Economic effects of globalisation in singapore

Globalization is defined as the free movements of goods, services and capital across borders. It is a contentious process by which the western market economies have effectively spread across the globe. Although it does not constitute a new phenomenon, it is viewed as an inexorable integration of markets, nations and technologies to a degree never witnessed before in a way that is enabling individuals, and corporations to reach around the world further, faster, deeper and more economically than ever before (Heshmati, 2003).

Today, globalisation is evident in every aspect of our life and society. Globalisation has impacted us in many ways, most evidently in communication and interaction between different people. Globalisation has brought about the Internet and advanced technology. This has allowed for ease in facilitation of which many aspects of the world are run and work. People are able to use the Internet to communicate with people from the other side of the world and interact and discuss about issues in the market etc. Through globalisation, people are able to communicate and interact easily, in doing so causing the ease of disseminating information and even in the way that facilitated trade.

Especially with regards to trade, globalisation has enabled many countries around the world to take advantage of the aspect of globalisation which improves communication and interaction between people. Many countries used this aspect to help expand and advance their economies and trade markets. The year 2007 to 2008 witnessed a movement of goods and services worth $132 trillion from the People’s Republic of China across the globe. This led to a 5.4% increase or rise in the Chinese economy as compared from the previous economic growth of a rate of 3.4% (Moore & Lewis, 2009).

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Economic globalization is defined as the rise in economic interdependence of different nation’s economies of the world and it entails a dramatic rise in movement of goods, technology, capital and service across nation’s borders (Justin, 2001). Economic globalization has also provided opportunities for developing countries in that it expands the size of their markets for export and attracts foreign capital, which aids development. Foreign investment is conducive to a transfer of technologies and knowhow, which increases productivity (Bertucci and Alberti, 2010).

In the same way, Singapore has also used the aspect of globalisation which increases communication in her own advantage to improve the economy and trade. One of the industries affected positively from globalisation in Singapore is the tourism industry. With globalisation, people are able to move from one place to another easily and quickly, through the use of aeroplanes etc. This allows people to travel regularly to Singapore, from places as far as Africa and United States of America. With easier traveling, more people can come to Singapore to tour and enjoy the attractions such as the Marina Bay Sands, Sentosa, etc. With more people in Singapore, the tourism industry is able to earn more money through the expenditure of these tourists, from food and beverages to entrance fees of attractions. Thus, through globalisation, Singapore’s tourist industry is able to expand and advance.

This table of statistics shows the number of visitor arrivals by region/country of residence from the year 1999 and 2004 to 2009. Through this table, it can be seen that a large amount of people from the United States of America come to visit Singapore every year, in 2009 totalling to 370.7 thousand. This shows how globalisation has affected the tourism industry. People from countries like the United States of America which is in the other side of the world is able to come over to Singapore in such large numbers. This can also be seen in Europe, where 1,307.4 thousand people arrived to Singapore in 2009. It can be seen that globalisation has improved the tourism industry through the increase of tourist arrivals over the years. Take the Commonwealth of Independent States and Eastern Europe for example. The number of people who have visited Singapore have risen from 42.8 thousand in 1999 to 114.3 thousand in 2008. This shows the influence of globalisation has on the tourism industry in Singapore. With a greater influence, globalisation makes the tourist industry to have more and more tourists every year due to the easier transportation and movement from one country to another.

With globalisation helping the country’s economy to become wealthier, this in turn would affect the people positively, allowing them to have a better standard of living. There are many benefits that citizens will have through a booming economy.

One positive effect is that globalization causes rapid changes in trade relations, financial flows, and mobility of labour across the world. The development has brought the economies of developed countries closer together and more strongly interrelated. Trade is more common across countries and people are able to move from one place to another more conveniently and frequently than before.

With globalization, companies have forayed into the developing countries and hence generated employment for them. But it is one of the positive and negative effects of globalization, depending on the point of view you wish to see it from. It has given an opportunity to invest in the emerging markets and tap up the talent which is available there. In developing countries, there is often a lack of capital which hinders the growth of domestic companies and hence, employment. In such cases, due to global nature of the businesses, people of developing countries too can obtain gainful employment opportunities. But the developed countries have lost jobs on account of this movement of jobs to the developing world and hence it is a pinch felt by people in the First World.

One of the most visible positive effects of globalization in India is the flow of foreign capital. A lot of companies have directly invested in India, by starting production units in India, but what we also need to see is the amount of FII that flows into the developing countries. Indian companies which have been performing well, both in India and off the shores, will attract a lot of foreign investment, and thus pushes up the reserve of foreign exchange available in India. This is also one of the positive effects of globalization in US and other developed countries as developing countries give them a good investment proposition.

