(Economic Development) Innovation and Inequality: How can the government prepare Singaporeans amidst the Fourth Industrial Revolution?
By Heather Cheng Hoi Yeuk (’22), Ng Jun Jie (’22), and Lim Tian Jiao (’23)
Singapore’s economy has long been known for its regional hub position: consisting of a web of financial services, manufacturing activities, and business headquarters, supported by credible tax policies, regulatory frameworks, and free trade agreements that promote flows of goods, services, human and physical capital . However, though Singapore remains a highly sought-after business destination for its good infrastructure, business environment and political stability, she now faces stiff and rising competition from regional counterparts in sectors such as logistics, aviation and the equity market, especially in terms of costs .
Meanwhile, the world is now entering into the Fourth Industrial Revolution (4IR), a new era of technology-driven economic disruption. Companies are utilising enhanced tracking, processing, and analysis technology to optimise their business decisions. From logistics giants seamlessly tracking shipments from freight containers to department stores, to manufacturing companies making use of production machines that can learn from their own mistakes and adjust their own settings every few seconds to improve long-term quality output, the world of 4IR means heightened productivity for those who are proactive in harnessing its benefits . At this critical juncture, an opportunity arises for Singapore to develop a new basis for competitiveness — to lead the wave of entrepreneurship to become an established innovation hub .
At the same time, automation in the 4IR is likely to displace lower-skilled, often lower-paid workers, whose repetitive tasks may be more efficiently and cheaply executed by machines. Meanwhile, technological advances will likely benefit higher-skilled, often higher-paid workers, who are better able to harness these to improve productivity. As such, the 4IR is likely to exacerbate income inequality.
To better understand the policy implications of 4IR for Singapore, the Roosevelt Institute @ Yale-NUS interviewed Manu Bhaskaran, Chief Executive Officer and Director of Centennial Asia Advisors, and Professor Tan Ern Ser from the National University of Singapore’s Department of Sociology. This policy memo explores the following twin dimensions, reviewing the present state of affairs and charting some paths forward:
- At this juncture, has the government done enough to ensure innovation and growth? How can it support Singapore’s transformation into a data-driven manufacturing hub?
- Amidst the possible widening income gap, are existing governmental policies adequate in meeting these challenges and opportunities?
Insufficient systemic support for local entrepreneurial risk-taking?
The trajectory of Singapore’s future growth will be shaped by the amount of local innovation that it sees in coming years. Indeed, the government has responded to this, pushing out a robust framework of top-down policies that make Singapore an attractive startup environment. For example, Singapore’s Startup Tax Exemption Scheme waives 75% and 50% of eligible startups’ tax payments for the first S$100,000 and next $100,000 of chargeable income respectively . Together with Singapore’s strict intellectual property (IP)  laws and business transparency — in 2019 Singapore was named the second-easiest country to do business in  — Singapore is currently ranked the 14th-best global startup ecosystem in the world . This business-friendly environment has attracted the likes of companies such as Grab and Lazada, which use Singapore to expand into the Asia Pacific market.
However, it is also worth noting that Singapore has yet to produce an ecosystem of home-grown startups with truly innovative ideas. Mr Bhaskaran points out that Singapore has relatively poor innovation efficiency — the ratio of innovation output in the country, given its investments into this field. “Clearly, we have the inputs… to attract talented scientists and engineers, but we can’t extract the value from them. The ecosystem is not complete for innovation,” he says .
An oft-cited reason for this is Singapore’s inflexible education system. From the Primary School Leaving Examination (PSLE) to the A-Level examinations, students are assessed upon their rote learning abilities and have little opportunity to think out of the box and develop creative problem-solving skills .
Additionally, Singapore society has been noted to be risk-averse. Immersed in a highly competitive society from primary school to the workforce, many Singaporeans perceive failure — both their own and others’ — as equivalent to having no future or second chance . Singaporeans’ lack of risk appetite  could be a large contributing factor to the relatively poor innovation output, as few Singaporeans are attracted to a field where success is propelled by the willingness to constantly fail, adapt and try again .
But for Mr Bhaskaran, the problem is deeper than that: Singaporeans are risk-averse, because they are all too aware that the consequences of failure can be more painful than in other innovation hubs. “If [the government] wants Singaporeans to take the risks, an expanded social safety net and reformed bankruptcy laws would help,” he says .
