PM Lee Hsien Loong at May Day Rally 2012

NTUC President Ms Diana Chia
NTUC Secretary-General Mr Lim Swee Say
Brothers and Sisters

Singapore has made much progress in recent years. We have enjoyed good growth – 14.5 per cent in 2010, last year nearly five per cent. Unemployment is very low, right now just 2.1 per cent and for citizens about three per cent. We are getting good investments coming into Singapore like the Rolls Royce engine plant making their new Trent engines, and petrochemical projects and other good projects creating good jobs for Singaporeans. We are upgrading our environment, whether it is Marina Bay looking new, whether it is Punggol 21+ with the Punggol Waterway where the living environment in Singapore gets better day by day. Above all we have been able to achieve broad-based real wage increases for our workers.

While the overall conditions are good, I think workers are still anxious about various things. Last week I had lunch with some union leaders to find out what was on the minds of their members and of themselves. They told me item number one was the cost of living, especially healthcare. They are worried that their CPF is not enough, especially because of inflation. So two nights ago at the NTUC May Day dinner, DPM Tharman explained what they are doing to manage inflation – stabilizing property prices, subsidizing healthcare, our U-Save schemes, all the measures we are taking to make sure that Singaporeans are able to take care of their families. We will continue to do this and we will continue to monitor inflation very closely to see when something more needs to be done, we will be ready to act.

Low wage workers were also prominent in the unionists’ minds. They were concerned that the wages of the low wage workers were not keeping up with the rest. They feel that those earning low wages are stuck no matter how hard they try to upgrade themselves. That is something which affects us all, not just the low wage workers.

Thirdly, they are concerned with our ageing workforce. Older workers can see the competition coming and they know that they need to retrain but it is not so easy to retrain. Some of them are at the max of their pay scale. Unless the whole pay scale moves up, there is not enough upside for them to enjoy some fruits from their upgrading.

All these are real issues that the tripartite partners must address together. Other countries and their workers are also facing similar challenges. I therefore think we should see our own problems in perspective. We should look at other countries, learn from them and see what lessons we can draw. (NTUC Secretary-General Lim) Swee Say briefly mentioned a few countries during his speech. I will just take you through some of them again because I think lessons are worth thinking about.

In Europe many countries are in trouble. Why? Because welfarism has failed. The idea that the government will provide everything has not worked. Workers have too little incentive to make the effort. Their jobs are protected, which means it is very hard to discipline the workers, very hard to let the workers go when conditions change, very hard to drop the workers when they are not putting in the effort. So the employers say if it is so hard to let the workers go, I better be very careful before I take the workers on. The employers are reluctant to hire, fewer jobs are created. The population is ageing, their pensions are paid by the state. It is a very heavy burden on the state, becoming unaffordable. Let me give you just one example. In Italy, the amount which the Italian government spends on pensions in one year is almost equal, in terms of percentage of GDP, to the amount which the Singapore government spends in the budget every year for everything – education, healthcare, defence, housing, transport. All our public spending added together accounts for about 15 per cent of our GDP; Italy spends almost 14 per cent of its GDP on pensions. You cannot afford this. The countries have too much debt, investors are no longer willing to lend them the money and so they are in a crisis. The stagnation is going to last, unemployment is well above 10 per cent, for young people much worse. If you take Spain, 24 per cent unemployment, one quarter of the adults are not working. Among the youth, more than 50 per cent are not working, more than half. You can imagine somebody young who has no work for 10 years after leaving school. By the time he is 30, how does he start finding a job, learn how to be in a job and start his working career? It is a crisis.

People are very upset with the world, upset with the government. So many governments have fallen. All along southern Europe, they have changed governments, Portugal, Spain, Italy, Greece, all gone. Holland recently, coalition collapsed. Romania, as I was writing this speech, I had to add in to the list because the government fell too. France, previous weekend, first round of elections, Mr Sarkozy is trailing. Second round coming next weekend, he may lose. The continent is in crisis.

In America, the situation is not so bad but there are many concerns over social safety nets too. Healthcare, which we worry about, they worry about. It is extremely expensive, expensive to the individual who must pay the insurance, expensive to the state who must pay out of the federal budget for Medicaid and Medicare. Their social security system which funds pensions is also bankrupt but they cannot reform it because politically it is impossible. So the budget is in chronic deficit and they have no money left to invest in education, in infrastructure, in growth, in their people.

