LOOKING BEYOND GDP AS MEASUREMENT OF COUNTRY'S WELL-BEING

LOOKING BEYOND GDP AS MEASUREMENT OF COUNTRY'S WELL-BEING: 6.46 pm

Mr Viswa Sadasivan: Mr Deputy Speaker, Sir, I thank you for the opportunity to move this motion. Before commencing my speech, I would like to convey my congratulations and gratitude to the Government for steering an impressive economic recovery – far exceeding expectations.

The Gross Domestic Product (GDP) has been and I foresee will continue to remain the most commonly used indicator of economic performance and growth. This speech will not contest that reality.

My intent in making this speech is to highlight that the changed circumstances today require a broader framework where policymakers have the benefit of being prompted by socio-economic indicators other than GDP. This helps us better address important issues that are not strictly economic in nature, such as aspirations, equity and happiness which in turn have an increasing impact on national goals such as sustained economic growth,

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productivity, innovation, work-life balance and, of course, procreation.

In this year’s Committee of Supply debate, the Government made it clear that it no longer adopts a "GDP growth at all cost" approach. I am heartened by this assurance, and I have reason to believe that the Government is already looking at other indicators to ensure that negative externalities of policies and programmes are identified early and addressed or mitigated. The Economic Strategies Committee (ESC) also highlighted the importance of evolving a more qualitative, "sustained economic growth". However, its recommendations are still focused on economic growth and productivity which a growth-centred model tends to emphasise, with too little consideration of social and environmental factors.

My concern is that if we do not develop a formalised framework for analysis, these other indicators will continue to play second fiddle to GDP, instead of being considered together with GDP and with the same level of importance. Sustained economic growth is necessary for job creation and employment which in turn is a key determinant of standard of living. This Government has delivered this consistently. Paradoxically, continued economic growth and progress over the years have resulted in the cause of the challenges we face today – balancing the needs of an increasingly educated and sophisticated populace with those from the middle- and lower middle-class sector who are struggling to match up and keep up.

In the first 30 years of Singapore, the population was less bifurcated, socially and economically – so, GDP as a key indicator was sufficient. We just needed to grow fast, create jobs and build affordable houses. Today, it is no more about how fast we grow. Increasingly, it is about how we grow, where we grow, are we prepared to pay the price for

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growth, and whether we are growing together.

These are all challenges that developed societies face – challenges of managing success. The GDP is not equipped to prompt us or provide answers in these increasingly critical areas. Worse is if we focus too much and for too long on the GDP, it could paint too rosy a picture – a false positive, so to speak – and distract us from these issues. The GDP is essentially a measurement of economic activity not economic benefit. Used on its own, it can be a misleading indicator of economic progress and welfare of the individual Singaporean.

Mr Deputy Speaker, Sir, while one cannot dispute the correlation between economic growth and standard of living, the GDP was never meant to measure the well-being of people. Simon Kuznets, one of the founders of the GDP calculations, made this quite clear, and I quote him, "distinctions must be kept in mind between quantity and quality of growth, between costs and returns, and between the short and the long run. Goals for more growth should specify more growth of what and for what"

GDP figures limit the assessment of both objective as well as subjective elements of well-being and development. Objective elements refer to issues of income distribution, purchasing power parity, per capita consumption, and wage shares. Subjective elements refer to issues such as health and mental well-being, life and job satisfaction, work-life balance, happiness and social and environmental capital.

I believe that some of the socio-economic dysfunctions we see in Singapore today have been exacerbated by a combination of a strong focus on GDP growth and the inherent limitations

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and the skewing effects of the GDP figures. Let me highlight a few of these dysfunctions, by way of illustration.

First, let us look at some of the market-driven negative externalities that the GDP figures do not highlight. As I brought up in my speech made in this House last August, Singapore’s per capita GDP has risen exponentially over the past 44 years. According to figures from the Department of Statistics, in Sing dollar and nominal terms, Singapore’s per capita GDP grew from $1,567 in 1965 to $53,192 in 2008, certainly one of the highest in the world.

But when we look closer at what constitutes the GDP, there is cause for concern. According to data, profits take about 46% of Singapore’s GDP, which according to the economists I spoke to, is extremely high compared to other developed economies. From what I understand, half of this high profit share is repatriated, ie, it goes to the coffers of foreign-owned companies with operations here. What is left in the GDP pie to directly benefit Singaporeans is therefore a relatively small amount. With such a significant amount of growth driven by foreign MNCs, the net welfare benefit to the average Singaporean is unclear.

