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STATEMENT BY PRIME MINISTER GOH CHOK TONG ON CIVIL SERVICE NWC AWARD, PUBLIC SECTOR SALARY REVISIONS, AND REVIEW OF SALARY BENCHMARKS, IN PARLIAMENT ON FRIDAY, 30 JUNE 2000

Cost of Good Government and Price of Bad Government

In 1966, the Government sent me to study Development Economics in Williams College in the US. It was a special course for officials from developing countries. I was then a young officer working in the Economic Planning Unit.

2 My class of 20 came from 16 different countries in Asia, Africa, Latin America and southern Europe.

3 We were taught theories of economic development, quantitative programming and other useful subjects. But what we were not taught was the importance of good government as a pre-condition for sustained economic development. This was assumed. But alas, it was an assumption that did not hold true for most of the countries represented in my class. What has happened to these countries since then is instructive. 4 For example, three of the countries have broken up – Pakistan, Ethiopia and Yugoslavia. Nine countries have experienced civil wars, social upheavals or violent changes of government at some stage in the last 35 years – Philippines, India, Egypt, Uganda, Liberia, Mexico, Colombia, Bolivia and Honduras.

5 That leaves only four countries out of the 16 represented in my class without severe political and social strife – Kenya, Tanzania, Malaysia and Singapore. Kenya and Tanzania are not exactly models of economic growth.

6 If I were to do a Ph.D, I would study the relationship between economic development and the quality of government.

7 Empirically, there is clearly a close correlation between the economic performance of a country and the quality of its government. The more competent the government, the higher the economic growth of the country when measured over a long period of time.

8 There are, of course, other reasons why some countries do better than others, why their economies grow faster, why their people enjoy a higher standard of living, and why they have peace and stability.

9 These include a country’s natural resources, its location, and its people. All these are important factors no doubt, but I believe my Ph.D thesis will conclude that the most important factor behind a country’s economic performance and the standard of living it can provide its people, is the quality of the political leaders.

10 There is much wisdom in an old saying that an army of sheep led by a lion is stronger than an army of lions led by a sheep. The former will function as an effective unit. The latter will end up with the lions fighting amongst themselves and the sheep being eaten. People are no different. They have to be led. A people led by a superior government can produce exceptional results. On the other hand, an able people led by a mediocre government will underperform. Worse, if they are led by a fanatical government which fears being challenged, clever people might even lose their heads.

11 Cambodia is a tragic example. Pol Pot and his Khmer Rouge killed off millions of their own people.

12 Uganda is another example. Under Idi Amin, it lost many of its talents. My friend from Williams College, a native Ugandan, had to flee the country. Ugandans of Indian origin who ran the economy were chased out. Today, 21 years after the end of Idi Amin’s reign, Uganda is still suffering from his misrule.

13 India has millions of talented people. Silicon Valley is full of Indians. Indian Singaporeans have contributed significantly to our development. Yet India remains a poor country. It is weighed down by a bureaucratic leadership that prevents India from performing to its full potential.

14 I believe that India is capable of achieving much more. When I was in India in January this year, I put this question to several Indian leaders when we discussed the importance of talents. To what extent of its potential is India performing today?

15 Their estimate was 30 to 40 percent.

Good Government 16 Different people will have different definitions of a good government. My own criteria for a good government are: (1) It must be honest, fair and just.

(2) It must be capable of forging national consensus and social cohesion, and willing to take painful decisions for the overall good.

(3) It must be able to anticipate the future to head off problems and be nimble enough to adapt and seize opportunities when circumstances change. In times of crises, it must be resourceful enough to overcome them. And,

(4) It must be able to improve the standard of living of its people, maximize their potential and involve them in building a better society.

17 I have led this Government for 10 years now. How it has performed is for you to judge, by my criteria or by whatever criteria you choose. In particular, scrutinize our performance in the last 5 years from the time we argued in this House that Ministers and civil servants must be paid market-based wages. Has the performance of my Government justified its wage?

18 Compare the salaries of Ministers and senior civil servants with the benefits you receive from having a good government. Look at it from the viewpoint of results, that is, the value of output and not the cost of inputs alone. Has my Government given you “safe homes, stable jobs and fuel to dream of all the tomorrows?”, as a member of the public put it. She wrote to express her appreciation for my “keeping the country well oiled and well run”. 19 You might not have systematically evaluated the performance of the Singapore Government, but many international consultancies have.

20 I would like to refer to some of these professional third-party evaluations, not to blow our trumpets, but to underline the value of a good government.

