The fall of Singapore has begun

from: "truth"
Date: Wed, 30 Sep 2009 03:58:40 GMT
Local: Wed, Sep 30 2009 11:58 am
Subject: The fall of Singapore has begun

http://www.yawningbread.org/

UBS survey shows Singapore slipping in standard of living

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The Straits Times did a rather courageous thing on 26 September with
a feature on the latest Price and Earnings survey from UBS Bank. The survey
(field work March 2009) painted a rather unflattering picture of Singapore.

In a nutshell, it showed that Singapore is ranked as one of the
world's more expensive cities to live in, but people here earn only middling
wages. The result is that our purchasing power is far from sterling.
Compared to the last time the survey was carried out, in 2006, it also shows
a worsening trend.

The Straits Times wrote:

Singapore's worsened placing... highlights two possibilities: either
that consumption has become more costly, or pay packets have become lighter.
Both are worrying trends which could have crept into the country, serving a
double whammy to residents who are feeling the pinch from the downturn.

What accounts for the trend? More importantly, what are the social
and political costs if they persist?

Indeed, these are good questions to ask.

Another thing struck me from the survey: Whereas we tend to visualise
Singapore's economic standing in Asia as tied with Hong Kong for second
place to Japan, in many respects this is no longer true. Hong Kong is now
clearly ahead. Seoul has overtaken Singapore on many counts, Taipei too has
by some measures. Singapore has slipped.

Has our economic decline begun? I have argued many times previously
that decline begins with slippage in relative performance vis-à-vis our
neighbours. We won't feel poor initially. Life can still be very comfortable
and even be improving gradually as we slide gently into the second, then
third tier.

And there will be plenty of excuses available to help us deny that
sunset has begun.

For example, when the newspaper contacted Member of Parliament Seah
Kian Peng for his comments regarding the survey results, he said,

"The figures may be right, but the conclusion could be wrong."

Rather than look at prices and wages in isolation, he says the key
consideration should be: Do Singaporeans lead a better life than they did in
the past and are the poor taken care of?

"If the answer to both is yes, then moving up or down two notches
becomes mere semantics," he says.

UBS has been doing this kind of survey triennially since 1971. In
2009, it covered major 73 cities around the world, fifteen of which are in
the Asia-Pacific region.

Prices - global ranking

Prices are computed from a basket of 122 items, based on a Western
European lifestyle. The mix can be seen in the table at right. Some may ask
how representative his basket is compared to the Singapore lifestyle, but
seeing how westernised Singaporeans have become, I don't think it makes much
of a difference.

Singapore was ranked 24th out of 73 cities worldwide, only slightly
cheaper than Amsterdam (rank 23) and London (rank 21). Tokyo was 5th out of
73 cities and Hong Kong 28th.

Three years earlier, Singapore's price-ranking was 32. We climbed 8
places in the interim period, not the "two notches" that Seah spoke about.

If one adds rent to the basket, Singapore shoots up the 2009 worldwide
rankings from 24th (basket without rent) to 15th place (basket plus rent),
making us MORE expensive than London and Amsterdam. Tokyo goes up to 3rd
place. Hong Kong shoots up even more dramatically than Singapore to 11th.

Wages - global ranking

Wages are calculated from averages from 14 common occupations ranging
from unskilled (e.g. building labourer) to engineers and department heads.
UBS' report explained in its introduction that:

The data we collected includes standard local incomes and working
hours in addition to local consumer prices. The survey asked 112 questions
on wages, payroll taxes and working hours for 14 separate occupations. The
survey was conducted with a representative sample of companies, and
participants profiles were defined with maximum specificity with respect to
marital status, work experience and education.

In the net wages ranking, Singapore was placed 41st out of 73 cities,
thus the word "middling" I used above.

* * * * *

Comparing with Asia-Pacific cities

To better show where we stand in relation to our neighbours, the
charts below refer to the fifteen Asia-Pacific cities included in the
survey.

The first chart shows the relative price of the basket of 122 items,
without rent, indexed to the price of the same basket in New York. Singapore
is in second place, with Hong Kong very close.

If we look at wage levels from the 14 occupations, Singapore is
nowhere near second place. We stand lower than Seoul and Taipei, and we're
only twice the level of wages in Shanghai. We've been surpassed, with others
catching up.

