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| Sunday, 21 November 2004 |
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Business |  |
| News Business Features Editorial
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Moving towards stable, prosperous society by Lloyd F Yapa The high performing economies of the world have been characterized by social, political and economic/ financial stability, (which attracts investment). These are invariably induced by appropriate social norms/values, governance by consensus among stakeholders with disparate expectations and strategies/ policies, which generate high rates of economic growth, with a stable general level of price and a distribution of wealth, that is equitable/fair. The last mentioned happens to be the most notable attribute of a stable society . Most countries in the free world try to achieve a fair distribution of wealth by taxing the rich and paying out subsidies to those, who do not benefit from prevalent open market forces. Subsidizing services, which contribute towards enhancing the earning power of the people such as education and health is certainly desirable to realize this objective. But such expenditure, when indiscriminately extended beyond the revenue earning capacity of a government onto unproductive welfare programes, can result in budget deficits, indebtedness, inflation and exchange rate depreciation, which erode the purchasing power of the people, in addition to making them sluggish and dependent on aid from the State and NGOs. The ultimate result would be low productivity and low growth (and therefor worsening of poverty). Asset owning society The question, that arises then is whether there is a plausible alternative. Lee Quan Yew in his book, "From the Third World to the First" says, Singapore has over the years successfully experimented with programes to enable practically every citizen to own some asset or other, thus motivating him/her to have a stake in maintaining social and political stability not only to protect this wealth but also to add to it and earn higher returns. Housing With this objective in mind, Yew had encouraged the setting up of the Housing and Development Board of Singapore to construct low cost housing mainly for workers. The workers were, however, unable to pay the 20% down payment for a house. The Central Provident Fund (CPF) law of the country was therefore amended to enable the workers to make this payment and service the balance installments. The workers at first had to make a contribution of 5% of their wages to the fund with the employers making a matching contribution of another 5%. The contributions were gradually increased to a total 40% of wages, making sure, that the take home pay of the workers increased faster. This was possible as the economy also had been coaxed to grow at the hitherto unknown pace of more than 8% per year on average, mainly by attracting Multi National Companies to invest in the country, while keeping price rises in check. By 1996, of some 725,000 flats of various types and values constructed, 91% were owner occupied. Quality of life Yew had not stopped there. Asset ownership alone was not sufficient. He proceeded to improve the quality of life of the people through certain well targeted services. Unlike most governments like those in Sri Lanka , however, Singapore moved to prevent its expenditure on health and education services as well as pension payments from ballooning out of proportion to its revenue flows and its ambitions of creating world class infrastructure facilities aimed at attracting substantial investments to generate employment opportunities. This was achieved mainly by providing for setting apart a portion of the CPF contributions of a worker for payment of medical bills and another part for payment of premia for medical insurance to be used in case of serious illness. Even those, earning a relatively low income, seeking admission to government hospitals are required to pay a certain portion of the bill, out of CPF savings, though in such cases as much as 80% of expenses can be subsidized. Richer persons, who opt for a higher level of comforts pay more. Provision has, however, been made to look after patients, who cannot pay at all, at State expense. OPD visits are not subsidized as there is a tendency for people to seek treatment unnecessarily, though payment for such services and even private hospital fees out of CPF proceeds are allowed. This has pressurized government hospitals to continuously improve the quality of their services. Pensions Saving for old age in Singapore has also been enabled in a characteristic manner - by allowing workers to use CPF entitlements for acquisition of assets such as stocks, shares, membership of mutual funds or unit trusts, commercial and industrial properties as well as gold. These assets are normally encashed by the workers on retirement. By 1997 some 1.5 million citizens , who were contributors to the CPF had become owners of stocks and shares in Singapore's burgeoning commercial and industrial establishments, spewing out jobs. In other words, in Singapore old age pensions are paid for by the workers themselves, not by the government, as in the case of most countries like Sri Lanka. These pensions in addition helped to create jobs. Worthy of emulation These are some of the strategies, that Lee Quan Yew and his associates had used to create a stable and law abiding society (without unnecessarily burdening the State exchequer), which in turn was a part of his larger strategy of moving from the third world to the first, within a relatively short time span. Sri Lanka, which unfortunately is plagued with persistent instability and burdened with budget deficits in addition to being heavily indebted, can surely benefit from adopting some of these strategies with suitable modifications. Certainly a national consensus is needed for such key result changes. |
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