21 First, Singapore's economic competitiveness. This year, for the seventh year running, the International Institute for Management Development in its annual World Competitiveness Yearbook ranked Singapore the world's second most competitive economy after the US. Another think-tank, the World Economic Forum, thinks we have done better. In its 1999 Global Competitiveness Report, it ranked Singapore as the world's most competitive economy for the fourth year in a row.

22 Both analyses regard the effectiveness of government policies as a key factor contributing to the overall competitiveness of a country. In the World Competitiveness Yearbook, Singapore came out first on the extent to which government policies are conducive to competitiveness. In the Global Competitiveness Yearbook, Singapore was also ranked first in many areas of government, including economic policies and public sector competence.

23 The Straits Times and Zaobao recently carried a survey by the Political and Economic Risk Consultancy (PERC) on the quality of various Asian governments. The report by PERC showed Singapore to have the best quality of political leadership among the major economies of Asia. Singapore's economic policies were also deemed to be the most effective. The PERC report said, "A nation's per capita GDP is a good example of the effectiveness of a particular government's economic policies." It goes on to say that if it were to go back fifty years and pick those countries of Asia which would be dominant economies today, Singapore would have been considered an economic backwater compared to places such as Manila. But Marcos rode the Philippine economy into the ground, whereas Senior Minister guided Singapore to our achievements today in an "amazingly short period of time.”

24 Another PERC-produced report in March, Asian Intelligence, also reported that its respondents had "consistently rated Singapore as having one of the best bureaucracies in the region" and that "Singapore is widely regarded as a place where things get done, and get done efficiently." 25 But it is not only in the area of economic policy that international analysts have rated the Singapore Government highly. In "The Economic Freedom of the World: 2000 Annual Report", published by the CATO Institute in Washington DC and Canada's Fraser Institute, Singapore scored full marks for its legal structure and property rights. In PERC's Comparative Country Risk Report 2000, Singapore's judicial system maintained its top position in Asia. PERC commented, "Singapore's legal system has an excellent reputation among businessmen for being fair and effective, if a bit harsh at times." More recently, Lord Woolf, one of Britain's most senior judges, was so impressed by the smooth functioning of the Singapore judiciary that he wished the courts in his country would follow some of the processes here.

26 In the area of health, the World Health Organisation earlier this month assessed Singapore to have the world's sixth best performing health care system among 191 member states surveyed.

27 Our education system has also come in for praise from foreign experts. US Education Secretary Richard Riley, when he was in Singapore recently for the APEC Education Ministerial Meeting, commented that there was a lot the US could learn from Singapore's education system. In the third and latest International Mathematics and Science Study some years ago, Singapore’s 13- year olds came in first among 41 countries in their ability in science and mathematics. This is clear testimony of the effectiveness of our education system. Some US schools are even using our mathematics textbooks.

28 These are but a sampling of the international assessments of the performance of Singapore and the Singapore Government.

29 Singaporeans take all these assessments and high rankings for granted. But pause for a moment and ask yourself how we have managed to achieve first world standards in so short a time and with so little resources. Could it have been done without leaders of integrity, ability and dedication to the people they serve?

Test of Government

30 The true strength of a government is revealed when it is put through the most severe crisis. This Government has been put through one in the recent Asian financial crisis. The financial storm devastated the economies of South Korea, Thailand, Indonesia and Malaysia, but left Singapore relatively unscathed.

31 Just consider the damage to these economies in 1998. 32 South Korea’s economy shrank by 6.7%.

33 Thailand’s economy shrank by 10.2%, Malaysia’s by 7.4%, and Indonesia’s by 13%.

34 In contrast, Singapore avoided a contraction in 1998. Our economy still grew, if only by 0.4%.

35 Suppose we had not managed our economy well. It could easily have shrunk by 5%. This would have taken off $9.5 billion (at current prices) from our GDP. Divide this by a population of 3 million and you will get a loss of$3,166 per person. This is an indication of the price each Singaporean pays if we had not managed our economy well.

36 In contrast, what was the total annual salary for all political office-holders in 1998? About $28 million.

37 What is the total salary increase we are proposing for political office- holders? About $6 million. With the salary revision, the annual salaries of all political office-holders will rise from $28 million currently to $34 million. Is this a lot of money when compared with the $9.5 billion damage to the economy that could have been inflicted by the Asian financial crisis? Is this a lot of money when they amount to only 0.024% of our 1999 GDP of $144 billion (at current prices)?

38 Let me put it simply: the damage we had prevented to the economy from the Asian financial crisis is more than enough to pay the Ministers and the other political office-holders for the rest of their political lives and in fact over many lifetimes!

39 The Asian financial crisis has distinguished us from the other regional economies. Recently, an American asked the US Ambassador to Singapore, Mr Steven Green, on the Internet: “Why was Singapore affected less than the region during the economic crisis?”