According to economist, Manu Bhaskaran, and I quote, "This could be why even though Singapore’s per capita GDP is roughly 11% higher than Hong Kong’s, our per capita consumption is about 21% lower that Hong Kong’s. If we take per capita consumption as a better indicator of welfare, then simply going for high growth per se does not guarantee that we will achieve the best possible welfare outcome for Singaporeans"

Similarly, if you look at the wage component of GDP, you will see that the Singaporean workers’ wages account for less than half of Singapore’s GDP. In other developed countries, these wages

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take up more than half of the total GDP. In Singapore, wages account for about 43% of our GDP, compared to 58% in the USA and 57% in Japan, according to a report published by Singstat. This is due to a conscious effort by the Government to moderate wage increases to manage the cost of doing business here. Another cause of the low wage level in Singapore is the influx of foreign workers, which has had the effect of pushing wages down. I believe the Government is addressing these issues through our concerted efforts to boost productivity and innovation in the workplace.

However, our Prime Minister's recent statement in Huston indicating that with the blow-out economic growth rate, we would need another 100,000 foreign workers, is a cause for concern. It appears to go against to the ESC's recommendation to reduce our dependency on foreign workers and for good reasons.

The other area that the GDP figures tend to mask is income distribution – which for most developed, affluent economies remain a challenge. While we have one of the highest per capita GDP in the world, according to figures from the CIA World Factbook for 2009, Singapore ranks as one of the highest in the world in terms of income inequality. The Gini coefficient is the measurement of income inequality – the higher the Gini coefficient, the worse the level of inequality. Based on 2008 figures, Singapore has a Gini coefficient of 48.10 – which is much higher than other countries in Asia, including China, Malaysia and the Philippines. In fact, it would appear that Singapore is closer to many under-developed countries in the Gini coefficient. This should certainly be a cause for concern for us, but it will be red-flagged only if we pay enough attention, and prompt attention, to this indicator together with the GDP.

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One evident cost when pursuing an economic growth-centred model is a possible short-sightedness that could lead to short-cut solutions. We lose peripheral vision, which is an important public policy imperative. Take the policy of importing foreign workers in large numbers into Singapore – something that we have only recently started putting the brakes on. Yes, our GDP has risen as a result of this policy but it has, over the years, systematically depressed wages of lower-skilled workers, and contributed to a surge in rental costs and inflation.

Secondly, the economic growth-centred model focused on GDP can come at a social and ecological cost. Given that social and environmental factors such as work-life balance, job satisfaction and happiness have been proved to be essential especially in developed societies. For economic sustainability, it is necessary to stop seeing social and economic policies as tradeoffs.

Take the Kelly Global Workforce Index, for example. It measures work-life balance and the use of technology in countries. In 2009, it was stated that only 54% of Singaporeans are satisfied with their work-life balance, compared to 69% in the USA. We were even significantly lower than other Asian countries – India had 64% and Indonesia, 68%.

The Grant Thornton study in 2007 ranked Singapore sixth globally in terms of stress level of the population. In a 2009 survey conducted by Robert Half Singapore, a HR consultancy firm, Singapore ranked second lowest worldwide in terms of job satisfaction, with only 53% of respondents being satisfied with their work. From all this, it is clear that the equity versus efficiency debate needs to be adjusted from being a zero-sum issue to one of balance and complementarity. Economic growth and general well-being must be seen as equally important societal goals. After all,

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the end goal of economic policies should be to benefit the citizens and improve their well-being and give happiness. It is difficult, even for the best intentioned policy makers to develop this reflex, if the GDP remains the default indicator.

Mr Deputy Speaker, Sir, in many ways the recent global economic meltdown has served as a wake up call for political leaders. It has sparked introspection and close examination of the systemic flaws in the way we manage economic growth, and consequently, the way prosperity is measured.

Many eminent economists, for example, have pointed to GDP figures "masking the true health" of the economy in the lead up to and during the recent global economic crisis in the USA. They argue that if policymakers had focused on a broader set of indicators, there is a good chance the adverse situation would have been prevented, or at least managed better with early detection.

Consequently, now in the USA, a new system of national measurements called the "State of the USA" has emerged, with several hundred new measures and indices pushed to policymakers, and at the same time made available to the public. The idea is for this to evolve into a "national indicators panel". President Obama’s recently passed Healthcare Bill included a provision requiring Congress to finance and oversee the creation of a key "national indicators system". These indicators include crime, energy, infrastructure, housing, health, education, the environment, in addition to and interfaced with key economic indicators such as the GDP and consumption index.

