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(b) In view of the rising anti-globalisation sentiments globally, assess the measures that the Singapore government can adopt to sustain its global competitiveness. [15]

H1 students to skip the above question.

NYJC 2024

Introduction

In recent years, rising anti-globalisation sentiments have challenged the prevailing consensus on the benefits of global economic integration. Major economies are increasingly resorting to protectionist policies and trade restrictions, making it more difficult for small, open economies like Singapore to sustain their global competitiveness. Singapore, which has thrived on its open economy model, must now adapt to this shifting global landscape. The Singapore government can adopt several measures, including lowering taxes and implementing supply-side policies, to maintain its competitive edge in a more insular global economy.

Lowering taxes (Fiscal Policy)
One approach the Singapore government could take to sustain global competitiveness is lowering taxes, particularly corporate income taxes. By reducing corporate taxes, Singapore can attract more foreign direct investment (FDI), which brings with it benefits such as technology transfers, skills development, and the creation of high-value jobs. Over the years, Singapore has successfully attracted multinational corporations such as Hyundai, which set up electric vehicle manufacturing facilities, and Rolls-Royce, which established aerospace engineering operations in the country. These investments not only raise aggregate demand (AD) through increased investment but also shift aggregate supply (AS) to the right, as they enhance the economy’s productive capacity through technology transfer and increased efficiency.

Lowering personal income taxes is another tax-related measure that could help Singapore remain globally competitive. By reducing personal taxes, Singapore can attract foreign talent, which in turn leads to skills transfer and increased productive capacity. Foreign professionals in key sectors such as finance, technology, and biomedical sciences contribute to Singapore’s economic growth and competitiveness by bringing in specialised expertise. These tax incentives would make Singapore an attractive destination for skilled foreign workers and top multinational firms, further boosting Singapore's standing as a global hub.

However, there are potential downsides to this approach. Increasing FDI and inward migration could exacerbate inflationary pressures, particularly if Singapore’s economy is already operating near full employment. An influx of foreign workers and capital investment could increase consumption (C) and investment (I), pushing aggregate demand beyond the economy’s productive capacity and contributing to demand-pull inflation. This concern is especially relevant given Singapore’s population growth from 5.3 million in 2021 to 6 million in 2024, largely driven by an increase in the foreign workforce. With a tight labour market and rising housing costs, further expansion of the population could strain resources and lead to higher living costs, which could diminish the quality of life and fuel anti-globalisation sentiments domestically.

Supply side policies can be used

To address these challenges, Singapore could also turn to supply-side policies to improve productivity and competitiveness. Supply-side policies aim to enhance the economy’s capacity to produce goods and services by improving the efficiency and productivity of the labour force. One effective supply-side measure is retraining and upskilling workers. By investing in education and vocational training, the government can increase the productivity of its labour force, allowing workers to command higher wages and contribute more effectively to economic growth. This approach is particularly important in mitigating the effects of income inequality, as upskilling lower-income, low-skilled workers can help them access better-paying jobs, thereby reducing the income gap.

A more skilled and productive labour force would also make Singapore more attractive to foreign investors, as companies tend to gravitate toward economies with highly qualified workforces. This would contribute to the country’s competitiveness, particularly in sectors such as high-tech manufacturing, finance, and research and development. However, the effectiveness of supply-side policies can be limited by several factors. For one, retraining and upskilling programmes are costly and time-consuming to implement. Investments in education and training infrastructure are necessary, but there is no guarantee that workers will respond positively, especially older workers who may be resistant to change or nearing retirement age.

Moreover, the success of supply-side policies hinges on whether the new skills match the evolving demands of the global economy. Rapid technological advancements and shifts in the global economic structure mean that today’s training may not align with future labour market needs, making it difficult to predict which skills will be most valuable.

Evaluative Conclusion

In conclusion, as global anti-globalisation sentiments rise, Singapore must adapt its policies to sustain its global competitiveness. Lowering corporate and personal income taxes could help attract FDI and foreign talent, contributing to technological advancements, skills transfer, and higher productivity. However, this approach carries the risk of inflation, particularly if Singapore’s economy is already operating near full employment.

On the other hand, supply-side policies such as workforce retraining and upskilling could improve Singapore’s productivity and reduce income inequality, making the country more competitive in the long run. Nevertheless, supply-side policies are costly, and their success is not guaranteed, particularly if workers are resistant to retraining or if the new skills do not match future economic demands.

Ultimately, the Singapore government will need to balance short-term measures, such as tax cuts, with long-term investments in workforce development to ensure that it remains competitive in a changing global economy.