Confronting the 3 major challenges to social cohesion

In his speech at the Singapore Summit last Friday, Deputy Prime Minister and Finance Minister Heng Swee Keat highlighted the urgency of countries renewing their social compact in the face of three major challenges: income inequality, a growing inter-generational divide and deepening political polarisation. Here are edited excerpts of his address.

The theme for this year's Summit - "Asia 2030" - is most timely. Asia's economic weight and influence have grown significantly. Its share of global GDP (gross domestic product) is projected to increase from just 26 per cent in 2000, to 40 per cent by 2030. In particular, the 10 economies of South-east Asia as a group is projected to become the fourth-largest economy by 2030, after the United States, China and Europe.

Asia is growing into a vibrant and dynamic region. By 2030, two-thirds of the world's middle class will be living in Asia, making it home to the largest group of consumers. Meanwhile, innovations created by Asian companies are reshaping the economic and technological landscape.

The promise of Asia is bright, but not inevitable.

It is hard for us to make confident projections into 2030, even though it is just 11 years away.

Eleven years ago, in 2008, we were grappling with the global financial crisis. Several global banks crumbled. Many people lost their jobs, some even lost their homes. The global economy nosedived.

Back then, I was heading Singapore's central bank, the Monetary Authority of Singapore, and I had a good vantage point of our port from my office. It was at an eerie standstill - the cranes were idle.

FRAYING OF THE SOCIAL COMPACT

Today, while the global economy has recovered, the benefits of the recovery have been unevenly distributed.

Those who feel marginalised have pushed back strongly. As a result, we are seeing a retreat from globalisation, the growth of nationalist and populist movements, and the disenchantment of young people.

These forces have played out across the world, in the 2016 US presidential election, the UK Brexit referendum, the Yellow Vest movement in France, and the ongoing protests in Hong Kong.

The fracturing of societal interests has made it difficult for many governments to secure a mandate to make important changes. As such, politics is increasingly marked by snap polls, hung Parliaments and government shutdowns, which in turn engender further distrust towards governments and the political system.


A PAP Community Foundation Sparkletots pre-school in Punggol North. The Singapore Government has invested significantly in pre-school education as these formative years are key to a child's development, says Deputy Prime Minister and Finance Minister Heng Swee Keat. PHOTO: LIANHE ZAOBAO

All these point to a fraying of the social compact that holds societies together. Not only has the relationship between governments and their people changed, but the relationship between companies and societies has also altered.

This is especially worrying because the global economy is once again at a crossroads. Trade tensions between the US and China continue. In Europe, the economy is weak, the effects of slowing global trade are being felt, and the Brexit conundrum is adding to uncertainty. Nearer home, the rest of Asia is experiencing slower growth as global demand and investor sentiments have weakened.

Unless some of the fundamental tensions across society are resolved, we will all find it difficult to weather these challenges. It is therefore important for each society to renew its social compact.

We need to address:

  • First, widening inequality resulting from globalisation and technological advancements;
  • Second, growing inter-generational divide, particularly as societies age;
  • Third, deepening political polarisation, made worse by social media.

Singapore has so far been spared the full force of these challenges, but we are not immune to them. In response, we are renewing our social compact. We do not have all the answers to these complex issues. But by sharing Singapore's experience, I hope to catalyse a discussion on how we can address these common challenges together.

WIDENING WEALTH GAP

Let me start with widening inequality.

Between 1980 and 2016, the top 1 per cent of global earners captured 27 per cent of total income growth, more than twice the share captured by the bottom 50 per cent. Globalisation and technology have played a big part in this.

Globalisation has created huge opportunities for the talent and capital of those at the top, resulting in massive wealth accumulation. But it has also exposed those in the broad middle to sharper competition.

Technology has enabled innovation and growth. But it has also disrupted and, in some cases, displaced people's livelihoods.

Globalisation and technology have their benefits, but also costs. If the costs are unaddressed, inequality will worsen. And this challenges the basic premise that underpins every society - the opportunity for every individual to build and have a better life.

In Singapore, our response has been to ensure that our economic and social policies go hand in hand, so that our people can work for reward and be rewarded for work.

