An economics perspective on "unpopular" policies

note: this was written on 5th September 2015

Let’s look at 3 of the issues being hotly debated recently

On foreign labour

We have an ageing population. This means we can either try to increase our TFR or augment the current working population with foreign labour. Of course, we have been trying to do both. (and recently… the TFR part seems to be marginally improving)

The problem – there are just some sectors where there will always be labour shortages. These are mainly jobs in construction, service oriented jobs in F&B, nursing. The work is either too laborious or tedious for locals to accept these jobs at going wages. 

Some say, why not let’s just turn off the supply tap of foreign workers? These will force firms to raise wages to hire locals – problem solved!

Not so easy. How much will it cost to hire a local for the same job functions? (Foreign construction workers salary – 480 to 1500) The average salary is $800, with a FWL imposed of $550. Average cost of hiring a foreign worker in the construction sector - $1350. 

How much would it take a local to accept a construction sector job? Most would shun these jobs and it would take an extremely high salary to convince a local to work in these industries.

But when wages go up – prices are raised. Then cost of living will be higher.

Not to mention, the firms that will exit when they cannot employ enough workers or wages are too high. What happens then?

Of course, we are not discounting the fact that the numbers here are very important. The inflow of foreign workers has to be carefully tweaked to ensure that there is a right balance to ensure that current infrastructure can support the numbers & that social tensions can be managed.

Let’s put it in even simpler terms. We can choose to have a smaller foreign labour force, but we will have to accept that prices will be higher and we will be less competitive. The effects of the ageing population will also mean the tax burden will have to be distributed across a smaller working population.

On CPF Savings

Once upon a time, one used to be able to draw out their CPF Savings at 55. What happened since then?

Many cry foul, saying that their CPF money has been withheld by the government, and the government has “broken a promise”.

Here’s my take on the issue.

The government probably realized that people generally do not engage in very rational behavior when they were suddenly presented with a large sum of money. (There’s data showing that 70% of Malaysia’s EPF Members depleting their savings within 3-5 years after drawing everything out)

It’s the ‘lottery effect’. You are suddenly presented with a fortune, and how many lottery winners actually put the money into good use, do some investments and set themselves up for life?

My guess is, the government probably realised that people tend to use up their hard earned money too quickly, do not make very good investment decisions, get cheated etc. Then, the ‘nanny’ state effect kicks in and they decided to find ways to make CPF provide for you over a longer period of time. (That’s how the CPF Life, the Minimum Sum scheme comes about?)

So I think the issue is, people don’t really like the idea that the government is making all these important decisions on their behalf. “Withholding” their CPF money seems unreasonable to them. 

Sure, if that’s what some people want to do, I think that the government should allow them to withdraw all their CPF money at 55 – let them do it and get them to sign a form that they take responsibility for their own well-being. If they do this, and they use up all the money in 3-5 years time – they should then have to bear the consequences of their own actions and head back to work.

On cars & public transport

Choose one scenario:
Expensive cars & ‘jams’
Cheap cars & ‘massive jams’

You can’t have both.

We have a population of 5 million and land size 710 sq km
For comparison, Malaysia has a population of 30 million and land size of 330,000 sq km. Population is 6 times larger but land size is 460 times larger.

If cars were not made artificially expensive – every single individual who can drive would probably be able to own one. But would you want to take 3 hours to go to work or reach home?

Public transport – There’s breakdowns, but partly due to ageing infrastructure. Crowded yes- let’s give them some time: building in progress. Improvements will be seen but it takes time. I think there’s one thing that the government didn’t plan well – increasing the foreign labour force without first ensuring the existing infrastructure is able to support.

Also, there could be some tweaks made to the current model. We will have to decide and re-work whether the current publicly owned, privately run model is sustainable especially since private firms have the profit maximization motive but PTC regulation prevents it from doing so. You can’t blame the firm for trying other ways to maximize revenue or keeping costs low if SMRT is supposed to have a profit motive but yet cannot increase prices. We could consider a ‘nationalised’ model but that cannot ensure cost efficiency (think NParks & their expensive bicycles) or the possibility that taxes may have to go up to support cheap fares and a smooth running system.

A love for your country is not restricted by the political party you support

We tend to pass judgement very quickly (I'm guilty of that too!), But I think within a short period of time, it’s really hard to pass judgement on a person and understand his or her motivations & convictions and what they are really trying to accomplish.

Whether its Lim Swee Say, Tin Pei Ling, Tan Chuan Jin from the PAP,
Daniel Goh, He Ting Ru from the WP,
Or even Dr CSJ from the SDP

I’ve heard them speak, and I am quite convinced that they care enough (in their own ways) about the country to want to do something about it. But beyond that, we should really also be looking objectively at the policies each party presents and whether the trade-offs are acceptable. 

End of the day, support the party that aligns with your ideals and what you believe in, but politics seem to be pretty divisive. Let’s agree to disagree in a civilized manner and understand that “a love for your country is not restricted by the political party you support.” 

You and I, we can have different ideas but both genuinely care about the country at heart.