Inequality and Social Mobility
In Defence Of Lim Chong Yah

By Tommy Koh

Professor Lim Chong Yah is one of Singapore’s most distinguished economists. He was the professor of economics at the National University of Singapore (NUS), before moving on to the Nanyang Technological University (NTU) to become the first Albert Winsemius Professor of Economics.

He is currently Emeritus Professor of Economics of both NUS and NTU.

Prof Lim is both a scholar and practitioner. He was the founding chairman of the National Wages Council (NWC), a post which he held for more than 30 years. No one has contributed more to the success of this unique Singapore institution than he. In view of his credentials and track record, we should study carefully his three proposals for a more inclusive Singapore wage policy.

Prof Lim proposes:

•  that the NWC should continue with the issuance of a quantitative wage increase guideline for those earning less than $1,000 to $1,500 a month, over the next two years;

•  that the NWC should call for an across-the-board temporary three-year moratorium of salaries of top executives earning more than $1 million a year, both in the private and public sectors; and

•  that should the wages of the lowest-paid resident workers remain stubbornly very low in two or three years’ time, serious consideration be given to introducing a compulsory minimum wage scheme with, say, $1,000 a month as the start-off quantum.

Freezing salaries at the top

WHY is Prof Lim asking for a freeze, for three years, of salaries above $1 million a year?

I think he has done so because our growing income inequality is due to the inflation of salaries at one end of the spectrum and the deflation of salaries at the other end. His objective is to raise the wages at the bottom and slow down the escalation of salaries at the top.

Is it wrong for Prof Lim to interfere with the market and to urge restraint?

I do not think it is wrong.

Having served on the board of directors of two publicly listed companies, I have observed that in recent years, we have been looking to the West for inspiration when it comes to the compensation of our chief executive officers and other key personnel in senior management.

I do not think it is wise to look, for example, to America for inspiration, because the American culture is very individual-centred, whereas our culture is more communitarian.

One consequence of the American model of capitalism is the Occupy Wall Street Movement and the increasing polarisation of American society and politics between the 1 per cent and the 99 per cent. We do not want to import such trends, which Americans themselves are so worried about, into Singapore.

Consider the following facts extracted from Professor Michael Sandel’s book, Justice: What Is The Right Thing to Do? In 1980, the average CEO in America earned 42 times more than the average worker. In 2007, the average CEO earned 344 times more than the average worker.

During the period 2004 to 2005, the average CEO in top companies in the US, Europe and Japan earned US$13.3 million, US$6.6 million and US$1.5 million respectively. Japan, like Singapore, has a communitarian culture and is a better role model for us than the US or Europe.

I would also call attention to what Conservative British Prime Minister David Cameron said recently when he opposed the payment of extravagant salaries and bonuses in the financial industry in London.

He said that there was an incestuous element in the composition of boards. As a result, there was a certain “I scratch your back, you scratch my back” phenomenon at work.

I think that his comment is probably applicable to Singapore, where the talent pool is smaller, and the same people serve on multiple boards.

I also suspect that there is an unspoken competition among some of our leading companies to see whose chief executive officer will receive the highest salary. We would actually be more impressed if the competition is to see which company will pay its workers more.

I, therefore, sympathise with Prof Lim’s proposal to slow down the escalation of the salaries at the top. I do not, however, think that his specific proposal will be accepted by the NWC.

I suspect that the NWC would focus on raising the wages at the bottom and not interfere with the wages at the top. Singaporeans, especially those at the top, should, however, reflect deeply on Prof Lim’s proposal and on their responsibility to society.

Raising wages at the bottom

I SUPPORT Prof Lim’s proposal that the NWC should continue with the issuance of a quantitative wage increase guideline for our low-wage workers for the next two years.

A one-time increase of $50 will not have a significant impact on the lives of the low-wage workers. However, a $150 increase, over three years, would be more impactful.

I agree with Prof Lim that if the situation does not improve in two to three years’ time, we should seriously consider introducing a minimum wage. We know from the experiences of Japan, South Korea, Taiwan and Hong Kong that the introduction of the minimum wage did not increase unemployment or frighten away foreign investors in those jurisdictions.

Hong Kong introduced the minimum wage one year ago. According to a report in this newspaper last month, the Hong Kong experience has been a positive one. There was no increase in unemployment and no decrease in foreign investment. In fact, unemployment remained low and there was an increase in the number of new businesses. The minimum wage has raised the income of over 140,000 low-wage workers.

In conclusion, I wish to thank Prof Lim for being our moral conscience. He has reminded us that our mission is to achieve growth with equity. Our ambition is to build a fair and prosperous Singapore. What we have achieved so far is a prosperous but unfair society.

Prof Lim has warned us that we have deviated from our original path and that we are dangerously close to a point when our inequality could adversely affect our cohesion and harmony.


The writer is chairman, Centre for International Law, NUS, and Special Adviser, Institute of Policy Studies.

The above article was first published in the Straits Times on 3 November 2012.


  • Tags:

Subscribe to our newsletter

Sign up to our mailing list to get updated with our latest articles!