Domestic Costs Drive Inflation, Not Imports

By Kenneth Jeyaretnam

I read Alex Au’s article today at www.yawningbread.wordpress.com titled, “Domestic Costs Drive Inflation, Not Import Prices” and thought that it encapsulated much of what I feel is wrong with the current government’s economic policies:

http://yawningbread.wordpress.com/2010/08/03/domestic-costs-drive-inflation-not-import-prices/

I remember learning about the Swedish model of inflation from the 1960s in which rapid productivity growth in the traded goods sector bid up wages throughout the economy which in turn pushed up costs in the non-tradeables sector which was unable to match the productivity growth in the traded goods sector. In Singapore’ s case the problem is not inflation but the government’s policy of not allowing price signals to work as they should. Rapid expansion in our tradeables sector does not result in rising wages which then get transmitted to the rest of the economy as employers in the domestic sector are forced to pay more for labour. This is because the government keeps a lid on wages by allowing an elastic supply of labour from the rest of Asia into Singapore.

As a result there is no incentive for employers to raise productivity but the prices of other domestic inputs keep rising (the Reform Party has long pinpointed the government’s role as the monopoly supplier of land but the concentrated market power of the GLCs in a whole host of domestic industries can be cited). The real incomes of those Singaporeans with little bargaining power get squeezed, which is generally true of workers on median incomes or below. The Reform Party would ensure the price mechanism works as it should by tightening the inflow of foreign labour and through other policies such as minimum wage so that firms have an incentive to raise productivity. At the same time we would want to substantially reduce the government’s overweening role in the economy and particularly resolve the conflict of interest arising from its ownership of 79% of the land.

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5 Responses to Domestic Costs Drive Inflation, Not Imports

  1. Ng. says:

    Jobless native Singaporeans. The PAP Government is wrong for importing the mass of foreign talents without careful consideration of the locals. All the private and GLCs have taken in alot of foreign workers to replace the indigenous people. Most of us are borned here, grown up here, educated here, live here and died here where we have to no other place to take sancturary. Our natives should be given priority in jobs because we are the ones who do the national service and love our country. These locals have their families here where the breadwinners need to look after their children and their wives, feed them, educate them and house them. If, what am I going to do if the foreigners coming in to displace the natives for the jobs? Surely, they will die standing.

  2. “As a result there is no incentive for employers to raise productivity but the prices of other domestic inputs keep rising (the Reform Party has long pinpointed the government’s role as the monopoly supplier of land but the concentrated market power of the GLCs in a whole host of domestic industries can be cited). ” -Kenneth. J

    Further it allows the Employers to target equaly or even lesser qualified Foreigners, to do the JObs that SIngaporeans want and are willing to do.

    The Main reason which is always thrown in our faces are that, we seem to shun certain Job’s, I would hardly see any accuracy in that statment since it is the wages that attract the Main Pool of working adults today in Singapore as opposed to the Luxury of choosing what you want to do and being able to do it and earn a Living from it.

    Click on my Name to see the ridiculous one sided Job Offers that have started to sprout in job advertistments in Singapore, If you think they are not here to take YOUR jobs, think again !

  3. Pingback: Daily SG: 5 Aug 2010 « The Singapore Daily

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  5. prettyplace says:

    Under-employed people should looking into this as well and want a change.

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