoyed our entitlements of clean air and clean water for as long as we remember. But the unwelcome reality brought about by changes in our world is that not only are both in short supply, the two are growing sources of contention in an increasingly fractious world. 

Singapore has developed a lead in clean water technology and we can do the same with green technologies in general. A fundamental element in managing the competing access to clean water and air is to correctly price their availability. The long-term consequences of mispricing water and pollution are severe and incompatible with the direction we intend to take for our future economy, as well as for our society. We should not leave future generations unprepared to confront a problem that is developing now.

The issue is not how much clean water we still have or where the current threats to our environmental air quality lie. The issue is much broader and has to do with our collective responsibility for the environment and societal development. Hence, I would like to urge the Minister to consider price corrections in other areas in urgent need of attention as well. 

Areas such as electronic waste generation, should be incorporated into a comprehensive strategy for responsible environmental advocacy. By ensuring that pricing is imposed on both water and pollution, Singapore is not just taking a responsible leadership role in pushing forward the agenda for dealing with climate change, we will also be putting in place incentives for nurturing the development of technologies whose global economic potential is rapidly expanding. These lie on the path of our future economy.

Madam, there are some areas, however, where I feel that further clarification on how the long-term vision could be achieved would be useful. The first of these is our manpower policy. We should strengthen the connection between our manpower policy and our skills framework.

Foreign workforce growth has been slowing since 2011. Although the recent weakening in demand has been partly due to economic conditions, there is little doubt that the primary mechanism bringing about this shift is the system of levies and dependency ratio ceilings (DRCs).

Our policy on foreign manpower should not just be about restrictions. It should be about promoting long-term economic competitiveness for the benefit of our overall workforce. In order to realise this objective, we must be open to the type of skills we lack and incorporate foreign manpower contributions into a comprehensive strategy for filling our skills gaps.

The indications are that we have made promising improvements in this direction. In the third quarter of 2016, the number of work permit holders in manufacturing and construction declined, contributing to a rare quarterly contraction in total employment in Singapore. As a result, preliminary statistics from MOM show foreign employment (excluding foreign domestic workers) shrinking over the course of 2016 as a whole, the first time this has occurred since the global financial crisis for the whole year. At the same time, labour productivity measures depict improving performance. Full year 2016 figures show real value-added per worker hitting 1%, after having remained stubbornly negative in the preceding two years. And the quarterly statistics show the improvement was sustained throughout, with fourth quarter real value-added per worker hitting 2.4%. What is reassuring is that these changes occurred gradually, despite the fluid environment and turbulent global backdrop.

The work is far from done, and the productivity challenge is an ongoing one. The delicate balance of maintaining robust domestic employment, ensuring global standards of openness to deep and diverse skills, and injecting momentum into the productivity drive is a challenge that all countries face.

Given the limitations of our domestic labour market, the magnitude of the challenge we face in Singapore is far greater. That is why robust yet flexible policy instruments are so important. There is no doubt that our foreign manpower management policy has encountered enormous challenges. This should not detract from the tremendous success it represents as well. Compared to many other countries, we have taken a lead in this area and we should recognise its effectiveness.

Going forward, we should re-orientate our policy to move away from restricting inflows and focus on growing skills sets that our domestic workforce alone will be too slow to achieve on its own. This idea is not new. The “triple weak” system promulgated by the Minister for Manpower for monitoring companies’ with poor hiring practices already contains essentially the same key ingredients, which is that companies should be assessed on a multi-dimensional metric, rather than a single- dimensional measure.

The predecessor to the CFE, the Economic Strategies Committee, originally proposed the system of levies and DRCs. The CFE has developed the principle further. In its report, it recognises the need for foreign talent with specialised skills sets and calls to develop a more differentiated foreign workforce policy. To achieve this differentiation, instead of using the number of workers as the basic unit of measure, we should measure skills instead, and determine levies based on the extent of the skills gap that an employer encounters within the existing domestic workforce, as well as the changes in the gap over time.

The measurement of skills sets and skills levels should be carried out in coordination with the skills framework constructs being developed by SkillsFuture Singapore. The resulting system should be validated by the needs of the Industrial Transformation Maps (ITMs), merged with the current levels of foreign workforce passes, and used to assess the extent to which gaps at the company as well as sectoral level can or cannot be filled by the existing local workforce supply. Such a system can also be used to track whether the gaps are effectively closed over time through training, and how fast this is occurring.

The system of foreign manpower levies and DRCs forms a clear set of rules for managing foreign manpower participation. In recent years, including the current Budget proposal, the system has been used to moderate the impact of manpower cost pressures when economic conditions are poor. As a counter-cyclical tool, the system of levies and DRCs can be adjusted by sector. On this basis, levy rises in the marine and process sectors have been frozen, while those in construction have been allowed to proceed as earlier announced. And compared to alternatives, such as the CPF cuts that were used in the past, this approach is much more amenable to fine-tuning.
My second concern is about the challenges of scale that we, in Singapore, almost uniquely in world, face. Whether we are prepared for the reality of competing against countries much larger than us, this is something that we will have to deal with as a result of the proposals set out in this Budget. This Budget makes a significant push for internationalisation. This will increase the companies and local talent being given greater exposure to global competition and will serve us well in the long run. While programmes, such as the Global Innovation Alliance (GIA), can help Singaporeans gain a foothold in overseas markets, as well as a better appreciation of our global competition, there are adjustments that individuals have to make. Hence, the transformative impact of the GIA will take some years to become visible.

