View: Are The Water Price Hikes in Singapore Announced in 2017 Justified?

This economics view post is contributed by the editor of JC Economics Essays

The Budget and Committee of Supply Debates 2017 in Singapore had many economic policies announced. However, one major announcement stood out and generated a lot of debate, including many negative views – yes, the water price hikes, especially the figure of 30%.

In summary, the issue here is that the price of water in Singapore is set to increase by 30 per cent in two phases, from 1 July 2017 onwards.

This economics view post argues that while some may say the hikes are not justified, the reality is that the water price hikes are based on sound economics and are needed, necessary, and important for Singapore’s survival.

Before we delve into economic terms like "LRMC" and "pricing" and "infrastructure", there are of course, non-economic arguments based upon reasoning about Singapore’s strategic imperatives and our fundamental vulnerabilities.

Singapore’s Deputy Prime Minister Teo Chee Hean said, rather clearly, that water is critical to Singapore's survival, and Singapore has adopted a strategic approach in planning for its water supply. It may not be a very well-known fact that water is tied rather closely to Singapore’s sovereignty, a significant reflection that water is critical to Singapore’s survival. According to the National Library Board, the Separation Agreement signed between the governments of Singapore and Malaysia on 9 August 1965 guaranteed the 1961 and 1962 water agreements.

As DPM Teo went on to say, "Our struggle to make sure our people have water, is the struggle for Singapore's survival and independence… To make sure that we could survive, preserve our independence and thrive, we have taken a strategic approach to planning for water supply.” 

This strategic argument reflecting the importance of water has actually led to concrete steps taken to reduce Singapore's dependence on imported water and raise Singapore's water security. 

To reduce Singapore's dependence on imported water from Malaysia, the government has increased the size of the local water catchment area (in other words, reservoir water) and to build up water supply from non-conventional sources, namely NEWater (in other words, reclaimed water or less glamorously, “sai chui” in Singapore local parlance) and desalinated water (in other words, treated seawater), by setting up water treatment plants in various parts of Singapore. In total, these form the four national taps of Singapore.

The real success of the four national taps came in 2011. When the 1961 water agreement with Malaysia expired, Singaporeans did not face a disruption in water supply, and the event passed almost unnoticed.

DPM Teo went on to argue that, in the same vein, Singapore must prepare now for 2061 when the second water agreement with Malaysia, which currently meets half of Singapore’s water needs, expires. Besides preparing for the future, DPM Teo also warned of a more immediate worry (at least in the near term). Johor's Linggiu Reservoir is only one-third full and there is a danger of it failing in prolonged dry weather – and the water is needed by both Malaysia and Singapore. 

Other than the fact that the water source is under stress, while bilateral ties are sound today, where in recent years Singapore and Malaysia have shared a good relationship, what would happen if climate change and increasing water scarcity makes it challenging and difficult politically for Malaysia to export water to Singapore?

However, let us turn to the economics and look at the issue from an economics perspective. 

While housing, healthcare, and education are subsidised in Singapore, because they are essentially merit goods, it was argued in Parliament that water has to be priced fully because consumers must feel the price of water to realise its value. It is a sound economic principle that the ones using the water should be the ones to pay for it. In other words, the Minister of the Ministry of Environment and Water Resources, Masagos, is essentially right in terms of economic reasoning – water is not a merit good and should not be subsidised, whereas there are foregone positive externalities to society or there would be under-consumption of goods such as housing, healthcare, and education if they were not to be subsidised by the government. 

Now for the pricing itself, beyond the economic principles. 

Minister Masagos said in Parliament that even with the impending 30 per cent hike in water prices, the price of water here will fall short of the Long Run Marginal Cost (LRMC) — which is the increase in cost of producing an additional unit of water, over the long run, arising from increasing production. 

In other words, he argued that the increased price of water will bring up the pricing to nearer the true LRMC of water. 

With the 30 per cent increase, the price will be close to, though slightly lower than, the price of the next drop of water or LRMC. This is the best way to emphasise the scarcity value of water, because the price will fundamentally reflect the long run cost of the next drop of water – and this is based on economic reasoning. If the price is equal to the LRMC, production would be allocative efficient - a concept familiar to economics students, where the price reflects the additional (i.e., marginal) cost of production. 

In Parliament, it was revealed that the LRMC of water comes from the costs of NEWater and desalination. And between the two, Singapore will have to depend more on desalination – which is more expensive than NEWater – to meet increasing water demands, as there is a limit to recycling used water in the NEWater plants. For example, three more desalination plants will be built by 2020. 

And why are the relatively cheaper NEWater plants not being used instead? The answer is that as the proportion of water being reclaimed for NEWater increases, waste water becomes more concentrated, thus becoming difficult and even more costly to treat. 

In addition, it also costs the government more to build new and replacement pipes to deliver water - thus adding to the LRMC.

In the final analysis, while there are actually solid strategic reasons for raising the price of water to build critical infrastructure to ensure Singapore’s future, the price hikes are based on sound economics.

JC Economics Essays – This is an economics blog with views, opinions, and perspectives on a wide range of socio-economic issues. It also has a wide range of A level economics essays answers. 

Since 2007, this useful and popular economics blog has assisted students with economics essays, in particular the A level Economics examinations at H1, H2, and H3 levels, and the International Baccalaureate (IB) Economics too.

And there are many economics essays on this site that economics students can access, read, and reflect on for improving their essays and learn how to answer examination questions. Thank you for reading and cheers! 

A Summary: Singapore’s 2017 Budget Statement Aims to Build Singapore's Future Economy

This economics summary of Singapore's Budget 2017 is contributed by a former economics lecturer

What Happened? A Brief Summary of Budget 2017

In his 90-minute speech to Parliament on Monday, 20 February 2017, Singapore’s Minister for Finance, Mr. Heng Swee Keat, focused on future economic challenges facing Singapore.

With economic growth surpassing some economists’ expectations last year in 2016, Singapore's Budget 2017 looks to the future by earmarking S$2.4 billion to roll out multi-year economic schemes. 

These economic programmes are in addition to the industry-level transformation initiatives, totalling S$4.5 billion, rolled out in 2016’s budget.

But at a time of slowing economic growth in recent years, some S$1.4 billion is also set aside to help firms and workers, and provide additional economic support for individuals, households, and the disadvantaged, to help promote an inclusive society in Singapore. Even with economic support measures, the Singapore government still – nevertheless – wants to continue promoting a sense of self-reliance in companies, workers, and families, and encourage partnerships to drive the Singapore economy forward.

Some Economic Figures – Economic Stimulus

Broad economic stimulus measures were avoided, and instead the government aimed for targeted economic measures in 2017. As Minister Heng commented, "Budget 2017 is an investment in our economic transformation and social resilience." This is an important point. Budget 2017 is expansionary, with total expenditure coming to S$75.07 billion, some S$3.68 billion more than for FY2016.

