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to "Inequality and the Need for a New Social Compact" Since independence in 1965, Singapore has been transformed by the governing People's Action Party (PAP) into a high-income developed country, by some measures one of the freest economies and one of the best places in the world to do business (Heritage Foundation, 2012; World Bank, 2012)—although the extent of economic freedom might be questioned, given the government's record of intervention in industrial, labour and social policy. Economic growth has become the main legitimation for the PAP's continued rule: having determined the shape of the country's political discourse over the last half-century, the PAP retains credibility and wins voter support in elections largely by securing material wellbeing for the people through economic growth (George, 15). This is related to the rhetoric of meritocracy—succeeding on one's own merits (rather than on family wealth or connections)—which is a key principle of Singapore's government (Kenneth Tan, 7). Rising economic inequality, in the Singaporean context, is seen to undermine the legitimacy of the government, as the fruits of economic growth accrue increasingly to the well-off, who, as they are able to attain and solidify material well-being, seem to be pulling away from broader society, undermining the promise of a fair shot at success for everyone. Consequently, dealing with economic inequality has become more important for the government. In a recent paper "Inequality and the Need for a New Social Compact", Bhaskaran et al. of the Institute of Policy Studies in Singapore argue for a major rethink of the Singaporean government's economic and social policies in order to deal with rising inequality—in their words, a "new social compact". In this essay I review their argument through the theoretical lenses of two important political thinkers, Marx and Hayek, and augment it with the implications that arise out of Marxian and Hayekian theoretical frameworks. Bhaskaran et al. observe, using the Gini index, that income inequality has risen in the last decade, accompanied with a perceived decline in social mobility. They argue that inequality creates a polarised society and is detrimental to coalescing support for government policy, and it reduces the well-being of the population—it can be seen that their argument against inequality takes instrumental rather than intrinsic grounds. Next, the authors outline what they see has the global causes of inequality, globalisation and technological change. Similar to other developed economies, competition from newly industrialising economies is holding down wages and causing job losses low-wage sectors; meanwhile, technology is driving trends of outsourcing and automation. The authors then go on to argue that because Singapore is a small, open economy, government must be 'activist' and redistributive—which brings them to their proposals. Central to this 'activist' government is a "new social contract", which provides opportunities for all and moderates inequalities, while not undermining the incentive to work. The authors also consider pragmatic policy experimentation necessary for the new social contract, and call on Singaporeans to be more forgiving of mistakes made by the bureaucracy. Lastly, they examine the possible impact on government spending and on incentives to work. Before examining the argument, it is useful to point out two (possibly unconscious) assumptions reflected in the paper. Firstly—and this is a pervasive problem in theorising
it sits uneasily with the troubling consequences of some of the government's past economic policies. If this is indeed the operant assumption. . the aggregation of Gini coefficients for such a diverse set of countries—in effect. which the authors acknowledge. by giving it a free hand to undertake policy experiments as it sees fit.. 15. Secondly. given that the composition of the population was substantively different in those two years. The Gini index is a summary measure over the difference between every single pair of incomes in the population. the authors then go on to compare the 0. given that the Gini index is not decomposable (i. without reciprocal obligations on its part. 6). the silence is deafening when the authors repeatedly call for government to be more willing to undertake policy experiments and the citizenry to become more tolerant of government mistakes in policy experimentation (Bhaskaran et al. This calls into question whether the figures for 2000 and 2010 are even comparable. rather than the citizens to be engaged in public life. They do not seem to realise that this undermines the accountability of government. Although there is a strong case for remaining apolitical in a paper on public policy. in the Singaporean system.02 increase in Gini index from 2000-2010 in Singapore. 20). 