Emeritus Senior Minister and Economic Society of Singapore Honorary Fellow, Mr Goh Chok Tong,
President, Economic Society of Singapore, Professor Euston Quah,
Excellencies and Distinguished Guests,
Ladies and Gentlemen,
1. Thank you for inviting me to the Economic Society of Singapore’s (ESS) Annual Dinner. I would like to begin by thanking ESS for your important work in building a strong network of economists in Singapore. This facilitates cross-pollination of ideas and lively debates, which in turn add rigour to decision-making, whether in public policy, business or other aspects of our society.
2. In the company of many eminent economists this evening, I propose to focus my speech on an issue which gathered the attention of many economists in Berlin in May this year. Given concerns that trust in institutions is eroding across major democracies, the gathering put forth the “Berlin Declaration”, which proposed a new balance of responsibilities between markets and the Government.
3. The key contention is that markets on their own cannot be relied upon to deliver inclusive social outcomes, and trickle-down economics has failed. Better-designed policy intervention is needed to secure a fairer share of prosperity and tackle inter-generational problems such as climate change.
4. The Declaration has amassed widespread support, with 500 signatures from influential thinkers including Nobel Laureate Angus Deaton and former IMF chief economist Olivier Blanchard.
5. This contrasts starkly against the market-liberal “Washington Consensus”, which for four decades emphasised the primacy of market-based policies, free trade and deregulation, and espoused the concept of a “small state”. While the two ideologies are distinct, the crux of it belies the question – what is the proper, sustainable role of the state?
6. For Singapore, we have always approached this question based on what is practical and effective for us. We are pragmatic and not ideologically-driven, preferring to focus on what works in the context of our society. We generally rely on market solutions as much as possible, but we are prepared to intervene in a decisive and targeted manner if necessary, for example, in clear instances of market failure.
7. Today, I will highlight three key areas where the Government believes we can play a role – one, ensuring adequacy of essential public services; two, supporting our people in adjusting to shocks; and three, planning and building ahead of demand, to crowd in further investments.
8. In the process, we are also careful to avoid the slippery slope of excessive individualism, populism and short-termism. The 3 ‘isms’ have gained dangerous traction in recent times, and become dominant driving forces in the politics of some of the biggest economies today. If we allow these 3 ‘isms’ to affect our politics in Singapore, they will also likewise adversely impact our ability as a society to plan long-term and formulate sound economic policies.
Ensuring adequacy of essential public services
9. Coming back to the 3 key roles of Government. First, the Government needs to ensure that essential public services, such as public transport, are adequate. On its own, the market will likely under-invest in such services, resulting in a sub-optimal outcome for society.
10. Using public transport as an example, our founding fathers had the foresight that in Singapore, we needed an efficient transport system with two key elements: smooth-flowing roads and a mass people-mover system. With limited land, public transport, which includes MRT, buses and point-to-point transport, was prioritised over private transport.
11. In the 1950s, buses were regarded as “mosquitoes” because theywove in and out of traffic – routes were haphazard, service was dismal and worker strikes were commonplace. The Government took the first step in transport planning in the 1970s by consolidating the bus industry and tightening regulatory oversight. We also strengthened the tripartite partnership between Government, operators and unions.
12. We have come a long way since. With more MRT lines built and buses deployed, connectivity and convenience has greatly improved for our people. When our two new lines (Cross Island Line and Jurong Region Line) are completed in the 2030s, eight in ten households in Singapore will be within a ten-minute walk of a train station. And commuters currently enjoy a subsidy of more than $1 per trip, because we accept that public transport is a merit good and we do not fully recover the costs for both capital and operating expenditure.
13. Without government providing large amounts of upfront investments and recurrent subsidies, we would likely end up with a less developed public transport network, as well as much higher fares for commuters.
14. Getting the physical infrastructure up is only the first step. The long-running challenge is operations – continually delivering reliable, high-quality public transport service. By the early 2000s, our bus industry had consolidated to two major operators and ran on a largely privatised model. With profitability concerns on hand, the operators were constrained in upgrading their fleets ahead of demand and plying routes with low demand.
15. The Government decided to combine the responsiveness, inclusiveness and breadth of a centralised system, with the efficiencies of the private sector, by introducing the Bus Contracting Model in 2016. LTA took over the bus assets, planned the bus routes and collected fares. Operators bid for the routes via tenders conducted by LTA, and they are paid a service fee and held to a service standard.