The Singapore budget surplus, lifted by S$14.11 billion in net investment returns, is expected to be at S$1.91 billion, or 0.4 per cent of Gross Domestic Product (GDP). This is S$3.27 billion smaller than the FY2016 surplus. Nonetheless, Minister Heng reassured the House that "this budget position is prudent, while supporting firms and households in the midst of continued economic restructuring."

Singapore is Undergoing a Key Transition as Our Economy Matures

Budget 2017 comes at a time when Singapore is undergoing a "key transition" as the economy matures. Singapore’s open and trade-dependent economy reported 2 per cent growth for 2016, one of the slowest years since the 2008 global financial crisis. Structural economic shifts towards economic productivity are also weighing on companies and the labour market.

And the International Context is Changing and Evolving  

At the same time, deep economic shifts and economic uncertainties are happening rapidly and globally for trade and investments, businesses and jobs. In fact, Minister Heng commented that at the last Budget, issues like Brexit seemed remote and the US had just started the process of electing their new President. He further said that events since then were a stark reminder of how quick and unpredictable change could be.

Expand Overseas - Go, Go, Go 

Minister Heng unveiled a S$2.4 billion response, spread over four years, to execute the Committee of the Future Economy (CFE) recommendations. The report laid out economic strategies to help Singapore remain relevant amid a fast-changing world. Rejecting the inward-looking economic mood of some advanced economies, Mr Heng said that a key thrust is to help Singaporeans and companies tap overseas economic opportunities. In that vein, a S$600 million fund will be set up to support firms expanding overseas. Called the International Partnership Fund, it will co-invest with Singapore-based firms to help them scale up and internationalise.

Digital Economy – and Digital Economies

There will be economic help for small and medium enterprises to gain digital technological capabilities, and to use them effectively. Plans were also drawn up for research agencies like A*Star in Singapore to help companies tap innovation or co-develop intellectual property so that companies can grow.

But Singapore Will Support Firms and Workers in the Short Run

However, in a nod to the slow economic growth environment, Budget 2017 also responded to the near-term economic concerns of firms and workers. To tackle cyclical concerns, foreign worker levy increases for the marine and process sectors will be deferred by one more year, while S$700 million worth of public-sector infrastructure projects will be brought forward to support the construction sector. In addition, there will be enhanced corporate income tax rebates, while eligible businesses, especially smaller ones, will receive help in coping with higher wage costs. Some S$26 million per year will be set aside to help train workers looking to take new jobs or go for work attachments. Economic measures were also unveiled to support families, including more public housing grants and a personal income tax rebate of 20%, capped at $500, which is definitely a welcome measure in such tough economic times.

Sustainability – Spending Caps, Taxes, Carbon Taxes, and Water Taxes

With increasing spending demands, Budget 2017 put in place measures to ensure fiscal sustainability, while pointing to longer-term tax policy changes. For example, Minister Heng said that all ministries and organs of state will lower their budget caps by 2 per cent permanently. And a new carbon tax on emission of greenhouse gases was proposed, while water prices will be hiked by 30 per cent in two phases to reflect the increased cost of producing water, and to signal the importance of water to Singapore’s survival.

And What’s Next?

Singapore’s Parliament will convene on 28 February 2017 to debate the Budget, and then after the Budget Debates are concluded, the Committee of Supply 2017 debates will begin.

JC Economics Essays - Singapore Budget 2017 special. This short summary and opinion piece will help A level economics students understand the issues surrounding budget and the parliamentary process better. Thank you for reading and cheers! 

View: The Economic Impact of Disruptive Tech on Singapore's Economy

This economics article is contributed by a kind reader

This economic perspectives essay deals with the rise of new, disruptive technologies, and their impact on Singapore's economy - and what Singapore can do to prepare for this technological change.

Today, the advance of new and disruptive technologies is unfolding on many economic fronts. While not every emerging technology will drastically transform the business or community landscape, some technological trends and changes do indeed have great potential to disrupt the economic status quo, massively altering the way people live and work. 

In fact, in late 2016, Singapore’s Prime Minister Lee Hsien Loong singled out technological disruption as the defining challenge among the economic issues Singapore is currently grappling with. As Prime Minister Lee (2016) correctly remarked, old economic and production models are not working, while new models are coming thick and fast. Singapore has to adjust and to keep up with these important trends, because of rising technology and globalisation. He is right. And technological disruption will happen over and over again, relentlessly. Both Singapore government and business leaders must not only know what’s new on the horizon, but also start preparing strategically for its impacts.

We could learn from economic history, which has already shown us clearly that earlier disruptive technologies, such as the personal computer for example, had the ability to sink technological market leaders, who were focused on their existing and most profitable markets and did not see or understand the threat looming upon them. Many examples readily come to mind, for example, Finland’s now-extinct Nokia phones, which once were prevalent consumer goods. And economic history already showed us that once new technological disruption takes hold, it typically enables a larger population of less-skilled or less affluent people to do more at lower cost, which previously could only be accomplished by specialists, who were oftentimes essentially technological gatekeepers. Personal Computers, for example, brought incredible computing power to individuals at a fraction of the cost of minicomputers, replacing the technological specialist and centralised data centers in the process.

Let’s examine the Singapore economy. Nearly every key sector in Singapore's economy is likely to face technological disruption in the next few years. Among the economic sectors likely to experience significant disruption in the near future are retail, Infocomm Technology (IT), financial and insurance sectors, administration and support sectors, and the accommodation and food sectors. In the longer term, up till 2020, economic sectors such as manufacturing, health, social services, and transportation and storage are also likely to be disrupted by technology. One example highlighted by Prime Minister Lee had illuminated the phenomenon of economic disruption in the taxi business in Singapore, which had been seeing greater competition from private car hire services such as Uber and Grab. All over the world, Uber and Grab are disrupting the taxi industry, but commuters are benefiting from better and more responsive service, but taxi companies and drivers find their business negatively impacted. 

In responding to these technological changes, PM Lee noted that one possibility was to close Singapore off from technological disruption and try to stop people from using the new technology, and the other possibility was to embrace technological change and let the technological disruption happen, but help the incumbents, especially the taxi drivers who would be negatively impacted, adapt to the changes. And PM Lee noted that taxi drivers had been level-headed about the competition, and had in fact made useful economic recommendations to the government on ameliorating the impacts of these technologies and adapting to their economic consequences.

And the Singapore government can play an even larger role in many areas to counter disruptive technology. It must ensure a deep pool of talent by investing in education, and developing and re-training and up-skilling people and raising human capital. In fact, Singapore's schools are giving students a lot of exposure to start-ups areas worldwide, and sending them to intern with venture capitalists and big tech companies. This is a useful and relevant development. Since a strong economy is built on a skilled workforce after all, SkillsFuture – Singapore’s funding programme for retraining and upgrading skills – is important. It has to be said that Singapore's schools are preparing its students well for the new economy of the future, and training them in values and skills to be future-ready for the 21^st century, where the skills and competencies needed are different, and where the new jobs will be different from the jobs of today. And in addition to upgrading workers in their current careers, the Singapore government is also helping retrenched workers to transition into new jobs.

