A little inequality is a good thing


It provides a spur to work harder, but must not get in the way of social mobility


THIS may not sit well with many, but some inequality is good for society.

Inequality keeps a people striving to improve their lot in life. Sometimes too little inequality, with too many benefits, can be a disincentive to try harder.

Some have held up the Nordic countries as models of how economic dynamism and equality can go hand in hand.

But others disagree.

A study in 2006 by the Organisation for Economic Cooperation and Development found that higher unemployment benefits and higher taxes led to higher rates of unemployment.

Sweden’s relatively more generous unemployment insurance benefits for low-income workers, who draw 80 per cent of their last salary, have also led to longer unemployment spells for these workers than in neighbouring Norway.

And what does it do for motivation when the more skilful architect makes only $2,000 a month more than the garbage collector?

Could these policies have had an impact on the youth unemployment rate in Sweden, which at 28 per cent is the second-highest in Europe, after Spain?

That is why Sweden’s government has embarked on policy reforms to incentivise work by reducing income taxes, and to disincentivise unemployment by cutting back on the amount of time for which unemployment benefits are paid out.

American historian Tim Stanley of Oxford University says economic inefficiencies due to the pursuit of equality are real.

‘We might speculate that a society that squeezes out personal ambition in favour of societal cohesion is bound to undermine a person’s sense of autonomy and freedom,‘ he wrote, arguing against those in Britain and the US who have called for higher taxes and more social spending, like those in Nordic countries, to mitigate growing income disparity.

He added: ‘The sad fact is that sometimes, the relentless pursuit of fairness in outcome imperils the creation of an atmosphere of opportunity. None of the (Nordic) countries are defined by the rags-to-riches meritocratic idealism that America aspires to.’

Singapore’s political leaders have issued similar warnings. In his Budget speech last year, Deputy Prime Minister Tharman Shanmugaratnam said: ‘The over-generous social entitlements (of developed countries) have progressively reduced the work ethic over time. Some of these developed countries are now undertaking painful reforms to gradually recover their economic dynamism.

‘Our approach must, therefore, remain centred on opportunities, not entitlements. This is why we are focusing on helping the low-income group through education, employment and home ownership.’

While it may be easy to dismiss Mr Tharman’s words as political rhetoric to justify lean fiscal spending, the evidence does back him up.

The key point here is the choice between equalising outcomes and opportunities. Which socio-economic system does Singapore value more?

Singapore’s approach so far has been much closer to that of the US than the Nordic countries.

As an immigrant society, Singapore’s history is one of men and women who arrived here with very little and laboured to make good.

One quality many Singaporeans seem to share is a desire to chase a higher status in life, resulting in a culture of ‘keeping up with the Tans’ perhaps.

But underlying any system must be a balance between equity and aspiration. For most of its short history, Singapore has managed to find that balance.

The concern now is that in the last 10 years, inequality has risen to such an extent that it may be hurting the ability of people at the bottom and the middle to move up.

Economist Joseph Stiglitz has sounded a warning of the same trend in the United States. In his upcoming book The Price Of Inequality, the Nobel Prize winner says too much inequality leads to a perception that the system is unfair, and to widespread mistrust of a government.

In Singapore, the Prime Minister himself has red-flagged social stratification as ‘sharper than before’, observing that ‘the children of successful people are doing better, the children of less successful people are doing less well’.

The Government has moved to address the growing income gap through new measures to raise incomes at the bottom. These include higher income supplements and training support for low-wage workers, permanent help through GST vouchers and more health-care subsidies.

There is room for more to be done, but the experience of Sweden should give us pause, in view of the complexities of increasing benefits and equalising incomes.

While a government should certainly be compassionate, it should not take upon itself the role of equalising outcomes. The link between rewards, effort and talent needs to stay. It is what keeps members of a society competing and striving to improve – qualities that have helped Singapore to stand out.

What a government needs to do is to keep finding ways to provide opportunities so that members of every generation have a chance to move up.

I do not doubt that Singapore can both grow the pie and strike a better balance in sharing it. But it requires immense political and social will to keep experimenting, and to keep seeking better solutions even as there is fallout from mistakes that may be made along the way.

Just as Sweden has continuously improved its model, so must Singapore continue to evolve its own.

chanckr@sph.com.sg, StraitsTimes, Published on Jun 30, 2012



The sad fact is that sometimes the relentless pursuit of fairness in outcome imperils the creation of an atmosphere of opportunity. None of the (Nordic) countries are defined by the rags-to-riches meritocratic idealism that America aspires to.

– American historian Tim Stanley of Oxford University

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