19). However. v). (One possible explanation—certainly not the only one—is an assumption on the part of the authors that government is and will continue to be benevolent. the weighting given to each pair of incomes changes as well. Curiously. Although the paper claims that this shows the speed at which inequality has risen in Singapore. Given Singapore's low birth rate. and contingent upon assumptions about government that would be accepted in Singapore but perhaps not elsewhere. and for cross-country comparisons. just over half of this increase (53. the authors rely chiefly on the Gini index to demonstrate an increase in inequality in the period 2000-2010. This balancing act seems to place the onus on government to engage the citizens in 'forging' the social consensus. the resident population of Singapore grew 15% (Department of Statistics 2010. 17.) There also seems to be a blind spot in the authors' suggestion that "government must forge a societal consensus" and "engage in a national conversation" with the citizenry on the shape of Singapore's social compact (Bhaskaran et al. when the government wants to engage its citizens. and seems to assume that Gini comparisons across time and space are universally valid. given the stringent naturalisation criteria. Such a comparison ignores differences in population size and median income between countries. While a full exposition of Singapore's political system cannot be attempted in this paper. Department of Statistics 2010. treating each country as a subgroup of a larger population (and giving each country an equal weighting despite differences in population size)—is descriptively meaningless. Also.2 about Singapore—the authors seem to ignore any possible role for a democratic process in building a new social compact. it is nevertheless important to expose this blind spot because it makes the authors' vision of a new social compact seem somewhat lacking and artificial. this claim seems instead to demonstrate a dubious interpretation of the Gini index.7%) was through naturalisation (and largely from relatively high-income professionals.. though. as population changes. to what they consider a similar-sized increase over the twenty years from the "mid-1980s to mid-2000s" from a panel of 14 arbitrarily-chosen countries ranging from Mexico to New Zealand (see Figure 1). there is a careful balancing act in getting them involved but not too involved. cannot be broken down into some sum of weighted indices for individual subgroup inequality plus a measure of between-subgroup inequality).e. Over the period 2000-2010. In a genuine multiparty democracy.. the paper does not acknowledge the limitations of the Gini index. this would be easily demonstrated in shifts in electoral support.
so there must be some purpose to their cross-country comparison. Yet if the authors were not implicitly trying to make a point about welfare in bringing up inequality. income and income growth. because distributional issues are central to the Marxian analysis of capitalism. the paper includes other evidence that citizen well-being has fallen. then the purpose of bringing up a cross-country Gini comparison is unclear. when other evidence is needed.3 Fig. In short. it does seem appropriate to note the limitations of the evidence used. 5 The most fundamental problem in the paper's use of the Gini index is that it implies some link between the Gini index and welfare. inspiring the economics of the Thatcher and Reagan eras. The authors see fit to observe that Singapore is not alone in experiencing a rise in inequality in the recent past as measured by the Gini index. and pay the worker just enough to support him and . However. This is not to dispute their conclusion that inequality has risen in Singapore. "the structure of distribution is completely determined by the structure of production" (Marx. Hayek. the nature of the Gini coefficient does not lend itself as easily to black-andwhite inequality comparisons as the paper seems to assume. 233). free-market system that protects private property rights. Grundrisse. and to their credit. 1. Since capital owners control (through the institution of private property) the means of production. p. We might use his theory to suggest and legitimate directions for a "new social compact" as posited by Bhaskaran et al. before examining the substance of the paper's argument. whether or not we accept the prescriptive aspects of his theory. but treating the Gini index purely as a summary statistic of dispersion. if it is indeed descriptively meaningless as I have argued earlier. The choice of Marx and Hayek needs some justification: Marx produced the most historically significant critique of capitalism—the economic system for which Hayek is one of the most important advocates. inflation. they reap the factor rewards. within a democratic. without which the worker is unable to produce. provides an account of the legitimate role of the state as enforcer of laws and non-monopolistic provider of public goods. reproduced from "Chart 3. But comparing Gini indices across countries to come to some sort of conclusion about welfare requires so many assumptions about factors like population size. mid-1980s to mid-2000s". it provides an alternative analytic toolkit with which to examine the system. and the form of the social welfare function. Marxian economic theory emphasises the distributional conflict between capital owners and workers: for Marx. Bhaskaran et al. on the other hand. However. Change in Gini Coefficient in Selected Countries.. that such a conclusion is virtually guaranteed to be useless.
