Dose of downsizing medicine


  • Letters
  • Sunday, 07 Mar 2004

DEVELOPED Singapore has been beating a hasty retreat from its affluence and oversized dream to get over its worst economic downturn in history – and the results are beginning to tell. 

A painful transition of job-pruning and cost-cutting in the last few years – part designed, part market-driven – had caused the people much hardship and unhappiness. For a long time, this column had featured stories of growing despair and record unemployment, especially among graduates and workers over 40 years old. 

Well, much of that cloud has passed and the sun is beginning to come out. 

In a further sign of recovery, Singapore’s “Career 2004” job fair is offering about 10,000 jobs, twice that of last year. 

They include 2,000 in the public service (such as teachers and police officers), engineers (1,200), finance and insurance (1,000), real estate (800) and 5,000 others. 

But life has not fully recovered. 

Wages, property values and rents have fallen by between 25% and 35% over the past few years. In addition, year-end bonuses, increments and employers’ CPF have declined. 

The result? Lower business costs, improving competitiveness and closing of the “cost” gap with neighbouring countries. 

The economy is picking up as a consequence of an improving world – and US – trade. But Singapore is deriving some extra mileage as a result of its “downsizing” medicine. 

The latest batch of annual company reports is showing powerful recovery. Three-quarters of some 96 reporting firms, or 73, reported a rise in earnings (many by double or triple digits), while 23 suffered losses. 

High profits usually spell expansion – and more workers. 

And the process of downsizing is continuing. For example, Cathay Organisation, an old Singapore brand name, is opening a “no frills” hotel next month at a time when top-class hotels are being torn down for redevelopment. 

Situated close to its landmark building at Dhoby Ghaut, the 61-room Hangout Hotel will join a new class of “backpacker” hotels or hostels. 

There are about 50 top-class hotels that cater to some eight million tourists. Half a dozen have, or are being, transformed into condos in recent years. 

But with the economy needing all the oxygen it can get, a restructuring Singapore is trying to attract Asia’s expanding lower middle-class and Europe’s backpackers. 

The cheaper hotels come with the new era of budget airlines. 

For years, many travellers from Singapore’s neighbours had complained that the city had become too expensive for them to visit. This change should go some way to draw them back. 

There are about a dozen budget hotels that charge an average of S$50 to S$60 per person a day, compared to S$150 upwards at four-star hotels. 

The government has, in fact, identified 29 localities for budget hotels to be built, a few of them in the city centre. 

In doing this, the city is only reacting to new realities. The hotel industry is just one area for downsizing; another is public housing. 

With the uncertainty of jobs and wages, Singaporeans have been moving away from upgrading their homes, or from government flats to private condos. 

There’s been a reversal. More people are actually selling their larger HDB flats and moving into smaller units. 

It has resulted in a growing number of unsold four- or five-room flats, while sales – and prices – of smaller three-room ones are rising. 

When earnings and property fall, almost everything else follows suit. Singapore’s middle-class status is dependent on them. 

The employers’ Central Provident Fund (CPF) contribution has been lowered to 16%; so have bonus and starting pay. 

With the exception of public services – healthcare, education and transport costs – prices of most major items, including cars, restaurant food, clothes, computers, luxury goods and overseas holidays, have fallen. 

This transition is partly caused by a restructuring exercise and partly shaped by weak consumption. 

Within the government and bureaucracy, there is a new mindset. 

No longer do leaders justify the high costs on the basis that Singapore offers premium, blue-chip services. When regional operators were winning over its customers from its airport and seaport, these leaders had refused to bring down fees even when charges elsewhere were coming down. 

This has changed. After a series of staff retrenchment and cost-cutting, they have reduced fees and pledged to do even more to defend their customer base. 

Downsizing has proven painful to the new generation of Singaporeans, who has largely not experienced anything like this before. 

It has delivered a blow to the people’s confidence in the government’s ability to provide for them. Those who have lost jobs or are unable to find work are angry and despondent. 

For workers, more worries are to come. In what is the most significant long-term transformation of all, Singapore is putting into place, by year-end, a long-term flexible wage system that can respond quickly to fluctuating economic conditions. 

Under the scheme, 70% of a worker’s salary will be fixed and the rest allowed to rise or fall, according to profitability and individual efforts. 

For top executives, the ratio is 50-50. Many workers see it as another wage-reduction exercise designed to improve competition at their expense. 

The trade union movement is faced with the tough job of persuading its members that the scheme will reduce retrenchment and save jobs in hard times. 

The system will replace the tradition of paying workers according to age, which is targeting older workers for retrenchment and making it difficult for them to be recruited. 

Flexible wages also work on the basis of “shared pain, shared gain” by allowing companies to carry on without retrenching workers when trouble comes or even closing down. 

This transition is coming at a time of imminent leadership change. The mild-mannered, popular Prime Minister Goh Chok Tong is expected to make way for his deputy, Lee Hsien Loong, this year. 

Hsien Loong has a sterner image that some Singaporeans equate with his father, Senior Minister Lee Kuan Yew, who retired in 1990. 

His first challenge is to restore the people’s confidence in the People’s Action Party and bring back the old prosperity – without reneging on the promised freer society. 

 

  • Seah Chiang Nee is a veteran journalist and editor of the information website littlespeck.com  

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