Московский экономический журнал 4/2020

Posted by redaktor
image_pdfimage_print

УДК 338.001.36

DOI 10.24411/2413-046Х-2020-10258

ECONOMIC INEQUALITY IN SINGAPORE AND MALAYSIA

ЭКОНОМИЧЕСКОЕ НЕРАВЕНСТВО В СИНГАПУРЕ И МАЛАЙЗИИ

Абреков Магомед Мекерович, Финансовый Университет при Правительстве РФ

Abrekov Magomed, Financial University under the Government of the Russian Federation,  09maga09@bk.ru

Аннотация. В данной работе рассматривается неравенство доходов в двух странах: Сингапуре и Малайзии. Сегодня экономическое развитие этих стран сильно отличается, и неравенство является одним из ключевых факторов, которые могут быть использованы в качестве инструмента измерения текущей экономической ситуации в каждой стране. Хотя экономика Сингапура за последние 50 лет значительно улучшилась, Малайзия остается в статусе развивающейся страны. Это исследование показывает, что неравенство в целом и неравенство доходов в частности являются наиболее важными факторами с точки зрения оценки результатов экономической политики этих стран, которая привела к их сегодняшним позициям в мировой экономике. Кроме того, в статье анализируется влияние неравенства на будущее развитие Сингапура и Малайзии.

Summary. This paper takes a look on income inequality in two countries: Singapore and Malaysia. Today the economic development of these countries differs a lot and the inequality is the one of the key factors that can be used as a measurement tool of the current economic situation in each country. While Singapore’s economy tremendously improved in the past 50 years, Malaysia remained in the status of developing country. This research suggests that inequality in general and income inequality in particular are the most important factors in terms of evaluating the results of economic policies of these countries, which led to their today’s positions in the world economy. Moreover, the paper analysis the impact of inequality on future development of Singapore and Malaysia.

Ключевые слова: Сингапур, Малайзия, коэффициент Джини, кривая Лоренца, бедность, распределение дохода.

Keywords: Singapore, Malaysia, Gini coefficient, Lorenz curve, poverty, income distribution.

Introduction

Inequality is one of the major problems nowadays. Poverty, crime, social unrest and even suicide rates are significant factors behind the inequality. In addition, there are widely accepted ethical bases for being concerned that there are a high degree of inequality between individuals, which also damages the social life of any country. Besides the obvious consequences for society, inequality also has a great impact on economic growth (McKay, 2002). There is increased evidence that countries with high levels of inequality achieve lower economic growth rates on average. Same time, many governments still do not approach this issue efficiently. There are many policies on the reduction of poverty, however, inequality requires more attention in professional discussions. This paper compares approaches of Singapore and Malaysia to the problem of inequality.

Singapore and Malaysia were chosen for the research due to their comparability. First of all, both of these countries previously were British colonies. In the year 1963 Malaysia got the independence from British Empire and at that date Singapore was a part of Malaysia, however, in 1965 Singapore separated into a different country. Secondly, as long as these countries are neighbours, they share similar traditions and mentality. Moreover, they belong to one climate zone, which makes the comparison even more accurate. The only two differences arise from territory and population, because Singapore is a city state, while Malaysia is one of the largest countries in the region. Same time, the latter in theory should benefit to Malaysia due to more opportunities for infrastructure and hence more opportunities for economic development. However, in reality Singapore distributed the limited resources better. Thus, this research considers that the comparison between Singapore and Malaysia is accurate enough to have a scientific significance.

Data collection

The main base of comparison between Singapore and Malaysia is the income distribution. First of all, it is a quantitative term that can be easily measured via statistical and mathematics tools. Secondly, it gives general understanding income distribution problems in the particular society (Charles-Coll, 2011).

The study divides population of each country into 5 groups according to their social class. The income groups for both Singapore and Malaysia are as follows:

  1. Workers on jobs that do not require high qualification. This may include students who have only part-time jobs and workers on low-skilled jobs in service industry. Average income in this group: around $1,000 per month.
  2. Beginning positions in sectors that require high qualifications. This group consists mostly of graduates that do not have much experience and only started their career. Average income is about $3,500 per month.
  3. Middle class workers. This includes professionals with working experience and stable positions on their jobs, for example, doctors, accountants, police officers etc., with average income of $7,000 per month.
  4. Managers. This group includes high level professionals and managers that are in charge of business and decision making. Average income: $15,000.
  5. Top managers. The last group consists of CEOs, directors, large investors etc., with average income of more than $30,000 per month.              

After the analysis of composition of countries’ societies and division them into the 5 groups mentioned above the following data was obtained.                    

All data for Singapore income distributions was taken from paper by Singapore Department of Statistics (Singapore Department of Statistics, 2018). The data is updated as of 2018. Data for Malaysian income groups was collected from website of Department of Statistics Malaysia (Department of Statistics Malaysia , 2017). The updated information for 2018 was not presented by Department of Statistics, the last available data is for 2016.

