Economy Environment And Singapore

Linkage between population growth and economic prosperity

Question:

Discuss About The Economy Environment Singapore Icons Beyond?

The global population and demography have changed considerably with time, owing to the substantial dynamics in the nature and inherent characteristics of the populations, changes in the growth rates and trends of the population of different countries. The nature of these population growth trends has considerable and multidimensional impacts on different domains of the countries in the global scenario, including the social, political and economics aspects[1]. In this context, there remain considerable debates and speculations across the globe, regarding the impacts of the changes in the demographic attributes of a country on the economic growth and prosperity of the same.

Over the years, different economists have put forward definitions of economic growth, development, population growth and demographic natures in the global context and have also tried to explain the different stages of the population growth of the different countries, thereby trying to draw relations of the same with the economic growth of the countries[2]. In this context, a significant share of economists and policy makers and speculators asserts the presence of direct linkage between these two concerned variables in the domain of different countries across the globe- the two variables being the economic progress and the dynamics in the population growth of the countries. According to them one of the primary factors contributing to the productivity and economic progress of a country is the population statistics and trends present in the country at a specific point of time[3].

One of the primary arguments in the aspect of the linkage between the population growth and economic prosperity is that with the increase in the increase in the growth of population, potential work force of country increases, which in turn contributes to the expansion of economic activities of the country, thereby contributing to its growth and vice versa[4]. Keeping this argument into consideration, the concerned report tries to highlight the problems of population decline which is being faced by Singapore, one of the impressively developed economies of the contemporary period. Taking the problem of decline in the work age population of the country into account, the report also tries to highlight and discuss the policies taken by the government of the country to keep the innovations and productivity rising, such that the economic prosperity of the country is not compromised in the face of the declining population growth rates.

The contemporary global scenario has been facing several crucial changes in the aspects of the demographic profile of the countries, especially the developed ones. The global population, which had experienced consistent increase in the last few decades, due to the increase in the economic and overall welfare of the people, increased life expectancy, higher standard of living and better infrastructural and health care facilities, is however, expected to decrease in the coming years, as can be seen from the following figure:

As can be seen from the above figure, the global population is expected to increase till 2025, at a decreasing rate and post 2025, the same is expected to decline consistently with time, with the numbers being expected to decrease scarily post 2065[6]. The problem is more worrying in the developed countries, with the decline in the population being already initiated in most of them. In the concerned case, the scenario prevailing in Singapore is taken into consideration.

Population decline in Singapore

Singapore has over the years, developed impressively in all the aspects, including social, economic, and political and also in industrial and commercial aspects. The country being one of the most open economies in the world ranks among the highly developed economies, characterized by the presence of free market and a pro-business environment. The immense economic growth and prosperity of the country has contributed in the considerable improvement of the standard of living of the residents of the country. Singapore ranks third in terms of per capita GDP, in the global scenario, in terms of the purchasing power parity, thereby indicating towards the economic stability enjoyed by the citizens over the years[7].

The population of the country has however, been subjected to considerable dynamics, owing to the shifts in the demographic patterns in the country over time. The population growth of the country, in the last few years, have been subjected to a decline, with the pattern of decline in the growth rates resembling the trends of those observed in most of the developed countries in the contemporary period.

Figure 2: Decline in the population growth rate in Singapore over the years[8]

From the above figure, it can be seen that the population growth rate of Singapore has been decline at a visibly high rate with time in the recent years, with the rate of decline being expected to be even higher in the coming years[9].

As is evident from the above discussion, the demographic traits of Singapore, in the current period resembles that stage of demographic transition, where due to the decline in the population growth, the share of young age population is consistently decreasing and the old age population becoming the more prominent share in the demography of the country.

As can be seen from the above figure, with time the share of the old age population of the country has been increasing and in the coming years it is expected to increase in even more, with the projection being that by 2030, one in four of the residents in Singapore will be a citizen of age 65 or more[11].

This decline in the population growth rate of the country, leading to an increase in the share of the old age population as compared to the working age population of Singapore, is expected to have several implications on the economic progress of the country, the primary ones being as follows:

a) Increase in the economic dependency- One of the primary implications of the decline in the growth rates of the population of Singapore, is that with more people falling in the age group of old, retired and economic dependent population and with the size of the young force shrinking, the economic dependency burden is expected to increase, as can be seen from the continuously falling support ratio, showing fewer working age citizen for each senior citizen (65 years and above), in due course of time[12].

b) Decrease in economic productivity- With the decline in the growth rate of the population of the country, the size of the working age population has also been shrinking in the economy of the country. This in turn limits the labor resources in the economy, which in turn is expected to reduce the productive activities in the economy as a whole.

