Government and Institutions

Michael Gove is wrong. Laissez-faire Singapore is richer than statist Britain


SUGGESTED ARTICLES

Tax and Fiscal Policy
What kind of domestic policies will Theresa May use her enlarged, post-election majority to pursue?

That’s the question Michael Gove asked in his Times column on Friday. One thing she is unlikely to do, according to Mr Gove, is turn Britain into “a Singapore-style small state sweatshop economy”.

Bizarre.

We might quibble about whether or not Singapore has a small state. The Singaporean government compels citizens to save 35% of their incomes to pay for healthcare and pensions. Since the money still belongs to the citizens, the state stays fiscally small. But it is big in bossiness.

Otherwise, however, Singapore is indeed laissez faire – at least, by comparison with the UK and most other Western nations. Employment law allows near complete freedom of contract between employers and employees, and there is no minimum wage or much social welfare. But the result is not, as Mr Gove claims, a “sweatshop economy”.

In 1965, when Singapore gained independence from Malaysia, its GDP per person was US$4,000 (in today’s money), only a quarter of Britain’s US$16,000. Today it is US$53,000, 25% more than Britain’s US$42,000. In the 10 years from 2006 to 2016, the median (real) income in Singapore increased by 30%. If Singapore is a sweatshop economy, what is Britain? A dirt farming economy?

By associating “small state” with “sweatshop economy”, Mr Gove peddles the old, leftist idea that free-market capitalism turns workers into wage slaves, that employers will pay them only enough to subsist. A big state is needed to make sure that workers share in the gains of economic growth.

Simple observation should be enough to refute this idea. Indeed, simple observation of the very country Mr Gove bemoans is enough to refute it!

And, for those who do not care for observation, there is theory. Economic growth increases the opportunities to put labour to profitable uses: that is, it increases demand for labour. Labour is scarce. When demand for something scarce increases, its price increases. Wages are the price of labour.

A big state is no more required to make wages rise in a growing economy than it is to make water flow downhill. It is a shame that Conservative politicians need to be reminded of this.

Further IEA reading: Taxation, Spending, and Economic Growth

Former Director of Research

Jamie Whyte is the former Research Director at the Institute of Economic Affairs. Prior to joining the IEA, Jamie was the leader of ACT New Zealand as well as the Head of Research and Publishing at Oliver Wyman Financial Services. He has previously worked as a management consultant for the Boston Consulting Group, as a philosophy lecturer at Cambridge University and as a foreign currency trader.


11 thoughts on “Michael Gove is wrong. Laissez-faire Singapore is richer than statist Britain”

  1. Posted 24/04/2017 at 14:12 | Permalink

    I visited Singapore a few years back and recall a newspaper article where the unions had requested I think 2 billion Singapore dollars from the government so that workers could train and become more valuable.

    Such a contrast from unions demanding more for doing exactly the same.

    I was working in a factory to improve efficiency and could see how a change in shift patterns would be highly beneficial, this was suggested on the Tuesday, unions were consulted on the Wednesday and it was implemented fully on the Thursday. Was a pleasure to work with these people.

  2. Posted 24/04/2017 at 14:49 | Permalink

    Exactly. The Tories are just a bunch of big-government sell outs like the rest of them.

  3. Posted 24/04/2017 at 15:53 | Permalink

    The reason places like Singapore and Hong Kong can run smaller governments than the UK is because they have a much more coherent set of property rights.

    There are no freehold land titles in Hong Kong as all land titles are leased from the State. In Singapore over 90% of people live in State supplied accommodation.

    While these models for treating land are far from perfect, they highlight the fact that where land is treated the same as capital, the excessive inequalities and economic dysfunction this causes makes a large and overweening State apparatus inevitable.

    If the UK were to shift taxes off wealth creation on the land values instead, the size of the State would half relative to GDP within 20 years. Oddly, this seems to be the very last thing so called Libertarians want to see happen.

