Rethinking costs and the social compact

Academic Views, Coronavirus / Friday, May 22nd, 2020

Elvin Ong, Postdoctoral Fellow in the Centre for Southeast Asia Research at the University of British Columbia and Overseas Postdoctoral Fellow at the National University of Singapore, argues that reform of the economy—including to reduce dependency on low-waged migrant labour—should be done on a progressive basis.

Over the past few weeks, Singaporeans have been actively debating potential changes to the circumstances of migrant workers in a post-COVID-19 Singapore. Almost everyone agrees that their current living standards are unacceptable, and that higher standards (such as more living space per worker and better hygiene) are required. Some also argue that Singapore’s reliance on large numbers of such workers is unsustainable, and should be reduced.

Yet almost all acknowledge that firms will encounter higher costs as a result of these changes. More frequent cleaning of common communal kitchens and toilets, for instance, entails higher costs for dormitory operators. More capital investments into automation will also increase costs. These are likely to be passed to Singaporean consumers, and whether they in turn are prepared to pay higher prices is a question oftentimes left unanswered. Foreshadowing this debate, National Development Minister Lawrence Wong warned that “All of us have to be prepared to pay this higher cost, because we want construction work to be done safely in Singapore.”

Yet this narrative—focused on potentially higher costs that consumers will incur at the point of purchase—assumes that such costs are equally borne by everyone. In fact, various types of costs manifest differently, frequently unequally borne by different segments of the population. Some costs are less visible than others, but are nevertheless pernicious over time. Prospective reforms must be based on a full understanding of these costs, and with a view to progressively disrupting their existing distribution.

The different types and visibility of costs

Take, for example, the overdependency on low-wage migrant workers. Economists have long argued that Singapore-based firms’ easy access to these workers depresses the wages of local resident workers. These persistently depressed wages are an invisible cost, overwhelmingly shouldered by low-wage resident workers. In other words, the benefits many Singaporeans derive from low-cost goods and services is built on the misery of a segment of their fellow compatriots and local residents.

Economists have contended that the availability of low-wage migrant labour has depressed wages more generally in Singapore. (Photo: Singapore Photobank)

While the cost of this persistent entrenched inequality has never been, and may never be, fully quantified, it is, nonetheless, experienced emotionally and physically in Singaporeans’ and other local residents’ everyday lives. Low wages drain the cognitive capacity and spirit of workers, stresses families to the point of breaking, even as it grinds against the bonds of social solidarity. That these scarcely visible qualitative costs are not quantified does not mean that they do not exist nor that they are insignificant.

The extensive spread of COVID-19 among low-wage migrant workers has also revealed the previously neglected costs of congestion and poor healthcare management in their dormitories. Those who are afflicted suffer immediate personal costs to their physical and mental health. An emerging medical literature suggests that many will continue to suffer long-term debilitating effects, possibly without recovery.

According to regulations, the firms that employ these migrant workers should have picked up the tab for their healthcare. But the Singapore’s government’s decisive intervention—to pay in full the healthcare costs of all persons infected with COVID-19, including migrant workers—means that the cost burden has shifted in an extraordinary manner. While previously the cost burden was theoretically solely on firms themselves, it is now shouldered by all taxpayers.

Consequently, Singapore taxpayers are already indirectly paying more for the goods and services which they have previously enjoyed, and are now still enjoying, cheaply. That this cost is paid via tax revenues means that it is almost invisible to the individual taxpayer. But it exists.

COVID-19 infections among migrant workers in Singapore have made headlines in international media. (Screenshot from website, taken on 22 May 2020)

Finally, Singapore’s international reputation has taken a considerable hit. Many now realise that the country congratulated itself far too early in March. As of time of writing, it now has the highest number of confirmed COVID-19 cases per million population in East Asia.

Progressive reforms towards a new social compact?

Moving forward, structural reforms to the economy should seek to redistribute both the quantitative and qualitative cost burden in a more progressive manner, even if overall cost levels rise. The result might look like Vancouver, Canada, a multi-cultural, cosmopolitan city where I have lived for almost two years and where there is much less dependency on low-wage migrant labor. There, the average cost of living is marginally higher than in Singapore. A typical lunch in an inexpensive restaurant costs close to CAD$20 (SGD$20.30) after including tips and taxes (12 percent, comprising 5 percent GST and 7 percent provincial sales tax).

But despite the higher cost of living and the higher taxes in general, Canadians are generally satisfied with the social compact because of the higher wages they enjoy, as well as the high quality of public services (e.g. free healthcare). The minimum wage in the Province of British Columbia is due to rise to CAD$14.60 (SGD$14.80) on 1 June 2020. Moreover, a majority of the Canadian public support activist labor unions in exerting significant pressure on employers to raise wages. This gives Canadian employers less room to shirk from paying higher wages. By contrast, there is no minimum wage in Singapore.

Public opinion surveys in Canada consistently support progressive government intervention. A 2014 survey revealed that more than 80 percent felt that the government should do at least something to reduce the gap between the rich and everyone else. Another survey in 2017 noted that three-quarters of Canadians disagreed with the statement “The rich in Canada pay enough taxes.”

Vancouver, where the author has lived, takes a more progressive approach towards taxes, wages and social spending than does Singapore. (Photo: Maciek Lulko)

As a result, the majority of Vancouverites enjoy a high standard of living and share a strong sense of social solidarity, even as the individual costs of goods and services at the point of purchase are high. They know that the higher prices go towards good wages and public welfare for themselves and their fellow workers, who can then go on to also enjoy a high standard of living as well.

As a proxy for the degree of social solidarity, consider this particular finding from the World Values Survey: over two-thirds of Canadians say that they are “Very Proud” to be Canadian. Only some three percent are “Not Very Proud” or “Not At All Proud.” In contrast, just under half of Singaporeans are “Very Proud” to be Singaporean. More than ten percent are “Not Very Proud” or “Not At All Proud”. These differences are not insignificant.

In terms of managing COVID-19, Canada has also fared better so far. Singapore currently has the sixth most cases of COVID-19 per million population in the world. Canada is 38th, just behind Germany at 36th, another country that has seen some success in controlling the COVID-19 outbreak. This difference is not necessarily due to variation in testing numbers. Although Singapore’s testing rate is very high at about 49,000 tests per million people, Canada is not far behind either. It has conducted just over 35,000 tests per million people, just behind Germany’s 37,000 tests per million people.

Importance of social solidarity

In Singapore, although there is strong public support in principle for the progressive role of government, the vast majority believe that nothing much can be done. In the 2014 Asian Barometer survey, more than 85 percent of Singaporeans agreed or strongly agreed that “It is the responsibility of government to reduce the differences between people with high income and those with low incomes.” But in a poll conducted by IPSOS in February 2020, close to 80 percent of respondents agreed or strongly agreed that “Singapore’s economy is rigged to advantage the rich and powerful.”

In the short to medium term, the degree of solidarity that Singaporeans feel for fellow members of society, both local resident and foreign-born, will strongly condition efforts to reform the low-wage sectors of the economy. We should recognise that an excessive focus on potentially higher price tags at the point of purchase is short-sighted. Cheap, low-wage labor does not just hurt low-wage citizens and migrant labor. It hurts all of us as well.

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