PM Lee Hsien Loong at May Day Rally 2010

Secretary-General Lim Swee Say

President John de Payva

Ministers, business leaders, union leaders, brothers and sisters

We meet again in happy circumstances after an eventful year. Last year’s May Day Rally, we held it in the same place, but in a very different mood. It was the depths of the downturn, we had a very bad first quarter. H1N1 was just starting to spread around the world and we were all checking temperatures before coming into this room. Fortunately, we recovered faster than expected and H1N1 turned out to be less serious than we had feared. I am glad to see many happy faces today, but let us learn the right lessons from this crisis and let us focus on the future challenges to come.

Today, I will do three things -- review our response to this crisis, explain what our long-term strategy is and how important it is to raise productivity and discuss what we should do this year with strong growth and a tightening labour market.

Lessons from Crisis

We have come through a major crisis. I think we should pause, reflect on our experience and try to draw some lessons - what does it mean, what did we do right, how can we do better the next time? We have been on a roller-coaster ride. Last year’s first quarter GDP went down minus-ten per cent, our trade went down one-third. This year, first quarter GDP up 13 per cent year-on-year and compared to last year’s fourth quarter and annualised, it is actually 32 per cent growth. It is an astonishing number and business is back. At PSA, the cranes are down working again, Amir Hamzah smiling this morning, first thing I met him. Last year, he looked very worried.

SIA Stephen Lee is also smiling. Last year, the flights were cut, staff put on short time, reduced pay, all were worried how far further SIA would have to go. Now, we are in a different situation. I was in the States last month. I flew both ways on SQ, Singapore-New York, non-stop. Both flights were full and I chatted with the crew. The crew were delighted to see travellers returning and they were tracking the load factors very closely. I asked the air stewardess "What is happening?" She said "Very good, 83 per cent load factor and looking forward to good bonuses this year." The management should take note. I am glad that the measures we took worked, that the overall global situation improved faster than we expected and that we have pulled through together, united and confident.

What lessons can we draw from this crisis? I think lesson number one is that Singapore is small and vulnerable to global storms. This is a dangerous world we live in. We try our best to avoid and steer around storms, but from time to time, we are going to get hit and last year was a major hit. Had it not been for our timely and effective national response, we would have been in deep trouble. This is not a new lesson. This is a lesson which we repeat to ourselves every National Day. Every time ministers make a speech, we remind Singaporeans. You have heard it so many times that you may think “Ah, it is just the Government being extra careful.” But after last year, with a near-death experience, I think you know it is absolutely serious. I hope Singaporeans now appreciate better how vulnerable we are and why we must always be ever vigilant and remind ourselves of this.

Secondly, despite our vulnerability, if we respond intelligently and cohesively, we can deal even with major challenges. We watched this storm coming. We did not have a lot of notice, but we could see the clouds gathering. In late 2008, about a year-and-a-half ago, after Bear Stearns, after Lehman Brothers, we could see what was happening in America and Europe, and we acted quickly.

The Government introduced SPUR to ramp up training for workers. We brought forward the Budget last year. We introduced the Resilience Package, the Jobs Credit Programme to make sure that we responded with a full package of everything we needed to do and full steam ahead.

The Government did not do it alone, employers and unions cooperated. They did their part to cut costs and save jobs and together. We kept unemployment low, we kept firms solvent, we kept confidence up and, most important of all, we managed to get the companies to hold on to their workers at a slack period and not let them go, causing hardship to the workers and their families and weakening the firms when the recovery comes. The firms held on and when the economy picked up, they had the capacity, they had the workers ready trained and they could ramp up quickly and that is why we were able to get a good performance this year in the first quarter.

The third lesson we should draw is that we should always save something for a rainy day. All our programmes - the SPUR, the Jobs Credit, the Resilience Package - the Government funded without borrowing. We could do this because we had reserves and this was a serious situation. We persuaded the President, made a case to him that there was a reason to draw on the reserves to deal with this crisis, and the President and his advisers agreed with us and approved this draw. And so we have been able to come through without borrowing money, without ending up in debt or in new trouble.