16. Under this hybrid model, the Government planned the routes, set standards and bore the revenue risk, while private operators were incentivised to deliver quality operations in order to compete for contracts and stay profitable.
17. Injecting regulated competition in the bus market has reaped returns, improving bus reliability, efficiency and commuter experience. The number of public transport operators has grown from two to four. The increased competition has spurred operators to improve their efficiency, with average tender prices falling by 15% after five rounds of competitive tendering by LTA. This also translates into improvements in bus service quality and shorter waiting times for commuters.
18. Our workers too have benefited from this shift – operators improved recruitment and retention efforts for bus captains, and introduced best practices and new technologies from abroad. One example is driver assistance systems that uses technology to improve work processes and conditions for our bus captains.
19. At the same time, the Government has been able to respond more quickly to evolving needs in its role as central planner. Last month, we launched the Bus Connectivity Enhancement Programme, which commits up to $900 million over eight years to enhance the bus network for residential areas which are currently less connected and located further away from the main existing transport nodes. This allows us to plan ahead to support new housing projects launched by MND and HDB in different parts of Singapore.
20. Even with the Government injecting more resources to buy more buses and hire more bus captains, we must still carefully manage the trade-offs between providing greater convenience for commuters and keeping overall costs affordable, because resources are finite.
21. This is why we need to continue to rationalise bus services as we develop our MRT network, especially the long trunk services that run parallel to MRT lines which see a significant drop in ridership when many commuters switch to taking the MRT. If we continue with all these bus services, which is certainly the more popular thing to do instead of bus rationalisation, it will translate to higher costs for the entire system, and in turn higher fares for commuters and a larger burden on taxpayers.
22. From an economics perspective, I am sure many in the audience would agree that rationalising low-ridership buses that duplicate MRT lines and reallocating the resources to serve residents from new estates is the correct policy decision as it increases the welfare for society as a whole. However, we also need to handle the concerns from affected residents who would naturally prefer to have both the new MRT line and the existing buses if possible.
23. This is why I believe that good economics require good politics to achieve its desired outcomes. We need to have the political courage to do the right thing and resist the 3 ‘isms’ that I spoke about earlier, as well as the political skill to persuade the majority of voters to support the changes, so that we are able to implement economically sound policies. And good economic outcomes would in turn earn broad-base support for good politics, so we can have a virtuous circle that will benefit our society in the longer run.
Adjusting to shocks
24. Second, the Government recognises the importance of supporting our people in adjusting to shocks and managing the costs of transitions. Economics typically focuses on “equilibrium” and “steady state” effects. But as Princeton University economist Alan Blinder said, “people don’t live in equilibrium states, and spend most of their lives in one transition or another.”
25. Shocks are often unexpected, sharp, but temporary – think COVID-19. On the other hand, transition costs arise from structural shifts that are often predictable, prolonged and permanent. The US-China contestation and its impact on global trade and supply chain networks is one such shift. The need to deal with climate change and the impact of AI are other examples. They challenge the fundamentals upon which many economies and jobs are premised, and require societies to respond with new policies, mindsets and skillsets.
26. The greatest challenge comes when we need to navigate both shocks and transitions at the same time – which was what happened in the last few years.
27. During the shock of COVID-19, we recognised the importance of preserving core capabilities that we had taken decades to build, and preventing long-term economic scarring. At the same time, we had our eye on the future and encouraged our workers to upskill so they can remain employable if they need to take on new jobs.
28. Our aviation and tourism sectors were severely affected by the pandemic, but throughout Covid-19 we kept our airport open to facilitate the flow of people and goods, and for the muscles in our system to stay “warm” and active. The Government channeled additional support to these sectors, such as higher amounts of wage co-funding under the Jobs Support Scheme and the Aviation Workforce Retention Grant. Companies and workers in the jobs retained by these measures used the downtime to upskill and raise productivity by exploring greater use of automation and digitalisation.
29. Contrast this with what some other airports or airlines had done – they took a shorter-term view of laying off workers to protect their bottom lines, instead of a longer term perspective of retaining capabilities, building resilience and preparing for the bounce back after the pandemic. In other words, they cut jobs to save costs, unlike our approach of cutting costs to save jobs.
30. I am glad that our efforts to help employers and workers cushion the shocks have paid off and positioned Changi in a good position to take flight when the fog eventually lifted. Changi was among the first in Asia to reopen to international travellers in 2021, and our airport and Singapore Airlines could capture opportunities in the subsequent travel boom.
