Singapore’s GDP figures have long been a source of pride for the government. Proof positive – or so they say – of Singapore’s economic miracle, the miracle which allowed Singapore, in the oft-repeated words of Lee Kuan Yew, to move from “third world to first”. However there are many reasons to be skeptical about Singapore’s economic achievements, not least because many citizens feel that the promise of a first world standard of living was never delivered, although a corresponding cost of living definitely has. Without wanting to repeat the many very valid arguments against relying on GDP as a measure of national wellbeing, in this post I seek to explain how even GDP itself may be distorting the picture in Singapore – specifically due to a relationship between inadequate CPF returns and GDP which I don’t believe has been discussed elsewhere.
The question is whether our government’s policy of giving below inflation rates of return on CPF savings has led indirectly to higher measures of GDP?
As mentioned above, GDP is not necessarily the best measure of the health of a nation, but it is the one that Singapore’s ruling party have chosen as a KPI to drive their own huge bonuses. Our government also sets CPF returns through the sale of special issues of government bonds – bonds that yield below inflation. These below inflation rates of return feed directly into the fact that many people feel they do not have enough savings for retirement. In a country where citizens have the economic freedom to choose how to save for their own retirement, a lack of funds could only be the fault of the individual. In Singapore however, the finger of blame can more easily be pointed at the government – for setting low rates of returns and mandating high contribution rates which leave citizens little scope to save privately. Under these conditions, the fact that many citizens continue to work into old age can easily be seen as a reflection of policy failures on the part of the ruling party. If these policy failures indirectly drive the GDP figures and government bonuses higher, it could be seen as a very embarrassing reflection of their short-sighted economic policy making.
So how does it work? Where is the link between not enough CPF and too much GDP?
It comes from the idea that people who cannot afford to retire will continue to generate GDP as they continue to work. On the flip side, when someone retires and takes a well-earned rest after a lifetime of working, they also take a break from generating GDP. So in Singapore, when we see our older generations working cleaning tables in a hawker centre, we should ask ourselves if they are actually contributing to our government ministers’ GDP linked bonuses. We should also ask ourselves whether government ministers have inadvertently been advertising their own failings over all those years that they have been boasting of high economic growth rates?