better-educated professionals earn an "education premium". serve as a reference for employers (Global Employment Practice Group. Because there is no capital gains tax in Singapore. and by the guidelines set by the National Wages Council. Singaporean government policy exacerbates the effect on low-wage workers in two respects. which are then resold at a higher price. Bhaskaran et al. These wage guidelines have tended to hold wages increases down in the interests of 'competitiveness'. the National Wages Council establishes yearly wage guidelines which. although the analysis still holds to the extent that people rely on income from work rather than income from wealth. One of the complications in this analysis is that in a society with as high a rate of saving as Singapore. This surplus value. if accepted by the government. Firstly. generating surplus value (Mandel. and the capitalist class accumulates surplus value and cements its position. generating surplus value. allows people to invest the capital they have accumulated on the stock exchange). perpetuating the proletariat. Secondly. Marxian analysis brings several key features of the Singaporean system into focus. even as low-wage workers see their incomes held down. the study of income inequality in Singapore is hampered by the lack of data on capital gains. In Marxian theory. The division between these two classes is therefore blurred. Firstly. employers and the government. Secondly. the income of the capitalist class. the ability of labour to organise is restricted by regulations on trade unions and strikes—the last strike in Singapore was in 1986. income data is only available for income from work and . attribute the increase in inequality to globalisation and technology change—this forms the core of their analysis of the causes of rising inequality in Singapore. Bhaskaran et al. Meanwhile the capital owner can force the worker to work more than is needed to pay his wage. or income arising from wealth. All these limit the possibility for the struggle on the part of labour that is so central to Marx's thinking. while more highly-skilled. 492). many wage-earners are also capital owners in a small way (the government-run mandatory retirement savings plan. and lasted two days (Barr.. They hypothesise that this comes at the same time that technological change has made some jobs redundant and marginalised workers who are unable to adapt to new technologies. Professionals working on non-standardised contracts are less likely to be affected by these recommendations. They point to a liberal policy on hiring unskilled foreign labour as responsible for holding wages down at the lower end (Bhaskaran et al. they cite studies showing that middle-income. the Central Provident Fund. middle-skilled jobs are being lost to outsourcing and automation. 81). because higher-income professionals are more likely to be able to save and invest. Economic inequality results from the highly unequal allocation of factor rewards: the worker is paid a subsistence wage.. is appropriated by the capitalist class. strikes are practically non-existent. circulation of money refers to the process of using money to buy commodities. because it is the class with the capital necessary to engage in such activity. point out that the bottom 10% of incomes are barely enough for subsistence. Moreover. and trade unions are co-opted into a "tripartite partnership" with employers and the government (surely anathema to a contemporary Marxian conception)—indeed. 480). let alone "human capital formation" (10). 6). entering the capitalist class. the Secretary-General of the National Trades Union Congress is customarily a cabinet minister (Barr.4 his family. Singapore's labour laws and regulations restrict the impact of unionisation. The bargaining power of workers is also limited by the tripartite cooperation of unions. leading to the 'polarisation' of job opportunities toward the top and bottom—arguably accentuating divides along class lines. reasoning that the increases in inequality observed across many countries are probably driven by global causes. 249).
