IMF warning calls for introspection

The International Monetary Fund's (IMF) warning of the risk to Singapore, arising from restrictions on foreign labour supply that could affect competitiveness, provides a corrective dose of reality in a contemporary climate soured in parts by anti-foreigner feelings. An insular approach to the economy has its costs, the IMF's reminder makes clear. An open economy must be welcoming, not only of trade and investment but also of foreign labour which can add to its competitive edge. The protectionist fallacy is to believe that productivity will rise naturally to compensate for a slowing down in the increase in foreign workers.

Instead, many small companies may be pushed to the brink by a precipitate reduction in foreign labour inflows. Indeed, the potential costs extend beyond businesses. Tighter labour supply, created by the dual impact of a slowing inflow of foreign workers and an ageing population, would increase wages. But they would be translated into a rise in core inflation temporarily since they are unlikely to be matched fully by productivity gains.

The IMF's remarks should not be construed as an argument against Singapore's economic restructuring, but as a call to keep options in proper perspective. The challenge is to preserve the foundations of a stable and sustainable growth model by striking a balance between birth rates, productivity and foreign labour. In the long run, Singapore's economic viability will require less dependence on foreigners only if its birth rates and labour productivity are healthy. Given the difficulty of achieving dramatic results from pro- natalist policies, the immediate emphasis must fall, as it has fallen, on productivity. It is this aspect of the three- pronged model of growth that needs to be worked on relentlessly by companies and their workers. Not only their success but also perhaps their survival could be at stake.

What would be self-defeating for Singaporeans would be for them to see the slowing inflow of foreign workers - and the concomitant focus on productivity - as a sign of popular disquiet forcing the State's hand on lower immigration levels. Political pressure is natural in a democracy, but it it would be dangerous if it dictated policies that went against the grain of economic logic. This danger is doubly true of Singapore, whose dependence on the global economy increases the costs of looking inwards. The issue is not about the fortunes of foreigners, but rather the well-being of Singaporeans, and how best to provide for it. Enlightened self-interest demands that Singaporean recognise that the real losers from allowing anti-immigration sentiments to go overboard are Singaporeans themselves.