Thursday, February 05, 2009

Will Subsidies to Companies help save jobs?

It seems that there are many people who are skeptical about the subsidies (yes, PAP calls it whatever it likes to hide the fact that it has gone against its principle on giving subsidies or handouts to individuals) that the PAP government is handling out.

Lucky Tan has written an article on effectiveness of the wage subsidy. The Online Citizens has an article that doubts about the effectiveness too. Even Mr. Low Thia Kiang has stated his view that this wage subsidy policy will be ineffective.

In my own article one day before the announcement of the budget, I have suggested similar wage subsidy policy via CPF but with conditions attached. The estimate cost of this scheme is about $3 billoin to $5 billion.

There is no doubt that jobs will be saved by this wage subsidy. The concerns raised by various people are:

1) whether the number of jobs saved justify the total cost.
2) money will be given to companies that are profitable.
3) due to dropping demands, companies are going to retrench anyway.
4) no handouts to Singaporeans but to businesses.
5) foreign businesses will benefit.

I have always been criticising the PAP government of treating Singpaoreans as mere economic digits. One may think that saving 50,000 jobs is small in comparison to the amount of money spent. But these potentially unemployed people are human beings, not just mere digits. There may be 3 or 4 more people affected by each unemployed person!

I have mentioned in my article on the Budget for Crisis of Confidence that the aim of the budget is to maintain social confidence in the economy. Saving jobs is merely means to the end of maintain social confidence.

There are two aspects to be taken care of. One, the consumption side. Secondly, the investment side. Wage sudsidy at this critical point of time is important as it serves to maintain the consumption confidence by keeping jobs. On the other hand, it gives a cushioning effect to the business side.

Of course, to maintain the consumption confidence, more should be done. Things like unemployment benefits is crucial to maintain consumption level. Unemployment benefits could be an useful instrument to balance up impact of recession: social welfare spending in unemployed benefits will increase when recession is here. It helps to cushion a declining in domestic consumption.

Some of the points raised by those who are skeptical about the wage subsidy are valid. Those companies which are making money should not be given such wage subsidy, especially those companies which are protected by the government to maintain profitability. eg. Public Transport companies, Public Utility companies.

Put it this way, if anyone find it unreasonable for government to help profitable companies, they should instead protest against the corporate tax cut instead.

But this is a matter of policy implementation. Such wage subsidy must be given with conditions attached.

In my article I have qualify my stand very clearly. There are things that the PAP government could do, there are things not within their control. External demand is not within their control, thus whether a company will retrench because they are suffering from dropping external demand is not within the control of the government. But the truth is, such wage subsidy will still help these companies affected by external demand to ease their cashflows even if they have to retrench their staff. They may end up retrenching less people due to the savings they get through the wage subsidy.

The argument of unemployed are not given handouts or SMEs having less help, thus wage subsidy should not be there is totally flawed. We could actually request the PAP government to DO MORE instead of cutting this wage subsidy to finance other schemes!

The main strategy of the present budget should be extending the local economy as long as possible and not let it die down before the global economy recovers. At the same time, the government should invest in infrastructure, especially technological infrastructual, to prepare Singapore for boom time.

To achieve the first aim, internal demand should be maintained or even boosted as long as possible. A robost economy has to be maintained by domestic consumption confidence.

We have always depended on foreign companies for our economic development and this is due to PAP's past economic development policy. Although I do not agree with PAP's policy that over dependence on foreign MNCs for economic development, but at this moment, the primary aim is to save a dying man who is bleeding profusely. If it needs foreign medicine to save the dying man, so be it. We will talk about long term development after we could help our fellow citizens to tie over this difficult period.

Goh Meng Seng

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