Mr Lim Boon Heng, Secretary General of NTUC and Minister in the Prime Minister's Office,
Mr John De Payva, President of NTUC,
Mr Stephen Lee, President of SNEF & Chairman of SBF
Distinguished guests,
Ladies and Gentlemen,
Good Evening
I am honoured and pleased to join you in the May Day celebrations. Although the economy is not at its best and workers had been hit hard in the recession, it is only appropriate for us to celebrate the contributions and efforts of the labour movement and workers. Unions and workers had accepted wage restraints or cuts without compromising their effort. In fact, in tough times, we all have to work harder. The trade unions have also taken on an additional role of promoting and spearheading skills upgrading for workers to prepare for the more difficult economic challenges. The strong commitment to tackle head-on new challenges and not to look for soft options, is crucial to our ability to weather economic storms. This has been so in the past, it is so today, and will be in the future.
The Economy Today: A Jobless Recovery?
Last year had been a most difficult year. Although we recovered rapidly in year 2000 from the Asian Financial Crisis, the economy took a sudden and dramatic plunge last year. The negative 2% GDP growth rate for 2001 was the worst since our independence. 25,800 workers were retrenched, more than double that of the previous year, and overall unemployment hit a high of 4.4% by December. The sudden downturn was largely due to the weak global economy, especially in the US. It was aggravated by the Sept 11 terrorist attacks in the US. This sudden up and down swing brought home the harsh realities of the global economy. One key lesson that we have to deal with is shorter economic cycles and greater uncertainty. These are the realities that will remain with us even as our economy recovers
This year, MTI has projected 1% to 3% growth. Not bad considering the uncertainties. As the economy recovers, we can expect the labour market to also improve. However, it will be quite sometime before employment growth returns to past levels. In fact, the latest seasonally adjusted overall unemployment figure for the first quarter released today shows a marginal increase of 0.1% to 4.5%. This is to be expected. Faced with uncertainty, employers will continue to be cautious in their recruitment. As fresh school leavers and graduates enter the job market, unemployment could get worse. We must be prepared for a lag between economic recovery and employment growth. Some economists have coined the phrase "jobless recovery" which may be applicable to our situation. Under such circumstances, the preservation of jobs remains the highest priority of the government, workers and employers.
In this respect, the severe wage restraint guidelines issued by the National Wages Council in November last year are still relevant today. The sacrifice made by workers in accepting wage adjustments was instrumental in helping many companies remain viable. I commend the workers and their trade unions for supporting this painful measure. It helped companies to avoid retrenchment and where they still have to downsize, wage cuts helped to scale down retrenchment. In fact, studies in the US showed that companies that retained their people during tough times generally did better than those that cut headcount. Companies such as Hewlett Packard and Cisco adopted retrenchment as a last resort. They gained with employees who were more committed, engaged and motivated. This in turn translated into higher productivity, better company performance and higher shareholder returns when business picked up. Hence, NWC guidelines benefit both employers and workers.
The Future: Restructuring the Economy
The immediate threats of high unemployment and "job-less recovery" are symptoms of the challenges posed by globalization and restructuring of our own economy. The pace of corporate and economic restructuring will not slow down in the coming years. In order to remain relevant and to prosper, we need to reinvent ourselves and redefine our business model for the increasingly intense global competition. This task is addressed by the Economic Review Committee led by DPM Lee. It has already made major recommendations to the tax structure to promote enterprise and create jobs.
Let me now elaborate on three key challenges of economic restructuring and how they would impact workers :
Challenge #1:
Competition - First Mover Advantage
In the past, we did well with a "better, faster, cheaper" strategy. Many MNCs invested in Singapore because of this strategy, coupled with a stable pro-business environment. But today, this formula cannot guarantee success. For one thing, we can no longer compete on the basis of cost alone. Many countries in the region, especially China, offer even cheaper sources of labour. The result is, many manufacturing companies have relocated to China. Philips, for instance, has relocated a large part of its manufacturing operations to China almost two years ago. Our old advantages of a free port and open skies that led to the success of PSA megaport and Changi Airport, will be challenged. Recently, Johor's Port Tanjung Pelepas successfully wooed two of the world's leading shipping lines, Denmark's Maersk Sealand and Taiwan's Evergreen Marine, over to their side. Both shipping giants had previously been PSA's customers. Global competition is very real - it is at our doorsteps.