US Federal Reserve Chairman, Ben Bernanke, is another proponent of this line of thought. He has argued passionately for an acknowledgement of the inherent

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limitations of the GDP as a policy tool for policymakers, as it focused primarily on what he terms "material determinants of social welfare". He calls for a "broader measurement of human welfare" which includes what he refers to as the "economics of happiness".

Perhaps the most noteworthy and thorough reports on the need for this shift in practice is the "Report on Economic Performance and Social Progress". This was commissioned by French President Nicholas Sarkozy in the aftermath of the global crisis that started in 2007. The Report states that conventional market-based measurements of income, wealth and consumption are insufficient to assess human well-being. It emphasised the need to give greater prominence to factors, such as income distribution, personal consumption and individual wealth, while assessing qualitative aspects such as health, education, the environment, employment, material well-being, interpersonal connectedness and political engagement.

The "Report on Economic Performance and Social Progress" was tabled at the 2009 G20 Summit in Pittsburg, USA. The leaders endorsed the need to include indicators other than the GDP to have a better measurement of progress.

The Organization for Economic Cooperation and Development (OECD) is actively challenging the pre-eminent status of the GDP as the "end all" of all indicators. They strongly support the "institutionalisation of a range of indicators".

Similarly, the Europe 2020 Strategy will see the European Commission monitor member states based on a set of indicators to track overall progress. The idea is not to lose the plot yet again.

In Canada, the "Canadian Index of Well Being" measures social connections,

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in addition to standard of living, health, environmental quality, education and skill levels, and participation in the democratic process.

So, what does all this mean for Singapore, which today is recognised as a developed society, aspiring to become a global city of excellence?

The increased level of education and technology usage has made people more informed and exposed, and therefore demanding greater levels of transparency and accountability in seeking a better quality of life. Needs are shifting.

The increasing demand for information is linked directly to each individual's life and priorities. When the Government announces that the economy is recovering or doing well, people are asking how this is benefiting them directly. It is incumbent on the Government to make available broad information to facilitate informed decisions by the people.

I would, therefore, suggest a three-step approach for the Government to consider, with a view to evolving a new collective reflex in balancing economic growth with other goals that the people increasingly desire.

First step, the Government should commit resources to ensure that we collect and collate information on what the people want – their priorities. It is evident that some of these determinants – job satisfaction, happiness, work-life balance, feeling connected, environmental degradation, pollution – are qualitative in nature. In economic parlance, they are non-market externalities. From what I understand, currently there is little available data on these factors, and it would appear they are not sufficiently accounted for in public policy.

Secondly, the Government should develop a framework for broad-based

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public policy analysis. It should create a mixed bag of social and economic indicators. This would be in line with the OECD recommendation of "institutionalising a range of indicators". Apart from the currently used key indicators of GDP, Consumer Price Index (CPI), Industrial Production Index and Total Exports/Imports, we could consider including other economic indicators that measure median wages, income distribution, productivity, job satisfaction and household consumption. The new framework should also include indicators for quality of life and general well-being – a range of indices that measure income, public services, health, leisure, wealth, mobility, the environment and connectedness.

Experts I have spoken to, especially economists and researchers, are in agreement that what we have at present is not sufficiently versatile to anticipate, unearth and red-flag problem areas. This is because problems are complex and multifaceted, and because we do not have enough data on non-market externalities, they do not appear on the radar screens. Even if these problems are identified, solutions tend to be shallow and technical in nature because we rely primarily on economic indicators. To get a clearer, more accurate resolution of the situation and the issues thereof, we need to study the mixed bag of indicators in combination and where possible how they interface. Let us take the current challenge of boosting productivity in the workplace. A key solution is skills training and innovation, and rightly so. Another underlying problem is low job satisfaction, lack of ownership or empowerment, and poor work-life balance. Currently, these are indicators that are not readily available and therefore likely not to be given sufficient or prompt attention in addressing the productivity challenge.

The third step that I suggest, as in the case of the GDP and non-oil exports which is reported on a monthly basis,

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there should be quarterly or, at least, half-yearly reporting by the Government on a handful of new indicators, some measuring non-market externalities. Ideally, these should be aggregated or composite indices to measure productivity and job-satisfaction, household consumption, income distribution, welfare, quality of life and general well-being.