The last effect is the impact of foreign trade on an economy. Comparative advantage has always been a factor even in the old times. While trade originated in the times of early kingdoms, it has been institutionalized due to globalization. Previously, people had to resort to unfair means and destruction of kingdoms and countries to get what they wanted. Today, it is done in a more humane way, with mutual cooperation. People who operate in uncivilized ways, now have to face the WTO and other world organizations that have been established with a view to control and regulate the trade activities of the countries.

With all these benefits, the incomes of Singaporeans have increased over the last few years. In Singapore, the household income from work in 2010 increased due to strong economic growth. Median monthly household income from work in 2010 recovered to above the level before the economic downturn in 2009. Among resident households, median monthly income from work increased by 3.1 per cent from $4,850 in 2009 to $5,000 in 2010 (Table 1); in real terms, the increase was 0.3 per cent (Department of Statistics Singapore, 2010).

Table 1 Monthly Household Income from Work Among Resident Households

Year

Median Household Income

Average Household Income

Dollar

Nominal Change (%)

Real Change (%)

Dollar

Nominal Change (%)

2000

3,638

3.9

2.6

4,988

5.7

2001

3,860

6.1

5.0

5,338

7.0

2002

3,628

-6.0

-5.6

5,069

-5.0

2003

3,601

-0.7

-1.2

5,075

0.1

2004

3,689

2.4

0.8

5,194

2.3

2005

3,860

4.6

4.1

5,447

4.9

2006

4,000

3.6

2.6

5,715

4.9

2007

4,375

9.4

7.1

6,295

10.1

2008

4,946

13.1

6.0

7,086

12.6

2009

4,850

-1.9

-2.5

6,826

-3.7

2010

5,000

3.1

0.3

7,214

5.7

Source: Department of Statistics Singapore (2011) “Key Household Income Trends, 2010”

Among employed household, with at least one working person, median monthly income from work increased by 5.7 per cent in nominal terms (from $5,400 in 2009 to $5,700 in 2010) and 2.8 per cent in real terms (Table 2).

Table 2 Monthly Household Income from Work Among Employed Households

Year

Median Household Income

Average Household Income

Dollar

Nominal Change (%)

Real Change (%)

Dollar

Nominal Change (%)

2000

4,000

5.3

3.9

5,456

7.0

2001

4,141

3.5

2.5

5,736

5.1

2002

4,038

-2.5

-2.1

5,572

-2.9

2003

4,050

0.3

-0.2

5,618

0.8

2004

4,106

1.4

-0.3

5,761

2.5

2005

4,345

5.8

5.3

6,052

5.1

2006

4,495

3.5

2.5

6,280

3.8

2007

4,883

8.6

6.4

6,889

9.7

2008

5,475

12.1

5.2

7,752

12.5

2009

5,398

-1.4

-2.0

7,549

-2.6

2010

5,704

5.7

2.8

8,058

6.7

Source: Department of Statistics Singapore (2011) “Key Household Income Trends, 2010”

Even though the income levels have risen among employed Singaporeans, we have found through our research that not every Singaporean enjoys these perks of having higher income through globalisation.

This is the one effect of globalisation in Singapore that we would like to discuss in this paper. The phenomenon of widening income gap in Singapore, between the period of 2000 – 2010.

RESEARCH METHODOLOGY

Sources of Information

In this research paper, we used mainly secondary sources of information. The sources of information that we used are:

Newspaper Articles

The newspaper articles we used were from The Straits Times. We decided to use articles from our local newspaper as it leans more towards our country and hence, the articles would be more apt especially since our research is about the effects of globalisation in Singapore. The Straits Times is also a acclaimed worldwide as one of the best newspapers, hence, it would be more reliable.

Research papers

The research papers that we used, such as the article “Reducing Singapore’s Income Disparity: Looking Forward” is by professors from Singapore. Hence, it is more reliable as they have lived in Singapore and studied the trends over the years. It would also be more appropriate for them to comment on the findings that they have collated

Magazines

We used The Economist because our topic focused mainly on the economy, hence, since The Economist looks at the global market, it would be a good judge of the economy in the various parts of the world. One issue that we looked at was Volume 398, Number 8717 of The Economist, which had a special report called “The rich and the rest”. This was relevant because it talks about the issue of widening income gap and the income discrepancies in the world today, which is one of our main focuses in our research paper.

Statistics

Our statistics were taken from research papers (results were collected by the author of the research paper) and studies conducted by the government. Since the statistics were taken from reliable sources, it would be more accurate in showing trends over the years.