Singapore’s policies do not always inspire a sense of security in failure. Take, for example, the consequences of declaring bankruptcy in Singapore . Unless able to repay all outstanding debts, it typically takes individuals three to five years — and consistent loan repayments throughout this time period and beyond — to be discharged from bankruptcy. During this time, they may cease to become a director of a company by resignation or disqualification, nor are they allowed to obtain credit. Compare this to bankruptcy laws in the UK: while individuals who have declared bankruptcy are similarly barred from director positions, bankrupts are typically discharged after one year and no longer liable to repay outstanding debts .
Moreover, Singapore’s social spending is notoriously low: data from the International Monetary Fund shows that Singapore’s government expenditure is 14.4% of GDP in 2018, one of the lowest in the world . (In contrast, government expenditure in Hong Kong, which is often compared to Singapore, is 18.7% of GDP, excluding defence and foreign relations, which falls under Beijing’s purview ). The lack of viable fallback options for unsuccessful entrepreneurs make the consequences of embarking on a risky venture much higher.
Altogether, the potential risks of a venture, coupled with the hefty consequences of failure, could discourage would-be entrepreneurs from moving forward with potential ideas. Likewise, the consequences of unemployment could discourage Singaporeans from moving towards rising but underdeveloped industries. In other words, risk averseness in Singapore deprives the economy of first-mover advantage in the 4IR. The best way to cultivate a culture of risk-taking is for the government to absorb these risks and insure citizens against them, especially in this time of “rising uncertainty, volatility and inequality” .
Existing literature points to how “taxes have a positive impact on innovative activities, while income inequality has a negative impact on innovation” . As such, at a time of 4IR-driven volatility, the government needs a comprehensive and fundamental rethinking in its ideology of small government. Tweaks and adjustments at the margins, long-described as “fiscal discipline and fiscal prudence”, may well prove inadequate in the future.
An industrial revolution for all
Beyond the pressing need to harness innovation, 4IR also brings issues of economic inequality to the fore, increasing the need for government intervention for affected citizens. Singapore’s rapid economic growth over the past four decades brought about material and social benefits enjoyed by most of the population . But in recent years, increased globalisation contributed to widening inequalities and slower upward social mobility. While current discussions tend to focus on its impacts on unskilled and working-class Singaporeans, an interesting phenomenon has emerged as a result of technological disruptions. Particularly, middle-class workers, also known as the PMETs (Professionals, Managers, Executives and Technicians), are particularly vulnerable to global competition and technological changes .
Thus, there emerges a need for constantly upgrading skill-sets in order to stay employable. In an interview with us, Professor Tan emphasised that workers previously considered useful, notably members of the middle-class, may find that some of their tasks can increasingly be taken over by machines and are at the risk of entrenchment . How is the government responding to the retreating middle-class career trajectory widely sought after by Singaporeans? How can this response be improved?
Current government strategies against this new pattern of disruption are focused on (1) Skillsfuture training and (2) tie-ups between training providers and employers for workplace learning . However, current key policies fail to address a lack of time and energy workers can devote to attend Skillsfuture courses on top of their full-time jobs. On this point, Prof. Tan comments, “Some of these skills can be learned on the job. Employers can also make time, (and) give employees time off to pick up a skill… Imagine if you have to work the whole day or longer, and in the evening you are expected to sit through a three-hour-long intensive session. Where could you find the energy to stay alert in class, and time for yourself and your family?”  This also echoes a concern for mental health that is emerging in the local workforce. Today, evidence from the Institute of Mental Health shows that one in seven people in Singapore experience a mental health condition in their lifetime . This translates to a significant part of the workforce that struggles with mental health conditions while under employment.
The government’s inadequacy in providing guidelines to supplement lifelong learning proves problematic in the age of disruption. In a white paper ahead of the 2020 Davos meeting, the World Economic Forum emphasised that “the full benefits of the Fourth Industrial Revolution can be realised and broadly shared only if the workforce is provided with adequate opportunities for continuous training and is fully engaged in the processes of designing and implementing advanced manufacturing technologies and changing work systems.”  With insufficient time to upskill, employees cannot maximise the benefits of Skillsfuture courses, rendering it ineffective at best and a waste of government expenditure at worst.
