Discuss whether Singapore is among the economies that have most to gain from freer movement of labour and capital between countries. [15 marks]

Chapter: Globalization

Assess the benefits of globalization on Singapore and the determining factors that explain why Singapore gains the most from the effects of globalization more than other countries.

   07 August 2018

economics tuition notes definition

Globalisation contributes to freer movements of labour and capital is measured by openness to labour, namely inflow of foreign workers and foreign talents and capital flows in terms of foreign direct investment and flows of ‘hot money’. Due to our small population, there is a constant need to maintain a productive labour force, where the free flow of labour due to globalization is vital to our growth. The free flow of funds will enable Singaporeans to raise the rate of capital accumulation to generate higher rate of growth. In this essay, we will examine how Singapore can gain from this economic development.

Singapore is able to benefit from the freer flow of labour. One reason is that Singapore can overcome limited and small size of population. There is a great need of labour supply to fulfill the labour demand from that industries Singapore canvass from growth of foreign direct investment (FDI).

Second, it can compensate for the labour shortage in selected industries and segments of industries and enhance firms’ strategies to diversify and raise efficiency of the industries. In the newly set-up growing industries, there is a need to supply foreign expertise who are familiar with the operation of business. This will enable Singapore to be more efficient in this industries development as more productive workers can be employed.

Third, freer flow of labour can help Singapore workers attain higher wage rate and ascent to higher-valued production work. Lower cost of production can be attained by employing foreign workers as total wage cost can be lowered, enabling Singaporean workers to raise wage rate without increasing the total wage cost.

Fourth, freer flow of labour will be beneficial to overcome the shortage of labour in industries, which Singapore workers shun but are critical industries for the development of our economy. For example, in the construction industry, not many Singaporeans are willing to work in the industry as construction workers but the Singapore economy needs a sizeable construction workforce to set up infrastructural facilities and meet the housing needs.

Aside from the benefits of freer flow of labour, Singapore can benefit from freer flow of capital as well. One reason is that Foreign Direct Investment (FDI) not only added to the stock of domestic capital to finance investment, but also provided access to new technology and managerial and marketing know-how.

Second, an increase inflow of foreign capital has led to the construction of trade links. Efforts by the Economic Development Board (EDB) to lure multinational corporations (MNCs) have helped Singapore workforce to gain international expertise from working for and with these foreign companies. For instance, Hewlett-Packard Singapore.

Third, many MNCs in Singapore, such as JP Morgan Chase and Deutsche Bank firmly believe in sharing their expertise with local employees. By drawing from a pool of foreign expertise made possible only by strengthening trade links, the Singapore workforce is built to be competitive, knowledgeable and flexible. Hence, globalization has proven to be beneficial.

This kind of foreign investments should not require excessive low-wage labour but generate jobs that are of high value. Singapore has total stock market capitalizations that exceed her GDP. Capital markets provided a useful mechanism for the government to raise capital through the sale of state-owned enterprises, and thereby lessen their reliance on sovereign debt.

Lastly, the development of a critical finance industry that will support the growth of the economy with supply of fund for trade, production and investment, which are critical to the growth of the economy.

It is important to analyse why Singapore is able to gain more than other economies from free flow of capital and labour.

For the attainment of benefits due to freer flow of labour, one possible reason is the use of effective and efficient manpower development policy. Extensive training and development are provided to workers, enabling them to move up the production ladder. Second, there is utilization of foreign labour at an appropriate level, by ensuring that they are suitable for our development of our industries. Besides, conversion of foreign talents to local citizens or permanent residents to expand the local working population on a more sustainable level.

As for capital flow, the government is able to develop a strong financial framework and tax system to ensure the stability of the capital market. Also, the government ensures that firms are able to utilise the extensive flow of fund for the inducement of investment by transferring flow of fund into the equity market. Furthermore, there is efficient financial structure that will help to provide fund for the development of the financial centre, enabling the growth of industry to raise the new employment industries. Lastly, the Singapore government’s capacity in integrating manpower policy and capital accumulation and other economic policy to better top the benefits of free flow of labour and fund to develop key industries in Singapore and to enable Singapore to expand regionally, through trade development and overseas investment. Hence, Singapore is able to gain more than other economies from effects of globalisation.

In conclusion, an effective exchange rate management system is crucial to ensure that foreign investors will able to attain a stable and strong rate of return in Singapore while the workers’ wage rate after conversion from Singapore dollar into local value is higher and stable. By doing so, Singapore can then enjoy the benefits of globalisation.