That is not so for many other countries, which had to run big Budget deficits to finance stimulus packages. We had to run a Budget deficit too, but their Budget deficit had to be funded from borrowing and they now face serious difficulties. Britain is in the middle of a general election campaign. The election is on Thursday, and whoever becomes the new British Government has the unhappy job of cutting spending and raising new money because they have a big hole in the Budget. America, not just from the downturn, but because of other structural problems in their economy and spending on healthcare and other things, they are also projecting large Budget deficits which are going to cause the American economy problems and probably cause the global economy problems in the longer term unless they can deal with it. Other European countries, the PIGS, which Swee Say spoke about just now, are in trouble -- Greece being bailed out by EU and IMF and their bonds have been downgraded to ‘junk’ bond status. If the Greece government wants to borrow money, instead of paying three or four per cent interest, they are having to pay seven, eight, nine per cent interest. Portugal and Spain have also been downgraded, not quite junk bond but at risk.

We are sitting pretty, but it is important that we remind ourselves we could do this because we had reserves. Now that life is back to normal, better start building up our reserves again, make good what we spent last year and a little bit more; year by year, maintain our frugal ways; and every time there is a good year, put a little bit aside because you never know when we are going to have a thunderstorm again.

What we did last year, Resilience Package, Jobs Credit and so on, were exceptional responses to an extraordinary crisis. This is, I hope, a crisis which happens once every 50 years at most, maybe once every 80 years, if we are lucky. So we should expect to have this kind of a response, this kind of generosity from the Government maybe once every 50 years, maybe once every 80 years, if we are lucky. But we are going to have ups and downs every three, five years in the business cycle - business goes up, business goes down, unemployment will rise from time to time. We have to ride those and take them in our stride and preserve our kitty for truly ‘rainy days’ when we can take really decisive measures and then we will be able to be as safe and as secure as we were this time.

The fourth lesson I would draw from this crisis is that tripartism is a critical competitive advantage for Singapore. To be able to respond to the crisis in this way, it is not just having good economists or good staff or capable union leaders who can work out plans and work out schemes on what to do. It is because there is mutual trust between the Government, between the workers and the unions and the employers and they know one another. They have worked together and they know that we have to tackle this problem together because we are all in the same boat. Without this trust, it would have been much harder to get workers to accept sacrifices, to get employers to hold on temporarily to surplus workers or for Singaporeans to have confidence that the government measures would work and that they do not have to worry too much, although they have to take the situation seriously.

I would like to acknowledge the efforts of the many unionists, the employers, and all the officials who worked together to pull the nation out of the crisis and worked with the workers to see us through. On Thursday at the May Day Awards, 88 individuals and companies received awards from the NTUC. We congratulate all of them. They all made exceptional efforts, but there were many more who contributed and special thanks to all of them. Thank you very much. Give yourself a big hand.

Let us keep on building up this trust among the tripartite partners. When we talk about tripartism, we are not just talking about old war stories, the 1960s, 1970s, 1980s, how we came through those difficult times. We put up dramas, musicals on those epic events and NTUC had a very good musical, I think, two or three May Days ago. I remember Cyrille Tan looking like a very wise old man, advising the younger ones. But we are adding to these experiences and this crisis is just as significant as the experiences we went through in the earlier generation. Mercifully, it was a short crisis. It did not drag on longer, but it has deepened the reservoir of trust and strengthened us for the next time whenever it comes. We should draw lessons from it which will be as deep and as lasting as the lessons from the 1960s and 1970s. Let us learn these lessons well so that we can pass them on to the new generation of Singaporeans and to a new generation of union leaders who can hold Singapore together for many years to come.

Raising our Productivity

We have had a first quarter with remarkable GDP growth and I think even though we have not taken out the champagne, it is justifiable for us to congratulate ourselves, or perhaps just pat ourselves on the back a little bit. But do not get carried away. We have to see this in perspective. This was a rebound from a very bad first quarter last year. It is not going to be sustained like this indefinitely or even for the rest of the quarters this year, and there are still risks in the global economy which could affect us. But still, 2010 should be a good year, and so we must make good use of this strong position to consolidate our lead, not just recover from last year’s recession, but strengthen ourselves for the long term.

In the middle of the crisis last year, we appointed the Economic Strategies Committee to look beyond the immediate problems, what we must do after the sun shines again. They gave us a report which became the basis for this year’s post-crisis Budget. The key recommendation is to focus on productivity growth, go for two to three per cent productivity growth and that will enable us to grow our GDP three to five per cent over the next decade. You saw the graph which Comrade Swee Say showed us just now, that is what we are aiming to do.

