29 July 2010

Economic Growth And Over-Crowding

The projected GDP growth rate of 13-15 per cent this year is extremely rapid, even after taking into account the 1.3 per cent contraction last year.  GDP has already grown 4.3 per cent per annum over the past four years in spite of the recession.  If GDP grows 14.0 per cent this year, it will have grown 6.2 per cent per annum over the five years ending this December.

This is much higher than our target medium-term GDP growth rate of 3-5 per cent per annum for the next decade.

The sustainability of the medium-term growth target is premised on (among other things) improvements in labour productivity of 2-3 per cent per annum.  Increasing headcount will provide the remainder of the growth.

The past decade was different.  GDP growth of 5.0 per cent per annum was achieved mainly by increasing the number of employed persons by almost one million, or 3.8 per cent per annum.  GDP per employed person grew only 1.2 per cent per annum.

This year's projected growth requires 100,000 more foreign workers, which will increase the number of foreign workers by almost one-tenth in one year, notwithstanding the higher foreign worker levy.  This does not take into account other foreigners who will be granted permanent residence or citizenship (80,000 last year), many of whom will end up in the labour force.

It is not clear how many of these additional foreign workers and new residents are already here.  GDP can grow 14 per cent this year even if there is no sequential quarterly (i.e., quarter-on-quarter) growth in the second half of this year.

The foreign workers and new residents need space and facilities — accommodation, private and public transportation and road space, facilities for recreation and social interaction, schools for their children, clinics and hospitals, prisons etc. — and they need these to be made available at very short notice.

Many of these facilities are also used by the general population.

Can our physical infrastructure and our society cope with the sustained influx of foreign workers and new residents of this magnitude?

Singapore is a city state.  If an American doesn't like living conditions in New York, he can move to Los Angeles or Chicago, or any one of a number of smaller cities and towns.  Here, we have no choice.

Vibrant economic growth is needed to provide enough meaningful jobs for our citizens.  But if growth far exceeds that which can be supported by our citizens, together with a modest number of permanent residents and foreigners, we should consider forgoing some of it.

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