. on the premise that "a rising tide lifts all ships". In this context. 2. In his theory. including governments and private citizens. Although Singapore has been ranked one of the freest economies in the world. The solution that Bhaskaran et al. and rising real wages at all levels (Bhaskaran et al. 40).. much of its efforts are directed at maintaining competitiveness or growth. 9-10). (2) negative prohibitions of. However. 36. it provides the goods which the market fails to provide at the socially optimal level (i. interventions to encourage economic growth. Most importantly. This could potentially obscure a further source of inequality. Hayek saw government as complementary to the market. Bhaskaran et al. First. 35. full employment. hence providing a basis for decision-making in the market. the Singaporean government is very far from Hayek's conception. it must be limited by the same general rules as any other agent in the market. which means that they can apply to future circumstances of which we are currently unaware. where costs of living are lower. contract. This was largely a result of the government's industrial policy and promotion of foreign direct investment. Also. For instance.. and (I suggest) possibly given a Hayekian remedy. 13). it serves to enforce the general rules that society and the market depend on—primarily private property. liberal government regulations on the hiring of low-skilled foreign workers hurt the proletariat by increasing competition for jobs and introducing downward pressure on wages—since their families are left in their home countries. Neither can Marxian theory explain everything. once located with a Marxian lens. and (3) end-independent. with a mature economic structure and demographics. Government. make a particularly insightful observation in their paper— Singaporean government policy was largely formed in what they call a "benign context" of many favourable circumstances: a young population. can be thoroughly analysed with more orthodox tools.. not aiming at a specific goal or result— "increased production" for instance (Hayek. i. The proper function of government is twofold. acts to enforce such rules and refine them where they are inconsistent. Hayek argues that such rules protect our ability to interact with other agents in the market to take advantage of the dispersed information that we each have access to. Second. in its role as provider of public goods. public goods). however. certain behaviour.e. in its role as protector of the market order.5 transfer schemes administered by the government. However much it is praised by advocates of business and economic freedom (such as the Heritage Foundation). the 'subsistence' wage that they require is lower than that of a Singaporean worker. vol. the polarisation of job opportunities towards the high and low ends can be seen as sharpening class divides. for instance the policy on foreign workers mentioned earlier. Orthodox economic theory might well have better tools for understanding phenomena like wage determination and the financial markets than Marxian economic theory. did indeed work as intended. increasing the validity of the Marxian analysis (which relies on such a dichotomy). high economic growth. and prevention of harm. under the influence of global and technical forces which have opened up a significant divergence in incomes. In addition. ought to be circumscribed by general rules that are (1) abstract. it is by no means laissez-faire—labour and industrial policy are just two of many areas in which the Singaporean government is actively interventionist. rather than imperatives to. the characterisation of production as an interaction between capitalist and worker tends to lend distributional problems greater emphasis—problems which. the actions of all agents in society.e. not income from wealth (Department of Statistics 2011. This is not true any more of a small economy. the Marxian dichotomy of proletariat and capitalist offers a useful framework to think about the effects on inequality of a variety of government policies and external phenomena.
do not make such a distinction. new. Because Bhaskaran et al. the authors are willing to accept policy experimentation and even a certain level of error. However. He instead sees a particular kind of regulation as the solution—those abstract. or the "new social compact" that the paper calls for. and that the "market fundamentalism" embodied in the neoclassical consensus (the idea that markets always clear. A problem with this is that consequences may take time to manifest themselves. providing equality of opportunity. supported the deregulation that they now condemn. whether the authors really are willing to forego all principles and ideologies. To that end. and that government interventions are ineffective and indeed destabilising) has been discredited. "Activist government" sees the problems caused by deregulation and concludes that a reversal is in order—that more regulation is needed. and has consequently advocated deregulation in all spheres. which unhelpfully conflates the two roles of government (a problem which I will return to). I wonder whether this concedes too much to a pragmatist. One instance of good regulation might be antitrust legislation that prevents firms from engaging in anti-competitive practices like predatory pricing or consolidation—but would not be empowered to act if one firm grew 'too big' on its own. for the sake of clarity I will deal separately with the paper's recommendations on regulation of the market (which may be seen as negative prohibitions) and on the new social compact (positive duties). They see the state as regulating. end-independent rules that support the functioning of the spontaneous market order. Even on the authors' interpretation. and promoting social mobility (17). This is what the authors call the "activist state". I would suggest that Hayek's approach lies outside this continuum between deregulation and more regulation. negative. Bhaskaran et al. 17). outcome-oriented view of policy. expanded social security obligations that remain consistent with economic incentives and social norms (20). stabilising and legitimising markets (Bhaskaran et al. 22). instrumentalist. Though the paper does not make such a distinction. 