The population crisis: A closer look at GDP growth and our carrying capacity
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Written by Ng E-Jay
01 February 2013
The recently released White Paper on population has caused a furore nationwide. People cannot believe the government thinks it wise to cram 6.9 million people into an island already suffering from severe congestion and overcrowding. People cannot accept that the desire for economic growth alone justifies such a policy. Surely there must be another way, an alternative solution.
This is the first of a series of short articles I will write on the population issue facing Singapore. This first article will take a closer look at GDP growth as the government’s rationale for raising the population to 6.9 million, and relate it to the carrying capacity of our country.
What is the Gross Domestic Product (GDP) of a country? There are three separate definitions, all of which theoretically lead to the same result.
The GDP can defined as the value of all goods and services produced within a country in a given period of time.
It can also be defined as the sum of individual incomes and corporate profits in a country in a given period of time.
Or, it can also be defined as the sum of private consumption, gross investment, government spending, and net international trade surplus, within a given period of time.
These three seemingly irreconcilable definitions should give the same result in principle, if we assume that all output of goods and services is eventually purchased, and that the income of productive factors is equal to the market value of the products at the national level.
There are only a few ways to grow a country’s GDP. The first is by population expansion, which is what the Singapore government has embarked on very aggressively in recent years. The second is by innovation and increases in productivity, which has been lagging behind due to neglect. The third is by increased government spending, which only works in the short term, produces mixed results and is not sustainable.
The PAP government assumes that because of Total Fertility Rate (TFR) has been so low for so long, the only way to prevent a population crisis and sustain our economic growth is to import foreigners to supplement our manpower needs and increase the pool of productive workers. Over time, the foreigners will settle in Singapore and augment the existing local population, thus preventing our population from collapsing.
To put it simply, the government wants to grow the GDP in the short run by increasing the workforce, and to ensure continued economic growth in the long run by having foreigners work and settle here, with many of them eventually taking up citizenship.
But that is only one way to grow the economy. How about innovation and productivity? Sadly, that has been lagging for the past decade or so. Singapore seems to have lost the creative edge. Our high-end manufacturing is down in the dumps, as is our biotech sector. The workforce is not working more efficiently and effectively. What has happened here?
My take is that the large supply of cheap labour has induced companies to take the easy way out. They would rather cut costs and hire increasing amounts of cheap manpower than invest in innovative technologies or devote resources to finding ways to do things better and more efficiently.
The supply of cheap labour has been like a drug that has lured our companies, especially our Government-Linked Corporations (GLCs), into complacency and false sense of security. It has extinguished their drive to excel, innovate and become more creative.
Just using population expansion to grow our GDP is a dangerous policy. In Singapore’s case, this policy will eventually hit a road-block some years down the road when the carrying capacity of our country has reached its natural limit.
Already, people are complaining of congestion and overcrowding. Train breakdowns have become more frequent and severe. The infrastructure of the country seems to be sagging under the severe stress of the rapidly expanding population. Yet the government tells us that the only way forward is to expand our numbers even more.
PM Lee has admitted that his government does not have 20/20 foresight. This is a very serious admission. His ruling party knew fully well that they were going to embark on an aggressive policy of population expansion. Yet they did not have the basic common sense of building essential infrastructure like roads and train routes, opening up land for development, building new hospitals, and increasing the supply of property ahead of schedule so that the country can accommodate all the newcomers.
PM Lee has essentially admitted that they have governed the country incompetently for the past decade. We are now suffering the effects of this mismanagement. And the government has told us that more is yet to come.
Even if our infrastructural development catches up with the population, there will still come a time when we cannot reclaim any more land, and the population has become too dense to expand any further no matter how many roads we build, no matter how many train routes we add, no matter how many flats and skyscrapers we put on the market.
What would happen then? Twenty years down the road, when this day finally comes, what will the PAP government tell us? How will the PAP lead the country further into the 21st century when the end-game is already in sight for astute observers? Can the PAP devise a new, creative way to remake Singapore? The PAP cannot even do basic planning of infrastructure development ahead of time, much less devise an ingenious plan for a Singapore that is saturated to the brim with people!
To round up this article, a final point needs to be made. GDP growth is only one measure of economic success of a country, albeit an important one. In recent years, we have seen that the poor and lower middle classes have not caught up despite GDP growth. This has resulted in widening income inequality and sets the stage for increased social frictions. A widening income gap is also bad for the economy in the long run because it puts a dampener on domestic consumption.
The PAP has clearly embraced Ronald Reagan’s “trickle down economics”. But will a rising tide really lift all boats? In this globalized environment, there is less and less evidence to lend support for this style of economics. By perpetually hiring cheap foreign labour and outsourcing local operations, the wealthy elite can ensure that the economic goods earned at the top don’t trickle down to the man far down below.
The government can give all kinds of budget handouts and household relief packages to the lower income families, but these are just stop-gap measures that won’t improve their overall quality of life, if their incomes continue to remain stagnant and they keep facing unfair and increasing competition from foreigners.
There is a need to look beyond GDP growth, and address the very way our economy has been structured, especially its liberal immigration, manpower, and cheap foreign labour policies. And because the carrying capacity of our island is very limited, there is a need to tackle the underlying assumption that unbridled population expansion is the way to go.
The challenges facing Singapore are serious, and it looks like our current government may not be up to the task.
Stay tuned for more.