Implications of population decline on economic progress

c) Increase in the cost of living- The high traits of economic and industrial growth in Singapore, in the past few decades, along with the technological innovations and immense industrial progress has resulted in an improvement in the style of living of the population of the country[14]. However, with the decline in the growth rate of the population of the country and a comparatively higher share of old age and dependent population, the cost of living burden of the old age population is expected to increase even more, much of which being borne by the decreasing working population, the economic welfare of the population of the country is expected to decrease with time, provided that the production activities of the country and the technological aspects in the same do not change with time.

The economic growth rate of the country, which used to be impressively high during the phases of development of Singapore, is also seen to be reaching stagnation Growth rate of GDP of Singapore over the years[15]

Not only the GDP statistics, but the other factors contributing to the economic welfare of the country, are also not been observed to perform well in the recent years[16]. This can be seen from the following figure, which shows the dynamics in the labor productivity of the country in the recent period:

From the above figure, it can be seen that the overall labor productivity of the country, in the primary sectors, have decreased or have become stagnant over time, which is  expected to have negative implications on the overall economic growth and welfare of the country.

With the growth rate of the population of Singapore declining in the current period, Singapore faces the credible threat of a decrease in the economic productivity, as a whole; in the long run as labor force is considered to be one of the primary factors of production in any economy. Keeping this into consideration, in the face of continuous decline in the working age population of the country, to keep the economic welfare of Singapore rising or at least at a sustainable level, the primary requirement of the country is to encourage increase in the economic productivity of the exiting labor force[18].

There are two possible ways in which the productivity of the country can be retained. This includes the increase in the extension of the productive years or labor years of the existing population in the country, which is conventionally 62 years in the current scenario. However, a more plausible and credible option to increase the productivity of the country, is encouraging more innovations and technological progress in the economy, as the same seen as an augmentation to the skills, efficiency and productivity of the existing labor force of an economy[19]. The government of Singapore, taking this aspect into consideration, has been implementing several policies and strategies in order to promote and encourage innovations and productivity in the economic scenarios of the country, which are discussed as follows.

The government of Singapore has designed a comprehensive framework, as can be seen from their current budget (2017), which aims to address the issue of increment in the productivity and economic prosperity of the country. There also already exist various policies and programs in the governing framework of the country which work in the arena of innovation and productivity improvement of the country[20]. The primary components of the policy framework, including of the existing policies as well as the policies to be implemented in the near future, consists of the following components:

Government policies

The government of Singapore provides different grants and incentives to the companies operating under the domain of the country, a few crucial ones, falling under the domain of Productivity and Innovation Credit as well as the Productivity Solution Grant, are as follows:

Research Incentive Scheme for the Companies- The RISC is provided by the government of the country primarily in order to encourage the increase in the efficiency of the productive process of the companies by helping in building up robust research and development frameworks and technological processes in the companies. The grant does that by providing supports to different innovative projects taken up by companies, in the area of technology and science[21].

Training Grant for the Companies- This program provided by the government of the country, is implemented with the objective of developing the capability and skills of the existing workforce, by applying innovative technologies and training the workers in the aspects of industrial and professional know how. The concerned grant helps the companies of the country to incorporate various training programs for the employees, in order to increase the productivity in the economy as a whole.

Productivity Grant- Under the policy framework of Singapore, there remains the facility of provision of productivity grants to the individual firm level projects, which are specifically targeted to increase the efficiencies of not only labor resources but also other productive resources. The grants are also provided for better allocation of resources and adoption of improved technologies in the production process[22].

Apart from the various financial and technological aids and grants provided by the government of the country in the aspect of increasing productivity and innovations in the industrial and commercial frameworks of the country, there also exist various tax incentives in the policy framework of the government, the primary ones being discussed as follows:

Pioneer Certificate Incentive, Incentive of Development and Expansion- These tax incentives provided by the government of Singapore, primarily aims to facilitate and encourage the businesses existing in the country in the aspects of capability development and also in the aspects of increase in the expansion of the economic activities and new commercial ventures undertaken by the companies. These incentives are specifically applicable for those companies which incorporate headquarter activities (both global as well as domestic) in the aspects of managing and controlling businesses activities.