You look at the emerging economies, China, India, Vietnam, still growing, creating jobs but they are not without their own worries and headaches. China is worrying about income inequalities especially between the coastal cities which are prosperous and the inland areas which are not doing so well. They are worried about economic restructuring because they know every year they have to do better but they cannot keep on doing better without changing the way the economy works. They are also worried about their ageing population and their shrinking workforce because there are not enough babies and they worry that they may grow old before they grow rich. The moral is every country has its own problems; many of these problems are similar to ours. It is inevitable because of globalization, because of technological progress, affecting all of the world. We are certainly not perfect but I think we should see our progress and our problems in perspective. On balance, I think we are in good shape to tackle the problems but we must get our strategies right.

The first strategy we must have is to keep Singapore open and embrace the world. We must be open in our mindsets – an outward looking, confident society, willing to change, welcoming competition, willing to consider new ideas and to explore new opportunities. That is how we have become a successful and cosmopolitan city. That is how we have competed against bigger countries and held our own. That is how we can stay abreast of the changes, improve our lives and secure a bright future for our children here in Singapore.

So when it comes to trade we are prepared to do business with anybody, Trans-Pacific Partnership with America, Australia and so on, we have joined in. FTA with EU, despite all their problems we still want to do business with them. Let us see how we can get a win-win relationship going. We open ourselves to the world, to business.

We also welcome talent, an attitude which has served us well. I described just now in my Chinese speech how the Hong Kong TV channel, TVB, talked about our policies here and admired us for it. But I give you a more personal example of this. Many people come to Singapore to live, work or play. They are impressed by Singapore, they go back home, they may rise, they are promoting Singapore as a friend, as a place where there is opportunity to prosper together. One such person is New Zealand Prime Minister Mr John Key. He recently visited us. Many of you do not know he actually lived and worked in Singapore about 15 years ago in the mid 1990s for Merrill Lynch. His son was born here and he remembers Singapore fondly, especially East Coast Park and the chilli crabs and the pepper crabs which he still eats every time he is here privately. Now he is Prime Minister of New Zealand, pursuing more cooperation with Singapore which will benefit us, whether it is in terms of us getting food from New Zealand, opening new education opportunities in New Zealand, or travel opportunities there. So an open attitude I think serves us well. We need not just focus on small numbers of top talent but a wide range of foreign professionals and skilled workers. This remains a hot issue for Singaporeans because they worry about overcrowding, about competition for themselves and their children, about different social norms, language and so on.

Yesterday I posted an article on my Facebook page. It was about Germany facing this problem of foreign talent. They do not have enough workers, their economy is prospering, they need engineers, they need IT people. They are importing some of them from southern Europe where there are no jobs. In the long term, this is going to be a great help to Germany because it is going to strengthen their industries, strengthen their capabilities, build them up as an economic power, even more. But in the long term, it is going to weaken the countries which lose these talents and the Spanish are worried one day they may end up doing nothing except tourism and agriculture. But the Germans also face problems because the foreigners come in, different language, different culture, they cannot fit in with the Germans. The Germans say “Herr” to one another, Mr so and so, very formal in their engagements. The southern Europeans are very informal in their engagements. So there is that clash and it grates. I posted this to trigger some thought among Singaporeans, perhaps to realise that “hey, we are not alone in our problems”. It attracted hundreds of comments, many heartfelt and thoughtful ones from readers. People clearly seized with the issue, trying to see how we are different from Germany, what problems we are facing in Singapore. This is a strategic issue for Singapore and important for us to get right. We will be debating immigration and foreign worker issues later this year. So I cannot solve the problem today.

But today I would just like to focus on one angle concerning foreign workers, and that is the economic angle. The way the employers look at this is different from the way the workers look at this. The employers, as Swee Say told you just now, feel that they cannot find enough workers in Singapore, especially workers who will stay on the job. Hence better to bring in some foreign workers, seize the opportunities, rather than let the business go somewhere else. At least you keep the jobs, the business in Singapore and you keep some jobs in Singapore. The workers often see it differently, that the foreign workers add to competition against them. If there are too many, it may reduce wages and it may even take away some of the jobs which Singaporeans can do. Better we have fewer foreign workers and let our wages rise.