Rationale of using the sources of Information

In our research paper, we only used secondary sources. This is because our topic is mainly on the effects of globalisation, hence it would be more appropriate to analyse the trends and research instead of conducting an interview. It was also quite hard to find an interviewee because globalisation is a wide topic and many people might have their different opinions on it. Through conducting extensive research using newspaper articles, research papers, et cetera, we could generally find the trends and information that we needed for our paper. Hence, we found that it was not necessary to conduct interviews or surveys as information that we needed could be found.

Limitations of Research

The limitation of using solely secondary sources is that we are unable to get first-hand opinions of the globalisation trends that we see in Singapore. Even though the opinions might be subjective, it would be a helpful source in knowing more about globalisation through the interviewees.

Limitation of Newspaper Articles:

The newspaper articles had only touched lightly on either the topic of widening income gap or globalisation, hence we had to conduct more research in order to find more information about the topic.

Limitation of Research Papers:

Research papers were useful in providing us with extensive information, however, each research paper was very focused on the particular topic that the professor was working on, and hence, we had to combine various research papers in order to find the trends and information that we required for our own research paper.

Limitation of Magazines:

The Economist was mainly on general statistics in the world, and hence, many of the information were not pertaining to Singapore and we could not use it for our information. The magazines were only a good guide in showing us the effects of globalisation to the world in general.

Limitation of Statistics:

The statistics given were mainly not interpreted; hence, even though we had the statistics by the government and research papers, we had to interpret and tweak the information in the way that it suits our topic and supports our points in our research paper.

FINDINGS: HOW GLOBALIZATION LED TO THE WIDENING INCOME GAP IN SINGAPORE

Globalisation has caused many changes in the world that we live in today. There are many effects of globalisation in our society, both good and bad. Globalisation is the continuous tendency towards the free flow of business and monetary infusions across nations which help in the formation of international financial system (mapsofindia, 2011).

Higher living standards

Through globalisation, the standard of living around the world has improved considerably. This is due to the want for financial independence and thus, people are triggered to become competitive, elevating the living standard of people in the nations that offer themselves to the world trade (mapsofindia, 2011). With increased economic stability, countries are able to have faster economic growth, which will also improve the standard of living in the country and reduce poverty. India has cut its poverty rate in half in the past two decades. China has reduced the number of rural poor from 250 million in 1978 to 34 million in 1999. Cheaper imports also make a wider range of products accessible to more people and, through competition, can help promote efficiency and productivity (global education, 2011). The rich are also able to splurge on their extravagant lifestyle, hence heightening the income discrepancies, as while people on the higher end of the income ladder are living a luxurious lifestyle, the lower-skilled workers are worried about keeping their jobs. This increased standard of living is thus clearly unbeneficial to some pockets of the population, especially the lower-skilled and lower-income people.

Development of technology

Over the years, technology has advanced in many ways that were thought impossible. The development of technology is rapid, persistent and ever-changing. With the introduction of technology to global markets, the demand for commodities has increased. Products and services are also increasing constantly. This has led to increase in usage around the world. Through the introduction of technology, technological gadgets are more easily available and affordable, allowing people to use technology to look into the investment and financial sector. With the help of computers, more and more people can be connected to the events happening in the financial sector. As per statistics, everyday more than $1.5 trillion is now swapped in the world’s currency markets and around one-fifth of products and services are generated per year are bought and sold. Technological advancement and productivity expansion are the other benefits of globalization because since 1970s growing international rivalry has triggered the industries to improvise increasingly (mapsofindia, 2011).

Increased inter-communication

With globalisation, it is now easier for people all around the world to move from place to place. People have the ability to move from country to country in a short amount of time as compared to before when there was no globalisation. For the purpose of commerce and pleasure, more and more people are crossing national borders. Globally, on average nations in 1950 witnessed just one overseas visitor for every 100 citizens. By the mid-1980s it increased to six and ever since the number has doubled to 12. Commerce as a percentage of gross world product has increased in 1986 from 15% to nearly 27% in recent years. Worldwide telephone traffic has tripled since 1991. The number of mobile subscribers has elevated from almost zero to 1.8 billion indicating around 30% of the world population. Internet users will quickly touch 1 billion.

With improved telecommunications, information and goods are available easily across countries. Costs are lowered and information is more reliable and accurate than ever. With such changes to the global market, workers are not just dependant on their own country’s economy anymore. Old jobs and skills are outsourced to meet the increasing demands of the global economy, thus many lower-skilled workers get lower income or get laid-off.