The loss of two major customers is not a fatal challenge. But neither should we dismiss the new competition. PSA had survived challenges before in the past. In the '70s, it was Port Klang. In the '90s, it was Kabil Port in Batam. But today's challengers, such as Port Tanjong Perlapas, come better equipped and eager to slash prices. PSA faces a long drawn out struggle to maintain its status as the premier hub-port. In the past, PSA invested in technology to boost productivity. The unions supported this move and got workers to accept new working conditions and acquired new skills to leverage on the latest in port management technology. This gave PSA an edge over competitors. Today, PSA faces more serious and better-organized competition. PSA management, unions and workers must rally together to create a new business model which will deliver a yet higher level of service to the customers at even more competitive price.
The new challenge is to go beyond "better, faster, cheaper". We do not have the luxury of choice. Our competitors have the potential to manufacture products and offer services better, faster and cheaper than we can. We cannot be the cheapest. Hence we must offer investors a higher level of productivity, cutting edge skills, ability to move first, powered by a new innovative spirit. The ability to innovate is no longer a "nice-to-have", it is a "must-have" in the next stage of our economic development.
Let me give you the example of Seagate Technology, the world largest disk drive maker. Over the years, technological changes and cost had resulted in a sharp cutback in its operation in Singapore. But while other companies were retrenching workers in the thick of last year's recession, Seagate was growing. Its staff strength went up from 8,500 to 9,000. Its latest disk drive has captured 35% of the world market. More importantly, it is the brainchild of the company R&D centre in the Science Park, right here in Singapore. The company started the research from scratch in 1997. The effort to innovate yielded dividends in the form of patents and successful products. Over the past 5 years, Seagate's R&D Centre has grown from 7 to 155 R&D workers. It is Seagate's only research and design centre outside America, supporting its manufacturing plants here in Singapore. This example shows how up-stream integration into R&D, can help to preserve downstream jobs.
To stay relevant and competitive we must find new niche areas and to get there first. Be prepared to give up jobs, which our competitors can do better, such as those in low-skilled manufacturing. We must focus our efforts in new growth areas, such as life sciences, chemicals and infocomm. We should also aim to move up the value chain where we already have a lead as in finance, education and healthcare services. It will be an uphill climb. But we must forge ahead so as to create more jobs for our workers.
Challenge #2:
A Highly Skilled and Innovative Workforce
This leads me to the second main challenge. An innovative economy must be supported by an adaptable, highly skilled and thinking workforce. Human capital is the single most important driver of economic growth in today's environment. The Prime Minister has already urged workers to be adaptable and flexible in choice of jobs. I will not belabour the point. What is also clear is that to succeed in the new competitive environment, the ability to add value may not be sufficient to bring growth and success. To make a difference, our companies and workers must also be able to create value. A good example is Creative Technology. It is never standing still or just churning out more of the same product from past R&D. Instead it goes from Soundblaster to Normad Jukebox to a new computer cum musical keyboard called Prodikeys. For a company to innovate successfully, every employee has to become a creative and thinking worker. For Singapore a highly skilled and innovative workforce is the key to our prosperity. But I must point out that innovation is not only about technological inventions and R&D. Innovation is first and foremost an attitude. It is about cultivating a creative approach to do work better and more productively. Regardless of what we do, whether it is as researcher in Seagate or Creative Tech R&D Centre or a chambermaid in a hotel or storekeeper in a Fairprice supermarket, there are many opportunities for each to do a better and more productive job.
Allow me to give you one example from Fairprice Supermarket in Chua Chu Kang. An alert supervisor noted that depending on contract cleaners caused delays and did not keep the store as clean as it should be. This supervisor proposed that workers keep their own work areas clean instead of waiting for the contract cleaners to come around to clean up. The contractor would still do the heavy duty cleaning. The workers agreed to give the idea a try. It worked and was adopted. The cost saving worked out to $20,000 each year. Workers benefited by receiving a share of the savings. Customers gained from a better and cleaner environment. Fairprice now has a cleaner store, happier customers and workers. This is innovation at a very basic level which translated into significant gains all round. Someone questioned the status quo, took the trouble to think up a better way of doing things and pushed the idea. This is what every worker should do in this era of global competition. Every idea and every improvement can help us to stay ahead.
Challenge #3:
A New Employment Framework - Flexibility and Portability
Workers can benefit from job opportunities in new industries only by accepting changes and enhancing employability through skills upgrading. Today, workers have a heavier responsibility to remain employable. This is the reality that we all face today. Many workers had a taste of this last year. For example, in the banking sector, some workers had lost the only job that they knew, some for more than ten or even twenty years. Without new skills or willingness to accept changes, these retrenched workers may have problems finding new jobs. They could become part of the growing number of structurally unemployed.