And Singapore’s legislation and technological regulation must also catch up with changing and ever-evolving business processes. The Singapore government could also be an early adopter of some of these high technologies, setting an example for local businesses and giving them an opportunity to test some of these processes and establish a track record. For example, Fintech (financial technology) is at the centre of many of these processes, and another related big piece is data, data regulation, and IP (intellectual property) protection.

Beyond building up deeper capabilities and talents, investing in Singapore's legislation and regulation, Singapore should also promote a culture of entrepreneurship as well. Entrepreneurs play an important role in any economy, not just because they do business for themselves and create new jobs and prosperity, but also because they are resourceful and optimistic, and give Singaporeans the quiet confidence that anything is possible. They are often early technological adopters. Maybe, if Singaporeans are more entrepreneurial, we can not only survive technological changes, but also ride the wave of innovation and creativity to a brighter economic future. In other words, the future is not set - and we should start preparing for it now. 

JC Economics Essays - In recent posts on this economics blog, we have made a slight change in focus. We are now re-branding and re-marketing ourselves as an economics essays blog with opinions. While the economics essays, case studies, and other educational resources for A level Economics (H1, H2, or H3) are still available (along with undergraduate and GCE, GCSE, and other examination paper resources), in future, JC Economics Essays will be an economics resource with views, perspectives, and opinions. 

We want to share economics views and perspectives, to move beyond purely model essays aimed at improving grades. Not many economics tutors and students, especially those from A level economics tuition centres, actually have a real or novel opinion on a wide range of economics issues. Some of them do, and we want to share their opinions more widely. While, quite naturally, it is still important for economics students to get good grades, it is more important to have an informed opinion. We want to do more, and be more as a blog. We want to aspire to higher objectives. We also want to have a unique editorial and language style, and promote writing and perspectives on economic issues. And we hope you continue to support us and our change in focus. Thank you for reading, and cheers. 

What is the economic impact of Brexit on Asian economies?

This economics post explains and analyses the possible economic consequences of Brexit on Asian economies and was created through synthesising a few economics essays. 

On 23 June 2016, in a historical moment that will be a discussion topic that would stand the test of time, citizens of the United Kingdom (the UK) voted in a national referendum on their continued membership in the European Union (the EU), ultimately choosing to leave. 

This huge event is called “Brexit”. 

What is the economic impact of Brexit on Asian economies? 

Brexit has negatively impacted global financial markets, causing economic volatility and huge losses of trillions of dollars in equity value. 

Meanwhile, the UK pound has seen the largest drop by any major world currency in recent history, and its largest drop since 1985.

On the surface, the UK leaving the EU would not matter that much economically to Asia’s economies. 

Although the UK is prima facie the world’s fifth-largest economy (now that is not the case any more, apparently as an immediate economic impact of  Brexit, because it has been overtaken by France), the UK is not actually one of Asia’s biggest economic customers. 

Except for Cambodia, Vietnam, and Hong Kong, most exports from most economies in Asia to the UK are relatively small as a percentage of total economic output. 

For Singapore, a small and open economy located in Southeast Asia, the UK is a relatively small customer. Singapore’s exports to the UK totalled S$7 billion in 2015, out of S$530 billion in total exports. 

Quite simply put, in the immediate or short term, the economic impact has been rapid and direct so far. In the immediate term - it's the economic impact on markets and currencies that matter currently. 

But the real and longer term impact of a “Brexit” – for Asia and the rest of the world – is much bigger than just merely market or economic volatility. 

The real economic impact of Brexit would be more subtle than any immediate effect on trade or markets. 

It would represent an economic slowdown – and maybe the first steps of a economic reversal – of the globalisation that has defined markets in recent decades. 

There are many definitions of globalisation, but in this case, globalisation refers to the increasing integration and interdependence of the world’s economies arising from increased international trade and greater international mobility of factors of production like capital, labour, and enterprise across international borders. 

Asia has a lot to lose from this rollback of international trade or decline in economic globalisation. 

Many Asian countries rely heavily on international trade. 

For instance, Singapore’s international trade stands at 351 percent of its GDP, and it amounts to 439 percent of Hong Kong’s GDP. Growth in international trade has been slowing in recent years, and Brexit could slow trade and growth down further. 

For example, the UK takes fully three-quarters of Singapore's investments in the EU with big companies like Comfort DelGro and Frasers having an international presence in that country. The UK out of EU could lead to significant fall in Singapore's exports to the EU, and Singapore international businesses could suffer write-downs in economic value on their balance sheets.

If there is a rise in protectionist sentiment in the UK, this might spread to other countries as well. 

Protectionism refers to economic policies aimed at restricting international trade between countries, designed to protect domestic businesses and workers from international competition, while free international trade refers to the exchange of goods and services across international boundaries. 

Recently, other than just the UK government, many governments (and a famous US Presidential candidate from "across the pond") have been adopting or promoting protectionist measures in the belief that this would offset the impacts on their economies from international trade and globalisation.

China would likely have some major economic concerns. The EU is an even bigger destination for Chinese goods than the United States.

The EU is China’s largest trading partner, and as China enters an era of slower economic growth, the timing of the breakup of the European Union couldn’t be worse.

For China, the UK's decision to eventually extricate itself from the European Union’s common market will be a disappointing move. Chinese Premier Li Keqiang has taken a particular economic interest in the UK, reciprocated in recent years by Chancellor of the Exchequer George Osborne. Last fall, London became the first international financial hub to issue renminbi-denominated debt after Xi Jinping’s visit there. Brexit will be an economic setback for the ongoing internationalization of renminbi as London’s international relevance as a global financial hub is diminished as a result of Brexit. 

Brexit could also challenge some of the international trade deals focused on further opening the rest of the world to ASEAN economies. The Trans Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP), for example, are aimed at cutting international tariff barriers and promoting international trade with some of the world’s largest economies. 

Brexit could also mark an economic setback for China’s long-term economic goal of a free trade agreement with the EU. London had emerged as one of the most eager advocates for a China-EU FTA. 

With the UK now exiting the economic bloc, none of the other major EU states seem keen to ink an economic deal with Beijing. An FTA with the UK alone might be politically simpler to negotiate, but will not have nearly the same economic benefits for China. 

Remember that a Free Trade Area (FTA) refers to a trade bloc where more than two countries agree to engage in free trade with one another while maintaining members’ own individual levels of external barriers against non-member nations.

In the longer term, no one really knows what the economic impact will be - but it certainly will not be a walk in the park for UK or Asia, or Singapore, and only time will tell if Brexit really was a good economic decision ... 

or if the economic experts were right in saying that this was one of the worst economic decisions of all time. 