It is a basic shift in our strategy. It is necessary because the old strategy is reaching its limits. Previously, we could rely on two things to grow, productivity growth plus growth in our workforce and they complemented each other. We could expand our workforce with our own population and also by bringing in foreign workers. But in future, we will have to depend much more on productivity because we cannot grow the workforce as much as before, whether it is a local one, where we just do not have the numbers, since we are at full employment, or the foreign workers because we already have large numbers here and it is not going to be easy to accommodate many more of them. So we have to switch gears, improve productivity, go for qualitative growth, break the bottlenecks, as Swee Say says, and thereby transcend our manpower constraints - same number of people working smarter, doing better work, more output, better output.

We have made good progress over the years. When we started talking about productivity in the late 1970s and early 1980s, we were at probably less than one- third what the advanced countries in the world were. Today, we are at two-thirds what the best countries in the world are in terms of productivity. Because we had ramped up this progress and this effort, so as Singapore prospered, incomes have gone up. If we had not done this, maybe we could still have grown by increasing the number of people working, but I think our workers would have not improved their lives. Now, to make further progress, we have to become equal to the best in the world in terms of productivity, from being two thirds as good as them to equal to them. It is a very tough challenge. It will take many years to achieve, but let us set this direction and move towards that goal. This is a race like a marathon with no finish line, but let us set the goal, make a concerted push to build up skills, capabilities, infrastructure and year by year get closer to that objective.

Last year, in terms of productivity, actually, we took a step backwards. Productivity went down almost five per cent and what does that mean? That means every worker produced less. It is understandable because we asked companies to hold onto their workers, the jobs were not there, the workers had less output. So in terms of value added per worker, we produced less. If you are using Swee Say’s analogy, I think last year, we were at least one goal down. This year, we are expecting high growth with a rebound, value added will go up. I think our productivity numbers will also go up and we probably will end up perhaps two goals up or at least 2-1. But we cannot congratulate ourselves because this 2-1 is not because we have strengthened our team. It just happened that we got lucky, the conditions are good and so, the momentum has carried us along. To sustain this and win the match and get into the finals, or at least the final rounds, we have got to work hard at upgrading ourselves. It does not necessarily mean we have to work longer hours, but we have to make every working hour count by working smarter, by working more creatively, by generating higher value, all the ideas which you saw examples of just now in the slides which Swee Say showed.

This is a tripartite effort. The workers have to improve their skills and upgrade their abilities. Last year, in the downturn, workers took this very seriously and e2i was very busy, up-skilling, re-skilling, multi-skilling themselves. All the training centres had lots of business. Now that conditions have improved, jobs have become more plentiful, I think workers are more focused on working and overtime; and training, if you are not careful, will take a backseat. But training and upgrading are still important because they will enable you to take advantage of new opportunities and they will enable our low-wage workers to improve themselves and do better because they need higher productivity in order to have the skills, to have better jobs, to have better incomes for themselves and their families.

Employers have a lot to do with productivity because they make big decisions in the company. The key decisions rely on them making the right choices -- how to structure their operations, how to invest in infrastructure, training, what, how much, how to grow the business? The companies have to talk to the workers, have to take inputs, get a sense of what can be done and then, when there is progress, they have to share the fruits with the workers. Many companies are already doing this. In addition to all those which Swee Say listed, let me mention just one more, Gemalto, which makes smart cards and specializes in digital security solutions like the card keys in the hotel rooms or in your office places. Gemalto organised their employees into Six-Sigma projects to improve product quality, to raise productivity and last year they had more than 100 projects which saved the company more than $12 million. One team alone put their minds together and developed a special sensor to automatically detect when there was a defect and to stop the machine so that it could be attended to and put right quickly and then the production line can start again. And this one idea generated $200,000 of savings a year. The company shares the gains out with the workers, with team bonuses, with incentives and so on. I do not know if they also get free trips around the world, but the principle is workers can have something very valuable to contribute, their companies have to use this and the workers, of course, expect to see some of the benefits from their good ideas.

We in the Government will support this effort fully. The firms will get technology grants, tax incentives, training subsidies. The smaller and medium enterprises, small companies which are most worried about this shift in our new strategy and face particular problems, will get special help. The Government will work with them closely to raise their productivity too. But apart from just encouraging employers and workers to do the right things, we have to get the big policies right so that the conditions for the economy to grow are there and workers and companies can prosper within this sound economy. That means good education, like developing the fourth university and the fifth university, like building up the continuing education and training system, like fostering economic restructuring and upgrading, developing new industries and letting older ones phase out. Sometimes, these are painful measures but if we want the economy to do well, if we want the benefits to flow over the longer term and on a sustained basis, we have to do this. 

