Why Lee Hsien Loong Is Absolutely Right On Inequality

Income and wealth inequality is recognised as a big problem around the world today. It is perceived to have contributed to the backlash against globalisation in Western countries, the rise of populism amongst the electorate.

The World Economic Forum identifies rising inequality as a big threat against the world economy. In Singapore, there is a growing chorus of economists and observers also pointing attention to inequality, and they include individuals like Donald Low and Yeoh Lam Keong from the Lee Kuan Yew School of Public Policy. Of course, some opposition leaders have also called for more pro-active steps to tackle inequality.
But when asked about income inequality, Prime Minister Lee Hsien Loong had this to say in 2013 at a forum:

If I can get another 10 billionaires to move to Singapore and set up their base here, my Gini coefficient will get worse but I think Singaporeans will be better off, because they will bring in business, bring in opportunities, open new doors and create new jobs, and I think that is the attitude with which we must approach this problem…

Of course, this statement has been condemned by some on the political Left, who call out the PAP’s persistent reluctance to adopt more egalitarian policies such as the minimum wage, higher and more generous social spending, and a more progressive tax system. The PAP, and PM Lee is seen, by these critics, as not doing enough to establish a more robust social welfare system.
Yet, the above quote by Prime Minister Lee makes economic sense and greatly clarifies the reason why focusing on income inequality is misplaced, instead of economic growth
What PM Lee is pointing out is essentially the difference between poverty and inequality. I have written in a separate article that an unequal society does not by itself imply that people are poor. In fact, inequality is a natural and necessary by-product of a growing, dynamic and healthy economy, which creates wealth for everyone.
Why oppose the billionaire and the multinational corporation when they create jobs, increase capital accumulation and technology transfer into the economy? So what if the Gini coefficient is increasing so long as economic opportunities are being created?
In short, the process of economic growth, which enriches people and lifts them out of poverty, must entail inequality. When the government leaves the free market to its own devices, some will accumulate great wealth, but yet not at the expense of the ordinary people.
The only way for an elite entrepreneur or innovator like Steve Jobs or Bill Gates to become and remain rich in a free market is to continually garner the dollar votes of their constituents: the ordinary people. It is when we oppose inequality with egalitarian policies that we slow down economic growth, and impoverish everyone.
More importantly, inequality is an expression of human freedom. We are all different, and by simple virtue of that, some of us will be more successful than others. Inequality reflects the diversity of individual talents, aspirations and dispositions, and means that we can seek out opportunities that we cherish, and distinguish ourselves in the process. In other words, there is nothing intrinsically and morally wrong about inequality. The presence of inequality in a free market economy is based on a deep respect for the individual pursuit of his own happiness.



Of course this does not mean that there is nothing that the government can do to help those least well off. But it does mean that whatever social policies implemented should not aim at equal outcomes, but rather, be subordinated to the overriding goal of economic growth and wealth creation for all. In fact, Singapore’s social policies have always had a pro-work orientation, as reflected in Workfare policies, and the many retraining programs to help upskill workers.

Thus, PM Lee makes economic sense when he opposes the minimum wage, which is nothing but a stop-gap measure that harms rather than helps. He said in the same forum:

My belief has been that a minimum wage is not going to solve the problem. If it is modest, it won’t do harm, neither will it do a lot of good. If it is high, well, then it is going to cause costs to employers and it is going to cause unemployment to the low-wage workers. So you are not really solving his problem, you are just going to transfer it somewhere else.

There is no system in history that can hold a candle to the free enterprise system in enriching the lives of ordinary people, and the last thing we want to do is hobble the system with the misguided emphasis on equality. We should embrace global capitalism and the power of the free market. A system of freedom, however unequal, unleashes the incentives for trade, wealth creation and innovation. A country like Singapore needs nothing short of that.

To close off, PM Lee eloquently captured the power of market capitalism in a 2015 NTUC Conference:

We can’t resist globalisation and technology, because if we try to do that our economy will stagnate, our workers will become uncompetitive and Singapore will be left behind. We have to ride the wave, move forward, use the power of free markets to our advantage. We have to depend on free markets because the governments by themselves can’t generate wealth. And if you try a centrally planned economy, you cannot compete against free markets and open competition. Because with free markets, you can be efficient, you can be nimble, you’re under pressure to perform, you have to break even, and businesses have incentives to do well, to grow new opportunities, and workers have the incentives to improve, upskill themselves, earn a little bit more. (emphasis mine)

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April 23, 2019

Bryan Cheang Bryan Cheang
Bryan Cheang is a graduate student at King’s College London in the Department of Political Economy. He researches into the political economy of development and also applied economic policy. He is currently researching into the development strategies employed by the city-states of Hong Kong and Singapore.


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