JC Economics Essays is an economics website which has a wide and useful range of economics resources and free lesson materials for students' own use, such as economics essays at the A level standard (H1, H2, H3, and A level standards), and undergraduate and masters economics essays. The main focus is on A level economics essays, but GCE, GCSE, AS, AO, and H1/2/3 economics essays are in this site too. In particular, JC Economics Essays has model A level economics essays and responses that students could use as an easy and relevant reference for learning, as well as relevant tips and techniques for writing strong and well-argued essays. A whole range of useful case study tips, essay writing techniques, and relevant opinion pieces on a relevant range of economic topics will help you learn economics effectively. Thank you for reading, and cheers.

Economics Posts [1] - What Kind of Society Would I Want to Live In?

Adapted and excerpted from Ryan Foo - special thanks to Ryan for his article

What kind of society would I want to live in?

I was thinking about what I would do if I was given free reign over an economy or country. How would I run the country, what kind of tenets would I want to govern it by? What kind of questions would I have to ask, and what decisions would I have to make?

And here are some of the thoughts I fervently scribbled down while thinking about this issue. Now I'm assuming I somehow inherited the country - I don't have to fight a democratic battle or justify my decisions yet. Maybe I will in future, but right now I'm just a young dreamer, am I not?

What kind of society do I want?

Freedom, free market capitalism.

Equality of opportunity, not outcome.

People will vote with their dollars, leading to efficient outcomes. The right goods will be produced for the right people, in the right amounts, due to the invisible hand. Good, efficient companies that will be aligned with the social good.

Taxation would serve a Pigovian purpose rather than a redistributive purpose. I want to have my society be run by one of the central tenets of "equality of opportunity, not outcome". Sounds very similar to Singapore so far. However, I'll implement a high estate tax because I would want to level the playing field for the younger generation thus far. I believe this is one of the central problems of unfettered capitalism - that wealth begins to pool in the hands of the elite few. This is what I wouldn't want to happen within my society - wealth and happiness should be a reward for the individual largely on his own level and not meant as a way to gain power over others in a dynastic manner. I'd be pretty uncompromising on this.

Small government. The government's role would be to provide essential services such as the police force, the military, and emergency services. It would also be to regulate key industries such as the healthcare industry, education, and nudge the polity in the direction of what is good for them. I would also tax traditionally sinful products such as gambling, cigarettes, alcohol and drugs - the harmful kind. Careful regulation of the drugs and narcotics industry would lead to higher quality, safer consumption, Of course, we will want to nudge our citizens away from these no matter what. 

Only those who work hard should be able to afford such 'luxuries', shouldn't they? Just as those who work hard should be the only ones who are able to afford expensive cars. This view might be flawed and require more polishing.

This brings me to the question: does my ideal society value freedom of the individual more or do I really just want to mould my people into ideal citizens? Am I taking a more utilitarian or paternalistic approach then? We're still desperately trying to find a way to make citizens align with helping the social good without taking away their liberty. As such, fiscal policy would be centered around pushing the social good.

This is because I believe that dollar votes will eventually lead to efficient outcomes for the individual and will maximise utility for all parties involved - it incentivises you to work for your fellow man, to provide a service that others seek, and get rewarded in due kind for it. If you can contribute more, and people value your contributions, they will reward you with their dollar votes. This might sound barbaric to some. I think it's beautiful.

For example, if enough people value the social good - to combat global warming for example - they will reward those who are willing to do work towards combating global warming. In reality, we are not all self-serving, rent-seeking individuals, so why argue like we are such people? 

However, I do not dispute the point that perhaps we are not serving the social good enough, if the vast majority of us remain apolitical and even ignorant, which is why I believe that education can be our great social leveller.

In this society, how would I encourage research and development and discourage rent seeking (for example, of pharmaceuticals)? That's another important question to answer.

Source: http://ryanicale.blogspot.sg/

JC Economics Essays - Special thanks to Ryan Foo for his excellent sharing (originally posted on his blog) on society. Thank you. 

This is an interesting and thought-provoking question. What would you do one day if you were to be given free reign over an economy or country? How would you run a country, what kind of philosophical basis or tenets would you want to build and grow it by? What kind of hard questions would you need to ask, and what kind of decisions would you have to make? What kind of assumptions would we need to make to make such decisions for a country?

Ryan discusses wealth accumulation and estate taxes: A question arises: would unfettered capitalism really lead to wealth accumulation and income inequality, or is this purely an assumption that we are making? Could it be market failure (or many failures for that matter) or government failure that really leads to income inequality and huge wealth? What other economies or societies could you conceive of, and would they be better or worse structured and organised - and in which particular aspects, or all of them? There are many interesting questions from this reflection. 

Thank you for reading, and cheers. 

Economics Posts - Series on Social and Economic Issues

In late 2015, I was attending a talk at Civil Service College (CSC) on social enterprises and the varied, interesting, and exciting work that many of these social enterprises and voluntary welfare organisations do on several fronts, when one of the presenters impressed me with a rather curious idea. 

Through the guise of tuition (or tutoring, teaching, coaching, or any other phrase that conveys the same idea), this particular social organisation would spread and seed ideas on social change, so as to build social capital in Singapore. 

In other words, instead of direct advocacy or promoting social ideas, this organisation used General Paper as a medium to teach and engage on what they thought was useful, relevant, and important. 

Tuition became something more than just drill and practice, but also something that could get students to think, analyse, reason, and reflect on. 

Tuition became something far larger than it was normally conducted, and for that reason lessons were discussions, innovative engagement methods, and seminar sessions instead of drills, rote-learning, and direct instruction. 

I had a talk with the boss of the enterprise during the Question and Answer segment, and also had the opportunity to learn more about him and his exciting work, right from the horse's mouth. 

I thought that this whole idea and conceptual set-up was a brilliant idea. 

Simply brilliant. 

I also then thought of how I could apply these insights to improving my economics site as well. 

In a similar way, in a large part, this entire economics website has been mainly devoted to A level economics essays, with some useful and relevant articles on economics essay questions, economics case studies strategies, and examination-related materials. In fact, this economics site started many years ago with contributions from economics students on various test or examination questions. On certain occasions, in this economics site, I have also posted undergraduate and masters economics essays, but these were often for academic purposes - writing that was meant to address examination questions or to respond to tests, assignments, and qualifying examinations. 

The CSC presenter got me thinking:

I should have a series on social and economics issues, perhaps with a focus on Singapore but also on the region (since Asia is after all, a rising force to be reckoned with - socially and economically - and Singapore is right at the heart of Southeast Asia and ASEAN, and by extension the rest of Asia). 

That way, while it is a slight departure from the A level economics essays focus of my site, and moves a bit away from academic economics essays, I can take this opportunity to hopefully inspire, encourage, and bolster social and economics education. 

Economics can take on a more positive form of relevant posts, no longer a "dismal science" and not purely an academic exercise for the sake of passing, or excelling, in examinations, but a real subject of interest. 

Through this series, I hope to add value to the economics essays focus of this site, and bring about some inspiration, encouragement, and strengthening of a social and economics education. 

