LHL Singapore

Scholars of Singaporean politics have sometimes characterised the enduring political stability in the country as the result of an implicit social contract between the Peoples Action Party (PAP) and the masses. As long as the PAP’s technocratic elites provide political and social order alongside overall rising standards of living, then Singaporeans will repay the PAP with support at the ballot box and everyday political acquiescence.[1]

With new economic and social realities, however, such a social contract is at risk of being torn apart. An aging society combined with rising inequality driven by globalisation and liberal immigration policies mean that there needs to be higher taxes on the wealthy and upper-middle income population, so as to redistribute to the lower-middle income, poor, elderly and disadvantaged. For now, the Singapore government has paid for such redistribution through budget surpluses and a portion of returns from its large reserves accumulated over the years. Yet, there will be a point where the government has to finance higher social spending through higher taxes on the rich, be it on their assets or incomes.[2] In parallel, there are mounting claims to put “Singaporeans first,” or to focus on a “Singaporean core.”[3] The General Elections of 2011 can be viewed as one of the first signals that the electorate sent to the PAP that a new social contract will have to be negotiated.[4]

Thus, the defining question for Singaporean politics in the next few years is this – how will the negotiations for a new social contract between the masses and the PAP develop? There are a number of perspectives through which one can study this question. One popular way, for example, utilises the concept of the “new normal,” which is a view that simply says that Singaporean politics will become more contested as Singaporeans increasingly distrust the PAP while the PAP struggles to locate and placate the demands of the masses. I wish to offer an alternative metaphor – the simple Rubinstein bargaining model.[5]

In the basic Rubinstein bargaining model, two players alternate their offers to each other over how to divide a fixed pie. Player 1 offers Player 2 a portion of the pie, X. Player 2 can choose to accept or reject. If Player 2 accepts, the game ends. If Player 2 rejects, then Player 2 will have the initiative to counter offer Player 1 a portion of the pie, Y. Player 1 can choose to accept or reject. If Player 1 accepts, the game ends. If Player 1 rejects, then Player 1 will again have the initiative to submit an offer to Player 2. The game continues until one player accepts the offer. A crucial feature of this game is that both players discount the gains that they will obtain as the game is played further and further into the future. That is, each player has their own discount factor (a fraction greater or equal to 0 but less than or equal to 1), which may or may not be the same to each other. As Rubinstein proved in his paper in 1982, there exists a specific size of the pie that Player 1 will offer Player 2 and vice versa – an amount that depends on their respective discount factors.[6]

For the purposes of studying the negotiation of Singapore’s new social contract, it is not necessary to explicate the mechanics and results of Rubinstein’s bargaining model. What is important, however, is that we have a framework to begin thinking about (a) discount factors, and (b) the enforcement of social contracts.

The basic result of Rubinstein’s model suggests that as a player’s discount factor increases (i.e. the discount factor approaches 1 reflecting that the player is very patient), then that player has a very high leverage in negotiations to offer a small amount of the pie to the other player to induce it to accept the bargain. If the other impatient player rejects the small offer, the patient player can always wait for its next turn to offer again. In contrast, as the player’s discount factor decreases (i.e. the discount factor approaches 0 reflecting that the player is very impatient), then that player has very little leverage in negotiations because she wishes to close the deal quickly, and therefore can be exploited by the more patient opposition.

From this view, then, a broad segment of Singaporeans are relatively disadvantaged because the perils of an aging society and rising inequality are directly hurting their immediate wellbeing, making them relatively more impatient negotiators vis-├а-vis the PAP government. The PAP, on the other hand, with its monopoly of control over the coercive instruments of the state and its wealth of resources, is a much more patient negotiator, thereby giving it much more leverage in negotiating and setting the terms of any future social contract. We can thus surmise that if the PAP offers a new social contract, the offer for reform and redistribution will be small, and that the terms of the deal will be heavily tilted towards the PAP. Perhaps another 50 years of domination?

