The Poor Do Not Deserve Help Because They Are Not Hardworking. True?

In Singapore, being poor is often being frowned upon by the government.

The Economist had summed up the Singapore’s government’s approach, by saying that, “the state’s attitude can be simply put: being poor here is your own fault. Citizens are obliged to save for the future, rely on their families and not expect any handouts from the government unless they hit rock bottom.

Our government has tended to believe that if the poor remains poor, it is because they are not “hardworking” enough and that they should buck up. And so, the poor shouldn’t deserve any more financial assistance than the government is willing to give.

But what if it is precisely because of the government’s attitude towards the poor that keeps them stuck in poverty?

The Poor Are Poor Because The System Makes Them Poor

New research has shown that, “it appears that poverty itself reduces cognitive capacity. We suggest that this is because poverty-related concerns consume mental resources, leaving less for other tasks.

One of the research’s authors, University of British Columbia professor Jiaying Zhao, had said that, “past research has often blamed (poverty) on the personal failings of the poor. They don’t work hard enough; they’re not focused enough.” Another of the research’s author, Harvard economist Sandhil Mullainathan, had said that, “previous research often has assumed that poor people are poor because they are somehow less capable than others.”

However, this research, as reported by The Washington Post, had found that, “poverty consumes so much mental energy that people struggling to make ends meet often have little brainpower left for anything else, leaving them more susceptible to bad decisions that can perpetuate their situation.

Simply put, the poor are not poor because they choose to. The poor are not less hardworking because they don’t want to work hard. The poor are poor because the system and policies entraps them in a state of chronic poverty. When they are labelled as being “less hardworking”, it is actually because they had to spend so much time thinking about how to make ends meet that they simply don’t have enough attention to divert to other things.

It is not a choice for the poor to be poor. They are forced to accept low wages and low social welfare support, if any is even given at all. When that happens, they have to constantly think about how to support themselves and their children, and they have to think about which other low-paying jobs they need to find to sustain themselves. Can we blame them if they are already trying so hard to simply live, that they have no time to think about anything else?

The Poor Cannot Save Enough To Retire In Singapore

A study was conducted in America to find out how the poor, the middle-class and the rich spend their money (Chart 1).

Chart 1 How The Poor, The Middle Class And The Rich Spend Their Money

Chart 1

You can see that the poor have to spend a higher proportion of their income to simply bring food to the table, for housing, utilities, transport, and healthcare and insurance – basically, to be able to afford the basic necessities.

This leaves them with very little for education and retirement, as compared to the others.

Indeed, this is the case for Singapore as well, where you can see that the poorest 20% in Singapore have to pay the highest proportion out of their incomes to pay for their healthcare bills (Chart 2). In 2007/08, they spent a higher 6% of their monthly expenditure on healthcare, whereas the richest 20% had only spent 4.8%.

photo 3 (13)

Chart 2

Also, a growing proportion of Singaporeans are not able to meet the minimum sum that they are required to set aside in their retirement funds, or CPF (Chart 3).

photo 3 (13)

Chart 3

Among our elderly, a high proportion of them are working in low-paying jobs (Chart 4).

Slide2

Chart 4

Which means that many of our elderly – 74% – have to continue to work simply because they do not have enough money for retirement (Chart 5).

Chart 5 Main Reasons for Working After Retirement 2005

Chart 5

You can see that the poor have to spend most of their money of basic necessities, so much so that they have very little left for entertainment and retirement.

Yet, what traps them in poverty?

Since 2000, the poor have seen their real incomes drop while the incomes of the rich have increased immensely (Chart 6)

Uneven Real Income Growth

Chart 6

Nominated Member of Parliament has also said that, “according to my analysis of MOM’s statistics, real median wages of cleaners and labourers declined by 35% from 2000 to 2011; while those of service and sales workers declined by 15% in the same period. When some people are so poor that they and their children can’t have three decent meals a day, it’s a scandal because, at the same time, Singapore has one of the highest density of millionaires in the world – 188,000 millionaire households by one estimate.

The question then to ask is, should we provide more social welfare assistance to the poor? Or, the larger question to ask is, can we increase the wages of the poor to give them a real safety net?

In Singapore, the idea of a “safety net” is to give the poor a job to ask them to earn their own keep. But when we are paying them only $800 or $1,000, what kind of a “safety net” is this when they still have to struggle to live, which is made worse if they have to take care of their children as well?