All in all, hopefully this will help readers see the importance and relevance of a beautiful subject meant, among other things, to address society's issues and to help government policymakers promote employment, keep prices stable and affordable, create new jobs for citizens while raising their standards of living, and embracing globalisation. 

This is a beautiful subject meant to encourage critical thinking about issues that we read about in the newspapers today, on companies merging, closing, opening, and expanding. 

Important social issues of why schools close (due to demand and supply), why population and demographic issues matter, why income inequality is a consequence of market failure rather than a problem with capitalism and useful markets, and why Singapore's workfare might be a more useful and long term solution rather than welfare (and what is welfare anyways) can be better understood in the light of a relevant economics education. 

I have requested contributions of essays, posts, and articles from some of the most curious young minds I know, and have also drafted some essays of my own for this series. 

Special thanks to my friends and talents who have contributed. 

Hopefully, these essay contributions can expand readers' thinking and inspire readers to understand the beauty of this subject. 

Thank you very much for reading and cheers!

JC Economics Essays - JC Economics Essays is an economics blog with model A level (H1, H2, H3) economics essays and responses on a range of themes and topics. These economics essays are written by former economics students, NIE-trained teachers, and JC economics tutors, and the editor of this website himself. While this economics site is primarily aimed at A level economics students, undergraduate students and the general reader can also benefit and learn economics. Thank you for reading and cheers! 

Explain why trade occurs between Singapore and its trading partners. [10]

International trade refers to the exchange of goods and services across international boundaries. In this essay, I will be explaining why trade occurs between Singapore and its partners such as China, the United States, and other countries of the world.

The law of comparative advantage states that a country is able to enjoy higher consumption levels if it were to specialise in goods in which it has comparative advantage in, and trade the good for other goods in which it has a comparative disadvantage in. For mutually beneficial trade to occur, the terms of trade, which is the exchange rate of the 2 goods between Singapore and its trading partners, must lie within the relative opportunity costs of producing the goods of the 2 countries involved. This theory explains that trade arises because different countries have different opportunity costs of producing different goods. This is due to differences in supply conditions which arise because of differences in factor endowments, the relative abundance of the factors of production. Factors of production such as land, labour and capital are unevenly distributed across different countries. For instance, land abundant countries like Australia and the USA can produce land intensive products such as agriculture more cheaply than land scarce countries like Singapore. Labour abundant countries like India and China can produce labour intensive products such as clothing and footwear more cheaply than developed countries with higher labour costs like Singapore and the USA. Developed countries with a strong technological and capital base like Japan, Korea and Singapore have a comparative advantage in the production of ‘high-tech’ products such as computers, electronics and transportation equipments.

It is thus clear that Singapore’s economy is heavily dependent on trade. Not only are exports the main engine of growth, Singapore also imports inputs to produce these exports and imports most of its consumer goods like food, clothing, footwear, and households appliances. However, not all of Singapore’s imports are used for domestic consumption or as inputs for domestic production. Instead, many goods are imported into Singapore only to be re-exported out to the other countries. Such trans-shipment takes place because Singapore is a main shipping hub located strategically along the major shipping routes. One of the high volume of trans-shipments going through Singapore, the trade figures show the value of both Singapore’s imports and exports to be greater than her Gross Domestic Product (GDP). One way of measuring if a country has a comparative advantage in the production of a particular good is to look at the net export figures that are specific to that good. Singapore is a net exporter for chemicals and chemical products, machinery and transport equipment, hence suggesting a comparative advantage in these goods. Given that Singapore is a developed country, the specialization in such capital and technology intensive products seems to correspond to comparative advantage theory. Conversely, Singapore is a net importer of food, crude materials, animal and vegetable oils. Being a small but developed country, Singapore has expensive land. Hence, the lack of specialization in these land intensive products also seems to correspond to comparative advantage theory.

In conclusion, due to the nature of Singapore’s small and open economy, this makes it even more important for her to trade.

JC Economics Essays - This essay is a H1 A levels Economics essay on why trade occurs between Singapore and its trading partners, contributed and kindly shared by HH in April 2015. Special thanks to HH for her kind contribution. 

In this essay, the author's writing is clear, to the point, and explains economic theory alongside real world examples and the context that is required to answer the question. This paper is well crafted and thought through carefully, and deserves a high mark, especially if it is written under examination conditions in a real economics examination. 

How can you write clearly, accurately, and relevantly, addressing the requirements of the essay question? Thank you for reading and cheers! 

Discuss whether governments should rely solely on supply-side policies to achieve its macroeconomic aims. [15]

(Please see previous post on JC Economics Essays on macroeconomic aims and conflicts.)

Explain the possible conflicts in the achievement of macroeconomic aims when using demand-management policies. [10] 

In the light of these macroeconomic conflicts, discuss whether governments should rely solely on supply-side policies to achieve its macroeconomic aims. [15]

This paper argues that in the light of these conflicts, supply-side policies which focus on shifting the SRAS and LRAS can be used by governments to avoid these macroeconomic conflicts. However, on the other hand, supply-side policies also have limitations and may also result in other macroeconomic conflicts. Hence, it may not necessarily be true that governments should rely solely on supply-side policies.

On the one hand, it can be argued that there are some important reasons why governments should rely solely on supply-side policies.

Firstly, supply-side policies should be used to avoid conflict between achieving full employment and price stability. Since expansionary demand management policies will always lead to inflationary pressures, especially as the economy approaches full employment, supply-side policies should be used instead. If governments focus on increasing productivity of the economy, for example, through subsidising R&D efforts and retraining programmes, the LRAS of the economy will increase  and shift to the right. This allows the economy to achieve both actual and potential growth, while keeping general price levels low. There is thus no conflict between increasing real output and employment and price stability.

Secondly, supply-side policies should be used to avoid conflict between achieving healthy balance of payments and price stability. Since currency depreciation to keep exports competitive may result in imported inflation, supply-side policies should be used to maintain export competitiveness instead. For example, the government may choose to encourage firms to invest in R&D, through the use of tax rebates, in order to use more efficient production techniques. This can cause costs of production to fall and prices of exports can remain competitive. For example, the US government has anti-monopoly laws to encourage more competition. This may give firms more incentive to improve the quality of their products and exports can also be more competitive if their quality is superior to products made in other countries. These would help boost the demand for exports and increase export revenue. The demand for imports might fall if local consumers prefer buying domestic goods. Import expenditure may fall too. This causes the current account and hence the balance of payments to improve. At the same time, because of the increase in R&D across industries, the productive capacity of the economy may increase and LRAS may increase. This helps to keep general price levels low. Hence there is no conflict between achieving a healthy balance of payments and price stability.

However, when (X-M) increases, AD would increase and if the economy is approaching full employment level, there would be inflationary pressures. Thus the extent to which price stability can be achieved depends on the pace of the increase in LRAS. If the LRAS is increasing at the same pace as AD, price stability can be maintained. If AD rises much faster, the conflict with price stability would still arise.