(Note: the chart is based on net wages, which means wages net of
taxes, social security contributions, etc)

Purchasing power is a function of wages and prices. Since we have high
prices and middling wages, the purchasing power is not a pretty sight. We
rank 8th out of 15 Asia-Pacific cities. Even the average guy in Kuala Lumpur
can afford a better standard of living than us.


* * * * *


Why prices so high?


What is wrong with prices in Singapore? It's hard to say. The survey
does not contain enough data for us to tease out the problem. It may also
fail to account for quality. Take, for instance, this chart showing the
price of public transport:

As you can see, Singapore is one of the more expensive places, but
you'd have to be blind to think that the quality of public transport in
Manila or Mumbai is anything comparable to Singapore's.


However, the next chart may give us a clue as to how prices are pushed
up. On the left is the number of minutes the average person must work to
earn enough to buy 1 kilogram of uncooked rice. On the right is the number
of minutes of work needed to buy one McDonald's Big Mac.

Most places require less than twice the working time to buy a Big Mac
compared to buying 1 kg of rice. Singapore is one of the few places that
requires more than twice, in common with cities like Jakarta, Kuala Lumpur,
Manila and Mumbai -- not quite the set we normally imagine ourselves to
belong to.

What differences are there between uncooked rice and a Big Mac? Rice
has far fewer domestic inputs. We buy what has been imported, adding on a
little cost for storage, transport and retail space. Thus our purchasing
power over rice is really derived from the strength of the Singapore
Dollar's exchange rate.

A Big Mac includes many more domestic cost inputs. The buns are baked
locally, there is the rental cost of kitchen and dining space, power and
water, plenty of staff, disposal of trash, licences, etc. It appears that
our purchasing power is degraded by our own domestic cost inputs.

Another look at domestic cost inputs can be found in services. The UBS
survey has this to say:

Service prices reflect local labor costs

To compare global service costs as accurately as possible, we
analyzed a basket of 27 services. They ranged from classic expenses such as
haircuts, phone charges, dry cleaning, movie tickets and restaurant meals to
newer services of everyday consumption, including DSL Internet, training and
continuing education courses and tickets for a variety of leisure
activities. We have responded to the broader changes in consumption habits
by increasing the weight of services in our study from 20% to 22% in our
total basket of goods and services.

Here are the fifteen Asia-Pacific cities:

As you can see, Singapore is the second-most pricey of the lot. Does
this mean that our wages are high? Despite what UBS wrote, not necessarily.
What you pay in the price of services ultimately goes to more than wages; it
also goes to corporate profit and reinvestment as well as to the government
in the form of taxes and levies (including the Development Charge, which in
turn pushes up rents), and used for paying a bureaucracy, the military and
infrastructure investment. It can also be parked away through surpluses as
reserves.

As shown in the second chart above (wages), our wages aren't the
second highest in the Asia-Pacific. This suggests that the (second highest)
price of services here reflect more the elements of corporate profits and
government take. Our workers do not benefit commensurately form the high
price charged for services. Corporate profits may be kept up through the
lack of competition while the slice taken by the government stems from
political decisions.

How true is this? Economists might want to study the matter.

* * * * *

Four occupations

Now, let's look at the wages computed for four occupations. The next
two charts show data for a car mechanic and a cook:


The Singaporean car mechanic is paid significantly less than his
counterpart in Hongkong, also less than the guy in Taipei, and not much
differently from the mechanic in Seoul.

The Singaporean cook earns less than the guy in Seoul too.

The next two charts look at the higher end of the job scale: product
managers and engineers.

Among product managers, the Singaporean one is paid third highest
among the 15 cities; among engineers, fourth highest.

Our economy seems to be one where we have an extraordinary gap between
the powerful and the powerless, even by Asian standards -- countries not
known for soft-hearted socialism. Average wages for Singapore as a whole are
pulled down the city rankings because our low-paid are so lowly paid.
Meanwhile, one suspects that our prices seem to be kept up not so much by
labour costs but by profit-taking and the government's share.

With the resulting degradation of purchasing power, one can then ask:
Is the average Singaporean really having it so good?

© Yawning Bread