The business cycle is getting shorter. Companies are restructuring continuously to remain competitive. Workers can no longer expect to work for just one employer at one workplace and with one set of contractual terms. While many workers and jobs will still be permanent and full-time, there will also be a growing number of part-time, temporary or casual jobs. In many developed countries, companies are now outsourcing some of their responsibilities to third-party labour suppliers. This means that the company where you work might not be your direct employer. We have already seen this happen with cleaning and housekeeping jobs, as well as companies' IT requirements. Even traditional functions, such as payroll and benefits administration can be outsourced, for example, in the US, employeeservice.com offers to take care of a company's entire payroll and benefit responsibilities. To complement the outsourcing trend there will be more highly skilled professionals, offering their services to companies but remaining self-employed. The third challenge is therefore to evolve our wages, benefits and CPF system to be in line with these new workplace practices and the demands of a new global economy.
Our benefits system will need to be transferable, as workers can no longer depend on one employer to meet their medical and other needs until retirement. Hence, we must move towards a portable medical benefit scheme to allow workers to save their unused medical benefits for future use. This will require employers to make additional contributions to a worker's Medisave with which he can purchase medical insurance according to his own needs. Currently, workers who lose their jobs also lose their medical benefits. Any retrenched worker who falls ill faces an added burden of paying for his own hospitalisation bills. With a portable scheme, workers will enjoy medical insurance protection even if they are in-between jobs. For employers, their medical expenses will be more predictable, helping to moderate the increase in medical cost owing to an aging workforce. The portable medical benefit system is a win-win situation for both workers and employers. We must take firm action to move away from the traditional arrangement into this new model to cope with the rapidly evolving market conditions.
Secretary-General NTUC has suggested that the CPF for older workers be reduced to make it easier and more attractive for employers to recruit and retain older workers. This is an extension of the existing age-related CPF contribution rates. Today, workers age 55 and older get significantly lower employer's CPF contribution than younger workers. Younger workers receive a total CPF of 36% (employer 16% and employee 20%). From age 55 to 60, you get total CPF contribution of 18.5% (employer 6% and employee 12.5%). Beyond age 60, the CPF rates are even lower. Is there room for us to make further adjustments so that from age 45 or even 40, workers also get reduced contributions? Workers may find this idea unpleasant. But the world has changed and what was doable in the past may not be workable in the future. I think we should look at this issue seriously and objectively. The purpose is to help older mid-career workers to compete for jobs in the new employment market. This will complement the effort to retrain and re-skill older workers to enhance their employability. But skill upgrading alone may not be sufficient. Under a seniority-based wage system, the higher cost of older workers could become an impediment. As DPM Lee said in Parliament, we are not out to slaughter all the sacred cows. But we cannot avoid a no-holds barred review of the CPF system as we set out to remake the economy. Yes, it will have huge implications for workers and their ability to save for a home, old age and medical needs. These are the cornerstones of the CPF system and they remain relevant today. But we must fine tune and seek a new balance for these old cornerstones so as to survive the challenges confronting us.
A Strong Partnership for Managing Change
We will have to make many changes that will be difficult at the start. Can we afford to resist change? For Singapore, the answer is a clear NO. We will lose our relevance and competitiveness if we fail to change. We have to bite the bullet in the short term. Meeting the three challenges I described earlier is essential if we want to remain relevant to the global economy.
I wish to commend the NTUC for being an enlightened, forward-looking and strong partner in our effort to navigate the change. Our strong and harmonious tripartite relationship has been critical in the attractiveness of Singapore to investors. In the past three decades, the NTUC has been a powerful and responsible voice for workers' needs and interests at the workplace and at national tripartite forums.
I do not think there are many other labour movements in the world that can lay claim to having done so much in enhancing the interests, welfare and capabilities of workers. Hence I am confident that with the labour movement's ability to rally workers, we will be able to transform the economy to face the new challenges and competition. Our strong tripartite relationship gives us an edge to make changes and adopt new practices. It will give the ERC the added confidence to make bold recommendations to restructure and reposition the Singapore economy for a new phase of growth. While the economic challenges ahead might appear daunting, they are certainly not insurmountable. By adopting a new mindset and adapting to the changes, we will emerge stronger to achieve economic growth and social progress for all.
I wish all workers in Singapore a happy May Day.