Also, of the $98.2 million Medifund disbursed to the poor, this amount is only a miserly 3.3% of the avaliable $3 billion Medifund balance. Could a lot more be given? Also, if “public hospitals are able to tap into patients’ and their families’ records of income at CPF and Annual Value of residential property at IRAS”, then why does the government insist that the poor go through an “aid application process (which) makes getting aid difficult – with many documents to complete and families often having to deplete their savings first,” as NMP Laurence Lien had shared. He also explained that, eventually, “the latter lose their dignity, which once lost, simply makes them resigned to gaming the system”.

Chart 7 Medifund Utilisation 2012

Chart 7

So, should we support the poor more financially?

Perhaps the evidence to support this can be found in Brazil.

The Success Of Cash Transfer Programmes To The Poor

Like the government here, “well-off Brazilians are fond of complaining about assistencialismo (welfarism), which they fear undermines work incentives and weakens Brazil’s economy.

According to The Economist, “such criticisms miss the mark by a mile.” The New York Times had reported that, “Today … Brazil’s level of economic inequality is dropping at a faster rate than that of almost any other country.  Between 2003 and 2009, the income of poor Brazilians has grown seven times as much as the income of rich Brazilians.  Poverty has fallen during that time from 22 percent of the population to 7 percent.”

The New York Times attributed this dramatic achievement to “a single social program that is now transforming how countries all over the world help their poor.

Apparently, this program first began on a national scale in Mexico. The New York Times reported that, “The idea is to give regular payments to poor families, in the form of cash or electronic transfers into their bank accounts, if they meet certain requirements.  The requirements vary, but many countries employ those used by Mexico: families must keep their children in school and go for regular medical checkups, and mom must attend workshops on subjects like nutrition or disease prevention.  The payments almost always go to women, as they are the most likely to spend the money on their families.  The elegant idea behind conditional cash transfers is to combat poverty today while breaking the cycle of poverty for tomorrow.”

This program has become so successful that, “the World Bank and the Inter-American Development Bank are working with individual governments to spread these programs around the globe, providing technical help and loans. Conditional cash transfer programs are now found in 14 countries in Latin America and some 26 other countries, according to the World Bank.”

The program has been successful because it “fights poverty in two ways. One is straightforward: it gives money to the poor. This works. And no, the money tends not to be stolen or diverted to the better-off. Brazil and Mexico have been very successful at including only the poor. In both countries it has reduced poverty, especially extreme poverty, and has begun to close the inequality gap. The idea’s other purpose — to give children more education and better health — is longer term and harder to measure.”

Finally, the New York Times ended off by saying that, “for skeptics who believe that social programs never work in poor countries and that most of what’s spent on them gets stolen, conditional cash transfer programs offer a convincing rebuttal.  Here are programs that help the people who most need help, and do so with very little waste, corruption or political interference. Even tiny, one-village programs that succeed this well are cause for celebration.  To do this on the scale that Mexico and Brazil have achieved is astounding.”

So, should we provide more financial support to the poor?

Indeed, providing more financial support has been shown to reduce poverty. For example, social security has been “very successful in eliminating old-age poverty” in America (Chart 7).

Chart 7 Social Security decreases poverty among the elderly

Chart 7

The next question might be – but are people willing to pay more? Are people willing to do more to reduce income inequality?

People Want A More Equal Society

According to Michael I. Norton and Dan Ariely, this is a no-brainer. According to a study they conducted in America, they found that, “a large nationally representative sample of Americans seems to prefer to live in a country more like Sweden than like the United States,” where there is a lot more social and income equality and fairness.

Associate Professor Michael Norton had said that, “Americans drastically underestimated the level of wealth inequality in the United States”. He added that, “when we asked them how they thought wealth should be distributed, they told us they wanted an even more equitable distribution, with the richest 20 percent owning just 32 percent of the wealth,” as compared to the actual 84 percent they own now (Chart 8).

Chart 8

Chart 8

Professor Dan Ariely further wrote that, “we discovered that 92% of Americans preferred the distribution of “Equalden” to America’s (Chart 9)”.

Chart 9 Equalden

Chart 9

But will the same beliefs and attitudes apply to Singapore? Do Singaporeans want a fairer and more equitable society? Dan Ariely already has the answer to this when he said that, “when we ran the same basic experiment in Australia, we found Australians did not differ much from Americans in their views of the ideal distribution. When we ran another version of it with NPR listeners, and then readers of Forbes Magazine, the results were still basically the same. And most likely, if you participated in one of our tests, your response too would have fallen in line with these findings.”