40 His reply: “In one word, it is management. Singaporeans are very fortunate to have a government that is very well-managed, very far-sighted and willing to embrace change.” (ST 21 June, 2000).

41 Foreign governments and investors have noted our strengths in the crisis. Our ability to withstand the crisis has increased confidence in Singapore. This is obvious from my many meetings with foreign investors both in Singapore and abroad. We are going to see more foreign investments come in. This means more jobs and better jobs. 42 Let us put the salaries of Ministers in their proper perspective. A million dollars for a Minister seems a lot when compared with the salary of a worker. But $34 million for all the Ministers and political office-holders is a tiny drop when compared with the increase in GDP that a good government can produce. For every 1% growth, the GDP increases by $1.4 billion.

Good People for Good Government

43 So how do we produce a good government? Get the best to serve the country.

44 A good government does not come naturally. It must be systematically created through active recruitment of good and able people. You cannot just leave it to the electoral process to throw up a good government. If the present ruling party is not able to persuade some of the best people to enter politics, you will have only weak men and women to choose from to form a government.

45 After every election, we immediately look for new candidates for the next election – from the civil service, SAF, Police, statutory boards, GLCs, the professions and the private sector. Since the last GE, we have already invited nearly 250 Singaporeans in their late 20s to mid-40s for tea sessions. By the time of the next GE, we would have met 400 to 500 potential candidates. Out of them, we hope to find 15 to 20 with these 5 “Cs” qualities: (1) Capability: Does he have a record of good performance? Does he have the potential to become an office-holder? Does he have good judgment? Does he have leadership qualities?

(2) Character: Does he have character flaws? Is he able to get on with people and motivate them?

(3) Compassion: Has he done things for others beyond his own family? Does he care for others?

(4) Conviction: What does he believe in? What does he want to achieve in life? What motivates him? Why does he want to be an MP or a Minister?

(5) Commitment: Is he loyal to his friends? Will he stay the course?Will he fight when the chips are down?

46 If we assess that a person is interested only in politics as a career move, he will not be chosen as a candidate. If he is attracted only by the pay, he will not be selected as a Minister. But that does not mean we should not pay a Minister what he is worth. We are targeting the top people to be Ministers. They are high-income earners or will be in their non-political careers. We will have to pay them a competitive, market-based salary so that pay will not be an obstacle discouraging them from entering politics.

47 Professor Joseph Nye, Dean of the Kennedy School of Government at Harvard University, made the same point in a talk in Singapore last year. He said: “Singapore is very wise. You need to attract good people into government, and paying high salaries reduces the incentive for corruption.”

48 On his point on corruption, Singapore’s policy of paying our public officials market-based wages has helped us create a corruption-free environment. Transparency International, an NGO dedicated to fighting corruption worldwide, has consistently ranked Singapore within the top ten least corrupt countries in the world, since its index was first published in 1995. Among Asian countries, we are rated the least corrupt.

49 Professor Nye added that the high salaries also helped “lateral entries” from the private sector into government. He said that this was important in a modern economy with a complex, fast-paced financial sector, as government decision-makers would need the inputs of private sector practitioners.

50 Professor Nye was right about lateral transfers. When we identify a suitable young man (or woman) with the potential to be a Minister, we have to persuade him to give up his bright prospects in the private sector for an uncertain future in politics. Benchmarking Ministers’ salaries to what the best in the private sector earns, makes it easier for us to get some of the best people to become Ministers.

51 Some may argue that you do not have to pay so much to get people to join the public sector or become Ministers, and that there will always be people who want to become Ministers or civil servants. Quite right, if you think in terms of quantity, not quality.

52 The Economist (May 8, 1999) in an article on “The Politics of Envy” asked: “Why do governments systematically underpay their top people?” And answered that it is the tendency to think in terms of quantity, not quality. 53 Andrew Oswald, an economist at Warwick University, was quoted in the same article: “Governments can set low pay and still get workers. It is the quality that will adjust. I doubt whether western democracies have fully grasped this. Governments still tend to count the warm bodies applying for occupations.”

54 But not this Government. It goes for quality, not merely warm bodies, and certainly not seat-warmers. That is why we have performance bonuses for political office-holders. Ministers are paid in accordance with their performance. I believe we are one of very few countries to do this. I shall now ask the Clerk of Parliament to hand out a table showing the distribution of performance bonus received by political office-holders. This is to answer the point raised by Mr Inderjit Singh that the performance of office-holders should be properly evaluated (Table 1). From the Table, you will see that only 3 Ministers received performance bonus of more than 4 months. We have been stringent with our evaluation. The office-holders were given similar tables at the time they received their performance bonus. They now how they have been evaluated.

