Project P-K4 Editorial
This is the first part of our two part series on foreign labour policies
Foreign labourers in Singapore
During the budget debate this year, two topics were brought up – rising business costs and reliance on foreign workers. According to Non-constituency Member of Parliament (NCMP) Yee Jenn Jong, industrial rent increased at more than three times the inflation rate at 16% as a result of changes to the Jurong Town Corporation (JTC) industrial land policy in 2008. Other Members of Parliament (MP) who are concerned over the increasing costs of rental space are Mr Inderjit Singh, MP for Ang Mo Kio GRC and Nominated Member of Parliament Mr Teo Siong Seng.
It started with JTC’s divestment of its industrial land to real estate investment trusts and private developers. This resulted in increase in rental prices which accounted for a substantial portion of the Small Medium Enterprises (SME) costs. There will be two consequences of this, one, it drives up the prices of products and services, two, it will increase the demand for cheap foreign labour, which will help keep the costs down. However, as the government is moving to stem the inflow of foreign labour, a likely consequence is the increase in prices of products and services provided by the SMEs.
In grappling with the foreign worker issue, the best approach is to take a macroscopic view and consider the debate from the angle of total cost of production, which is the sum of two components – fixed costs which is determined by land rentals, and variable costs, determined by labour input such as costs and amount of labour. High land rentals will drive the fixed costs upwards, and therefore, in order to maintain the same total cost of production, the company has to rely on cheap foreign labour. Otherwise, the total cost will rise.
Demand for foreign labour and an open door to its inflow merely form the tip of the iceberg while the total cost of production is the entire iceberg. It is common for governments to intervene in the industrial property market, and thus, in our case, it should be no different. Hence, the wisdom of divesting JTC’s industrial land should be questioned.
Property investment trusts and private developers only have profits in mind, and this will drive up the industrial land rental prices, increasing fixed costs, and ultimately, increase demand for cheap foreign labour. Therefore, what we are proposing here is a policy making approach that grapples with production costs, when we are trying to address the issue of relying on cheap foreign labour.
It is appropriate for the government to intervene in this case, to reverse the JTC policy of divestment, which will reduce fixed costs and demand for cheap foreign labour. As such, the topic of foreign labour policy should never be addressed on its own. Total costs of production matters, and policies directed at addressing its fixed and variable components should be considered together with immigration policies aimed at tightening inflow of foreign labour. Thus, it is recommended that the government should consider reversing changes to the JTC land policy. It is about addressing the “why” the demand for foreign labour.
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Photo courtesy of Bryan Kam
The government needs to understand that it cannot make money from everything and in some situations like turning our land to REITs, the consequences for the economy far outweighs the profits earned by the REITs and the GLCs. A few years back, I was wondering why the government is not doing anything to keep commercial and industrial rentals down. In fact, residential rental as well. The logic is simple. If we want to be competitive as a place to do business, we have to keep our costs down and rental, industrial, commercial and residential rental together usually form a substantial part of business costs for any business. Unfortunately, our government’s obsession with making money out of property has led to Singapore now being one of most expensive cities to do business. I am surprised that they can’t even get this right! There is a price to pay and looks like this time, the price is a little big and may not be reversible now. What is the PAP government going to do about this?
While I agree the land divestment policy should be re-examined, I think it’s a fallacy to say that this policy increases demand for cheap foreign labor.
Companies are always incentivised to explore various means to lower their cost. Hence regardless of the land policy, companies will always try to reduce their labor costs. The silly company that doesn’t actively reduce costs is more likely to find itself priced out of the marketplace.