Effects of Globalisation

Influx of immigrants

Globalization has made the world very close and small because of the ease of transport and lower cost of travel, and thus also increases the immigration in Singapore. Based on the study of Singapore Population Overview (Table 1), it can be seen that the number of immigrants and PRs in Singapore was 31.7% in 2007 whereas in 2008, the number has risen to 34.6%. This means that the number of immigrants and PRs is growing at a faster rate than the citizen population. The foreign workforce in “Singapore is 30% (in 2010) not counting those who are newly converted citizens and PRs.”( Diary of A Singaporean Mind, Monday, August 30, 2010) The government has offered scholarships, jobs and assistance for people in many other countries to settle in Singapore.

Table 1. Singapore Population Overview (source: SingStat)

Singapore Population Statistics

“Currently, there are 4.8 million people residing in Singapore, and about 478,000 are PRs.” (On April 1, 2009, in Life in Singapore) Among them, the students, professionals entrepreneurs want to stay in Singapore after finishing their studies or own businesses , and establishing their careers.

Table 2. Persons Granted PR (source: SingStat)

Persons Granted PR post Singapore Immigration

Table 3. Persons Granted Citizenship (source: SingStat)Persons Granted Citizenship post Singapore Immigration

The tables show that each year, there are about 60,000 foreigners granted as PR. In contrast, only 15-17,000 citizenship status was approved yearly. Despise Singapore’s economic advantages; foreigners’ main motivators are citing tax incentives as well as health and education benefits which come from being a citizen or PR.

Singapore is a very small island and has limited land and housing. Singaporeans have always welcomed immigrants in the past from Malaysia or Indonesia but nowadays the influx immigrants in the recent waves strains our infrastructure and leads to income inequality. “Singapore’s economy now depends heavily on foreign labour which took up 58,300 new jobs, and over half of the 112,500 new jobs which are created in the year. Assuming one third or half of the locals are PRs, the proportion of new jobs which belong to foreigners is likely to be as high as two thirds or three quarters.” (Tan Jee Say, Creating Jobs and Enterprisein a New Singapore Economy) These immigrants are taking jobs away from the locals and hence living some jobless. The Unemployment Rate (SA) in Singapore was 1.9% in Mar 2011. (Statistics Singapore)On top of that, they are driving down the income levels for the low-skilled jobs and hence even if locals were to work in it, they will be paid only a small amount. This would not be sufficient for the citizens especially since the standard of living in Singapore is high ¼ˆrefer to the Higher Living Standard¼‰and thus they might not be able to afford to pay for some needs. Ultimately, income gap will grow wider.

In the past, the workers’ economic fate was only relevant to the national economic fate. However, globalization and improvements in communication, as well as influx immigrants changed the case. Now workers have to compete in a global market, and their wages are not so dependent on the individual economies’ success or failure of. The mind workers such as engineers, scientists, executives can compete successfully in the global market and receive high wages. However, the production and service works industrialized countries are not able to compete with those from third world countries. “The workflow changes, thus poor countries get the low-value-added element of work which is formerly done in rich countries; however, higher-value work is maintained.” (“Economics focus: Cash machines”. 2011-04-16.) This is a main effect on widening income gap.

The population has increased to 5.5 million; a big part of it is made up of immigrants. “Seventy-eight percent of Channel News Asia/Gallup polled felt that Singapore should limit the number of foreign workers when the population increases.” (Journal of Alternative Perspectives in the Social Sciences ( 2009) Vol 1, No 3, 982-1002982)The management of the consequences of attracting more talented immigrants has become a challenge both in political and economic aspect. Globalization results in more acute income inequalities and meanwhile places a high premium on talent. “Those people who stand at both ends of the skills spectrum are worried about their future.”((Journal of Alternative Perspectives in the Social Sciences ( 2009) Vol 1, No 3, 982-1002982)) The cheaper labour from neighboring countries has forced the lower end to improve skills more efficiently. At the other end, Singapore’s industries has also storm skills deficit which has been pushed into higher value-added. Those Singaporeans who are better educated now have become being placed at a disadvantage in a more and more competitive job market. “There is growing concern on the influence of fairly large immigration on the establishment of Singapore’s cultural and national identity, and on the state’s management of racial diversity as well.” (Koh, 2003: 230-256).