Mr Deputy Speaker, Sir, to conclude, I would like to acknowledge, once again, our admirable economic achievement over the past 45 years because of sound economic policies and good governance. What I am recommending is an improvement of a good system and practice as a necessary step in managing the success we have achieved – where a better educated, sophisticated people's needs have certainly moved up the value chain. It is about aligning our practices with the aspirations of today’s Singapore residents, both the citizens and PRs. It is about moving in tandem with the best practices in other developed economies facing similar challenges – best practices that have evolved through learning from lessons from recent history.

I urge the Government to view my observations with an open mind to see it not as a criticism of current practice but as a considered appeal for a review that will help provide greater clarity in policy formulation, resulting in policies and programmes that are likely to resonate better with the ground.

Yes, the increased level of transparency and public disclosure is likely to result in more questions asked about the Government's policies and the considerations behind them. This inconvenience must be seen as an investment in building trust between the Government and the people, and evolving a more engaged society. This is necessary to help us move

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forward together even better, our priorities and goals synchronised.

The Senior Parliamentary Secretary to the Minister for the Environment and Water Resources (Dr Amy Khor Lean Suan): Sir, let me start by assuring Mr Viswa Sadasivan that the Government values and appreciates constructive feedback on its policies. So, we take his comments seriously.

We agree with Mr Viswa that the development of a society cannot be predicated on pure economics alone. A responsible government takes a balanced approach towards developing a country, taking holistic account of its economic, social and security needs and with a steady eye toward the long-term, beyond the election cycle.

Policies are developed for the collective benefit of our citizens so that progress is broad-based and no single sector benefits at the expense of others. The ultimate aim is to enable our people to have a good quality of life and not merely a high standard of living. Hence, contrary to what the Member implies that the Government had hitherto been adopting, it has never been a GDP growth at-all-costs strategy. As Minister Mentor shared at a recent dialogue session held in conjunction with the Singapore International Water Week and the World's City Summit, even in our early days, when we were deprived, we were mindful not to allow heavy pollutive industries using old technology to set up base in Singapore to ensure a good quality living environment and sustainable development. Hence, even back then, we had to turn away much needed investment opportunities. To put things in their proper perspective, the Member might like to know that in terms of allocations, the economic sector takes up about 20% of our budget whereas the social sector which includes education, health and social services, makes up 40%. This reflects the priority

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of this Government to invest in a capability and well-being of our citizens. I would like to assure the House that the Government, through its choices and its budget, is very much focused on people.

As Mr Viswa has acknowledged, the GDP is a key economic indicator for any country. GDP measures the income generated by economic activities within a country and for all its shortcomings, it is still one of the best gauges of a country's progress and wealth. A country's GDP per capita tells us a lot about the economic well-being of its people and it tells us a lot more about the economic well-being of its people than any other single measure. Empirical studies have shown GDP to be highly correlated with other indicators of economic and social well-being. Put simply, economic growth is key to improving the lives of people.

The Member mentioned that our focus on GDP growth has led to some social economic dysfunctions. Specifically, he cites two observations – the large proportion taken up by profits relative to the wage component in the GDP and the significant share of profits by foreign-owned companies. To clarify, this high profit share vis-a-vis wages is not the outcome of deliberate Government policy to favour the corporate sector as against workers. It arises from contributions from a range of companies – large, medium and small, both foreign and local – which operate in Singapore. While it is true that a not insignificant share of the profits accrue to foreign companies, this is not a zero-sum game. Some of the profits go toward taxes while some will be retained or reinvested in other projects in Singapore, generating positive multiplier effects in terms of new jobs, technology transfers and management know-how, and adding to a vibrant corporate eco-system anchored in Singapore.

Also, the Government does not hold down, deliberately or otherwise, wages.

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Indeed, it is not possible for us to artificially raise or lower the wages of our workers. To do so will distort the market and eventually lead to perverse outcomes. Instead, the sustainable way must be to upskill our workers. This in turn will raise the wages they can command. What is critical is that we continue to monitor wage and income growth of Singaporeans to ensure that our workers benefit from growth.

In this year's Budget speech, the Minister for Finance had mentioned how median incomes per Singaporean household member had grown by about 20% adjusted for inflation over the last decade, and particularly so from 2005 to 2008. Lower-income households also saw their incomes rise over the past 10 years, albeit to a lesser extent compared to median households. Overall, the total income growth of lower-income households was about 7% in real terms.