To enable all to do better, we need a growing economy that creates good jobs for the broad majority. This means staying open to the opportunities from trade and innovation. But these are also the very forces that widen inequality.

To resolve this paradox, economic development needs to be paired with social strategies to invest in our people, and to enable them to access opportunities. So far, this approach of striking a balance between embracing market mechanism and maintaining social welfare has worked for us.

We have enjoyed broad-based economic growth. Real incomes for households across all income bands in Singapore have grown over the past decade. And those in the bottom 20 per cent experienced faster income growth than those in the top 20 per cent.

EDUCATION AND SOCIAL SAFETY NETS

We must stay committed to investing in our people. Education is a basic starting point.

Over the decades, we have invested heavily in education to make every school a good school and to bring out the best in every child, regardless of his or her starting point. We have created multiple education pathways so that every child can find his or her own path to success.

We invest in 10 years of basic education, followed by several more years of tertiary or post-secondary education.

More recently, we are extending our investment at the two ends. At one end, we have invested significantly in pre-school education. These formative years are key to a child's development. At the other end, we are making a significant effort to encourage lifelong learning. Jobs and skills will continue to change, faster than ever. So we are building up an ecosystem where workers can pick up new skills at every stage of life. By acting both upstream and downstream, we enable our people to benefit from new opportunities.

But we also recognise that the market alone will not adequately provide for everyone in society.

So governments have to strengthen social safety nets and set the baseline. In Singapore, we do this by raising the bottom, not by capping the top. We focus on three key areas of our social policy: housing, healthcare and education.

For housing, in particular, our national home ownership rate is 89 per cent. Lower-income households are also encouraged to own their homes. For instance, with housing grants, 85 per cent of households whose income are in the bottom 20 per cent own their homes. This gives every Singaporean a stake in the country and a share in Singapore's progress.

We also temper raw market outcomes from employment.

We top up the incomes of the bottom 30 per cent of workers. This preserves the incentive to work, which is critical - because a job provides not only income, but also dignity and the hope for progress.

We sustain this in retirement - through additional support for those with limited retirement savings.

These various elements of our social policies are a deliberate strategy to even out unequal outcomes throughout life.

INTER-GENERATIONAL DIVIDE

The second challenge is the growing inter-generational divide in some societies, especially those that are ageing.

The Brexit referendum is one example. Opinions on Brexit were sharply divided by age groups. Many older voters chose to leave the European Union, driven by promises of social spending. Younger voters mostly wanted to remain, driven by the prospects of a better future. They are aggrieved that their future has been decided by those who may not live through the consequences of their choices.

Pension plans are another classic example. Today, many of the defined-benefit pension plans are underfunded as politicians have promised higher benefits over the years without raising contributions.

A Citibank report shows that the total value of unfunded or underfunded government pension liabilities in OECD (Organisation for Economic Cooperation and Development) countries comes up to a staggering US$78 trillion (S$107 trillion). Societies now face the hard choice of either cutting pension payouts or increasing the tax burden on the working population.

Providing for inter-generational equity is critical to the social compact.

When each generation pays for its own spending, it internalises the costs and benefits of the spending. Yet, we must also invest in our young, and our young must in turn share the fruits of progress with our seniors.

We are fortunate that our founding leaders took this principled and far-sighted approach. We operate a fully funded defined-contribution scheme - the Central Provident Fund - avoiding the pitfalls of defined-benefit pension plans. Our healthcare system delivers good outcomes while keeping cost in check. On top of this, Singapore has built up substantial reserves.

Today, this income from our reserves is our largest source of revenue, more than any single category of taxes. For a country with no natural resources, we are grateful for the prudence of our founding leaders and earlier generations of Singaporeans.

Taking a fair and sustainable fiscal approach reflects the social compact between generations, upheld by both the Government and our people.

This compact is not just a matter of finances, but of trust and a collective sense of mission.

For the Government, it means always thinking ahead about our country's long-term future. This is why we invest in our people through education. And it is also why we invest in infrastructure. We constantly rejuvenate our city so that it remains vibrant and dynamic. Jewel at Changi Airport is our latest infrastructure addition.