15)— although it is not clear how exactly markets are legitimated by the state. the current economic crisis came out of the policy which at that time seemed the best option (deregulation). negative rules are only half of the public policy picture—the other half consists of the government's positive obligations. The outcome-oriented view of policymaking advocated by the authors would have. at the time. Besides the worrying problem of accountability raised at the start of my essay. and I argue that his theory provides a third way between ever-increasing government intervention and the "market fundamentalism" that the authors rightly question. ensure equality of . an "activist government" (15).6 recommend is more policy intervention and experimentation—in their words.. the justification for activist regulation (what they consider the failure of "market fundamentalism") serves also to justify activism in the new social compact in the shape of policy experimentation. The difference between these three approaches is illustrated in their stances on regulation. still low by OECD standards. except the one that says to take the policy option with the best outcomes. and an increase of government spending from current lows (about 16% of GDP) to historical levels (20-25%. in what they call a "pragmatic.. in which the government intervenes to invest in human capital. "Market fundamentalism" has tended to view government regulation as interfering with the efficient workings of the market. learning-by-doing approach" (Bhaskaran et al. adaptive. but which ended up spawning unforeseen consequences. call for activist government in the areas of redistribution. The paper argues that activist government is necessary to deal with pervasive market failures that the ongoing economic crisis has exposed. "Activist government" is quite the opposite of Hayek's recommendation.
However. and a corresponding lack of faith in the democratic process. what vision of a good society best matches the public's. after the faith in bureaucrats to undertake policy experiments and outcomeoriented policymaking. redistribution is proscribed. or in other words. and can be maintained only through continuous coercive use of state power (taking from some to give to others). and government provision ought to be the last resort (Hayek. and policies (the concrete manifestation of such a vision) are offered by citizens in an effort to gain support. to arguing that we need a better social security net. better way—government ought not to maintain a monopoly on the provision of such services. and Hayek seems to provide this. A . because it is an end-directed disruption to the market order. and is necessary in a modern society where traditional support networks have disintegrated or are inadequate. The solution might lie in synthesising several gaps in the paper's argument. material well-being.7 opportunities. negative. and the public may be concerned with different ends and different public goods at different points of time (economic growth. However. there are two main requirements for such positive duties to be legitimate. the national conversation should be between citizens (or groups of citizens) offering competing visions of the good society. Most of this is indeed compatible with Hayek's recommendations. the justification given in the paper for the new social compact is suspect—the authors go from arguing that market fundamentalism has failed. Hayek gives us one account of how to determine when government policies are legitimate. On the other hand. and they should relate to needs that cannot be met in another. Together. 3. to arguing that we need more regulation for markets. or indeed any of the other varieties of equality). the "national conversation" that the authors posit should aim to determine what ends the public actually values. because the two belong to different spheres of government activity. However. vol. income inequality. negative. arguing that markets don't always clear is a far stretch from arguing that we need a strong social security system. these three areas indicate what might be necessary to salvage their recommendations. And rather than the government 'forging' a consensus (which seems to place the agency in the hands of government). 19)—but they do not commit themselves to any such vision to motivate their policy recommendations. Hayek's approach to policymaking is lacking in that it does not prescribe very specifically what ought or ought not to be done—instead we have to formulate possible policies and test each hypothetical policy option against the criteria he sets out (abstract. There are many conceivable visions of a good society with something to be said for each of them. and depending on the benevolence and wisdom of bureaucratic policy experimentation. and spread the wealth—this constitutes the new social compact that they advocate. The Hayekian distinction between the two functions of government (regulator and provider of public goods) suggests that the case against market fundamentalism is not a strong enough case in itself for activism in social policy. each entailing its own set of policies. This seems to be a third troubling gap in their argument. end-independent rules by which all agents in society and the market operate. They must not violate the same abstract. Rather than having the bureaucrats decide which of these robust alternatives is the appropriate end to pursue. Out of this process a vision of the good society is both generated and legitimated. The authors call for policymaking to be anchored by a "vision of a good society" (Bhaskaran et al. For Hayek. We need to find a different way to legitimate government 'activism' in providing public goods. end-independent). 49).. because it protects against a risk that we all face. The case which best illustrates Hayek's thoughts on the positive duties of government is the minimum income: he argues that guaranteeing a minimum income is legitimate.