The issue of scale has always been something of a challenge for Singapore’s economy. We have pushed near to saturation point in many of our efforts, but the competition can harness vastly larger numbers without batting an eyelid. This fact is visible in every aspect in which we compete internationally, from trade figures to our workforce composition, to even our robot density.

In 1984, China’s share of manufacturing exports in the world’s total, 1.1%, equalled ours. In 2015, as the world’s leading exporter, China’s share had grown 16 times, to almost twice that of its nearest rival, Germany. Our share, of course, has also grown, more than doubling to 2.3%. Between 1984 and 2015, the share of the US in world manufacturing exports fell by a third. These developments have redefined the global economic balance. They have also brought about the tremendous groundswell of reaction that ranges from the Brexit vote outcome to the repudiation of the Trans- Pacific Partnership (TPP).
In 2015, world manufacturing exports shrank more than 8% in nominal terms.
Singapore’s trade performance suffered as a result.

The options we have in reacting to these changes are determined not just by our preference, but also by the choices made by the countries we compete against.
China is also the world leader in high-technology manufacturing exports.
However, Singapore’s share of global high-technology exports is about a quarter of China’s, which makes this sector more important to us than general manufacturing.

Across all regions of the world and in many countries, the proportion of manufacturing classified as high technological activity is on the rise. A comparison across countries reveals a visible correlation between this rise and the increasing use of robotics.
As the Minister for Finance Mr Heng had already pointed out last year, China is the world’s largest buyer of robots. And other countries are keeping pace, including Singapore. According to a recent update from the International Federation of Robotics, between 2010 and 2015, the operational stock of industrial robots in Asia rose 70%. The same report placed Singapore within the top ranks of countries in the world, in terms of robotics density, just behind South Korea, and nearly five times ahead of the average global density.

Robotics and artificial intelligence (AI) are just two of the things that are often mentioned in the same breath as Uber and Grab when discussing technological changes and disruption. These two groups are obviously very different. However, what concerns those who cite them as examples in the same breadth is not necessarily their economic or technological novelty but the loss of control workers feel in facing the rise of these innovations. This fear of loss of control is the most important reason why ordinary workers today identify with the notion of being caught up in an industrial revolution beyond their control, no different from the original one.

Research supported by the International Federation of Robotics argues that while there have been job losses, their magnitudes are small, compared to the increase in employment over the same period.

Regardless of whether one believes in net gain or loss of jobs due to the introduction of new technologies, such as robotics, there is little doubt that existing jobs will have to give way to new ones and the workforce must, therefore, be prepared to adjust to this reality.

Although we cannot be certain about the precise rate and impact of the change on all jobs, the pattern of change and the nature of jobs of the future are becoming increasingly evident. Job creation is increasingly concentrated in domains requiring high intensity of knowledge and skills. In R&D, for instance, across countries and with very few exceptions, the number of personnel has seen strong upward trends. This is true both in absolute terms and as a ratio of the population.

Singapore, of course, as usual, faces the limitation of size that our competitors do not. Between 1996 and 2012, the number of persons employed in R&D in Singapore rose 265%, way ahead of the 50% gain in the US, 160% gain in China, and even 216% gain in South Korea.

But as a result of our population limitations, our R&D personnel numbers are already among the highest in the world on a ratio basis. China’s ratio is only one sixth of ours, despite boasting the largest number of R&D personnel globally today. This means that in Singapore, we have a far smaller pool of workers from which to draw, and if we continue to grow the numbers in order to keep up with global competition, domestic sectors in need of skilled manpower will be squeezed further. The only solution is for our workforce to push beyond the existing frontiers of skills acquisition that other countries take for granted. To remain competitive despite our limitations, our workforce must be prepared for a continuing process of advancement and workplace transformation.

Madam, Budget 2017’s push to develop Singaporean workers into regional and global leaders will take us out of our comfort zones. Singaporean workers, many of whom juggle their regular jobs with important roles, such as family caregivers, will have to add regular overseas postings to the list. This is what we have to do as an innovation in order to overcome the limits of scale.

Given our size, we are already at the boundaries of what we can reasonably achieve if we go by norms. Both in R&D personnel and in robot density, we are already at the limits. Countries whose sizes are multiples of ours have a lot more scope for expansion in absolute terms, and will reap further economies of scale. Internationalisation will, therefore, expand the potential space within which our companies and workers operate, but not completely overcome the fundamental disadvantage of scale that Singapore has always faced.

It is not just workers who will be challenged. SMEs will also feel the discomfort in operating outside of their comfort zones. The question I am trying to ask is: are the internationalisation initiatives a realistic option for local companies who do not have the basic capacity to scale up beyond their set-up in Singapore?

Madam, my last concern is about the timeline for restructuring. The timeline this time around will, I believe, turn out to be the greatest challenge. Many of the past restructuring efforts had tangible end-points such as the challenge of a recession that it could take reference from.This particular restructuring is a long drawn out process, and it is going to be challenging to focus minds on the intangible aspects of the strategy. Although the restructuring is aimed at addressing the challenges caused by disruption, as the timeline for restructuring lengthens, it will heighten uncertainty among companies and workers. For some, the distinction between restructuring and disruption could begin to blur.

The completion of this restructuring will not be readily marked by new buildings or highways. Instead, it is a process of transformation. Success will probably mean not just an end-point but an on-going process of change.

Hence, in closing, I would like to thank Finance Minister Heng for staying the course in this restructuring journey as well as for providing a personal model of resilience through adversity.


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