Climate change is yet another example. The full effects of climate change and rising sea levels, and the benefits of our mitigation measures, will only be felt beyond most of our lifetimes. But we have to act now, before it is too late, or our future generations will bear the consequences of our inaction.

For our people, this means an equal commitment to ensuring that future generations have enough to also see through crises and plan for their future. So we try our best to keep politics focused on long-term challenges and opportunities.

INCREASING POLITICAL POLARISATION

The third major challenge is the increasing political polarisation seen in many parts of the world.

We see this in the US, where Republicans and Democrats have become increasingly divided along ideological lines. Similarly, in parts of continental Europe, political polarisation has squeezed out the middle ground.

Technology has exacerbated these divisions by enabling echo chambers, silos and fake news. Political polarisation is damaging because it pits people against one another, and ultimately undermines the cohesion of a country.

To arrest this trend, we need to broaden the common space and bring those with opposing views together.

In Singapore, we have safeguarded our social cohesion by resisting the political pressures to pander to narrow interests. For instance, we have put in place measures to ensure that race and religion do not divide us. We ensure that there is a good racial mix in our housing estates to avoid segregation. We enacted laws to maintain our racial and religious harmony, and to safeguard the rights of minorities.

Our tripartite system is another way to deepen cohesion. Rather than confront each other across the picket line, the Government, unions and businesses work together to grow the economy and share the fruits of progress. This has enabled us to overcome crises time and again.

Our tripartite model has continued to pull us through difficult times, including the global financial crisis. Our inclusive approach has built a system that rewards and encourages engagement with the middle ground. This has underpinned our unity and stability. But it will be challenging to maintain this course.

In the digitally driven economy, increasing returns to scale and scope can sharpen income and wealth disparity.

And our society is becoming more diverse, both in terms of needs and views. Old differences will evolve and new divides can emerge - between the rich and poor, the young and old, and along ideological lines.

This is why I launched the Singapore Together movement several months ago, to emphasise a governance model that brings people of different backgrounds, concerns and perspectives together to make common cause; to expand the common space for discussion and debate. But more importantly, we want to go from talking, to walking the talk.

For young people especially, being able to actively shape the future of our nation, and playing a part to build this future, is key to growing their sense of ownership and commitment towards Singapore. These sentiments are consistent with those of young people all around the world, many of whom are demanding a larger role in civic society and the political process. Societies will need to find ways to harness the energies and ideas of their youth, for they are our future.

CONCLUSION

All three challenges that I have highlighted - widening inequality, inter-generational divide and political polarisation - undermine social cohesion in different ways. The effects of each will be aggravated by globalisation, technological advancement and ageing societies.

To address them effectively, each society must renew its social compact and find a formula that best fits its unique circumstances.

I have shared Singapore's experience. Many other countries have also embarked on similar journeys, such as France's "Great National Debate" and Japan's "Society 5.0". We can all learn from one another.

Beyond strengthening the social compact in our own country, countries also need to work together to tackle common global challenges such as climate change, poverty, food security and cyber security.

We must not forsake multilateralism simply because the current ground sentiments are shifting away from it. Instead, it is our role as leaders to uphold this system collectively and convince others that this remains the best way forward.

This brings me to my final point. More than ever before, business leaders must play a greater role - to renew the social order of the countries they operate in and revitalise the international system.

Some business leaders have been championing conscious capitalism - the idea that businesses should serve not only their shareholders, but all principal stakeholders - including customers, employees, suppliers and the environment.

Many other businesses have already stepped up to take on greater social responsibility, by launching initiatives to support sustainable development goals in areas such as gender equality, environmental sustainability and promoting education and healthcare.

These are positive developments. Over the decades, the economic and political influence of big businesses has grown significantly, both domestically and globally. And businesses can do even more to make a difference by working together, and with governments, to create innovative solutions to improve the lives of everyone.

Fundamentally, doing well and doing good need not be contradictory. Finding a way to achieve both will help us unlock the tremendous opportunities of Asia 2030.

A version of this article appeared in the print edition of The Straits Times on September 23, 2019, with the headline 'Confronting the 3 major challenges to social cohesion'. Print Edition | Subscribe