So Is Life Rosy or Not?

One of my readers, Mr Han, requested that I comment on the following letter which was published in the Straits Times:

ST Forum, June 4, 2007
Future not so rosy for working-class S'poreans

MANY Singaporeans must be celebrating at the moment, with the buoyant economy, high employment, higher salaries and, for private home owners, skyrocketing property prices and 'en bloc' frenzy.

However, is the current state of the economy and future as rosy as it appears for most working-class Singaporeans?

According to data published in a report on the wealthiest cities in the world by PricewaterhouseCoopers (PWC) on March 11, Singapore ranks 36th out of 70 cities based on gross domestic product (GDP) in 2005.

A look at the rankings will reveal that, apart from Singapore, all the cities in the bottom half are in Second and Third World countries.

Singapore's GDP of US$129 billion (S$197 billion) pales beside other Asian cities such as Tokyo (US$1.19 trillion), Hong Kong (US$244 billion), Seoul (US$218 billion) and Shanghai (US$139 billion). In fact, we are only slightly ahead of Mumbai (US$123 billion).

These rankings are arrived at by using purchasing-power-parity exchange rates.

However, unlike Singapore, our Asian counterparts in Hong Kong seem to have more to look forward to. The projections for city wealth in the year 2020 show that Hong Kong is likely to rise to 14th position, while Singapore is likely to decline to 40th.

The study (taking into consideration deduction of taxes and social-security contributions) reveals that net salaries in Asian cities such as Tokyo, Dubai, Seoul and Taipei will surpass Singapore.

However, these sobering statistics apply only to the average Singaporean citizen. The top bracket of earners in professions such as medicine, law, banking and, of course, within the ranks of the Government, will earn as much, if not more, than some of their counterparts worldwide.

What do these figures tell Singaporeans? We can conclude that even though we pay a relatively low rate of personal income tax, the net amount of wages we take home leaves us in the bottom half of the 70 cities in the PWC report.

Edmund Khoo Kim Hock

I'm no economist, but this letter doesn't strike me as being particularly well-reasoned. In fact, it reminds me of Edmund Khoo's other recent letter to the Straits Times.

The same difficulty arises here - Edmund seem to form his conclusion first, and then only formulate arguments in favour of it. In the process, he loses objectivity and mangles the facts. Next time, try analysing the facts first, BEFORE forming a conclusion.

Here's one big mistake that Edmund makes:

Singapore's GDP of US$129 billion (S$197 billion) pales beside other Asian cities such as Tokyo (US$1.19 trillion), Hong Kong (US$244 billion), Seoul (US$218 billion) and Shanghai (US$139 billion). In fact, we are only slightly ahead of Mumbai (US$123 billion).

GDP can be used as an indicator of various things. However, if the intention is to use GDP as an indicator of the average citizen's standard of living (and that's clearly Edmund's intention), the least we could do is look at GDP on a per capita basis. That is, take the GDP and divide it by the size of the population.

That's because GDP is basically a measure of how big an economy is. A big city with a large population could have a GDP much higher than a small city with a small population. But on a per capita basis, we would realise that the average person in the big city isn't necessarily any richer, and in fact could be much poorer, than the average person in the small city.

The report that Edmund cites is based on a comparison of cities and GDP. In this report, Singapore is ranked 36th out of 151 cities , approximately in the same range as cities just as Shanghai (32nd), Melbourne (33rd), Mumbai (37th) and Rome (38th).

However, Shanghai and Mumbai are MUCH more populous than Singapore; while Melbourne has a slightly smaller population than Singapore; while Rome has a much smaller population than Singapore. If you go by a per capita approach, you'd probably see that the relative rankings of these cities would change quite a lot.

Now, if you compare countries based on GDP on a per capita basis, Singapore fares much better than 36th out of 151. Wikipedia tells us that Singapore would be ranked 25th out of 182 countries.

Of course, countries like Denmark, Sweden and Finland still rank far above us (8th, 10th and 12th). This is despite the fact that like Singapore, these countries are quite small, and not well-endowed with natural resources.

According to MM Lee Kuan Yew, the governments of these countries are even "mediocre", and therefore their ministers deserve to be paid much, much less than Singapore's PAP leaders.

An entirely believable claim, as long as you choose to disregard the facts.