Thirdly, supply-side policies should be used to avoid conflict between achieving healthy balance of payments and economic growth. When expansionary demand management policies to help achieve economic growth, there will be an increase in import expenditure, resulting in a worsening current account and hence balance of payments. However, if supply-side policies are used to attract FDI to promote economic growth instead, the capital and financial account is likely to improve. For example, the government might lower corporate tax rates or offer foreign firms incentives such as tax rebates in order to attract them. They may also reduce the red-tape to make application processes for new foreign businesses more efficient. If there is a net inflow of FDI, the capital and financial account will improve and this may offset the worsening current account. Hence, balance of payments may improve. However, it should be noted that, in the long run, the current account of the balance of payments may worsen even more as profits from foreign firms are sent back to their home country.

On the other hand, supply-side policies also do have their limitations and hence governments should not rely solely on them. While it is true that supply-side policies can help to some extent to avoid some of the conflicts in achieving macroeconomic aims, they also have their shortcomings. For example, supply-side policies like encouraging firms to invest in R&D can not only be costly, they may take a long time before any effects are seen, and even then, the success of these policies is very uncertain. Subsidising R&D can cause a strain on the government budget, depending on how substantial the subsidies are. Since R&D efforts tend to be costly, firms would probably only be incentivised to invest in R&D if the subsidies are significant. This is in contrast with demand management policies like MP where the government need not tap on budget reserves. Furthermore, there is no guarantee that R&D efforts would lead to increase efficiency. The effects of research can be uncertain and often takes many years before a breakthrough brought about by technology or discovery of new methods can be seen. Hence, it may be wise to also make use of some demand-management policies which may have more certain and immediate effects. This is especially so if the economy is facing a recession and needs to get out of it quickly. If there is severe demand-pull inflation, the government may need to take quick action to reduce AD in order to reduce general price levels. Using supply-side policies to shift the LRAS may take too long, especially if the policies are targeted at increasing productivity through technology, training and R&D. If AD is in the Classical range and there is demand-pull inflation, shifting SRAS downward, for instance by subsiding costs, may not help either, since there is no more spare capacity to increase output even if costs are reduced. The inflation will thus not be alleviated. Thus it would not be wise to solely rely on supply-side policies.

It would be better to argue that both demand management and supply-side policies can be used together. While expansionary fiscal or monetary policies can be used to stimulate AD and growth, supply-side policies can be used to ensure that LRAS can continue to increase so that when the economy recovers from the recession, the general price levels may still be kept relatively low.

Furthermore, when using supply-side policies, there may also be conflicts in the achievement of macroeconomic aims which arise and hence governments should not rely solely on them. When supply-side policies such as investment in more R&D and technology are used, there are also other conflicts which may arise. Hence it may not be wise to solely depend on supply-side policies as they also bring about unintended consequences. For example, in Singapore, with the government’s push to increase productivity through encouraging more firms to use technology, for example through the Productivity and Innovation Credit Scheme (PIC), not all workers will be able to adapt. Some workers without the relevant skills may find themselves out of a job. Also, with the rise in the use of technology, some workers may be replaced by machines. If these workers do not have other skills which are relevant to the changing needs of employers, they will face structural unemployment. Hence, pursuing actual and potential growth quickly via supply-side policies may result in a conflict with achieving low unemployment.

However, this does not mean that supply-side policies should not be used. Instead, there can be other policies put in place to mitigate these unintended consequences. For example, governments can put in place retraining programmes and provide subsidies to firms to encourage them to upgrade the skills of their employees.

In the final analysis, in the light of these conflicts, whether or not governments should rely solely on supply-side policies depends on the macroeconomic aims the government is trying to pursue; the prevailing economic conditions; and the nature of the economy. First, if the government wants to achieve sustainable economic growth, it would be wise not to depend only on supply-side policies. This is because supply side policies tend to help achieve potential growth but can be slow in achieving actual growth. If both demand management and supply-side policies are used, actual and potential growth can be achieved together. This helps ensure sustainable economic growth. Some conflicts between macro-economic aims can be avoided when using supply-side policies as discussed above. Hence, supply-side policies alone may be adopted where appropriate. However, it is important to note that supply-side policies may also result in other problems and hence in those instances, relying solely on supply-side policies may not be appropriate. Second, if the economy is facing cost-push inflation, the government may want to rely solely on supply-side policies to increase SRAS in order to reduce general price levels. Using demand management policies in such a situation may be inappropriate because while general price levels may fall with contractionary fiscal or monetary policies, there will be a conflict with growth as real output falls. If the economy is facing a severe recession, the economy is likely to be operating rather far away from the full employment level. This means that expansionary demand management policies are unlikely to cause a conflict with price stability. Thus, the best measure may be to use expansionary fiscal or monetary policies which has quicker and more certain effects than supply-side policies. Third, if the economy has a small multiplier, the effectiveness of demand-management policies may be limited. For example, in Singapore, due to high MPM and MPS, the multiplier is small, any increase in government spending would lead to a small increase in real national income. Thus the government tends to focus on the use of supply-side policies, and depend on external demand instead. However, this does not mean that the Singapore government relies solely on the use of supply-side policies. A mix of both demand management and supply-side policies are considered too.

JC Economics Essays: Once again, special thanks to W for her kind contribution of this well-written economics essay. However, this economics essay was not done under timed examination conditions and was planned and argued carefully. An economics student who delivers this level of content and argumentation within the examination conditions would easily and likely score a grade A. 

This economics paper discusses the pros and cons of relying on supply side policy, and tackles the question through a few important angles. What are these perspectives? Do test yourself to see if you understand the various arguments made and the perspectives through which the arguments were made. 

There are also, of course, many good points to learn from this paper. First, it directly addresses the question. It also has many strong arguments followed up with examples, which suggests that the candidate has learnt her economics material well. It makes many good analytical points by logical, reasonable argument, and does not reply on assertions and stating points. Remember to always argue a point or make a point in your essays. This economics essay is also very well written and crafted, and is clear cut, accurate, and to the point; however, on the other hand, perhaps some economics diagrams could have been drawn. What economics diagrams would you have drawn in this case, and why? Economics essays often benefit from a relevant, well labelled, and accurate diagram that illustrates and analyses a point. Thanks for reading and cheers!

Explain the factors affecting Aggregate Demand (AD), given the context of Singapore. [10]

This economics paper explains the factors affecting Aggregate Demand (AD) and Aggregate Supply (AS), given the context of Singapore. 

First and foremost, in economic theory, AD and AS represent the aggregate demand (AD) and supply (AS) respectively of all the goods and services in an economy. The level of real national output and the general price level are determined by the intersection of AD and AS on an AD-AS diagram.

THINK: how would you draw an AD-AS diagram to reflect the intersection of AD and AS?

