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Московский экономический журнал 4/2020

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.

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