If you ask me which to believe, I would say both arguments have their merits but each one is only valid up to a point. You need a mix of local and foreign workers to man the companies. But if you set up a new company and only create jobs for foreigners, then you must ask whether it is really good for the company to come and invest in Singapore? What is the point? On the other hand, if you want the company to come and you insist that all the jobs are reserved for locals and you do not give them any foreigners, and you do not have enough Singaporean workers, or the right type, then I think the jobs will disappear. The IRs came to Singapore. We have created 30,000 to 40,000 jobs in the two IRs, many of them for Singaporeans but not all for Singaporeans. If we had required the IRs to hire only Singaporeans, I do not think we would have got the IRs and I do not think Singaporeans would have got the jobs which have pushed up demand for hotel workers which have enabled hotel wages to go up significantly for many other hotels and F&B outlets and which have put the pressure on the hotels to upgrade just like Matthew Emmanuel (from the example Secretary-General Lim cited earlier) just now. The reality is we need a mix, companies need a mix and we must strike the right balance.

When I met the union leaders last week they all told me without exception that they could not find enough workers. Every sector, whether it is manufacturing, whether it is electronics, whether F&B, whether services, all are looking for people. We are creating more opportunities than we have bodies to fill. Last year we created 120,000 jobs but there were only 32,000 Singaporeans who joined the labour force to fill them – one in four. Our unemployment is already so low and many of the rank and file workers are already working overtime to meet demand. We have had to top up with foreign workers to lower costs and to enable us to seize that opportunity when the business is good. Then the new companies can start, then we can start creating new jobs, better jobs for Singaporeans. Then we can give the company a chance to build a Singapore core.

One of the unionists asked me, how many foreign workers do we need? I said there is no magic number. It depends on the opportunities. In a good year, we want to allow a few more to come in. In a slow year, we can tighten; we can let some of them go off. But it also depends on our own needs. If we want to build more HDB flats and MRT lines, you need more foreign workers. You want to have more hospitals and nursing homes, I think it is unavoidable. You need some extra nurses, some extra allied health professionals, even some extra doctors from wherever you can find them who can serve us well. But in total, we have to slow the inflow of foreign workers significantly in the coming years because we just cannot keep on bringing in 80,000 more foreign workers a year. There is just not enough space and it is not sustainable. The number of foreign workers will keep on going up and up and up. So we have tightened up, slowed down, not squeezed and reduced but just slowed down the increase and I think the companies are already feeling the squeeze. This will give them the incentive to upgrade their productivity and also to develop a Singaporean core in their companies, people who will form the long-term skills, long-term loyalty, long term capability for the companies and for Singapore. While we must always be open to the world, let me be quite clear – Singaporeans will always be our priority. This is the purpose of all our policies including on foreign workers or talent. We are trying to seek the maximum advantage for Singapore and for Singaporeans.

The second major strategy we need is to grow our economy sustainably and share the fruits of growth with all Singaporeans. Economic growth is still very important to us, not just for its own sake but to provide jobs for each one of you to support your families, to bring up your children. None of the stories which Swee Say told you just now would have happened without growth. Growth is a result of each one of those stories adding together into one big collective story, the story of Singapore. Growth gives us opportunities for Singaporeans to pursue their aspirations, and resources to improve our lives and help those in need. Growth is going to slow down because of our constraints – not enough land, not enough labour. This is unavoidable. But we actually need to work twice as smart to get growth through higher productivity because if you do not have space and you do not have productivity growth, you are going to have very little results, very little prosperity. We will lose vibrancy and drive and it will be disastrous for Singapore. To get that, it means we have to restructure, restructure our industries, grow new industries, add new value and phase out the industries which are no longer viable and accept this turnover. Even when we are prospering every quarter, a few thousand workers will be retrenched but many more jobs will be created.

Take the electronics industry, we have been in electronics for a long time but the type of electronics has changed over the years. We used to assemble basic electronic products – TV sets. VCRs, PCs. (Referring to picture on screen) These are CRT tubes which you would not see in the shops any more. But the older ones here can explain to the younger ones what these things are. We used to make these low end electronics. Over 20 years (1990-2011), we restructured to focus on semi conductors, the brains of the chips inside the machines. So now we produce high-end electronics. When you have a biometric passport, the chip inside the passport, 80 per cent of those chips used around the world are made in Singapore in factories like this. It’s a big transformation over two decades, lost 37,000 jobs but we created nearly 30,000 new jobs, higher skilled better pay. Productivity increased five times. Contribution to GDP increased more than three times for the whole industry. Workers’ wages also went up.