So, do Singaporeans want a fairer society? It looks like it wouldn’t be just Singaporeans but anyone in this world who would. According to Professor Ariely, what is happening is that, “we vastly underestimate the level of inequality that we have … (and that) our society is far more uneven in terms of wealth than we believe it is.” He further reaffirmed that, “we want much more equality than both what we have and what we think we have.”

Perhaps NMP Laurence Lien sums up the information gap in Singapore most nicely when he said that, “first, we don’t know the size of the problem. We lack in-depth studies on the ground realities of the poor. We tend to only have information on incomes, aggregated and cross-sectional, which masks differences in circumstances, changes across time and clarity on needs. We need much better data on the state of poverty, including how poor households cope or do not cope with limited resources, and how aid is perceived and used.”

Associate Professor Norton had also said that, “my colleagues and I are now exploring whether educating Americans about the current level of wealth inequality (by showing them charts and pictures) might increase their support for policies that reduce this inequality.”

This is what I am hoping to do with this article as well.

And as Professor Ariely had opined, one of the ways to do it would be to change “taxation deals with the output–those who prosper pay more into the system than those without the same benefits.”

As I had also written previously, in Singapore, the poor actually pay higher overall taxes (tax + CPF) than the rich (Chart 10). In order to reduce or even eradicate poverty, we need to ensure that Singaporeans of all income groups pay equal rates of contribution to our CPF and to reform our taxation system to become even more progressive.

Slide6

Chart 10

Rich Singapore Spends Too Little On Social Protection

Of course, the question now is – would the government do it? According to a study by the Asian Development Bank, “Singapore spent 3.5 per cent of GDP on social protection, which includes the Central Provident Fund (CPF). This was far below the 19.2 per cent spent by Japan and 8 per cent spent by South Korea, the only other high-income countries in the study.

According to Bart Edes, director of the Asian Development Bank’s poverty reduction, gender and social development division, he had this to say about Singapore – “If people work hard and save, yet still do not have adequate means to support themselves and their families…then they will require a safety net to catch them … There are limits to how self-reliant elderly widows can be if they have an insufficient pension to sustain them through their golden years. Skills training will not be of much use to them if they are frail or disabled.”

China Daily US surmised that, “This means Singapore’s motto of “self reliance” when it comes to tackling inequality needs to be fine-tuned.”

As the Economic Society of Singapore (ESS) had also noted, “while self-reliance is a good principle in general, it may be neither efficient nor just if taken to extremes.” The ESS had also “proposed to a government committee that it should build a more robust safety net, starting with unemployment insurance. This would promote social stability and help muster public support for Singapore’s open-door migration policies, it argues. Properly designed, such measures would not create disincentives to work and thrift.” However, it might seem that such proposals have fallen on deaf ears.

But why so? As NMP Laurence Lien had put it, “we tend to take away the dignity of the person in helping families in need (and that) the way we view the poor is often patronising and demeaning.” Thus, “inadvertently, we reinforce the inadequacies of the poor.”

Indeed, Mr Lien had said that, “the poor are no different from the rest of us. They want the best for themselves and their families. Many want to count on themselves and their hard work. He surmised by saying that, “In short, we need new paradigms to tackle poverty and to improve inter-generational social mobility. These new paradigms will help the poor get out of poverty, and not just to get by.”

In Singapore, we need to have a relook at how we understand the poor. The poor do not choose to be poor. No matter how hard they work, they have been given low wages, of which the value of these wages have diminished over the years. The wages of the poor simply haven’t kept up with inflation and the wage increase of the high income earners.

Other than instituting more equal and progressive taxes and CPF contributions, we should also institute minimum wage in Singapore.

But won’t having a minimum wage reduce Singapore’s economic competitiveness and cause investments to flow out of the country, you ask?

In Chart 11, you can see a comparison of some countries with minimum wage and their minimum wage amounts.

Chart 11 Minimum Wages Around the World 2012

Chart 11

Now, look at Chart 12. I have charted the GDP per capita of each country according to the chart of their minimum wages.

Chart 12 GDP per capita, PPP (current international $)

Chart 12

Interesting, isn’t it? The countries with higher GDP per capita actually have higher minimum wages as well! What happened to the argument that a minimum wage law will take jobs out of the country, and the economy will collapse?

Well, it doesn’t. In fact, the premise of a minimum wage law is to ensure that we enact a certain minimum level of wage so that the people working in the country would be able to have a standard of living that is commensurate to the cost of living there. It makes sense, doesn’t it? When your country’s GDP per capita is high, it also means that the cost of living increases. Necessarily, you would also need to pay your people higher wages, in order for them to live adequately, and have a purchasing power that matches the rising cost of living.