And one issue where we have to take difficult decisions is how to manage foreign workers. We are raising the foreign worker levy this year to slow down the influx of foreign workers, but we still need them, some of them, both because of the numbers and, most importantly, because of the talent which the foreign workers bring to Singapore, which we may not have. This year, with the economy doing very strongly, a higher inflow of foreign workers is unavoidable. If we make seven to nine per cent economic growth as we expect and hope, we should get at least 100,000 new jobs in Singapore. Many of them will be taken by Singaporeans, but some proportion will have to be filled by foreigners on EPs, work passes, S passes. We have to let the foreign workers in if we are going to get this growth this year. But if we keep on improving productivity, then we can reduce our dependence on foreign workers and maybe we can reduce the inflow somewhat and manage this over the longer term.

I hope Singaporeans will understand this. If we want the buoyancy which goes with the high growth, if we want the excitement, the buzz, the success, the lift, then we have to accept this temporary inflow. They allow us to grow in an upturn rapidly and in a downturn, they provide the cushion for the Singaporean workers, like what happened last year. But in the longer term, as we restructure, we will reduce our reliance on more and more foreign workers.

The unions are a key part of this, helping workers understand and cope with what is changing. NTUC is working with WDA, with employers on many things, restructuring, best sourcing and so on and participating at the national level, making a contribution, representing workers’ interests.

This is something quite unique to Singapore. On my trip to America, I visited Chicago. I called on the Mayor, Richard Daley, very capable person. He runs Chicago a bit like the way we try to operate in Singapore, everything clean, orderly, flowers along the streets, no graffiti. He also has an emphasis on making things work and one of the difficulties there is that the unions take a much narrower view of the interests of their workers and they are demanding protection and protectionism. Mayor Daley told me that there was a strike in America by longshoremen against free trade. Longshoremen are the dock workers who load and unload ships. It is like the PSA workers. The longshoremen who depend on trade to make a living for themselves went on strike wanting protectionism, even though without trade there would be no jobs. Imagine if PSA went on strike to say, we do not want so much trade, it is affecting Singaporean workers, we would think that the Port Workers’ Union had gone bonkers. But in America, they take a narrow perspective. In Singapore, our unions take a national perspective and we work together to expand the pie and share the pie.

So after I came back I met some visitors from the US and I told them this story and I said, well, in Singapore, we have a different approach. I explained how tripartism works, practising for explaining to you how we ought to work these things. One of my American visitors says, why don’t you send your unions to America and talk to our unions and teach them the secret and the way life really should be? I said, thank you very much, I think we are good friends with them, we will just stay good friends with them. But it is because we are like this, because our unions are like this, that is why we have the unions prominently represented and participating in our economic progress.

And one of the places where they are represented is the National Productivity and Continuing Education Council, the NPCEC, chaired by DPM Teo Chee Hean, which we formed after the Economic Strategies Committee’s report and which met for the first time yesterday to focus on productivity, raising it sector by sector; on continuing education, how to upgrade workers, patiently, gradually, steadily so that we improve our performance and we improve our lives; and also working with SMEs so that they will be able to be part of this and can prosper in a new environment and support NTUC as well. So when we talk about tripartism, when we talk about going through crises together, when we talk about the next phase and productivity, we are really talking about issues which all concern us together and which we will have to continue focusing on for a long time to come.

CPF Increase

This year, everybody is in a good mood because the tight labour market and the booming economy have meant that unemployment has gone down, retrenchments are very low and wage settlements this year are likely to be generous. It is fair for the firms to give workers more when the economy is doing well. But I think the firms have to do it in ways which can preserve their fundamental competitiveness and which are flexible so that when the situation changes, they can calibrate, cut back and remain competitive. So it is wise for them to pay some of this into the flexible wage component or into the variable component and not put everything into their fixed wage because remember you may not have a lot of notice the next time a problem comes. In 2007, we were okay, in 2008, we saw some dark clouds. By January 2009, the world was in a crisis and the next time, conditions may change just as quickly.