  4. Posted 24/04/2017 at 16:08 | Permalink

    Prosperity, growth and economic freedom never comes from large governments. It’s a shame that every generation has to re-learn this.

  5. Posted 24/04/2017 at 17:50 | Permalink

    Can anybody imagine the UK’s Communist unions requesting government money so members can be trained to become more useful?
    Can anybody imagine any UK government spending billions to train up workers to become more useful?
    Can anybody imagine any UK government relying on expert opinion to choose projects that deliver for the public and are value for money and deliver economic growth rather than choose political projects that only work for lobbyists?
    Only in cloud cuckoo land.

  6. Posted 24/04/2017 at 21:27 | Permalink

    FAO: Michael Gove
    RE: Sweatshops

    Do try to sort out the sweatshops of the United Kingdom before hurling insults.
    http://www.telegraph.co.uk/business/2017/03/04/fresh-powers-shut-uks-clothing-sweatshops/

  7. Posted 25/04/2017 at 13:10 | Permalink

    There are few limits on how “efficient” a state can be when you don’t have to worry about democracy too much. Laissez-faire is for everyone, not just business owners!

  8. Posted 25/04/2017 at 14:35 | Permalink

    Hi Benjamin Weenen,
    Land taxes have many virtues, the most obvious being that they cannot reduce the quantity of land (although they may affect which land is used in which ways — usually for the better). And some libertarians are keen on them. To take a local example, Sam Bowman of the ASI (who I think may still be a libertarian) has written in favour of land taxes.

  9. Posted 27/04/2017 at 11:36 | Permalink

    Bowman is a “lukewarmer” who hasn’t really thought it through properly. But then I’d say that about nearly everyone.

    Most Libertarians see the LVT as just another dubious tax. Some reluctantly acknowledge it’s “theoretical efficiency” and see it having a limited role as a replacement for some existing taxes. Any more would ideologically unacceptable.

    Virtually none want to debate the fundamentals ie property rights. My guess is that most are fearful that rather than being a necessary evil to be kept as low as possible, the LVT gives the State a moral justification to levy taxes.

    This knee jerk reaction that all taxes are bad obscures the very reason why the State is the size is it.

    In a relatively short space of time the UK could indeed surpass Singapore and Hong Kong given the right tax/benefits system. Unfortunately, Poor Widows in Mansions have been a very effective human shield that protect the interests of those that do very well out keeping things how the are.

    Instead of debating the fundamental issues, we prefer to blame planning regulations, banking, immigration or any other such nonsense. So nothing really changes.

  10. Posted 27/04/2017 at 18:30 | Permalink

    Mr Gove needn’t worry. There’s definitely no danger at all of May turning the UK into a successful Singapore-style free market economy.

    It looks as though East Germany is her model: all the bossiness of Singapore, but with Eastern-European style stagnation.

  11. Posted 30/04/2017 at 10:25 | Permalink

    Benjamin Weenen is right. I worked in Singapore for six years, earning twice my UK salary but paying half the UK incomes taxes (and very little VAT). Instead, the government imposed very high pension contributions (around 20% each on employers and employees). This money was used by the government to finance infrastructure etc, but all was recorded as belonging to the employees in nominative Central Provident Fund (CPF) accounts and available to be used when the workers retired or for the purchase of apartments. (90% of Singaporeans are owner occupiers.) Property taxes are relatively high, and this is mainly on the very high value of land. And land required for infrastructure projects is acquired at pre-development values through the Land Acquisition Act. Property taxes are then imposed on post-development values, thus recouping the community-created values for the community, instead of taxing earned incomes. As a consequence, Singapore (like Hong Kong) has had an annual average growth rate of about 6% compound compared to the UK’s 2%, and long ago overtook the UK in terms of per capita incomes, wages, and social amenities. Michael Gove’s characterisation is totally wrong.

Leave a Reply

Your email address will not be published.


SIGN UP FOR IEA EMAILS