Singapore tries growth strategy to fight recession, lower-wage Asian competitors

More than a year into its first postindependence recession, Singapore is developing the strategy it hopes will create a return to the high growth track. In the process, however, the government is having to abandon policies once considered sacrosanct in turning the tiny island republic into an economically advanced nation. The key elements so far:

A flexible wage system requiring workers to accept at best very small pay increases for the next few years, and even a reduction in worst cases. At the same time, workers are being exhorted to put in longer hours and boost productivity.

Changes in the administration of the enforced savings plan, the Central Provident Fund (CPF), both in the size of employer contributions and in the way the cash is invested in Singapore's development.

A $1.5 billion cash infusion over the next years to upgrade education, particularly at the college and university level.

A gradual government disengagement from the marketplace through the transfer of many public corporations partially or wholly to the private sector.

Senior government ministers in recent days have used every public opportunity to hammer home the message: The return to economic growth will be painful and will require considerable sacrifices from all sectors.

After many years of being among the leaders of the Asia-Pacific region in economic growth, Singapore slipped badly last year, when the economy actually shrank for the first time in 25 years of independence.

One reason is that key elements in past high economic growth have now begun pulling the country down.

Thus, a deliberate government policy to upgrade the work force through big wage increases to drive out low-grade, labor-intensive manufacturing operations in favor of high-tech industries eventually made it too expensive for many foreign companies to do business here. Production workers' wages, for example, at $2.50 or so an hour (in US dollars), are the highest among Asia's developing nations.

Brig. Gen. Lee Hsieng Loong (son of Prime Minister Lee Kuan Yew), who has a key role in developing the new policies, summed up the problem this way: ``Singapore's economy is not fully matured. We are still, largely, a manufacturing production base. Products are mostly designed overseas and then made in Singapore. Research here is negligible.

``But our wages have risen so high and so fast that Singapore has reached a developed country's income level even before it has become a completely developed country.''

One answer: ``If we are prepared to work 44 hours a week, where others will only work 38, if we are willing to do third-shift duties and keep plants open 24 hours a day. . . . Then Singapore [still] has something to offer an investor.''

Last December the unemployment rate rose to 6 percent, the highest level in 15 years. Throughout last year there was a net loss of 90,000 jobs, 46,000 in construction and 35,000 in manufacturing.

But only 30,000 of these jobs were held by Singaporeans, and for the moment foreign workers have borne the brunt of the recession.

But there are still 150,000 foreign workers in the country, says General Lee, many holding jobs that are unattractive to Singaporeans because of poor pay or because they involve shift work. If Singaporeans would be less choosy, the local unemployment rate would be much lower, he argues.

In the past six months government and union leaders have been hammering out an agreement to hold down or freeze wages. First Deputy Prime Minister Goh Chok Tong has begun a powerful public-relations offensive to gain worker understanding of the need for such Draconian steps to avoid further job losses.

Summing up the results of the exercise so far, he says, ``Workers are prepared to make sacrifices. But they also ask three questions: whether management is also putting up such sacrifice, whether there is anything for them in return when the economy recovers, and whether the profits made [during the restraint] will be reinvested to create more jobs. These are fair questions.''

To answer them, Mr. Goh is urging managements to create a more-flexible wage system, including profit-sharing and stock options for employees, so they will more tied to the rise and fall of company fortunes.

Another heavy blow to the pocket, however, is the government decision to tinker with the CPF. Although created to ensure adequate livelihood for retiring workers, subsequent amendments have allowed part of the CPF to used before retirement: to fund house purchases, for example.

At present, employees and employers contribute matching amounts up to a maximum of 25 percent of the worker's wage. To reduce operating costs during the current difficulties, companies are to have their contribution cut to 10 percent -- although the government says the missing component will gradually be restored as the economy approves.

This creates potential hardship for many home owners who have been building up their mortgage repayments by dipping into their CPF savings, and local newspapers have been filled with agonizing over whether the CPF cut is really the best way of helping the economy.

There will also be stronger emphasis on education. Of Singapore's 2.5 million people, 66 percent have has not gone beyond primary education. Under a plan just revealed by Education Minister Tony Tan, the government will spend $1.5 billion over the next 10 years to build more schools at all levels, including another seven junior colleges. Primary education will start at five instead of six years of age, and at the other end of the scale there will strong emphasis on worker education and retraining to keep abreast of technological changes.

In the business area as a whole, the government is finally beginning to release its powerful grip and let the private entrepreneur take over.

A disinvestment committee has been set up to study more than 500 government-owned companies as well as statutory boards to develop a program for their privatization. In the future, according to established guidelines, the government will invest only in new priority areas where the private sector doesn't have the will or the cash.