31. Another shock was the outbreak of war between Russia and Ukraine in 2022, which caused global inflation to surge to its highest in decades. Cost-of-living continues to be a pertinent concern for many societies, including Singapore. On the one hand, we wanted to cushion the impact, especially on the vulnerable. On the other, we needed to ensure that any support did not inadvertently stimulate excessive demand and trigger a price-wage spiral that could threaten the macroeconomic and financial stability of the economy.
32. The government’s support was therefore calibrated to avoid distorting price signals, and preserve the right economic incentives for household behaviour. Some asked for outright price subsidies or caps to energy prices and pointed to other countries with long-term fuel subsidies. But we resisted making such moves because we believe that resources must be right-priced to encourage prudent consumption, which is especially crucial in resource-scarce Singapore.
33. As we learn in economics, it is important to preserve price signals to reflect scarcity. In fact, direct price subsidies often have the unintended effect of being inequitable, benefiting those who consume more. For example, a person driving a Bentley would enjoy more fuel subsidies than someone driving a Toyota Corolla. A family staying in a bungalow would consume more electricity than a family in a 3-room HDB flat, so a subsidy which lowers the electricity price would end up benefitting the bungalow dwellers more. For a small country like Singapore where fuel is imported and subject to global pricing, it is also not sustainable to rely on permanent subsidies for these scarce resources.
34. Instead, to manage the distributional consequences and cushion the shock on households, especially the lower-income households, we provided rebates separate from the pricing of resources, such as Cost-of-Living Special Payments, U-Save rebates and CDC vouchers, with more support channeled towards the lower- and middle-income. These provide help in a targeted and fair manner, without distorting price signals and consumption behaviours. To paraphrase Sir Winston Churchill, we shape our policy incentives and thereafter they shape us.
35. For businesses, support was also tilted towards firms that make the effort to restructure and transform. The Energy Efficiency Grant was introduced to nudge investments in energy efficiency among sectors which were harder hit by the increase in energy prices; the SkillsFuture Enterprise Credit provided additional support for eligible employers to cover their out-of-pocket expenses when they embark on workforce and business transformation.
36. The easier and more populist approach would have been for the Government to fix prices and dole out broad-based subsidies, instead of digging deep into the needs and value chain of each sector, and focusing on longer-term goals to push for more thorough restructuring efforts amidst challenging times.
37. But it was important for us to do the right thing and not just pursue what is easy and convenient, because the best way to deal with inflation in the longer run, is to ensure that our firms are more productive, our workers are more skilled and adaptable, and their real incomes can continue to rise over time. When the shock passes, we would make progress on our longer-term economic transition, and we hope that Singapore would emerge stronger and more competitive in the new operating environment.
38. This is also how we steward our resources responsibly, instead of indulging in “fiscal fantasies” – that we can somehow keep spending more and more and somehow find the taxes or loans to support this increased expenditure down the road, without having to carefully assess the consequences upfront.
39. It is neither politically responsible nor economically sound for some parties to propose spending more on one hand, and then criticise the Government for raising taxes to ensure that the additional expenditure can be sustained over the longer term. We need to be honest with the population that higher, sustained spending can only be supported if we are prepared to foot the bill as a society, and not dabble in populist politics or fiscal fantasies by pretending that the additional spending can magically happen.
40. It is also disingenuous to suggest that drawing down from past reserves will not take resources away from future generations, and still claim that such moves are not a raid on past reserves. The way I see it - If it walks like a duck, quacks like a duck, looks like a duck, it is a duck. Don’t try to mislead people by saying it is a chicken.
41. Singapore is one of the few countries in the world that can use returns from our reserves to add to our annual budget for spending; many other countries take from their annual budget to pay interest on large, accumulated Government debt. That leaves them with less to spend on other areas which will benefit the people.
42. Our reserves give us the confidence and fiscal muscle to weather major global shocks and build up capabilities for the future even during economic downturns. We are in a unique and privileged position of strength, which can only be safeguarded if we remain prudent, disciplined and fair in our spending, and continue to grow our reserves in a way that benefits both current and future generations of Singaporeans.
Planning and building ahead
43. Third, the Government has to plan and build ahead of demand, to catalyse and crowd in further investments from private investors. Most private companies have shorter time horizons. The Government need to adopt a longer-term perspective in building the country. Just as our founding fathers and previous generations of leaders had done, we need to look beyond the here and now, and take a long-term view in planning and building Singapore. This is so we can leave behind a better future for our children and grandchildren, than what we had inherited from our forefathers.