55 We also insist on self-renewal. MPs and Ministers, even though they are performing well, will at the right time, have to make way for younger people.

56 In future, Permanent Secretaries too, even if they are good, will have to make way for younger people. Otherwise, younger people with high potential will not stay long enough to become Permanent Secretaries.

Timing of Salary Revision

57 Some MPs have told me that while they support the salary revision for the public sector, they are concerned about the timing because the CPF cut has not yet been fully restored.

58 There are two reasons why we are proceeding with the salary revision now.

59 First, in November 1994, when we debated the White Paper on Competitive Salaries for Competent and Honest Government, we said that the salary benchmarks would be reviewed in five years’ time.

60 Second, the gap between private sector and public sector pay has become a gulf since the start of the Asian financial crisis. This is because the Government froze the salaries of Ministers and top civil servants during the crisis. This was despite the fact that the salaries were due for upward revision. For example, the private sector benchmark for Ministers’ salaries at Staff Grade 1 had increased by 13% in 1998 and 29% in 1999. Not to adjust the Ministers’ and civil servants’ pay now when we have emerged from the crisis and resumed strong growth, and especially when it is fully justified by the private sector benchmarks, is to fall into a state of paralysis experienced by governments elsewhere when they faced the issue of public sector pay revision. Because they were unable to keep the salaries competitive vis-a-vis the private sector, inevitably, their countries saw a decline in the quality of people wanting to be MPs, Ministers, judges and civil servants.

61 We are not, however, insensitive to workers’ feelings and public sentiments. Because the CPF cut has not been fully restored, we are not restoring immediately the pay of Ministers and top civil servants to the private sector benchmark for Staff Grade I, but phasing it in over three years. These office- holders will receive only 80% of the benchmark in the first year. The basic monthly salary for Ministers will therefore increase by only 0.3%this year. With bonuses, the annual increase for Ministers will be a modest 12%.

Today’s Realities

62 In debating the salary revisions, let me remind you of some realities we cannot run away from.

63 First, we are seeing a global convergence in the pay of top executives. Globalisation and technological advances in transportation and communication have led to increasing mobility of this group of people. They are able to move easily around the world in search of the best employment opportunities. If they do not get internationally competitive remuneration in their country, they can easily uproot for other more favourable opportunities in another country. Companies are therefore increasingly pressured to pay internationally competitive salaries for top executives, regardless in which country they operate.

64 Second, our job of retaining talents is made more difficult because Singaporeans, with their proficiency in English and high competence, are mobile and in great international demand. American universities and MNCs regularly cream off our scholars and bright students who study in the US.

65 Third, we must make a rapid transition to a knowledge-based economy. We have done the easier parts like building infrastructure, putting in place a business-friendly environment, and training our workers for skilled jobs. The next phase is much more difficult. We have to create new products and services ourselves and not merely add value to other people’s products. With globalization and the IT revolution, competition has heightened. It is a new ball game altogether.

66 Overall, what all this means is that the wages of top private sector talents in Singapore will face significant upward pressure in the coming years. Companies in Singapore will have to pay their top local executives internationally competitive salaries to retain them. Certainly, they have to pay internationally competitive salaries for foreign talents. But let me add here that expatriates are excluded from the calculation of the salary benchmarks.

67 The Government has no choice but to match these upward trends in private sector pay in order to attract its fair share of talents. But the Government does not intend to be a price-setter. It will not lead the pace of pay revision in Singapore. It will only be a price-taker. We will only respond to the trends in the private sector, with a lag of one year, to ensure that public sector pay remains competitive.

68 Another reality we cannot escape from is the widening income gap between the top and bottom earners. In every society, there will always be a bottom 10% and a top 10% income earners. The Government cannot artificially reduce the income gap between these two segments of the population by forcing upwards the salaries of the bottom 10%, or forcing downwards the salaries of the top 10%. This is a market economy, not a command economy. What the Government will do, however, is to ensure that all Singaporeans have an equal opportunity to make it to the top 10%. At the same time, we will help the relatively poor to ensure that they also benefit from the general increase in prosperity. The Government has already put in place a system of subsidies for education, health and housing. It has also implemented several assets- enhancement programmes. We will continue to help the lower-income Singaporeans increase their assets, as well as improve their earning capacity through training and skills upgrading. We will give them hope through investments in their children’s education and future.

Conclusion

69 As Prime Minister, I have travelled widely and seen many governments at work. Our Ministers can stand their own against most of their counterparts elsewhere. We have a Cabinet Singapore can be proud of.