Methodology

After the data collection the main study may be conducted. First of all, the Lorenz curve is derived from the above data sets. Lorenz proposed Lorenz curve in 1905 and nowadays it is one of the main tools that represents income distributions. Lorenz curve demonstrates which proportion of total income is in the hands of a given percentage of population (Bellu & Liberati, 2005). We demonstrated the income inequality in the current research with the help of mentioned earlier tool.

The next step after analysis of income inequality is calculation of Gini Index.  In inequality measurement Gini index is another one and more descriptive tool than Lorenz Curve. Just like the latter one, Gini Coefficient is mostly used for measuring the inequality among values of a frequency distribution (Bellu & Liberati, 2006). This tool provides more detailed point of view on income inequality problems in the chosen countries. With Gini Index the research also takes a look at Atkinson Index, which is a welfare-based measure of inequality.

After analysis of income inequality the research is able to focus on poverty rates in Singapore and Malaysia. Undoubtedly, this is one of the most important issues that arise from inequality. According to Bellu and Liberati, poverty can be defined as the lack of, or the inability to achieve, a socially acceptable standard of living (Bellu & Liberati, 2005). In this research both relative and absolute concepts of poverty are taken into account. On the one hand, there is a need in determination of poverty line (in this case all people with income below that poverty line are considered to be poor), which is provided by relative concept. On the other hand, the research analyses qualitative and descriptive data such as minimum income required for living or food security and in that case absolute concept of poverty suits for the study better.

As it was mentioned above, food security is another factor of inequality that is analysed by this research. By food security a measure of the availability of food and individuals’ ability to access it is meant. The main tool for estimating this parameter is calorie intake per person per day, available on a household budget (Webb, et al., 2006). However, the food security is rather descriptive measure, which sometimes is calculated on the basis of surveys. In this research the food security in Singapore and Malaysia is compared through different indicators besides the availability of food. First of all, the own production of food is considered as a part of this problem. Secondly, the quality of food suppliers is also important regarding the issue.

The last but the least is social welfare. This term relates to the types of government support for the citizens of its society (Choon, 2010). In other words, this part compares social services provided by states of the countries. This includes medical care, unemployment insurance for workers, free education programs, subsidized public housing and pensions.

After such complex analysis the research is able to draw a conclusion on the inequality situation in Singapore and Malaysia and evaluate future prospects of these countries.

Research

First of all, the research takes a look at the Lorenz Curve for Singapore and Malaysia. Figure 1 below represents the graph for Lorenz Curve based on the information about income groups in the countries. As it can be seen from the table, the shape of Lorenz Curve for Malaysia has greater bend, which means that incomes are more dispersed in Malaysia than in Singapore. On the contrary, Lorenz Curve for Singapore tends to equidistribution line meaning that there is a little variability among incomes in Singapore. In other words, the results of Lorenz Curve observation suggest that the degree of inequality is lower in Singapore compared to Malaysia.

Gini Index was calculated with the following formula:

where Cov is the covariance between income levels y and the cumulative distribution of  the same income F(y) and ȳ is average income.

With that formula given, Gini Index for Singapore was calculated at the level of 0.129, whereas Gini Index for Malaysia amounted to 0.509. Gini coefficient values range from 0 to 1, where 0 is an expression of perfect equality, while 1 shows the maximum inequality degree. Thus, the results of this research are in line with the results of Lorenz Curve for the countries. The average Gini Index in the world amounted to 0.61 as of 2015 (Hellebrandt, et al., 2015). Gini Index for USA accounted to 0.41, in Russia it was 0.38, in Germany – 0.33. Gini Index for countries of the same region were as follows: Indonesia scored 0.38, Thailand – 0.37, Philippines – 0.40 (The World Bank Group, 2019). As it can be seen from this data, Gini Index for Malaysia is a bit higher than the average results of countries in ASEAN region, however, it is still in line with overall trends. Same time, Gini Index for Singapore is significantly lower than other results, which indicates, that there is almost no inequalty degree in the country. Atkinson Index is calculated at 0.89 for Singapore and at 0.84 for Malaysia that are rather high values of this parameter.  

The poverty rates of two countries are somewhat incomparable due to absence of such statistics for Singapore. Thus, Malaysian absolute poverty rate is at 0.4% as of 2019 (Lim, 2019). In Singapore there is no minimal wage and poverty line. Thanks to large programs of social welfare Singapore relative poverty rate is believed to be near 0.00%. Same time, some studies estimate absolute poverty rate in Singapore around 12%, however, this is unofficial data (Zhen, 2018).      

In terms of food security Singapore has vulnerable positions as long as it imports 90% of total consumption, while its own production requires heavy technology involvement (Lee, 2019). Both of these factors lead to increase in prices for basic products in the consumer basket, however, it is somewhat compensated by high salaries. In addition, the quality of imported goods is rather high as long as it needs to meet all the requirements of Singapore. Malaysia has similar problems: its own production does not meet the accelerated growth of demand for food. Hence, the country also heavily relies on import which accounts to more than 50% of total consumption (Noordin, 2018).

