Thursday, 21 March 2013

Singapore's lessons for an unequal America

Despite soaring levels of inequality, it is possible for the United States to reach the goal of achieving a fairer society, as the Singapore experience has shown.
By Joseph E. Stiglitz, Published The Straits Times, 20 Mar 2013

INEQUALITY has been rising in most countries around the world, but it has played out in different ways across countries and regions. The United States, it is increasingly recognised, has the sad distinction of being the most unequal advanced country, though the income gap has also widened to a lesser extent in Britain, Japan, Canada and Germany. Of course, the situation is even worse in Russia, and some developing countries in Latin America and Africa. But this is a club of which we should not be proud to be a member.

Some big countries - Brazil, Indonesia and Argentina - have become more equal in recent years, and other countries, like Spain, were on that trajectory until the economic crisis of 2007-2008.

The S'pore model

SINGAPORE has had the distinction of having prioritised social and economic equity while achieving very high rates of growth over the past 30 years - an example par excellence that inequality is not just a matter of social justice but of economic performance. Societies with fewer economic disparities perform better - not just for those at the bottom or the middle, but overall.

It's hard to believe how far this city-state has come in the half-century since it attained independence from Britain in 1963. (A short-lived merger with Malaysia ended in 1965.) Around the time of independence, a quarter of Singapore's workforce was unemployed or underemployed. Its per capita income (adjusted for inflation) was less than a tenth of what it is today.

There were many things that Singapore did to become one of Asia's economic "tigers", and curbing inequalities was one of them. The government made sure that wages at the bottom were not beaten down to the exploitative levels they could have been.

The government mandated that individuals save into a provident fund - 36 per cent of the wages of young workers - to be used to pay for adequate health care, housing and retirement benefits. It provided universal education, sent some of its best students abroad, and did what it could to make sure they returned. (Some of my brightest students came from Singapore.)

There are at least four distinctive aspects of the Singaporean model, and they are more applicable to the US than a sceptical American observer might imagine.

First, individuals were compelled to take responsibility for their own needs. For example, through the savings in their provident fund, around 90 per cent of Singaporeans became home-owners, compared to about 65 per cent in the US since the housing bubble burst in 2007.

Second, Singaporean leaders realised they had to break the pernicious, self-sustaining cycle of inequality that has characterised so much of the West. Government programmes were universal but progressive: While everyone contributed, those who were well off contributed more to help those at the bottom, to make sure that everyone could live a decent life, as defined by what Singaporean society, at each stage of its development, could afford. Not only did those at the top pay their share of the public investments, but also they were asked to contribute even more to helping the neediest.

Third, the government intervened in the distribution of pre-tax income - to help those at the bottom, rather than, as in the US, those at the top. It weighed in, gently, on the bargaining between workers and firms, tilting the balance towards the group with less economic power - in sharp contrast to the US, where the rules of the game have shifted power away from labour and towards capital, especially during the past three decades.

Fourth, Singapore realised that the key to future success was heavy investment in education - and more recently, scientific research - and that national advancement would mean that all citizens - not just the children of the rich - would need access to the best education for which they were qualified.

Mr Lee Kuan Yew, Singapore's first prime minister, who was in power for three decades, and his successors took a broader perspective on what makes for a successful economy than a single-minded focus on gross domestic product, though even by that imperfect measure of success, it did splendidly, growing 5.5 times faster than the US has since 1980.

More recently, the government has focused intensively on the environment, making sure that this packed city of 5.3 million retains its green spaces, even if that means putting them on the top of buildings.

In an era when urbanisation and modernisation have weakened family ties, Singapore has realised the importance of maintaining them, especially across generations, and has instituted housing programmes to help its ageing population.

Singapore realised that an economy could not succeed if most of its citizens were not participating in its growth or if large segments lacked adequate housing, access to health care and retirement security. By insisting that individuals contribute significantly towards their own social welfare accounts, it avoided charges of being a nanny state. But by recognising the different capacities of individuals to meet these needs, it created a more cohesive society. By understanding that children cannot choose their parents - and that all children should have the right to develop their innate capacities - it created a more dynamic society.

Singapore's success is reflected in other indicators as well. Life expectancy is 82 years, compared with 78 in the US. Student scores on mathematics, science and reading tests are among the highest in the world - well above the average for the Organisation for Economic Cooperation and Development (OECD), the world's club of rich nations, and well ahead of the US.


THE situation is not perfect: In the last decade, growing income inequality has posed a challenge for Singapore, as it has for many countries in the world. But Singaporeans have acknowledged the problem, and there is a lively conversation about the best ways to mitigate adverse global trends.

