Economic restructuring has been tough on companies, but there is plenty of life in the business sector yet, Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam said yesterday.
The number of new companies set up here, net of those that have shut down, has been around 20,000 a year for the past five years. This is more than double that of the preceding five years, he said.
He was responding to concerns expressed by MPs - including Nominated MP Thomas Chua, Ms Lee Bee Wah (Nee Soon GRC), Mr Inderjit Singh (Ang Mo Kio GRC) and Mr Gan Thiam Poh (Pasir Ris-Punggol GRC) - that the Government is not doing enough to help firms manage rising costs and the labour crunch.
The main reason for rising business costs is high demand for limited resources such as land and labour, Mr Tharman said. This shows Singapore is "not an economy in crisis... Businesses are still trying to do business, trying to expand" even as the economy undergoes a painful transition.
There were two approaches the Government could have taken when it started economic restructuring in 2010, he said. It could have used taxpayers' money to subsidise business costs like rents and wages, or gone in the other direction by withdrawing all support and allowing market forces to more quickly "sort the winners from the losers".
Instead, the Government has taken the middle path, gradually cutting foreign labour inflows to allow market forces to take effect, while also channelling the revenue from higher foreign worker levies back to businesses that invest in boosting productivity.
Mr Tharman said that the process of re-engineering a company and training people takes time, as NMP Randolph Tan and others pointed out during the Budget debate.
But Singapore can afford to take this "phased" approach because it is not an economy in crisis and does not need to resort to more drastic measures. "Shock treatment doesn't just weed out the weakest players," he noted. "It has a way of weeding out good businesses as well... When you go through a deep crisis, you lose many good businesses, including very promising entrepreneurs."
A more gradual transition also imposes less of a cost on workers by preventing a sharp spike in layoffs, the minister said. In fact, the labour shortage has resulted in higher labour force participation among older workers and people returning to the workforce, particularly women.
This might hamper productivity growth in the short run as it takes time for workers to gain the necessary skills, but fulfils the Government's social objectives of encouraging more people to stay in or join the workforce.
Meanwhile, the Government is "sparing no resources" in helping small and medium-sized enterprises through this tough transition, Mr Tharman said. While MPs and some in the business community have raised concerns about the bureaucracy involved in navigating the array of productivity-boosting schemes, "frankly, these are second-order issues", he said.
"It just depends on the entrepreneurs. If they are willing to take advantage of the schemes, the schemes are there. They are more generous than in any other economy I know of."
This article was first published on March 6, 2015.
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