Dear Mr Dan Fineman,
While your overall analysis (Fiscal Predator, FEER, May 6, 2004) of the Singapore governments fiscal policies and how they impact the economic future of the country is spot-on, you seem to have taken a more dilettante approach when you talk about the country's politics (below).
You make the argument that high salaries paid to Singapore's cabinet ministers discourage corruption and attract talent into government ranks to the extent that the political opposition and the private sector are deprived of good minds.
I would like to argue that high salaries in and of themselves are not the antidote in combating corruption. If it were we would not be hearing of the corporate scandals in Enron and WorldCom just to name two that have involved top executives whose salaries are not exactly considered paltry.
If the prevention of corruption is cited as a justification for huge salaries, can't workers demand exorbitant wages and advance the argument that this will prevent them from stealing and robbing? The simple truth is that corruption is a crime and if we have to dangle money in front of Singapore's leaders to keep them on the straight, then we have a problem on our hands.
Besides, how much is enough? Singapore's prime minister is paid more that the president of the US, the prime minister of the UK, the chancellor of Germany, the president of France and the prime minister of Italy combined!
The more plausible reason that drives many of the rich and powerful to seek even greater wealth is good old-fashioned greed. The excuse that huge incomes prevent corruption among high-ranking officials is just that, an excuse.
May I also suggest that political control is another reason why Senior Minister Lee Kuan Yew insists that his ministers are paid the amounts that they are. While you posit that huge salaries discourage corruption, have you also considered that they may also dissuade liberalization? Talk of democratic reform among the more liberal members of the cabinet (not that Im suggesting that there are any at the moment) is significantly reduced if the ministers know that they risk losing their more-than-fat incomes if there is a chance that they'll be voted out of office.
As for the thesis that the high salaries in the public sector attract so much talent into the government that few brains are left for the political opposition and the private sector, it is offensive to many Singaporeans who do not see wealth as our guiding principle when it comes to choosing our vocations. You may be surprised to know that many of those whom Mr Lee Kuan Yew considered the ablest and brightest, did not seek the path of great fortune but instead opted for great tribulation by joining the opposition. Former solicitor-general Mr Francis Seow is but one example. He now lives in exile in the US.
Whatever happened to public service and sacrifice?
You also failed to mention the fact that the reason Singaporeans are not standing in line to join opposition parties could be because of the years of oppression and persecution instituted by the ruling party. With stringent laws still in place to curb freedom of speech, a pluralistic media, trade unions, and free and fair elections not to mention the numerous defamation lawsuits brought against oppositionists it may be unwise to attribute an intellectually and numerically anemic political opposition solely to the brain-drain factor.
These points notwithstanding, I thoroughly enjoyed reading your excellent piece. Thank you.
Chee Soon Juan
Singapore Democratic Party
Far Eastern Economic Review
6 May 2004
Huge hidden fiscal surpluses enrich the Singapore state but impoverish the private sector
Austere fiscal policies hurt Singapore more than possibly any country on the planet. Although Singapore markets itself as a low-tax country with world-class social programmes, in reality the government taxes heavily and spends little. The resulting huge surpluses - largely hidden and off-budget - strengthen the ruling party but weaken the economy. Unless the government drastically loosens fiscal policy, businesses will lose competitiveness and long-term growth will slow.
Singapore's political system and fiscal strategy are inextricably intertwined. Only a government dominated by a single party could consistently post such large surpluses and only an extraordinarily well-financed state could exert such extensive control over political and economic life.
Big structural surpluses most benefit the ruling party, to the detriment of the private sector. Unconstrained by tight finances, the government pays cabinet members and civil servants some of the world's highest public-sector packages. Although generous salaries discourage corruption, they also lure the best talent to the government and ruling party. Private enterprises - and rival political parties - suffer brain drains. When campaigning, the ruling party argues that the opposition lacks capable leaders. Because high pay has attracted the island's brightest to the government camp, the claim rings true.
A variety of analytical shields obscures the embarrassing size of government surpluses. Accounting principles differ from global standards. A bewildering array of statutory boards, government-linked companies, investment corporations and holding companies transact among themselves at undisclosed prices. Key data such as the government's share of national savings and the profits of holding companies and investment corporations are kept secret. One analyst calls the national accounts a "masterpiece of obfuscation."
Actual surpluses greatly exceed the already impressive stated numbers. From 1991 to 2001, the government reported surpluses averaging 3.6% of GDP, but Mukul Asher of National University of Singapore calculates an adjusted average of 9.7%, nearly triple the announced figures. Official budgets exclude land-lease revenues, investment income and profits from off-budget state bodies. Because Asher includes only publicly disclosed revenues, his adjustments understate real surpluses.
The high-surplus strategy lowers Singapore's standard of living. Deprived of disposable income by numerous taxes, Singaporeans consistently consume a share of GDP 10-20 percentage points below Hong Kong levels, while Hong Kong maintains a higher per-capita income. Their high-revenue, low-expenditure government leaves Singaporeans a smaller slice of a more modest pie.
Overly stringent fiscal policies sap Singapore's competitiveness. Excess surpluses depress the cost of capital and encourage firms - many state-owned - to overinvest. According to JPMorgan, listed Singapore companies provided a return on equity below the non-China developing Asian average in four of the last five years and half the United States benchmark since 1996.
An excessively pro-fiscal design is contributing to a looming crisis in Singapore's national pension plan, the Central Provident Fund, or CPF. Rather than invest balances on beneficiaries' behalf, CPF payscontributors a low, artificially determined interest rate. The state pockets as a hidden tax the potentially huge difference between the actual investment yield and what beneficiaries receive. In contrast to most countries' schemes, Singapore allows working contributors to pay medical bills with plan balances. The resulting outflow depletes retirement funds but relieves the government of potential health-care liabilities.
Arguably, provisions allowing home buyers to tap CPF balances work to similar effect. State entities own an estimated 85% of the island's land. If, as some analysts believe, CPF financing has contributed to high land prices, the government gains from home purchases, while pension balances dwindle. Largely as a result of its fiscally friendly features, CPF will prove grossly inadequate for meeting individual retirement needs.
Slower economic growth has eliminated reported surpluses this decade, but the lack of change in broader fiscal policies indicates that actual balances remain high. Until the dominant-party political system that thrives on outsized surpluses undergoes fundamental reform, Singapore will struggle with an underfunded pension plan, inefficient businesses and sickly consumption.