However, if the country continues to get richer and prices continue to increase, but wages don’t, then more and more people in the country will find it increasingly difficult to live well, as is the case in Singapore. More and more people will fall into poverty.

In fact, do you know that Singapore is the third richest country in the world, with a GDP per capita of $61,803, but every other poorer country in this chart can afford to give their workers minimum wage, even though they are poorer than Singapore – but the Singapore government doesn’t want to. Even Hong Kong has minimum wage!

As The Economist had put it, “nobody doubts that wealthy Singapore could be more generous. In 2008 the World Bank rated it the third richest country in the world, in terms of GDP per head at purchasing-power parity. And the idea that its Big-Brotherly government might be outfoxed by conniving welfare queens seems odd.”

But then, why wouldn’t the government do it? Why wouldn’t the government increase social welfare assistance, and why wouldn’t the government institute a minimum wage law?

Why Won’t The Government Help The Poor More?

Associate Professor James Kwak had said, “I think most people would say that it’s fine for smart people to make more money than other people. But why? Why are smart people any more deserving than anyone else?” He goes on to say that, “I have little patience for the idea that rich people deserve what they have because they worked for it. It’s just a question of how far back you are willing to acknowledge that chance enters the equation. If you are willing to acknowledge that chance determines who you are to begin with, then it becomes obvious (to me at least) that public policy cannot simply seek to level the playing field, because that will just endorse a system that produces good outcomes for the lucky (the smart and hard-working) and bad outcomes for the unlucky. Instead, fairness dictates that policy should attempt to improve outcomes for the unlucky, even if that requires hurting outcomes for the lucky. But given that society is controlled by the lucky, I’m not holding my breath.”

And who happens to the “lucky” in Singapore?

He succinctly puts it when he said that, “the fact that a capitalist economy functions this way doesn’t make it morally right that the “winners of the genetic lottery” (a phrase I picked up from some basketball announcer talking about Tony Parker) have better outcomes than the losers.”

Nate Kratzer, a graduate student in public policy at the University of Kentucky, outlined the logic flaw of the poor vs the rich best when he said that, “several poor people have doubtless made bad decisions, but then again, so have a great many wealthy ones. As it turns out, not so surprisingly, the main difference between the poor and the wealthy is that the poor don’t have very much money.”

He added that, “study after study shows that direct cash transfers are more effective at alleviating poverty than a complicated bureaucratic and paternalistic system. Direct cash transfers have resulted in “lower crime rates, improved childhood nutrition and child health, lower child mortality, improved odds of kids being in school, and declines in early marriage and teenage pregnancy.”

I think quite clearly, there is much evidence, studies and support for the case to be made that we cannot view the poor as helpless, “non-hardworking” victims of a plight which they created. No! The poor have been kept in structural poverty because of the mindsets of the policymakers in Singapore, who happen to be the high-income earners as well, and have every want to enshrine the capitalistic system which their wealth is based on. There is clear evidence that alleviating the plight of the poor through direct cash transfer programmes will not only improve their lives, but will enable society to become more equal. And there are just as many research, as I had written before, which showed that a more equal society will also allow the society to continue to operate in an economically more sustainable way.

As NMP Laurence Lian had said, “the poor often require continued emotional support and healing in the midst of their many stressors. They need help on multiple fronts at home and at work. They need a comprehensive plan that conceptualises how they could be more self-reliant and how they can break their cycle of poverty. Our aid schemes look at income levels as a cut-off; but we also have to look at needs. Above all, we must deal with the root causes of poverty, and not just the symptoms.”

And as Nate Kratzer had said, “it might be comforting to think that the plight of the poor is the result of their moral failures or other shortcomings, but the data doesn’t validate that conclusion. In general, given more money, poor people invest in the health and well-being of their children. Yes, some might use it for entertainment; but others use the capital as start-up funding for a small business or as savings to self-insure against unexpected expenses. Not all of it will spent in a ‘virtuous’ manner. But think about it, that’s basically exactly how everyone else spends their money. Direct cash transfer can deliver better results at a lower price. It can break the cycle of poverty by encouraging investments in the health and education of children. All we need to do is give up on our misplaced paternalism and start writing checks.”

Is there a case to overhaul the financial assistance to the poor in Singapore? The answer is not in whether there is evidence to support it. The answer lies in whether the government is willing.

And if not, then Singaporeans would need to do the right thing to protect ourselves and the people around us.

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