In theory, AD refers to an economy’s total demand for domestically produced goods and services for a given general price level. AD = C + I + G + (X – M), where C represents consumption, I represents investment, G represents government expenditure, X represents exports, M represents imports, and (X – M) represents net exports. Real national output (or real national income) and the general price level is determined by the intersection of the AD and AS curves. The AD curve is downward sloping because the lower the general price level, the greater the quantity demanded for domestic outputs. As AD = C + I + G + (X – M), what affects the AD curve are the factors that influence each individual component, which are C, I, G and (X – M). An increase in any of these components of AD would shift the AD curve to the right, while a decrease would shift the AD curve to the left.

Consumption

First, consumption (C) refers to household’s expenditures on goods and services. Consumption is affected most by income and wealth. For instance, when the Singapore economy is booming, rising wages of workers, rentals of buildings and assets, company profits, and interest will raise households’ incomes, which will then in turn increase consumption. On the other hand, higher personal income taxes and increased social security contributions, for instance in Singapore’s case particularly such as increases in the amount in the Ordinary Account of the Central Provident Fund (CPF) that Singaporean workers have to set aside for their retirement, will lower disposable income, thus dampening consumption. Wealth consists of savings and assets. A booming Singapore stock or property market pushes the value of financial and property assets up, thus making household feel that they are wealthier, which would then cause them to consume more, thus in turn increasing the consumption level. Conversely, if the Singapore stock or property market faces a downturn, Singaporean households will feel that they are less wealthy, and thus they will consume less, thus in turn causing consumption to decrease. As wealth also consists of savings, it is thus also affected by taxes such as property taxes and capital gains taxes; however, in the case of Singapore there are no capital gains taxes. The higher these taxes are, the lower the consumption level will be. Since AD = C + I + G + (X – M), a rise in consumption will increase AD thus shifting the AD curve to the right, a drop in consumption will decrease AD, thus shifting the AD curve to the left.

Investment

Second, investment (I) refers to firms’ spending on capital goods. Investment is affected most by business expectations. For example, if a Singapore firm expects the demand for its goods to rise, it is likely that the firm would invest more currently in machinery and plant to boost its future capacity. This would thus increase the investment level in Singapore, and since AD = C + I + G + (X – M), a rise in investment would increase AD, and shift the AD curve to the right, whilst on the other hand a drop in investment would decrease AD, thus shifting it to the left.

Government expenditure or government spending

Third, government expenditure (G) refers to the government’s spending on publicly provided goods and services. Government expenditure consists of government spending on public goods and services and also on government investment in infrastructure; the amount that the Singapore government spends depends on the state of the economy, as well as the aims and objectives of the government in power. In this case, let us focus on government expenditure in general, for instance spending on teachers’ salaries and on the Singapore Armed Forces, rather than government investment. Since AD = C + I + G + (X – M), a rise in government expenditure would cause a rise in AD, thus shifting the AD curve to the right, whilst conversely, a drop in government expenditure will cause a drop in AD, thus the AD curve will shift to the left.

Net exports

Fourth, exports (X) refer to foreign purchases of domestically produced goods and services while imports (M) refer to domestic purchases of foreign produced goods and services. (X-M) forms the net exports of a country, which in Singapore’s case is very important given that Singapore is a small and open economy. Factors which affect exports and imports are the usual factors which affect demand and supply, such as tastes and preferences, disposable incomes of foreigners who purchase these goods, and prices of related goods to these exports, such as substitutes and complements. Exports may rise due to foreigners developing a preference for Singapore’s exports, possibly due to better marketing or better quality of goods produced. On the other hand, if other countries promote their products more, or have better or new products compared to Singapore, then Singapore will be expected to face rising demand for imports. Since AD = C + I + G + (X – M), a rise in exports would increase AD thus shift the AD curve to the right, if there is a drop in exports, the AD curve will shift to the left as AD decreases. A rise in imports would also cause a drop in AD, thus shifting the AD curve to the left, while a drop in imports would cause an increase in AD, thus shift the AD curve to the right.

  

In conclusion, the factors that affect Singapore’s AD are the factors which affect consumption, investment, government expenditure, and net exports. 

JC Economics Essays - This is a modified economics essay written by student JQ, which was originally written under timed conditions for an economics test. Do remember that it is very important to time yourself whilst practising for the economics essay examination, because you have to craft a well-written economics paper within a given time limit. When practising for any economics test, you could plan a structure or outline for 5 minutes, and then spend the rest of the time crafting your response. Do note that this economics paper has been cleaned up for spelling, grammar, and also for essay structure, and some of his arguments have been repositioned for easier flow. Do you find that this economics paper is easy to read and clear cut? How has the clear and direct structure made it easier for you to read this paper? In addition to these two basic questions on essay structure, when reading this economics essay, the other questions that you could ask yourself are: (1) how would you approach this essay? (2) What economics knowledge or information do you need to answer this essay question properly? (3) Also, should a diagram be drawn? Why or why not? (4) Did the writer of the essay answer the question adequately, not just in theory but also in bringing in the Singapore context? Do remember to read with a questioning mind when thinking through this essay. Thanks for reading and cheers. 

Discuss if Singapore is among the economies worldwide that have the most to gain from globalisation. [25]

Globalisation refers to the increasing integration and interdependence of the world’s economies arising from increased trade and greater international mobility of factors of production like capital, labour, and enterprise. In other words, globalisation is an extension of international trade, where in addition to increasing trade in goods and services, it also involves rising mobility of resources like labour and capital. Generally, the forces driving globalisation can be linked to improvements in technology resulting in the significant lowering of transport costs and communication costs, and the historical movement away from protectionism after the Second World War. To discuss to what extent a country gains from globalisation, there is a need to analyse the economic benefits and costs of increased trade in products as well as the benefits and costs of increased geographical mobility of labour and capital. This paper argues that, on the one hand, Singapore benefits from international trade and increased labour and capital mobility, but on the other hand these benefits come at a cost, with their limitations and negative impacts.

First, there are benefits from international trade, which many countries can enjoy, but Singapore can arguably enjoy to a greater degree given her small size and openness to free trade. First, Singapore, just like most other countries, can benefit from higher consumption possibilities arising from specialisation and trade according to comparative advantage, which would increase her material living standard. A country is said to have comparative advantage in the production of a good when it can produce the good at lower opportunity cost compared to another country. In this context, the opportunity cost of a good is the amount of another good forgone to produce an additional unit of the good. It can be argued that a rise in the consumption possibilities allows Singaporeans to enjoy a higher material living standard, by having a larger bundle of goods and services to consume, and hence, Singapore stands to benefit economically from globalisation.

