Sunday, May 06, 2007

Some thoughts on high civil service/ministerial salaries

I promised earlier to blog on arguments for and against the pay hike. After thinking it throught, I realised that the issue is actually very complicated and a thorough discussion would require more substantive investment of time and brainpower on my part than what I actually have. Hence, I will merely reproduce an email post of mine in which I talked about the issue.


Sorry, I don't think I will have the time to blog on why I don't oppose the recent pay hike. Neither do I support it. It's simply because I do not have enough background information/knowledge to pass judgement on the issue and the issues to examine are too many. It would have been helpful if the PSC had released more information on the attrition rate of AO's and senior civil servants (like where they went after resigning or what their new salaries are or the reasons given for leaving).

However, I have a few quick and dirty ones.

1. The pay hike should be seen in the context of the overall salary review for the entire civil service - doctors, lawyers, teachers, firemen, policemen, etc. Presumably, the salary review is pressing since public sector salaries seem to be lagging. Having a separate special pay review exercise for the ministers and civil servants will cause a bigger uproar and isn't too practical. I have no problem with the timing. Perhaps, it might have been too close to the GST hike. In that case, the GST hike exercise should have been postponed.

2. The argument against the MR4 benchmark is not convincing. It is claimed that those people may not get so much in the real private sector or be consistently earning that sum of money. I don't know enough about that to assess that claim. However, people should be more consistent and apply that argument to other civil servants like policemen, nurses, etc. A person who spends many years in the SAF and the SPF may find it hard to get a financially-equivalent job outside after leaving the service because of the lack of relevance of his/her working experience. Should we then pay policemen and army regulars less?

It is precisely the low value of working experience in the civil service that higher compensation may be needed. Someone who rises from an AD to a perm sec may have a lot of working experience that is not highly valued outside of the civil service. We may have people who want to leave the civil service to get more valuable private sector experience. Thus, it may be necessary to compensate people for their lack of private sector experience.

3. LKY's claim that our politicians will become corrupt if they are paid too little is ridiculous. Eradicating corruption depends on many factors e.g. the effectiveness of CPIB, whistleblower laws, etc. LKY has been especially unhelpful in the rationale debate on this issue. Since when, in any time in Singapore's history, even under British colonial rule, have Singaporeans been exported as domestic helpers? Absurd.

There is quite a bit of mythology about Singapore's economic history. I strongly recommend "The Economic Growth of Singapore: Trade and Development in the Twentieth Century" by W.G.Huff for a less biased academic perspective.

4. I don't oppose high pay for any single person. I don't subscribe to the 'moral authority' argument. This is a matter of perspective on what our political leadership should be like.

5. The benchmark is highly contentious. Several alternatives have been suggested - benchmarks to GDP, GDP per capita, Gini coefficient, GDP growth, GDP growth per capita and salaries of political appointment holders in other countries. The last one is highly popular but silly since we just cannot import Bill Clinton even if he wanted to come.

The argument that, since George Bush runs a country 100 times larger than Singapore but makes about 1/5 the money, we should cut the salaries of our ministers and civil servants, is a little strange. There is no law of scaling of political salaries that I know of. If there is anything that scales, it is the number of civil servants. A country 100 times Singapore's size has probably 100 times the number of civil servants. The USA may have one president running the federal government but 50 governors running the 50 states. I don't hear people suggesting that governors should be paid 1/50th of the US president's salary i.e. 8K per annum.

There is a sense of arbitrariness in the benchmark. I don't think we can get away from that with any benchmark. However, I see no good alternative. There could be alternatives in the sense that a component in the formula is indexed in some way to the GDP per capita.

6. However, the benchmark has the possible advantage that it makes mid-career switches from the private sector to the civil service more attractive. Again, this is speculation on my part. Perhaps, the government wants well-paid lawyers, accountants, doctors, etc to join the civil

7. The MR4 benchmark itself has been acknowledged to be a little faulty by the government in the sense that it is highly variable and if the government were to stay faithful to the benchmark every year, the MR4 people will see fairly large swings in their salaries year in year out. Thus, the benchmark is itself not a good compensation formula. I bet that it is going to be revised in the future.

People complain that the benchmark is risk-free since it is always pegged to the top 8 earners. This ignores that fact that the amount is actually highly variable.


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