44. One example is our seaport, which expands our reach beyond Singapore’s geographical constraints and makes us a key hub for global trade and supply chain connectivity. We announced in 2012 that we would consolidate our port terminals and expand them at a single location in Tuas. At that time, global container shipping was facing a downturn, as the global financial crisis a few years prior had driven down international trade volumes, leading to reduced freight rates. We were also in the midst of developing the later phases of Pasir Panjang Terminal.
45. Against such headwinds, we could have taken a shorter-term perspective and maintained the status quo with our existing port terminals, to avoid sinking in more capital and risking stranded assets. In fact, these were the arguments made by some critics, who questioned whether the returns on investment were justified given the uncertain, shifting global trade environment at that time.
46. Fortunately, the Government remained steadfast in adopting a long-term strategic view. Asia was expected to continue growing strongly with a burgeoning middle class, and there was fierce competition from other ports in the region. If we did not invest for the future, we would risk falling behind. Beyond supporting economic activities, our port is also essential to securing our resilience and relevance in the geopolitical space, acting as a conduit for the movement of critical resources such as food and energy.
47. The Tuas Port development was based on careful cost-benefit analysis – this is how the Government approaches every major investment. The cost is significant, estimated at over $20 billion. Therefore, we must make sure that the benefits need to outweigh this.
48. Consolidating all port operations in Tuas would significantly reduce the cost of transport, manpower and road congestion resulting from inter-terminal haulage, and free up prime land in the south of Singapore for the Greater Southern Waterfront.
49. We also saw this redevelopment as an opportunity to revamp port operations to be more efficient and productive. When completed, Tuas Port will be the world’s first fully automated port, using automated guided vehicles and automated quay and yard cranes, and leveraging artificial intelligence to optimise movement and scheduling.
50. Tuas Port will be developed over four phases, with each phase incorporating learnings from the previous, and the latest technologies and needs of the time. To date, nine berths at Tuas Port have already commenced operations. When fully operational in the 2040s, Tuas Port will have more than 60 berths, with a capacity of 65 million twenty-foot equivalent units.
51. The investment in Tuas Port is also expected to catalyse further investments from the private sector. Tuas Port will be a key nexus within the vibrant business and industrial district in the Western region, comprising the Jurong Industrial District, Tuas Industrial District, Jurong Lake District and many more. Related industries can benefit from greater connectivity and supply chain synergies. We are looking to optimise the flow of cargo and necessary customs cleanace as well as other processes so that we can have more seamless and integrated ecosystems.
52. To facilitate such industry development, we actively shape a conducive business environment. We need to develop new capabilities in maritime technology and innovation, including in green technologies. MPA works closely with companies on manpower development, to grow new talent and prepare our existing workforce for the future.
53. These efforts demonstrate through action that the Government is committed to building long-term capabilities. We are committed to maintain our position as a competitive hub in the region. This provides companies in the private sector, the confidence to expand their breadth of functions and operations in Maritime Singapore.
Closing
54. Ladies and gentlemen, let me conclude my speech by reiterating that what we have built up in Singapore is precious and worth preserving. Our stable political environment which encourages good politics has enabled the Government to make economically sound and socially equitable decisions for the long-term benefit of Singapore and Singaporeans.
55. Good politics is rooted in integrity and a firm commitment to the greater good of society, with the long-term welfare of the country and people taking precedence over personal or partisan interests. This establishes the foundations for a stable political environment that supports sound economic policies and long-term planning.
a. Without good politics, leaders do not have the support to make necessary but difficult decisions on behalf of the country;
b. Without a society that supports and espouses similar values that shape a conducive political environment, leaders would not have the mandate and time-horizons to be able to implement their policies well.
56. Therefore, I put to you – that good politics is essential for building consensus and securing public trust and support. Not only in good times but also during tough periods; and not only to make popular decisions but more importantly, also to implement difficult ones.
57. As part of our ForwardSG movement, the 4G team under the leadership of PM Lawrence Wong will continue to work together with all segments of society to refresh our social compact. This is a shared understanding of how all of us in society relate to one another, and our respective roles and responsibilities; and also to build consensus among Singaporeans on how our policies reflect the hopes and dreams of our people.
58. I would like to call on ESS to continue working closely with the Government to help fine tune policy measures and enable Singaporeans to gain a better understanding of the economic rationale and trade-offs. Your regular dialogue sessions are useful platforms to achieve these goals, serving as beacons of knowledge to help illuminate the path forward.
59. Thank you for your attention, and I wish everyone an enjoyable evening ahead.
