Singapore needs rethink: Wall Street Journal

Singapore's export-led economy is falling on its face, says the Wall Street Journal. And the stimulus package may not be enough to support small and medium-sized enterprises, says the BBC, which adds the pain is especially acute for low-income families. It points out:

Despite the glitzy images found in tourist guides, more than 80 percent of
locals live in government housing, with many families surviving on less
than $700 a month.

The Wall Street Journal says:

The 20.5 billion Singapore dollar ($13.7 billion) package — a whopping eight percent of the gross domestic product (GDP) — looks like past stimulus plans: a broad mix of supply-side measures to help businesses, public-sector spending and cash handouts to stave off social discontent. What it doesn't acknowledge is that Singapore's growth model itself needs rethinking.

Singapore's economy would be more resilient if it were better balanced. Consumption composes only about 40 percent of GDP — far less than other developed Asian economies, nearer to 55 percent. Yesterday's budget doesn't do much to change long-term incentives to consume. Singaporean workers and businesses invest a total of 34.5 percent of wages into the state pension fund, but receive less than a two percent return from the government. That's a measly payout compared to what private funds return over long investment periods.

The government could unleash more productive, sustainable growth by trimming back its public sector and allowing the economy to diversify on its own. But the city-state's bureaucrats have a habit of trying to pick winners, which sometimes works and sometimes doesn't. In recent years the bets have been on financial services, biotechnology and gambling. Yesterday's budget contained special tax incentives for the fund-management industry. Better to let private actors make those decisions based on market forces.

The best help for Singaporeans would be expanded, permanent opportunities to work, save and invest with more of their own money, rather than relying on government to do it for them.

The BBC adds:

In 2009, $1.7 billion will be spent to support needy families through cash handouts and tax rebates.

But a huge wealth gap between the richest 10 percent and the rest is fast widening.

When times were good, few questions were asked about how the wealth was distributed, or the lack of social safety net.

The next few years could be the biggest test ever faced by the Singapore government.