70 My most urgent job now is to make sure that there will be a successor team which can manage Singapore’s complex economy in an increasingly competitive global environment, and which also understands the concerns of the man-in-the- street. I can build up this team only if we are able to persuade good men and women into politics. 71 The difficulty here is that a political career is not the natural or first choice of most able Singaporeans. Other major advanced countries too, like the US, face the same problem.

72 We have to overcome this problem. Singapore has left behind the revolutionary stage where leaders emerged to lead a historic movement with little thought of pay. We are in a steady state of development where fortunes can be made in the buzz of the private sector. There is much excitement in the new world of dotcoms, financial services, life sciences and R&D. Most able Singaporeans prefer to seek fulfillment in these challenges rather than in politics. If we fail to get a group of these bright, able and honest Singaporeans to form the political core of Singapore, then over time, the standard of government will go down, and Singapore will crumble.

73 Singapore is vulnerable. It does not have any natural resources except our people. Our people have been fortunate to be led by a good and competent government since 1959. It will be very shortsighted and costly for Singapore if we grudge good Ministers their due, and settle for lesser men in government in the future.

74 I have gone through the proposed revisions to public sector salaries and salary benchmarks thoroughly. I am satisfied that they are fair. I do not think they are generous, given the Ministers’ huge responsibilities and impact on our people’s lives. I want the right people to do these jobs. So should you.

75 That Ministers’ pay is a source of envy for some people is not necessarily bad. We are more likely to recruit good Ministers this way. I would be extremely worried if it were the reverse. If Ministers envy the pay of their counterparts in the private sector, that is the first step towards corruption.

76 Several MPs have advised me that we must deal with the emotional reaction of Singaporeans over the salary revision. They themselves support the market-based salaries but are concerned that the man-in-the-street will not understand why Ministers have to be paid high salaries. I understand these emotions. But I have faith in the judgment and rationality of Singaporeans. I have no doubt that some Singaporeans will react emotionally and will not accept our arguments. But I believe most Singaporeans will listen to the logic and make a rational decision. They have always done so. A rational and practical approach to problems has always been Singapore’s hallmark. Otherwise, Singapore will not be where it is today. 77 To conclude, let me go back to my Williams College days. I have often wondered what has happened to my classmates.

78 What has happened to my Ethiopian friend, who already had six children at Williams College? He was a high official in the government of the late deposed Emperor Haile Selassie.

79 As for my Yugoslav friend from Croatia, I wonder whether his children had to fight fellow Yugoslavs to become Croatians?

80 What about the Pakistani official from East Pakistan who became a Bangladeshi? His government house overlooking the port of Chittagong was shelled during the war.

81 Fortunately, there were other classmates who have done well, retiring in high government positions. But their countries have not lived up to their dreams when they were young men at Williams College, eager to learn and eager to put into practice what they had learnt.

82 The real lesson for me from Williams College was: Without a good government, all the good theories of economic development count for nothing. Countries with weak or bad governments will go downhill, suffer internal strife and may even break up. They will not be able to deliver a high standard of living for their people. And when a country goes down, it is not the able people who will suffer most. It is the man-in-the-street. They are the people who cannot migrate easily. They are the ones who need a good government most.

83 So ask yourself: “Where will Singapore be 30 years from now? What type of government will produce you a safe, stable and prosperous Singapore?"

84 Let me help you answer the questions by giving you some simple arithmetic.

85 First, the wage cost of all the political office-holders will be $34 million after this pay revision. This is the cost of government. There are 3 million Singaporeans. What is the cost of government per capita? $11 per year or about 5 plates of "char kway teow" per Singaporean. 86 Second, in 1995, the Government made a contribution of $200 into the CPF account of all Singaporeans aged 21 and above and an additional pro-rated contribution of up to $300 to those who had contributed $750 themselves to their CPF account. The total amount paid out was about $800 million. What was the payout per Singaporean? $270, if we divide it by a population of 3 million.

87 We can do more such CPF top-ups in future, provided we have good growth. $11 per capita per year for a government that can produce good economic growth and give you $270, even if it is once in 5 years, is surely good value for money.

88 Summing up, it is wrong to focus on the individual pay of Ministers. He is only a member of a team. You should focus on the cost of government and the benefits and consequences of having that government. What is the cost of my Government to each Singaporean? Five plates of "char kway teow"! What was the price each of us would have paid if our economy had shrunk by 5% during the financial crisis? $3166! And this price is only an example of the huge price you have to pay for a weak or bad government. 89 We have put in place a virtuous cycle of good government, economic growth and benefits for the people. For your own benefit, it is wise for you to strengthen, not break this cycle......