The Government has also made strenuous efforts to re-distribute the wealth generated by GDP growth through asset enhancements and income distribution measures in order to uplift the more vulnerable segments of our society. The Government provides substantial subsidies for housing and education. We have also put in place the Workfare Income Supplement (WIS) Scheme to supplement the incomes of our low-wage workers to encourage them to stay on their job and improve their skills.

Mr Viswa mentioned that Singapore has one of the highest levels of income inequality in the world, as indicated by our Gini coefficient. We are not alone. This is also faced by other global cities, such as Hong Kong and New York, which perhaps are more comparable than the countries cited by the Member, such as the Philippines. Their Gini coefficients are, in fact, more than 5.0, like several other American cities. I would like to point out to Mr Viswa that the Gini coefficient of 4.81 that he cited for 2008 had not

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taken into account income re-distribution via taxes and Government transfers. In 2009, the Gini coefficient net of Government transfers and taxes is, in fact, significantly lower, at 4.53. But even this statistic, as is any other single indicator, is not perfect. It does not capture transfers to families and especially community support through our many-helping-hands approach.

Furthermore, as noted by the Minister for Finance in his Budget speech this year, the solution for Singapore cannot be to grow slowly to reduce income inequality. Slow growth will make everyone worse off but it will have the harshest impact on the low-income, the very ones we are trying to help. In other words, the correct approach is not to dumb down the top but to pump up the bottom.

Mr Viswa also cited study findings to illustrate that Singapore has fared badly in indicators of well-being of our citizens and that this is a consequence of a GDP-focused drive for growth. But let me say that other study findings paint quite a different picture. Let me share with the House just one of these alternative findings. The Human Development Index (HDI) published in the United Nations Development Report looks beyond GDP to a broader definition of well-being. It is a composite measure of three dimensions of human development, living a long and healthy life, been educated and having a decent standard of living. Although the Index is not a comprehensive measure of human development, it does indicate the average progress of a country in human development. Between 1980 and 2007, for nearly 30 years, Singapore's HDI rose by 0.68% annually, from 0.785 to 0.944. Singapore ranked in 23rd placing out of 182 countries, ahead of Hong Kong (24th place); Malaysia (66th place); and Thailand (87th place).

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Mr Viswa has called for a framework for a broad-based public policy analysis and the regular reporting of non-economic indicators. The Government understands the need to adopt a Whole-of-Government approach towards developing policies. Civil servants are required and expected to think and formulate policies from the perspective of the public service as a whole rather than from the viewpoint of a specific Ministry or agency. This mindset is critical as many of the challenges that we face can no longer be adequately addressed by a single Ministry or agency because of their complexity and interdependence. This mindset will also ensure that all relevant factors are considered in the process of policy-making.

The Government already tracks a broad range of socio-economic indicators with Ministries and agencies actively monitoring outcomes and performance in their areas of responsibility. Some of the performance and outcome indicators, such as infant mortality rates, overall satisfaction in public health institutions and indicators for strong and stable families and clean and healthy environment, are published annually in the Budget Book which I think the Member has access to. It is also available in the Ministry of Finance website for public consumption.

Even as we debate the pros and cons of various indicators to reflect our socio-economic conditions, we must not forget that indicators are what they are described to be – signs and pointers. It is a challenge to develop indicators that accurately or unambiguously capture a particular state of affairs in the socio-economic realm, or the outcomes of a policy at any point in time.

Mr Deputy Speaker: Order.

Dr Amy Khor Lean Suan: Sir, may I have just one minute?

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Mr Deputy Speaker: One sentence, please.

Dr Amy Khor Lean Suan: Hence, it is important that we do not skew behaviour or encourage short-term outlook by over-emphasising the use of indicators. For this reason, the Government has expended many resources to gather the thoughts and reactions of people to all sorts of policy issues by its Ministries as well as through its feedback unit, REACH. Mr Viswa's thesis that policy-making will be impoverished if it ignores beyond-GDP indicators is understood and appreciated. I thank him for his motion and want to assure the House once more that the

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Government's approach to developing Singapore has always been holistic, multi-faceted and with the long term in view.

Mr Deputy Speaker: Order. The time allowed for the debate has expired.

The Question having been proposed at fourteen minutes to Seven o'clock pm and the Debate having continued for half an hour, Mr Deputy Speaker adjourned the House without Question put, pursuant to the Standing Order.

Adjourned accordingly at Sixteen

minutes past Seven o'clock pm

to a date to be fixed.