Effect of Globalization: Opening of New Economy and its effect on the unskilled, leading to widening income gap

Globalization has become crucial for economic growth and prosperity in Singapore in recent decades, though the gains main spread unequally. Its magnitude and speed increase the free mobility of the products, services, as well as the factors of production across national borders. Globalization has made it possible for the transition form heavy industry or manufacturing-based economy to a new technology based one, thus leads to the opening of new economies. However, like most by-products of globalization, it has been a double-edged sword. “The high growth, low inflation and high employment of this period led to overly optimistic predictions and many flawed business plans. “(Newsweek article (January 2001) on the false claims of the new economy) Business in developed countries process outsourcing enables cheaper labour and services, however, meanwhile, displaces some of the service-sector jobs. One the one hand, accessing to the global market by attracting Direct Foreign Investment (FDI) and foreign investments has promoted Singapore’s economic development. On the other hand, the blue-collars’ jobs in the city-state were forced to run away to low-costs countries such as China and India. Thus it has a main effect on the widening income gap.

Figure 1

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Figure 2. Wage inequality between Skilled Professionals and Unskilled ones.

Source: Ministry of Manpower Singapore (2007). “Report on Wages in Singapore 2006”

Figure 1 indicates about 52.0% of Singaporeans are skilled workers in 2010.

Figure2 shows the ratio of the skilled occupations’ wages to the unskilled ones’ wages.

Regarding the income inequality between occupations, the collectively defined skilled workers continue to earn more than unskilled workers such as the cleaners, labourers and related workers. And the income gap has widened further since 1996.Therefore, the wage growth’s relative stagnation among the unskilled workers would unquestionably have influence on the widening income gap between the two ends of the occupational spectrum as indicated in Figure 2.

Due to globalization, with the internet and airplanes, the distance between countries is getting shorter. The international communication on technologies and science has been more interactive and immediate. Therefore, companies nowadays set different parts of their plants in different countries and locations, saving the delivery time but not sacrificing the quality of the products and. The outsourcing of old jobs makes the companies greater profit due to low exchange rates of the countries and lower costs. However, meanwhile, the new technologies will make the old skills obsolete and increase the rate of unemployment in Singapore.

The new economy is not only the high technology and the Internet, but also the work is now being supported by technology and evolving with technology. The new economy consists of new organizational models as well, emphasizing teamwork which means the decision making is no longer dominated by a single boss. The old economy just focused on local, state or national markets, but the new economy focused towards global market. The new economy showed a change in how the nation tried to draw business and industry. In the old economy, the industry was attracted to the nation because of low priced labor, cheap land, low tax, convenient transportation and other physical infrastructures. In the new economy, outsourcing is becoming more and more popular.

Such phenomenon is due to a period of transition to the new economies which is knowledge or idea-based from the old ones. The key of the new economy is the utilized technology and high quality of production, as well as new ideas and innovation which can be embedded in all aspects of the economy. “In 1950, 60% of the jobs needed unskilled workers; however, today only about 15% of jobs require them. The need for professionals has been around 20%.” (Dr. Jacquelyn P. Robinson, A L A B A M A C O O P E R A T I V E E X T E N S I O N S Y S T EM, Volume 1, Issue 4 September 22, 2000)The requirement of skilled jobs which needs education and training has grown. “Real wages for high school graduated without technical training decreased 18% over the last 18 years and those without high school diploma dropped 40%.”((Dr. Jacquelyn P. Robinson).

Therefore, the well-off march towards the global market and make more profit while the poor and uneducated become obsolete and unemployment, leading to the widening income diversity.

CONCLUSION

In this paper, we have discussed more about globalization: its role and the effects it has on Singapore, more specifically, the widening income gap. As can be seen, globalization has affected the way things work and old skills and jobs are gradually being outsourced. Although we cannot do anything to prevent it, it is important than we are aware of the consequences and try to improve Singapore’s current situation. Hence, Singaporeans should jump at the chance to improve their skills, so as to have a better future in exchange.

Indeed, the Singapore government faces a tough challenge in trying to achieve this trinity of social goals – income equality, economic growth and fiscal discipline (Yeoh 2007/2008). Even though this is hard to put into practice, the Singapore government has to adopt specific actions and measures to address the spiraling income inequality. This will help to prevent social discontentment and continue the wealth and prosperity that Singapore has been achieving over the years. However, the Singapore government has the responsibility to pay close attention to the needs of the people, especially those falling through the cracks with the rising cost of living. It is important that the government continues to care for the needs of the people and ensure that effective measures are carried out to ease their burdens. Unhappiness among the people leading to widespread discontentment can cause policies to fail; hence, political leaders must be capable of directing these emotions towards productive uses that benefit the economy, rather than allowing these emotions to develop into civil strife. Besides the economic policies to reverse income disparity, most importantly, the government needs to demonstrate empathetic leadership and win the hearts of Singaporeans – so that the future will continue with a better Singapore.