Land Intensification Allowance- The LIA is provided by the government of Singapore, in order to promote more efficient and intensified usage of the industrial land resources of the economy, which being scarce, have been reaching towards the saturation point with time. This tax allowance, provided by the government of the country facilitates more efficient usage of lands leading to increase in the value added activities, thereby promoting higher productivity of the existing resources in the economy of the country[23].

Finance and Treasury Centre Incentive- This incentive provided by the Singapore government encourages the businesses to grow the capabilities of treasury measurement, thereby contributing to the efficiency of the operational framework of the companies.

Apart from the existing policies and incentives, the government of the country has also several incentives and policies in the pipeline, as can be seen from the Budget of the country in 2017. Several proposed activities in the budget, have already been under process of implementation, which are expected to have positive implications on the productivity and innovations in the country in the long run scenario. The primary ones are discussed as follows:

Conclusion

Tax rebates- To boost up the commercial activities in the country, the government has decided to raise the corporate tax rebate cap from that of 20,000 dollars to 25,000 dollars, at 50% rate of tax payable. The same is also expected to be extended by one year to that of the year of assessment 2017, with the cap being at 10,000 dollars, with 20% of tax payable[24].

Digitalization of the SMEs- With more and more business across the global going digital, the government of Singapore has also announced of investment of around 80 million in the corporate capability strengthening programs, specifically targeted to promote the implementation of digitalization in the small and medium companies in the economy of the country. The programs, aimed to increase the competitive as well as productive efficiency of the firms, include digital plans and technological as well as funding supports for the companies[25]. 

A*STAR- The Agency for Science, Technology and Research in Singapore, is specifically designed to provide training to the companies and the entrepreneurs in the aspects of usage of advanced technologies and machines, thereby contributing considerably contributing to the innovations in the economic domain of the country.

Internationalization- For increasing in the productivity of the economy, expansion of the operations and sales of the firms of the country is required, which may facilitate them in enjoying economies of scale in the coming years. For this, wide internationalization of the companies of the country is required. Taking this into consideration, the International Partnership Fund of around 600 million has been promised by the government of the country, which is expected to help the firms to scale up.

Wage incentives- Increase in wages act as a direct incentive for the workers to increase their commitment and productivity. In this context, the government of Singapore has already shelled out S$600 million till 2017 and is expected to shell out another 300 million, thereby benefiting nearly 370,000 workers falling under the Special Employment Credit Plan of the country. The SEC is also expected to be extended till December, 2019 in order to help the employers to retain the older workers for a longer productive labor span[26].

Infrastructural development- For increment of the productivity of an economy and better implementation of the technological innovations in the economic operations, the infrastructure of the country needs to be developed. The government of Singapore has already brought forward infrastructural projects of around S$700 million, in which the private sector firms are also eligible to bid and participate. These projects, if implemented successfully, are expected to contribute significantly to the productivity increase in the country in the coming years.

More capable and productive workforce- With the population growth rate of the country declining significantly with time, it is of utmost importance for the country to increase the skill and capabilities of the existing workforce and the potential workers of the future. The Career Support Program, Work Trial Program, Professional Conversion Program and several similar programs have already been implemented by the government to increase the training support, income stability and productivity of the workforce of the country[27]. The government of country also proposed the investment of 26 million Singaporean dollar, yearly, in the Lifelong Learning Endowment as well as the Skill Development Funds of the country.

Innovation and Leadership- To incorporate new and innovative cost-saving and productivity-augmenting ideas and leaderships in the economy, nearly 100 million dollars has been allocated  by the government for programs like the Leadership Development and Global Innovation Alliances.

Conclusion

From the above discussion it can be asserted that Singapore has been experiencing a decline in the growth rate of the population, which directly implies that the share of young age population is decreasing in the country with respect to the old age population, which indicates towards a shrinkage of the working age population and the potential labor force with time. This shrinkage in the labor resources of the economy, clubbed with the increase in the dependency burden, is expected to decrease the productivity and economic welfare of the country in the coming years. To address this issue, one of the most credible and potential solution is the implementation of such policies on part of the government of the country which boosts the innovations, technological progress and overall productivity in the economy. The government of Singapore, in this context, has already implemented a considerable number of strategies and provision of targeted aids and grants, with the objectives of long term increase in the productivity and innovations in the country. The plans proposed in the Budget of 2017, also looks credible and if implemented and monitored appropriately, are expected to increase the productivity and innovations in the country, encouraging the economic agents, thereby helping the country to retain its productivity and economic prosperity and sustainability in spite of the presence of a falling trend in the growth rate of the population and potential workforce in the country.

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