But this year is a very good year and in such a year, we should, as Lim Swee Say has proposed, consider increasing the CPF. The CPF is a fundamental, major core of our social safety net system in Singapore. Through the CPF, every worker has an individual savings account for his housing, for his medical needs, for his retirement needs, for himself and for his family. It is not perfect, we have upgraded it, improved it, tweaked it, reformed it repeatedly over the years, but we have gone in a consistent direction and I can honestly say it is one of the best such systems in any country. Last time we were in a serious crisis in 2003, after SARS, we had to lower the CPF rate. We brought it down to 33 per cent, employees 20 per cent, employers 30 per cent, and we set a target range of between 30 per cent and 36 per cent for the total CPF rate, depending on economic conditions. We waited a few years, but three years ago, we were able to raise it back up and we brought it to 34.5 per cent. This year, with wages rising strongly, we should not miss this chance to take the CPF contribution another step up.

The unions have supported Lim Swee Say’s proposal. The employers have also supported the proposal although they are concerned about rising costs and they want to make sure that this does not put too much of a burden on them. But I think the employers understand and they have said so, that when times were hard, the workers made sacrifices to keep the firms afloat, so now in good times it is fair to give something back to the workers. SNEF, represented by Mr Stephen Lee, supported the CPF restoration too, speaking on behalf of all the employers. But Mr Stephen Lee urged that the restoration be implemented gradually and enough notice be given. I think that is what we should do.

How should we adjust the CPF? There are different components to the CPF. Of the current 34.5 per cent, for the younger employees below 35 years old, the Ordinary Account takes 23 per cent, the Special Account takes five per cent, the Medisave Account takes 6.5 per cent. For older workers, the ratios are a bit different, Medisave is higher. Looking at the different needs, Ordinary Account for housing and other purposes, Special Account for retirement, Medisave for medical needs. I think the Ordinary Account has enough for housing needs. We have gone into this in detail. Mr Mah Bow Tan has explained in Parliament and shown examples how people are able to buy flats using just their CPF-OA and not even needing cash from their salaries - HDB flats, completely affordable. I do not think we need to raise the Ordinary Account. The Special Account is for retirement and we have got CPF LIFE just introduced. It is meant for monthly payments when members retire for life so that they will not have to depend so much on cashing out on their house or so heavily on their children. I think that it is necessary to build up the Special Account, so when they participate in CPF LIFE, there will be enough payments every month to assure them a decent living standard enough for their basic needs. Similarly, for Medisave, we have to build up because healthcare costs are rising over time, life expectancy is lengthening, we are living longer, many of us will be old for longer, our medical costs will go up, our needs, our expenses will rise. We need to provide, not just for acute care, but also we have Eldershield for elder care, for long-term disability. These can all be heavy burden if we are not lucky. 

Therefore, the Government has decided to increase the CPF contribution by employers this year by one per cent. The contribution will go up from 14.5 per cent now to 15.5 per cent, which means that overall we will go from 34.5 per cent to 35.5 per cent. We will take this one per cent in two steps: First half a per cent, in September, we will put into the Medisave. The second half per cent, we will take six months after that, in March next year, and we will pay into your Special Account. This way, we will give companies enough time to adjust to the higher rate. Over the next one year, we can factor this in and companies can make the adjustments with their workers in the overall wage packages as they negotiate these wage packages.

After we have done this, the total CPF contribution rate will be 35.5 per cent, close to the top of our target range, which is 30 to 36 per cent, and if our economy continues to perform well, we should be able to reach 36 per cent within another year or two. We do not want to count chickens early, but I think that is a reasonable target to hope for. But we have to watch our overall costs, make sure we stay competitive internationally. Workers and employers have to see the wage package in totality because the CPF is workers’ money and this one per cent is part of the basic wage which will add to the total wage bill for companies. So it has to be fully taken into account in the wage settlements and I hope the NWC will address this issue and make this one of their recommendations.

Conclusion

All in all, I would say, well done. We have had a good year, all things considered. Singapore and our workers have done well. We have overcome a very major crisis together. We emerged with a clear edge over other countries. We now advance into the next more challenging round and we have got to organise ourselves, gear ourselves for this new environment, improve workers’ quality, upgrade our enterprises, transform our economy. I am confident we can then move Singapore to the next stage and continue to progress and to prosper as one nation for many years to come. Thank you very much.

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