How does this happen on the ground? It means we have to work company by company, worker by worker. The way Swee Say described just now, one story by one story. The companies have to take the lead to make productivity and skills upgrading a priority, work with the unions and workers and share the gains with the workers because that’s the right thing to do, it is the best thing to do. The workers have to do their part too to partner the companies, to upgrade, to learn new skills, to contribute their ideas and improve performance because, as one of the unionists told me, the workers know the processes. They know where something is not efficient and is wasteful, they know they can save on some procedures and save time and save effort and do it better. If you can engage the workers and make them enthused about it, it will make a big difference. So as Brother Lim Kuang Beng from SISEU told me, productivity improvements must be bottom up as well as top down and that what we need workers to do. We also hope companies and workers will take full advantage of what the government is doing to support productivity improvements. For instance, our restructuring grants for SMEs and our CET efforts (Continuing Education and Training). We are building very beautiful new campuses for CET. (Referring to picture of CET Campus East on screen) This one is a CET campus East at Paya Lebar Central. We are also building one in the West at Jurong Lake District. Trainees do not go to these CET Campuses for holidays. They go for hard work and upgrading. We have got the National Productivity and Continuing Education Council, the NPCEC, developing productivity road maps for different sectors. Road maps to specifically do things better in that industry. For example, for the food services sector, recommending that companies share part time workers during peak periods, or using mobile ordering systems such as a PDA so you do not have to shout the orders to the kitchen and scribble them down. Precision engineering also has road maps, with study awards, with master craftsmen to be trained. So we have got specific ways we can improve productivity. CBD - Can Be Done.

I give you one more example to add to Swee Say’s many examples. Take Showa Denko, it is a hard disk drive manufacturing company. UWEEI knows the company well. Last year, they merged two plants together to improve productivity and the quality of their products. They upgraded their workers, redeployed their workers, expanded their job scope, so maintenance people covered more machines, the production personnel improved their trouble-shooting skills etc. And so Showa Denko’s operating costs came down ten per cent and their workers got higher salaries and bigger bonuses. So, that is the way we do it step by step.

The third thing we must do is to translate growth to higher wages and better lives. Our ultimate aim is to improve lives for all of us, especially average Singaporeans and especially the lower income. Over the last five years, in fact, incomes have gone up. Median incomes have gone up by 13 per cent after inflation since 2006. Our goal is to keep real wages going up year by year. So we are tightening on foreign workers and I think this will help to push the wages up. But to sustain these higher wages, beyond the first push, not just for two or three years but for ten years and longer, then we need to raise productivity, we need to upgrade skills.

We have talked about 30 per cent real wage growth in a decade. That is a very ambitious target. Let me try and explain to you what 30 per cent real wage growth means. To get that, you must get the same productivity growth at least. Right? So you must get at least 30 per cent productivity growth in ten years because then the employer will share some, the workers will share some. And if you look at it year by year and break it down, that means every year, I need to make 2.7 per cent productivity growth. 2.7 per cent year by year, 10 years compounded, I can make 30 per cent in a decade and then we can raise the workers’ wages by 30 per cent. 2.7 per cent doesn’t look a very big number but it is a very challenging target. 2Since 2000, the last 12 years, what have we done? 1.7 per cent per year. 2.7 per cent is almost one-third better. If you compare with developed countries, let us see what they have done? Most of them have done 1 to 2 per cent – US, the best, UK, less, Japan, just 1 per cent. So when we say we want to make 30 per cent productivity increase, 30 per cent wage growth in 10 years, we are talking about stretch targets for Singapore. Not easy to do but I think we should set an ambitious goal and try our best to achieve it to the best of our ability and make sure that we make progress over the next ten years.