Social welfare in Singapore is called as an invisible welfare: state subsidises housing, education, healthcare, however, citizens may be not aware of that due to such government policy (Chan, 2018). Such structure benefits more to middle class, while poor people may be left without any help. Malaysian policy, on the contrary, is focused on the people in need (Chu, 2018).  

Discussion

The research shows the difference in inequality degree in Singapore and Malaysia. The first one predictably has much lower degree of inequality being one of the most wealthy and safe countries all over the world. Malaysia’s results are worse, however, they are still better than average. These differences are explained by strategies of policymakers that were implemented in past few decades. In Singapore they resulted in top positions in the world, while Malaysia remained in status of developing country. Nowadays the high degree of inequality may limit the economic growth of Malaysia. On the positive side, the latest statistics indicate the decrease of the Gini Index and dynamics of other parameters for Malaysia also appear to have upward trend. Singapore have more stable and favourable situation compared to Malaysia, however, it does not mean that there is nothing to improve. First of all, food security is major reason for concern in Singapore, social welfare policies may work better as well.    

Conclusion In conclusion, despite the proximity of Singapore and Malaysia, today’s positions of the countries in terms of inequality differ a lot: Singapore has one of the lowest inequality degrees in the world, while Malaysia is near average countries. Despite that, both Singapore and Malaysia have a room for improvement regarding their current policies aimed on decrease of inequality in order to achieve higher economic development.

Bibliography

  1. Bellu, L. G. & Liberati, P., 2005. Charting Income Inequality: The Lorenz Curve. [Online]  Available at: https://mpra.ub.uni-muenchen.de/30063/
    [Accessed 2 March 2020].
  2. Bellu, L. G. & Liberati, P., 2005. Impacts of Policies on Poverty: The Definition of Poverty. [Online]  Available at: https://mpra.ub.uni-muenchen.de/44644/ [Accessed 2 March 2020].
  3. Bellu, L. G. & Liberati, P., 2006. Inequality Analysis: The Gini Index. [Online]  Available at: www.fao.org/tc/easypol [Accessed 2 March 2020].
  4. Chan, V., 2018. Is Singapore’s welfare system failing its poor?. [Online]  Available at: https://www.theonlinecitizen.com/2018/07/18/is-singapores-welfare-system-failing-its-poor/ [Accessed 3 March 2020].
  5. Charles-Coll, J. A., 2011. Understanding income inequality: concept, causes and measurment. International Journal of Economics and Management Sciences , 1(3), pp. 17-28.
  6. Choon, C. N., 2010. Social Protection in Singapore: Targeted Welfare and Asset-based Social Security. In: M. G. Asher, S. Oum & F. Parulian, eds. Social Protection in East Asia – Current State and Challenges. Jakarta: ERIA, pp. 99-123.
  7. Chu, M. M., 2018. Wan Azizah: Malaysia’s welfare policy to move away from mere handouts. [Online]  Available at: https://www.thestar.com.my/news/nation/2018/07/19/wan-azizah-malaysia-welfare-policy-to-move-away-from-mere-handouts/ [Accessed 5 March 2020].
  8. Department of Statistics Malaysia , 2017. Report of Household Income And Basic Amenities Survey 2016. [Online]
    Available at: https://www.dosm.gov.my/v1/index.php?r=column/cthemeByCat&cat=120&bul_id=RUZ5REwveU1ra1hGL21JWVlPRmU2Zz09&menu_id=amVoWU54UTl0a21NWmdhMjFMMWcyZz09 [Accessed 12 March 2020].
  9. Hellebrandt, T. & Mauro, P., 2015. The Future of Worldwide Income Distribution. Peterson Institute for International Economics Working Paper, Volume 7, p. 15.
  10. Lee, J., 2019. Singapore focuses on food security to counter external threats. [Online]  Available at: https://asia.nikkei.com/Economy/Singapore-focuses-on-food-security-to-counter-external-threats [Accessed 2 April 2020].
  11. Lim, I., 2019. How Malaysia is measuring poverty levels and how it can do better. [Online]  Available at: https://malaymail.com/news/malaysia/2019/09/06/how-malaysia-is-measuring-poverty-levels-and-how-it-can-do-better/1787753
    [Accessed 1 March 2020].
  12. McKay, A., 2002. Inequlity Briefing. UK Deparment of International Development, 1(1), pp. 1-6.
  13. Noordin, K. A., 2018. Agriculture: Addressing food security in Malaysia. [Online]  Available at: https://agri.upm.edu.my/artikel/agriculture_addressing_food_security_in_malaysia-46781 [Accessed 5 March 2020].
  14. Singapore Department of Statistics, 2018. Key Household Income Trends, Singapore: Singapore Department of Statistics.
  15. The World Bank Group, 2019. GINI index (World Bank estimate). [Online]  Available at: https://data.worldbank.org/indicator/si.pov.gini
    [Accessed 7 March 2020].
  16. Webb, P. et al., 2006. Measuring household food insecurity: why it’s so important and yet so difficult to do. The Journal of Nutrition, 5(136), pp. 1404-1408.
  17. Zhen, G. G., 2018. Definitions and Measurements of Poverty, Singapore: Social Service Research Centre.