Some argue that all of this was possible only because Mr Lee, who left office in 1990, was not firmly committed to democratic processes. It's true that Singapore, a highly centralised state, has been ruled for decades by Mr Lee's People's Action Party. Critics say it has authoritarian aspects: limitations on civil liberties; harsh criminal penalties; insufficient multiparty competition; and a judiciary that is not fully independent. But it's also true that Singapore is routinely rated one of the world's least corrupt and most transparent governments, and that its leaders have taken steps towards expanding democratic participation.

The Nordic way

MOREOVER, there are other countries, committed to open, democratic processes, that have been spectacularly successful in creating economics that are both dynamic and fair - with far less inequality and far greater equality of opportunity than in the US.

Each of the Nordic countries has taken a slightly different path, but each has impressive achievements of growth with equity. A standard measure of performance is the United Nations Development Programme's (UNDP's) inequality-adjusted Human Development Index, which is less a measure of economic output than it is of human well-being. For each country, it looks at citizens' income, education and health, and makes an adjustment for how access to these is distributed among the population.

The Northern European countries (Sweden, Denmark, Finland and Norway) stand towards the top. In comparison - and especially considering its No. 3 ranking in the non-inequality-adjusted index - the US is further down the list, at No. 16. And when other indicators of well-being are considered in isolation, the situation is even worse: The US ranks 33rd on the UNDP's inequality-adjusted life expectancy index, just behind Chile.

Economic forces are global; the fact that there are such differences in outcomes (both levels of inequality and opportunity) suggests that what matters is how local forces - most notably, politics - shape these global economic forces. Singapore and Scandinavia have shown that they can be shaped in ways to ensure growth with equity.

Imperfect democracy

DEMOCRACY, we now recognise, involves more than periodic voting. Societies with a high level of economic inequality inevitably wind up with a high level of political inequality: The elites run the political system for their own interests, pursuing what economists call rent-seeking behaviour, rather than the general public interest. The result is a most imperfect democracy. The Nordic democracies, in this sense, have achieved what most Americans aspire towards: a political system where the voice of ordinary citizens is fairly represented, where political traditions reinforce openness and transparency; where money does not dominate political decision-making; where government activities are transparent.

I believe the economic achievements of the Nordic countries are in large measure a result of the strongly democratic nature of these societies. There is a positive nexus not just between growth and equality, but between these two and democracy. Greater inequality not only weakens our economy, it also weakens our democracy.

A measure of the social justice of a society is the treatment of children. Many a conservative or libertarian in the US asserts that poor adults are responsible for their own plight - having brought their situation on themselves by not working as hard as they could. (That assumes, of course, that there are jobs to be had - an increasingly dubious assumption.)

But the well-being of children is manifestly not a matter for which children can be blamed (or praised). Only 7.3 per cent of children in Sweden are poor, in contrast to the US, where a startling 23.1 per cent live in poverty. Not only is this a basic violation of social justice, but also it does not bode well for the future: These children have diminished prospects for contributing to their country's future.

Discussions of these alternative models, which seem to deliver more for more people, often end by some contrarian assertion or other about why these countries are different, and why their model has few lessons for the US. All of this is understandable. None of us likes to think badly of ourselves or of our economic system. We want to believe that we have the best economic system in the world.

Part of this self-satisfaction, though, comes from a failure to understand the realities of the US today. When Americans are asked what is the ideal distribution of income, they recognise that a capitalist system will always yield some inequality - without it, there would be no incentive for thrift, innovation and industry. And they realise that we do not live up to what they view as their "ideal".

The reality is that we have far more inequality than they believe we have, and that their view of the ideal is not too different from what the Nordic countries actually manage to achieve.

Rationalising growing inequality

AMONG the American elite - that sliver of Americans who have seen historic gains in wealth and income since the mid-1970s even as most Americans' real incomes have stagnated - many look for rationalisations and excuses. They talk, for instance, about these countries being homogeneous, with few immigrants. But Sweden has taken in large numbers of immigrants (roughly 14 per cent of the population is foreign-born, compared with 11 per cent in Britain and 13 per cent in the US). Singapore is a city-state with multiple races, languages and religions.

What about size? Germany has 82 million people and has substantially greater equality of opportunity than the US, a nation of 314 million (although inequality has been rising there, too, though not as much as in the US).

It is true that a legacy of discrimination - including, among many things, the scourge of slavery, America's original sin - makes the task of achieving a society with more equality and more equality of opportunity, on a par with the best-performing countries around the world, particularly tricky. But a recognition of this legacy should reinforce our resolve, not diminish our efforts, to achieve an ideal that is within our reach, and is consistent with our best ideals.

The writer, a Nobel laureate in economics and University Professor at Columbia University, was chairman of then President Bill Clinton's Council of Economic Advisers and served as Senior Vice-President and Chief Economist of the World Bank.

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