Second, trade can be an “engine of growth” – trade enables small or developing economies to overcome the lack of domestic demand in order to achieve fuller utilisation of its resources, and Singapore in its early days was one of the main beneficiaries of this situation. For example, Singapore pursued a policy of Export Oriented Industrialisation (EOI) and reaped economies of scale for producing exports for the world market, which led to low unemployment and high economic growth for many decades in Singapore. In addition, increased efficiency of domestic producers arising from greater competition from imports and also the exploitation of economies of scale are also other benefits of trade. This increase in both AD and AS, leading to long run sustained, and non-inflationary economic growth, was possible because of trade. Conversely, it can be argued that countries such as Latin America after WWII which were inward-looking and focused on Import Substitution Industrialisation (ISI) were amongst economies which did not benefit from globalisation.

However, there are costs of increased free trade which Singapore has to deal with, which may not affect much larger economies. First, there is the danger of potential over-reliance on external demand resulting in greater macroeconomic instability. Singapore’s macroeconomic goals of low and stable inflation rates, economic growth, and low unemployment may easily be adversely affected or suddenly impacted by worldwide recessions or worldwide booms. This, however, is inevitable given that Singapore is a small and open economy which is highly dependent on trade as an engine of growth, and therefore when incomes fall in other countries, Singapore can be rapidly and adversely affected by falling export revenue, which lowers AD and results in unemployment and falling growth, while conversely booms in other countries may lead to rising demand-pull inflation in Singapore. Larger economies, conversely, may not be as affected as Singapore.

Furthermore, rising structural unemployment is another cost of international trade, as trade causes less competitive sectors to decline and more competitive sectors to expand. Structural unemployment refers to the situation of a mismatch of skills in the economy, where workers in the declining sunset industries are unable to find jobs in the new, rising sunrise industries due to a lack of requisite skills and training. For example, due to rapid structural changes in Singapore’s economy as a result of trade, there are many older and relatively unskilled workers who are unable or unwilling to upgrade their skills, and therefore cannot take up many of the new jobs that are available. Hence, there are real and pressing costs to the benefits of greater free trade arising from globalisation.

In addition to more global free trade, globalisation also impacts factor mobility – it can benefit Singapore in terms of the increased flows of labour and increased capital mobility, all of which help Singapore’s long run potential growth. Let us first address labour. First and foremost, labour shortages in Singapore can easily be made up through increasing the numbers of Foreign Talent or foreign workers. For example, in fields such as construction and nursing in healthcare, local domestic shortages are easily made up through imports of foreign labour. Hence, it would seem that increased labour mobility benefits Singaporeans.

Second, with respect to capital, Singapore benefits from increased capital accumulation, arising from increased Foreign Direct Investment as well as short term financial capital inflows. Capital accumulation enhances long-run growth as it enables a country to increase the quantity and quality of capital, and countries like Singapore can increase their levels of capital, technology and skilled labour. For instance, MNCs investing in Singapore bring about capital investments, technology, and skilled labour to Singapore, increasing her potential capacity and thus raising her potential growth. Furthermore, capital owners in Singapore can earn higher returns through investing in developing countries, especially in neighbouring ASEAN countries, and lower skilled labour from developing countries could earn higher wages from working in Singapore. Therefore it would seem that while foreigners benefit from globalisation’s impact on Singapore, Singaporeans benefit much more.

However, there are also costs of increased labour mobility. First, it can be argued that there would arise a greater degree of structural unemployment in Singapore as domestic workers may be unable to compete with cheaper foreign workers. This applies to both skilled and unskilled labour in Singapore. For instance, the lower-skilled elderly workers would be hardest hit by the influx of cheaper foreign labour, who would depress wages.

This leads to greater income inequality in Singapore, and by extension to developed economies worldwide: while developed economies’ lower-skilled workers are often internationally immobile, poorly trained, and uneducated, and thus would face depressed wages due to a rapid influx of cheap low skilled foreign labour, most developed economies’ higher-skilled labour is internationally mobile, often headhunted and recruited worldwide, and hence face rising wages rise due to increase global competition for such labour. For instance, in Singapore, the lower-skilled elderly workers are often facing structural unemployment or employment in lower-end jobs, whereas affluent Singaporeans are able to accept jobs worldwide due to globalisation. The resultant consequence is that the Gini Coefficient in Singapore is consistently above 0.4, which suggests rather high income inequality. This inequality may be a major cost of globalisation.

Furthermore, compounding the issue of income inequality is the real and pervasive social cost of Singapore adapting to the influx of foreign labour, which could for example strain Singapore’s social amenities. For instance, housing, schools, hospitals, and recreational facilities are often overcrowded due to rising population growth; there has often been social discontent due to erosion of local culture, values, and way of life. Therefore labour mobility brings about costs and benefits to Singapore.

There are also real and pervasive costs of increased capital mobility. First, allowing free movement of short to medium term capital can result in exchange rate fluctuations, and, second, stock and property market bubbles which causes increased macroeconomic instability. For instance, because Singapore is a financial hub with free capital mobility, there are often rapid capital inflows leading to asset bubbles in the stock and property markets, especially due to the USA’s Quantitative Easing and expansionary monetary policy. In terms of exchange rate fluctuations, these are often smoothed out through the use of Singapore’s managed float policy which limits the volatility of free, flexible exchange rates. Therefore capital mobility brings out benefits and costs to Singapore.

In conclusion, Singapore has more to gain from globalisation compared to larger economies, because first and foremost, without trade, Singapore’s small yet open domestic market will be insufficient or inadequate to generate much national income, reap much economies of scale, and experience much product differentiation. Singapore therefore attains most of the benefits of trade while possessing the policy tools and strategies to minimise the costs of freer trade. Being geographically small, highly urbanised, having good transportation infrastructure, minimal social security support, and a relatively well educated workforce, it is comparatively easier for Singapore to retrain and re-skill its workers to counter structural unemployment arising from increased globalisation. Due to strong economic growth in the past, a prudent and efficient government and a high savings rate, Singapore arguably has more than sufficient resources to invest in social amenities in order to cope with the rising population caused by immigration. While unrestricted flow of short-term capital is necessary for Singapore to function as a financial centre, its substantial foreign currency reserves allow Singapore to be relatively safe from potentially destabilising speculative attacks on its currency. The downside is that being a developed economy, it is more likely to experience worsening income distribution than a developing economy and Singapore finds it hard to significantly improve income redistribution without negatively affecting the incentive to work and invest. Therefore it seems clear that Singapore has the correct, specifically targeted policy tools to ensure that it ameliorates the negative impacts of globalisation while maximising the gains. Overall, it seems Singapore has significantly much more to gain than lose from globalisation and thus could arguably be one of the countries which can gain most out of globalisation.

JC Economics Essays - This economics question is adapted from an actual H2 Economics A level examination question, and this is a specially crafted response to the question co-written by two economics tutors for an economics tutorial on international trade and globalisation. The main topic in this economics essay is globalisation. Looking at the essay response, what are good economics arguments that can be used for examinations? What is good about this economics paper that can be adapted and used in economics assignments and tests? What are areas that need to be explained further or further explicated clearly? Remember to always answer the question that is posed, and think of ways in which the question can be approached. Thank you for reading and cheers!