Saturday, January 07, 2012

The Distraction Over Salaries

Singapore has started out 2012 with a bit of a bang. Everyone had a major talking point this week – namely the topic of salaries or more precisely the salary of the cabinate. The Committee that had been established in the aftermath of last year’s General Election to look into the issue of Ministerial Salaries, finally revealved its findings.

In a nut shell the Committee decided that there would be an all round pay cut from the President down to the most junior cabinate minister. The President took the largest pay cut of about 51 percent while the Prime Minister and his colleagues took pay cuts ranging from 30-40 percent. Both the President and Prime Minister made the annoucements that they would accept the recamendations of the Committee.

This was good politics. The issue of Ministerial Salaries had been a hot button issue in the General Election and the Presidential Election. Taking a pay cut was a signal that the powers-that-be were going to listen. Furthermore, there’s the issue of good timming. The Finance Minister had spent the preceeding days telling us to get ready for an economic slowdown and the announcement that the Prime Minsiter was willing to take pay cut of slightly less than 40 percent was good old fashioned leadership by example. A few members of the opposition make the point that Singapore’s Ministers remain the world’s best paid (Our Prime Minister still makes four times more than the US President) but by and large we, the people were satisfied.

However, I don’t think we should get too satisfied. Taking a pay cut was the easy part. Analysing why a pay cut was necessary in the first place is another matter.
Let’s start with the basics. For many years, we the tax payer were told that we needed to pay our ministers exceedingly well because it was the only way to keep them honest and it was necessary to pay top-dollar for top talent (always a precious commodity).

It was acceptable until the government services became less than exemplary. One only has to think of the limping man waltzing out of a secured facility as an example.

Unfortunately, that wasn’t the only one. In the years preceeding the General Election we got a dose of things one associates more with a third world backwater than a premium metropolis – think of floods, over-crowded buses, a lack of affordable housing and violent youth gangs. All of that is before you throw in the various losses made by our Soverign Wealth Funds, who insisted on keeping things secret thus giving the impression that they had something to hide.

In these various instances, the government spent a significant amount of time and resources justifying its handling of the situation. The case of Mas Selamat was particularly poignient. The public wanted an offer of resignation by the Minister but what we got was a scolding from our founding Prime Minister for being complacent in expecting the government to do its job.

This wasn’t exactly top-talent in action nor did the powers-that-be seem terribly honest. So, suddenly paying the expensive ministerial salaries became ….well harder to justify.

The government needs to recognises this. The Prime Minister has sold the fact that his is a “Rolls Royce” government and he has to ensure that Ministers perform like a “Rolls Royce.” Ministers who perform below par without justification should be ruthlessly dismissed.

You cannot expect a customer to pay for a “Rolls Royce” but receive a “Fiat” and be greatful for it because the neighbours in Malaysia and Indonesia only have “Proton Saga.” The customer in this case is no longer willing to be greatful that he has a car in the first place. Nor will the public accept a discounted “Rolls Royce” government performing below par. We the paying public were told that we need to pay for a “Rolls Royce” government and that’s precisely what we expect to receive.

A more important issue is the fact that Singapore has become an exceedingly unequal society. The Gini Coefficient points to the fact that two thirds of Singaporeans earn well below the national average of S$4,500 a month. The remaining third earns way over that benchmark.

This is in itself not an issue. America has exceedingly unequal yet there have been relatively few riots since the Rodney King incident in 1994. How this happened? The simple answer is that while the rich have gotten richer, so have the poor. Societies start facing social unrest when the rich get richer while the poor get poorer and even more importantly the rich are seen to get richer at the expense of the poor.

The US provides another example – “Occupy Wall Street.” This movement is driven by the fact that poor and Middle Class people are pissed off with very rich bankers getting rich by messing up their mortgages through fraudulent means.

In Singapore, we’ve been lucky to have governments that have been smart enough to move in to redistribute the pie when things look a little uneven. However, there is a sense that the government has a role in keeping the wages of the poor and now the Middle Class down. I remember someone telling me, “In Singapore, the policy is – KILL THE SME.”

The most prominent area where this can be seen is in the area of rental space. Fact remains, the government is the largest landlord in town. It has the power to raise and reduce rents for small businesses.

The government is not only the landlord of land space. It rents out taxis – which is supposed to be the job of last resort for Singaporeans. Taxi drivers rent their cars from the National Trade Union Congress (controlled by the government) and they have to pay all the expenses of running a taxi (petrol etc). In return they are theoretically allowed to make as much money as they can.

However, the government makes things harder. Renting a taxi is expensive (around $90 –a day and it has to paid daily). Certain roads on the desired routes come with a toll and you’re allowed to stop in certain places. To make matters worse, we actually had a former Minsiter of Transport who publically declared that he wanted to move local Singaporeans off cars (including taxis) and onto the public transport (buses and trains) as part of a national effort to go green. So there you have it – the taxi driver has to collect money for the same government that’s actively trying to put him out of business.

This is the most obvious example of how the government works to keep wages or the earning capacity of the citizens low. I’ve mentioned it more than once – whenever cleaning aunties earning a few hundred a month for 12-hour daily shifts want a few cents a year more, the powers that be rush out to warn the public about creating inflationary pressures (which doesn’t seem to apply when Ministers want several hundred thousand a month more).

Its one thing to earn less than your peers. I take myself as an example. I am a writer and the industry I deal with is publishing. I’m likely to make way less than my peers in investment banking, oil&gas or shipping. Those industries are more capital intensive and so the money floating around them is likely to be greater.

It’s a completely different thing when I’m earning less because the people in power take an active role in keeping my wages down. Look at the taxi drivers. Its tough enough looking for customers to pay for the daily rental. The effort of making a living becomes a joke when a government minister publically declares war on your business.

It is a nice gesture of the cabinate to take a hefty pay cut. However, whether the Prime Minister is paid $20billion or $2 does not affect me. What affects me is my ability to make a living. I can accept that I struggle for a living. However, that struggle becomes somewhat unacceptable when the powers-that-be are actively increasing my burden.

Cutting the pay of the top national leaders makes good politics but it does not make better social or economic policy. The answer for Singapore lies not so much in cutting the money for the top but in allowing the bottom two –thirds earning below the national average to rise their incomes.

The concept of a minimum wage has been rejected as a socialist tool to scare off foreign investors. I don’t think this is necessarily true. Singapore has long past the stage where it sells on being “cheaper” (Whatever you can make cheaply, China will make even cheaper and India will service cheaper).

However, this is NOT the ONLY way to raise incomes for the lower part of society. At the very least the government can lower rents during tough economic times so as to ensure small businesses like hawkers and taxi-drivers keep more of the money they make. (Interestingly enough the government won’t lose since it will probably collect more by way of tax).

The government should look at creative ways to help lower income people earn more. Subletting of flats should be encouraged as should car pooling. Employers who come up with creative ways to compensate people should be recognised.

These are just some possiblities one can think of in working towards the most pressing issue of the day – namely helping the poor get richer. We need to give the poor a sense that they can achieve if we’re move forward. This rather than getting a few well paid ministers to take a pay cut (which they’ll take for political purposes) is the most pressing issue that we need to work towards

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