Mike Kueber's Blog

March 18, 2013

The Singapore solution to economic inequality

Filed under: Economics,Issues,Politics — Mike Kueber @ 10:12 pm
Tags: , ,

I’ve been preoccupied with the debt/deficit issue for as long as I can remember, probably back to when Buchanan and Tsongas and Perot were campaigning for President.  And although I remain what columnist Paul Krugman calls a “deficit scold” because I characterize this issue as much a moral one as a fiscal one, I have in recent months adopted a secondary public-policy concern – i.e., the lack of economic mobility in America.  As I noted in this blog a few weeks ago:   

  • The NY Times today contained an op-ed piece by Nobel economist Joseph Stiglitz titled “Equal Opportunity, our national myth.”  I’ve probably blogged a dozen times over the years about equal opportunity, including a post about Stiglitz’s book called The Price of Inequality….  Assuming that America is afflicted with unequal opportunity, Stiglitz’s prescription is the same as most experts who study this issue – i.e., more equal education for America’s kids. 

Today, the NT Times published another column by Stiglitz on inequality, but this time he referred his readers to consider the success being achieved by Singapore.  According to Stiglitz, that success is due to four causes:

  1. Heavy government investment in education
  2. Progressive taxation
  3. Government intervention to shift, albeit gently, bargaining power from employers to employees 
  4. Mandatory savings

The first two causes are obvious, and the third one makes sense, too, provided that the employers can remain competitive in the world marketplace.  The fourth cause, however, is fascinating.

Mandatory savings in Singapore is a government-mandated “provident fund — 36 percent of the wages of young workers — to be used to pay for adequate health care, housing and retirement benefits….  First, individuals were compelled to take responsibility for their own needs. For example, through the savings in their provident fund, around 90 percent of Singaporeans became homeowners, compared to about 65 percent in the United States since the housing bubble burst in 2007.”

One of my concerns with “spreading the wealth around” in America is that it would reduce the amount of capital available for investment because low-income Americans save almost nothing.  The provident fund would avoid that ill by ensuring that capital would continue to be formed.

Although Stiglitz is an award-winning academic, he also seems to be highly political, so I don’t automatically give the guy a lot of credibility.  But these are ideas worthy of further consideration.


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