On the side of the employers, companies are providing their employees with some level of training for new skills, but this isn’t enough. Not only should employers invest more funds in employee development through hiring learning vendor partners that fit the needs of employees , there is a need for employers to play an active role in ensuring a work-life balance for their workers . Concretely, companies should allocate time to allow employees to upskill. For example, the objective of Switzerland’s upskilling programme GO is to increase participation in skills training by using the workplace as an access point over traditional classrooms . This policy should be mutually beneficial – while employees benefit from upgraded skills, employers should recognise that their corporations will be the ones who excel with a skilled and digitally able workforce.
Policy recommendations for a productive revolution
While this article does not provide an elaborate outline of policy recommendations, we conclude by suggesting several changes that can be made to current approaches adopted by the government in the age of disruption.
First, to encourage innovative mindsets instead of rote learning in our education system, the government may consider lowering the stakes of the PSLE. Whereas the reforms by the Ministry of Education has reduced “the overemphasis on grades” , the elephant in the room remains as one single exam still heavily affects school and subject level allocations. Nonetheless, given that the MOE also recently rolled out reforms that increased the flexibility afforded to students to take secondary school subjects at different levels, only with time can tell whether these reforms are sufficient in inculcating a more risk-taking, less examination-centric mindset among students.
Second, to build a population that is more willing to take the necessary risks to explore new economic opportunities in the age of disruption, we suggest universal unemployment insurance to embolden Singaporeans to do so. This reduces the cost of switching jobs by paying people as they leave their jobs in age-old sectors and spend time looking for jobs in budding industries. Retrenched workers can also afford to focus on finding positions in these industries that are commensurate with their work experiences, instead of settling for odd jobs to tide over unemployment periods and thereby affecting their job scouring efforts.
Third, risk-building also requires conversations on building a new social compact, so that no one will be unable to “save enough for longer term healthcare, education, retirement, or housing expenditures” , which can lower one’s risk appetite. An increase in the rise of government spending from the current 16% of GDP to 25%, spread over 10-20 years, will likely be fiscally sustainable (1-2% of GDP per year) . Social safety nets could and should be expanded, so as to provide citizens with more affordable healthcare, education, housing and retirement. Reducing the need to save for a rainy day, for retirement, or for big-ticket expenditures increases the capacity of individuals to work for less or no pay in a new industry. Already, a conversation about a time-limited universal basic income has been ignited, due to the growing Covid-19 pandemic, which disproportionately affects low-income workers, “to assure (Singaporeans) their basic needs will be met even if they lose their jobs”. Likewise, non-means-tested, comprehensive and blanketed increases in subsidies create certainty for Singaporeans. While means-tested subsidies require regular applications and are volatile, universal healthcare and education, for instance, allow Singaporeans to plan their savings with definite (zero) figures in rainy days.
Lastly and more broadly, the national investment returns contribution (NIRC) can be increased to further fund expanded social programmes in Singapore. The NIRC is the contribution of the long-term estimated returns from investing reserves to the annual budget, and the current ratio is 50%, — that is, half of the returns goes to the budget while the other half goes back to growing the reserves . Instead of an increase in NIRC, a plan to increase the GST was announced in Budget 2018. Given that a GST hike affects households with lower disposable income more, it is regressive and contributes to income inequality. Yet, the government has gone through with it, despite various observers, such as notable local economist Donald Low, questioning its necessity, given that an increase of the NIRC from 50% to 60% would have compensated for it . Whereas government leaders have repeatedly used the slogans “fiscal prudence” while warning Singaporeans that “these can be squandered easily” as late as February , there has been insufficient explanation on how increasing the NIRC to 60% would result in the reserves being “squandered”.
Likewise, Mr Bhaskaran believes that Singapore can finance a graduated increase in social spending over time using the growing reserves, without the need for a hasty domestic tax increase6. Prof Tan also mentioned the need to “find an optimal balance between being prudent and being daring to spend” . The government should increase spending, “especially when we think that the benefit of spending the money is greater than just leaving it there”16. Moreover, Chua Hak Bin, an economist with the Maybank Kim Eng Group, said in an interview with South China Morning Post that “with total assets as a share of gross domestic product at around 230 per cent, it was questionable “whether it is really efficient to have so much and [still have] to raise taxes” . From this, one can then see how “financial returns in our reserves may be lower than the social rate of returns on investments in healthcare, education, social security, housing and infrastructure, especially in areas where investments are starting from a lower base” .
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