To be sure, this does not necessarily mean that the masses of Singaporeans must definitely accept a bad deal. Agreeing to the terms of a new social contract still leaves open numerous problems, one of which is the important problem of a credible commitment to those terms. In the past, if the PAP did not provide security and prosperity, then Singaporeans could, in theory, kick them out through the ballot box. Now, if the PAP renegades on its promise for significant redistribution and to build a Singaporean core, can Singaporeans still rely on the ballot box to enforce punishment on the PAP for infringing this new social contract? Maybe. Maybe not. Recent rhetoric in the newspapers suggests the there is declining trust amongst Singaporeans that the PAP government will commit to its claims of more redistribution, even with regular elections.[7] There is also a substantial fear within the Singapore civil service that declining public trust in the bureaucracy will impact its ability to implement policies over the coming years.[8] More recently, popular Singaporean writer Catherine Lim wrote an open letter to Prime Minister Lee Hsien Loong, sounding an alarm over what she sees as a “crisis of trust” in the PAP government.[9] These trends reflect that many Singaporeans continue to think that PAP’s claim of commitment to substantive redistribution and to put Singaporeans first is cheap talk.

In the language of game theory, one way to overcome the credible commitment problem in the absence of punishment is for the inducing party to send a costly signal. To reassure Singaporeans that the PAP is committed to keeping to the bargain to redistribute more and to put Singaporeans first, the PAP needs to send some signal that impinges some costs onto itself so as to gain credibility with and signal their resolve to the Singaporean masses. The signal can involve some kind of institutional reform, or some kind of mechanism that ties that PAP’s own hands committing to redistribution and reform. Whatever it is, the signal must be perceived to be costly enough for the PAP to gain credibility of its commitment to the new social contract. A failed attempt by the PAP to send a costly signal is the immediate initiative by Prime Minister Lee Hsien Loong to set up a committee to review ministerial salaries in the immediate aftermath of the 2011 General Elections.[10] In the end, the decrease in the salaries of cabinet ministers recommended by the committee was so little as to render the entire exercise meaningless.

In the upcoming General Elections due by 2016, Singaporeans will have a chance to signal to the PAP if it deems the reforms that the PAP has undertaken since 2011 to be acceptable or not. Opposition political parties will likely emphasise a “The reforms are not enough” rhetoric, urging Singaporeans to reject PAP’s offer of a new social contract, to vote for the opposition to force further reforms and a costly signal from the PAP. The PAP, on the other hand, will want to frame any improvement or maintenance of its vote share as having permanently “sealed the new deal,” being confident of the fact that it always had the upper hand in the negotiations because it was the relatively more patient negotiator.

Ultimately, there is no reason to think that the PAP is not interested in negotiating a new social contract to ensure its continued dominance over the next few years. What the foregoing analysis has revealed is that any social contract is likely to be heavily biased towards the PAP (because it is more patient), and also that the PAP needs to enact some kind of reform to send a costly signal to the masses that it will credibly commit to the terms of the new contract. Otherwise, the PAP risks the continued erosion of the public’s trust in its existing model of technocratic governance.

[1] Benjamin Wong and Xunming Huang, “Political Legitimacy in Singapore,” Politics & Policy 38, no. 3 (June 1, 2010): 523–43; Cho-Oon Khong, “Singapore: Political Legitimacy Through Managing Conformity,” in Political Legitimacy in Southeast Asia: The Quest for Moral Authority, ed. Muthiah Alagappa, Contemporary Issues in Asia and the Pacific (Stanford, California: Stanford University Press, 1995).

[2] Singapolitics, “Asset Taxes May Go up: Tharman,” Asiaone News, accessed April 29, 2014, http://news.asiaone.com/News/Latest+News/Singapore/Story/A1Story20130419-417063.html; Shi Ning Teh, “Tharman Walks Fine Line over Clashing Demands,” Business Times, accessed April 29, 2014, http://www.businesstimes.com.sg/budget-2014/tharman-walks-fine-line-over-clashing-demands-20140219.

[4] Lam Keong Yeoh, Donald Low, and Manu Bhaskaran, “Rethinking Singapore’s Social Compact,” IPS Commons, 2012, http://ipscommons.sg/index.php/categories/society/58-rethinking-singapores-social-compact; Manu Bhaskaran et al., Inequality and the Need for a New Social Compact, Singapore Perspectives 2012 Background Paper (Institute of Policy Studies, 2012); Lam Keong Yeoh, “Rethinking a New Social Compact for Singapore,” Ethos, October 2007, https://www.cscollege.gov.sg/Knowledge/Ethos/Lists/issues/Attachments/8/ETHOS_IS03.pdf.

[6] Ariel Rubinstein, “Perfect Equilibrium in a Bargaining Model,” Econometrica 50, no. 1 (January 1, 1982): 97–109.