1999. 1968. and its suggestion that citizens ought to be more forgiving of bureaucratic policy experimentation and learning through mistakes is positively alarming.doingbusiness. 12 Aug 2012. <http://www. 2009 ed. Manu et al. Because of that. 22 May 2009. in The East Asian Challenge for Human Rights. Baker McKenzie." Oct 2011. . "Meritocracy and Elitism in a Global City: Ideological Shifts in Singapore.gov.singstat. "Singapore". Cherian. ed. <http://www. Marx's theoretical lens helps to focus our attention on distributional aspects of its analysis. The Marx-Engels Reader. Marxist Economic Theory. and suffers from several blind spots. Robert. Legal Reform. 1993. F. pdf>. it leaves some important assumptions unquestioned. ---. but as I have argued. Legislation and Liberty. London: Croom Helm. Capitalism in the UK: A Perspective from Marxist Political Economy . Mark. Mandel. 12 Aug 2012. 1978.org/index/pdf/2012/countries/singapore. Heritage Foundation. Doing Business 2012. Online sources Bhaskaran.pdf>. Global Employment Practice Group.pdf >. Grundrisse in Tucker.gov. 1981. Singapore: The Air-Conditioned Nation. London: Merlin Press.nus. Marx. Aug 2010.8 new social compact might necessitate—indeed. World Bank. George. and Hayek's in particular points towards a remedy for the problems in the paper. and Rights in Singapore and Taiwan".sg/ips/docs/events/p2012/SP2012_Bkgd%20Pa.bakermckenzie. Trans. Even though many other aspects of their theoretical frameworks have remained unexplored. Cambridge: Cambridge University Press.org/~/media/FPDKM/Doing%20Business/Documents/AnnualReports/English/DB12-FullReport.com/files/Uploads/Documents/Supporting%20Your%20Business/Global%20M arkets%20QRGs/Trade%20Unions%20and%20Works%20Councils/qr_singapore_tradeunionsguide_2009. its recommendation of activist government (which generates the new social compact) is weakly argued. in 2012 Index of Economic Freedom. Tan. 46. Kevin YL. "Trade Unions in an Elitist Society: The Singapore Story. Hayek. "Economic Development. Law.. 11 Jan 2012. 12 Aug 2012. in Worldwide Guide to Trade Unions and Works Councils. 11 Aug 2012. < http://www.sg/pubn/popn/c2010acr. In this essay. < http://www.edu. their theories help to clarify aspects and identify shortcomings in the paper's analysis. Ernest. Singapore: Landmark Books.1 (2008): 7-27. Campbell.pdf>. < http://www. Karl. through a critique of the paper "Inequality and the Need for a New Social Compact". References Print sources and journal articles Barr.mom. Brian Pearce. Michael D. might have to be legitimated by—a new political paradigm.pdf>. New York: Norton." Australian Journal of Politics and History. 9 Dec 2011. while Hayek's perspective draws attention to the implications and shortcomings of the paper's recommendations. 2000. < http://www. "Census 2010 Advance Census Release". Tan. London: Routledge.spp.heritage. "Singaporeans in the Workforce. 29. "Singapore". Inequality and the Need for a New Social Compact. 11 Aug 2012.sg/Publications/mrsd_singaporeans_in_the_workforce.4 (2000): 480-496. 11 Aug 2012. It is a bold paper." International Political Science Review. 20 Oct 2011. I have attempted to demonstrate what Marx's and Hayek's theories can contribute to thinking about inequality and public policy.pdf>. A. Statistical sources Singapore Department of Statistics. Kenneth Paul.
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