We must make a special effort for the low wage workers, because they are the ones most affected by competition, by inflation, struggling to compete and facing a predicament which many low wage workers face all over the world. Unfortunately there is no easy solution for this. Professor Lim Chong Yah recently proposed pushing up low wage worker wages quickly, 50 per cent in three years. I appreciate his good intentions. I share his concerns over this group of workers. But I do not agree with his drastic approach because the only realistic way to lift their wages is step by step, with wages and productivity going up in tandem together as fast as we can but as fast as it is possible. In the early 1980s, we did have one period when we zoomed up and pushed wages up very rapidly. But even then, we ran into problems. 1978, 1979, 1980, Singapore was a developing economy, we were growing very rapidly – 8 to 10 per cent per year. Our only competition was little dragons – Korea, Hong Kong, Taiwan. China and India were not on the scene and we actually had held down our wages because the NWC had been very cautious because we did not want to price ourselves out, so we held our wages down as the economy went ahead. And so there was the possibility of us letting go and catching up. Especially as MNCs like Philips, like HP, like Texas Instruments were coming in, creating thousands of jobs and making the labour market very, very tight. So we had room to raise wages quite sharply. But even then, we over did it. Wages shot up, productivity did not improve and we lost competitiveness. So in 1985 when the winds changed, when the conditions turned difficult, we plunged into a very deep recession. It was scary. The older unionists will remember. In fact, they will never forget. We had to cut wages sharply. We had to cut CPF by 15 per cent so that the economy could recover.

Today, we are in a different situation. The NWC does not dictate the wages. It is globalization, it is technology, it is competition which is setting our wages. So the export companies are facing much tougher external competition. Much more intense competition. Job by job they compete against factories in China, in India, in Vietnam, everywhere. As Brother Francis Lim from UWEEI told me, companies bid for every job, even against other factories in the same MNC. And if you are five per cent out of line, the job goes somewhere else. And you do not get that order, you do not get the overtime. So the companies cannot easily afford a five per cent cost increase unless they also get a corresponding productivity improvement. So that puts a constraint on the export industries. For the SMEs, they are going to be most affected when the wages go up because they employ many low wage workers. Many SMEs are small companies which are not very profitable. So if costs go up, either the wages have to be passed on to their consumers which means inflation for all of us, or the companies have to retrench workers or may have to close. And they need time to upgrade their productivity which is why we are tightening the foreign worker policies only gradually to give them time to adjust and to help them to adjust so that it will be better for their workers. So we must do this gradually. If we do it too sharply, without corresponding improvement in productivity, we will make things worse. Low wage workers will be worse off.

I think union leaders understand this but they are under pressure because Prof Lim’s proposal has been widely discussed. It has raised great expectations and so it is important for me to spend some time to explain to you why we have to move carefully, why a drastic approach will not work, why we should not confuse our workers. Better aim for what is sustainable. Do not take a big risk with short term jumps in wages.

I promise you this: We will always do our best to uplift our low wage workers. We have many programmes doing that. The Inclusive Growth Programme which Swee Say mentioned just now: S$100 million to upgrade 100,000 workers. NTUC and e2i taking the lead on this. We have substantial fiscal transfers, meaning government money for low wage workers and their families, GST vouchers, Workfare, especially for older workers. It can be 20 per cent or more of their wages, Special Employment Credit to help employers hire older workers and defray some of the costs so that they will hire more older workers. Over a lifetime, if you add up all this, one low income household gets more than half-a-million dollars in government subsidies - the HDB housing grant, education bursaries, healthcare subsidies, U-Save, Workfare and so on.

So we are doing much, but we are taking a prudent approach. It is an approach which is working. Over the last five years, real incomes of workers have gone up. In five years, it has gone up by 12 per cent from 2006. If you add other transfers such as the Grow and Share package and ComCare and so on, these additional transfers add another 20 per cent to the earnings of low-income households. So we will continue to do this. NWC is working now. They are meeting. I am sure that they will pay close attention to this issue. I look forward to their recommendations. I hope it will be published within this month. This is a way we can build an inclusive society and share the fruits of growth with every Singaporean.

We must make sure that, by keeping Singapore open, by keeping our economy growing, by sharing the fruits of growth with all our workers, that Singapore remains successful, prosperous, the place to be. Looking to the future, not back to the past. Commanding a premium, not offering a discount. The first choice for investments and talent, not a place which is bypassed and neglected. Where things get done cheaper, better, and faster. We are ahead of many other countries. Let us maintain this lead, make the right moves, and make sure that we and our children enjoy better jobs, better pay and better lives for many more May Days to come.

Happy May Day! Thank you!

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