How Not to Be a Boiled Frog

GUESS when this was published:

'Around the globe, workers in developing countries are to be found processing data for Western companies on hospital patients' records, consumer-credit reports, insurance claims and magazine subscription renewals. Swissair has transferred all of its revenue accounting to Bombay. And with a large number of skilled, English-speaking engineers and scientists, India has also made itself a niche in computer programming. Most American computer firms now subcontract labour-intensive programming to Bangalore. This has depressed software consultancy charges in America.'

Last week? Last month? Last year? Wrong.

Last decade. In 1994, to be precise.

The passage comes from an Organisation for Economic Cooperation and Development (OECD) study called Globalisation And Regionalisation: The Challenge For Developing Countries. It makes clear that the relocation of white-collar jobs from developed countries to developing ones is hardly a new phenomenon, even if it's only lately that the international media has devoted more attention to it.

Here in Singapore, it's also only lately that the issue has surged to the fore, and for a very simple reason: Where we used to be on the receiving end of outsourcing, we are now increasingly on the giving end. When it comes to jobs, no one will say that it's better to give than to receive.

It's nostalgic to read in the same OECD report how foreign direct investment (FDI) into tiny Singapore from 1988 to 1992 was, at US$21.7 billion (S$39.1 billion), second only to China's US$25.6 billion.

Fast forward to 2002. China's FDI inflow has leapt far ahead to US$53 billion, while Singapore's hovers at US$9 billion.

Was Singapore the frog in the pot that did not realise the water was already on the boil? Perhaps. Economists may have seen the writing on the wall, but the average worker was too busy aspiring towards car, condominium and country club to notice. If you had argued back in 1994 that the Singapore economy was in danger of hollowing out, you would have been berated for being a spoilsport.

Indeed, few people predicted then how fast countries like China and India would move up the ladder. OECD economists were among those who argued that since direct labour costs accounted for only a tiny fraction of total manufacturing costs - 3 per cent in semiconductors, 5 per cent in colour televisions, and 10 to 15 per cent in the car industry - jobs would not relocate that fast.

Said the OECD report: 'Even if a firm can achieve the same labour productivity, its lower unit-labour costs may easily be swamped by other cost disadvantages, thanks to developing countries' inferior infrastructure.'

But in a number of developing countries, both infrastructure and education levels are fast catching up. In some, like Vietnam and Cambodia, it's even thanks in part to Singapore's technical assistance programmes.

Under pressure from these cheaper producers, the Singapore Government has been trying to steer the economy upstream into higher-skilled industries, such as wafer fabrication and pharmaceuticals. But moving upstream is hard to do when all your neighbours are trying to go that way too.

Singapore also carries two burdens it could do without: high and rigid wages. People may debate how high, exactly, labour costs are in Singapore, but no one can dispute that they are higher than in China or Thailand.

The irony, however, is that in spite of these danger signs, many employers are still unwilling to move towards a variable system that would allow wages to fluctuate according to economic conditions. Mr Lim Boon Heng, head of the National Trades Union Congress, revealed recently that only a third of employers in the unionised sectors had opted for the system. One wonders: Are they going to be frogs boiled alive in a stew of seniority-based wages?

Cutting CPF contribution rates lowers the heat - but only a little. You can view the reduction from 16 to 13 per cent in two ways: One, it lowers employer CPF payments by about a fifth, or two, it means employers still have to pay 13 per cent more than what they would have to pay in some other country, at the same wage level.

And this is where I'm going to be radical and ruthless, and suggest that the employer rate be brought down to zero over the longer term, but not so long that the frog ends up on somebody's plate.

Think about it. The CPF was started back in 1955 largely because the British did not want to be saddled with old-age pensions for the colonies. After Independence, the CPF was retained as a retirement savings plan. Both employees and employers contributed to it as a sign of shared commitment.

Today, lifelong employment is a thing of the past. Jobs are increasingly more mobile than people. No employer owes it to the worker to contribute towards his retirement. The worker owes it to himself to plan, and save, for it. Given that he is far more educated today than 40 years ago, the ability should be there.

The CPF started as a retirement scheme, but over the years, and often at the clamour of citizens, it morphed into a many-headed hydra, a complex instrument for achieving a myriad of socio-political objectives, from housing and health care to education to investment. Ask the average citizen what he thinks of when you mention CPF, and he'll say 'buy property', rather than retirement.

Or take the Special Account, the one part of your CPF funds that you can't touch until after you retire: What does it say about the CPF, when what should have been the norm becomes the Special?

A zero employer CPF rate won't solve all economic problems, but it will be a decisive signal. Not just to investors, but to another group of people that matters even more: our own workers. Frogs or not, they hold their future in their own hands.