COMMENTARY: In Singapore, where the number of ultra-high net worth individuals (UHNWI) has risen, how has capital been redistributed?

Writing for Lessons on Leadership, a new series hoping to inspire the next generation of Singaporeans through the stories of Singapore’s many successful business leaders and entrepreneurs, Abel Ang writes about capital redistribution strategies in Singapore and Covid-19 being an inequality-leveller.

Abel Ang is the chief executive of a medical technology company and an adjunct associate professor at Nanyang Business School.

Singapore is the global headquarters for Crazy Rich Asians the world over. It is no coincidence that the eponymous film “Crazy Rich Asians” was set here, given the country’s significance and importance to this group of jetsetters.

According to Knight-Frank’s Wealth Report 2021, the number of ultra-high net worth individuals (UHNWI) in Singapore rose by 10.2 per cent in 2020. The report defines UHNWIs as people who have more than US$30 million (S$40.2 million) of assets to their name, including their primary residence.

Singapore, safe haven for the super-rich

The pandemic has increased Singapore’s desirability for this elite group. I quote Knight Frank Singapore's group managing director Wendy Tang, who said to The Business Times: "Singapore remains an attractive destination for the globally mobile, and the steps our government has taken to keep the country safe from the virus… has elevated its standing among the world's wealthy, and further cemented the country's traditional safe-haven status.”

This small group of very wealthy people is described in the documentary entitled “Capital in the 21st Century”, which was digitally released late last year. The film is based on bestselling author and rockstar French economist Thomas Piketty’s book of the same title.

The 800-plus page tome, first published in French in 2013, would become a global phenomenon with 3 million copies sold. Despite these healthy-looking sales figures, the Wall Street Journal says it also happens to be one of the most unread books of all time. The discovery of this documentary, therefore, has been a godsend for me, allowing me to give up my repeated futile efforts to complete reading the book and invest just the 110 minutes needed to watch the film.

In the film, Piketty makes the case that we live in a grossly unequal world today, where 1 per cent of the population holds 70 per cent of the world’s wealth. The last time the world had such an unequal distribution of capital was in Britain during the 18th century, where the capital distribution gap between the aristocracy and the serfs was significant and insurmountable.

The sad reality: the wealth gap cannot be overcome

Given the unequal distribution of capital to start with, Piketty drives home the point that it is nearly impossible for this gap to be overcome because the returns on capital are faster than that of economic growth. Simply put, the profits, dividends, interest, rent and income arising from capital holdings will trump anything similar that a country can generate for the majority of its population.

This leads to the owners of capital (like UHNWIs) accumulating wealth faster than the rest of the population, because most of the population relies on economic growth to give them a better life, and does not have the same access to the starting capital that UHNWIs have.

The documentary also introduces the Monopoly experiments of social psychologist Paul Piff, who studied players who were given unfair advantages in the game and won. In the course of play, players who had the unfair edge exhibited dominant body language, were louder, and behaved more rudely.

So what does any of this have to do with our ultra rich friends?

In Piff’s further research, he found that “the rich are way more likely to prioritise their own self-interests above the interests of other people”. It is unlikely, therefore, that UHNWIs will proactively seek to redistribute their capital to bring about greater equality, making the role of capital redistribution fall onto the shoulders of government.

Piketty believes that capital redistribution needs to go beyond simplistically taxing the rich and giving to the poor — institutions like the government need to create a more level playing field of public policies and dynamics for the masses to thrive and gain access to capital.

History shows us that if we want society to be cohesive in a peaceful and harmonious way, inequality cannot be too high. According to the documentary, the two world wars in the first half of the 20th century were great levellers of inequality because wars destroy capital and reshape power relationships as governments play a greater role in every aspect of a country.

How these trends panned out in Singapore

Piketty provides evidence of how the growth of the middle class in the West traced its origins back to World War I. Until 1914, the middle class did not really exist. Over the next 40 years after the war, there was a steep increase in purchasing power, and a group who were neither rich nor poor, but who controlled a substantial share of the available capital came to exist.

Along a similar trajectory, after Singapore’s independence in 1965, there was tremendous growth of the country’s middle class, with many people moving out of kampungs into Housing Board apartments, with the trend of a growing Singapore middle class continuing well into the 1990s, with more than 80 per cent of the population owning their own homes.

In recent years however, inequality has quietly crept into Singapore.

“High inequality reflects several features of our economic development over the decades,” according to Linda Lim and Pang Eng Fong in a commentary on education and inequality in Singapore in 2018. In response to this trend, the government has made fighting inequality a top national priority.

Covid-19 as an inequality-leveller in Singapore

Fortuitously, Covid-19 has given Singapore a chance to make a quantum leap forward in fighting inequality because the government heeded Churchill’s call to “never waste a good crisis.”

The similarities between a world war and Covid-19 as an inequality leveller are stark. Capital is destroyed as sectors like aviation and tourism go through massive disruption from curtailment of travel. Power relationships are transformed as the government has had to implement various measures in contact tracing and restricting how people gather, in order to keep people safe.

A massive capital redistribution funded by our past reserves

The efforts to stem the economic bleed arising from the war on Covid-19 has resulted in massive capital redistribution in Singapore, partially funded by Singapore’s past reserves.

When you take a step back, it would appear that the redistribution has been structured in the areas of Work-Live-Play-Learn which are non-exhaustively described below:

1) Work – Jobs Credit where the government supported all active employers in Singapore. The wage support helped employers to retain their local employees and multiple tranches were provided for various industries with support levels of up to 70 per cent in some instances.

2) Live – Care and Support cash payouts to all Singaporeans to help with household expenses during a period of extraordinary economic uncertainty. The Self-Employed Person Income Relief Scheme (Sirs) also provided self-employed people with quarterly cash payouts of S$3,000.

3) Play – Singapore Rediscovers Vouchers. S$100 of tourism vouchers were given to all Singaporeans aged 18 and above to experience local attractions and to breathe life back into a tourism sector walloped by the pandemic.

4) Learn – SG United Traineeships. 76,000 jobseekers were placed into jobs and skills opportunities through the SGUnited Jobs and Skills package between April and December last year. The best way for new graduates to learn is to apply the skills that they have been taught. This program will go a long way to preventing a Covid generation of workers from appearing in our workforce later.

During the Budget debate in February this year, Deputy Prime Minister Heng Swee Keat additionally announced that there is scope to review wealth taxes in Singapore. Such wealth taxes like Member of Parliament Foo Mee Har’s suggestion of a one-off wealth tax to fund Covid-19 measures, or the restoration of estate duties, could help accelerate further capital redistribution in Singapore.

Will this help the middle class in Singapore out a bit more?

Overall, I think that Piketty would look upon Singapore’s Work-Live-Play-Learn approach to redistribution favourably. Continued distributions using the model, coupled with an intelligent set of wealth taxes, could form the basis for a “Capital 2.0” approach for reducing inequality. If executed well, this model could help build, strengthen and support Singapore’s middle class in the years ahead.

Researchers at the Lee Kuan Yew School of Public Policy found in a 2019 survey on Singaporeans Perception of Class, Wealth and Status that there is a “relatively low degree of resentment toward the wealthy” leading them to conclude that “the majority of people are broadly content with the ways in which resources are distributed within society.”

Not everybody needs or wants to be crazy rich. But with good capital redistribution strategies, we can create the pathways for those who aspire to become Crazy Rich to do so, while maintaining social cohesion and stability in Singapore.

Top photo via R ARCHITECTURE/Unsplash,