SINGAPORE - The Covid-19 pandemic has seen governments around the world unleash unprecedented fiscal firepower to save jobs and help workers. But amid calls for the state to play a larger role, size is not all that matters - there must be a new social compact that directs markets and empowers communities towards public goals, said Senior Minister Tharman Shanmugaratnam.
He was speaking at a virtual discussion organised by the Lee Kuan Yew School of Public Policy (LKYSPP) on Wednesday (July 22) titled "After the pandemic - the rebirth of big government? State capacity, trust and privacy in the post-Covid-19 era".
Mr Tharman, who is also Coordinating Minister for Social Policies, was joined by Bloomberg editor-in-chief John Micklethwait, and Financial Times global business columnist Rana Foroohar at the session moderated by LKYSPP associate professor of practice James Crabtree.
Mr Tharman said that navigating the post-Covid-19 world requires "a certain activism" on the part of government".
He added: "We're not going back to large states per se, but we do have to go back to... a sense of moral purpose in government, having the confidence to convince the population that these are the right things to do - and we're all going to have to organise ourselves together to achieve it - and an ability to focus the resources of the state on what matters most, rather than everything.
"So you don't necessarily have to be very large, but you have to be very good at the most important things you should be doing, and go about it with the spirit of an activist."
One of the most important priorities in both advanced as well as emerging economies, he said, is to re-centre government and fiscal policy on the provision of key public goods such as healthcare and education. The highly unequal state of education in the world, from the quality of school infrastructure to the standards of teachers, has been a fundamental failing in the bid to achieve inclusive growth, he added.
"So if you focus on public goods and try and do it well, and you try and leverage on the energies of the private sector and communities, you have an effective state."
Mr Tharman said that this also raises the issue of fairness, such as who pays for the costs and who gets the benefits. While governments will have to get more progressive, he cautioned against thinking that they can simply borrow more and more. "At some point, there is a constraint and burden that debt exerts on growth."
The dramatic reduction in the level of debt as a percentage of gross domestic product in the United States and United Kingdom after World War II, he said, was only because of rapid and sustained real growth, which is no longer available, and high inflation, a solution that is no longer acceptable as populations get older. “There’s a serious issue of stagnation of productivity growth, and the dynamism of most market economies has been lost and needs to be regained.”
Agreeing, Bloomberg's Mr Micklethwait said that "magical money" will eventually run out. "If you look at the problems of Western government, many of them come from overloading the state rather than there being not enough of it. There has to be reform, whereby the state is targeted much more towards those who need it," he said.
Mr Tharman pointed out that while Singapore does not have a large government, it is a highly progressive one in terms of its social security system, healthcare and education. "And I think it will get a little more that way in the years to come."
In this regard, more contributions will have to come from those who are better off and wealthier, he said. "Everyone should contribute something more as societies get older, but fairness dictates that things have to stack up in favour of the poor and middle income."
Responding to a question on the need for unemployment insurance, he said that such schemes, which could also be unemployment benefits financed out of taxes, would apply to societies with high structural unemployment. "All these are schemes that we'll have to consider if we face a situation like many other advanced countries face, where there is a large number of people who are unemployed for a long period."
But Singapore does not need this yet as its unemployment rate is low, and the Government is able to get people back into jobs quickly, he said. "It's going to get more difficult in the next six to 12 months. And that's why we are working intensively to reskill people, put them back into firms on traineeships or attachments - even if they don't yet have a permanent job - and try to make that a pathway to a new permanent job."
The SGUnited Jobs and Skills Package announced in May aims to support close to 100,000 job seekers this year by creating new vacancies, traineeships and skills training places. Mr Tharman chairs the National Jobs Council, which oversees the design and implementation of the package.
He said that forging a new compact requires a culture of collective responsibility. It also means abandoning old ways of thinking - such as the belief that those who fare poorly are not doing enough for themselves, or that the state is not helping.
"Both those ways of looking at society are getting very tired and have also lost their appeal. Certainly, we haven't seen a sudden surge of irresponsibility on the part of people that can explain why wages have been stagnant for three decades," he said.
"At the same time, the old system of redistribution... was too much about compensating those who have lost out, and not enough about helping people to regrow and regenerate communities, towns and individuals, and empowering networks of people."
He noted one positive thing that has emerged from the pandemic: a greater recognition of the role that ordinary essential workers play.
"Those who are doing some of the toughest jobs are now getting a lot more respect. There's a sense in society that we have many silent heroes among us, and they're not always the people with the best qualifications or 'top' jobs," he said.
"Sometimes you need a crisis to refocus on the fundamentals. Social compacts make for a better future for everyone."