Mr Deputy Speaker, Sir, I beg to move, 'That this House, noting with concern the present problems with the economy, commends the Trade Unions and the workers for their responsible attitude towards wages; and supports the measures so far taken by the Government and urges the Government to take all further steps necessary for the Nation to adapt to the changing environment, including steps to strengthen the role of local businesses in the economy.' Sir, let me first deal with the current economic problems, We are facing difficult times. Our economy has slowed down and stagnated. The economic growth rate has declined continuously in the last six quarters - from 9.9% in the first quarter of 1984 to minus 1.4% in the second quarter of 1985. This year, the economic growth rate may turn out to be the lowest since our independence in 1965. Sir, everywhere we go we hear businessmen, shopkeepers, restaurant owners and other people complaining that business is bad. My CCC members also told me that this year hungry ghosts may stay hungry as Seventh Moon Festival organizers cut back their cost of operations. Some Seventh Moon Festival reduced the number of dinner tables, others decided to do away with wayangs, sing-song and whatever. So restaurant owners, wayang operators and actors have lower income and therefore spend less. Here we observe the multiplier effect working in the grassroots economy, but in a negative sense. I ask myself this question: "Is our economic situation really that bad?" Yes, we are facing difficulties, but we are not facing a crisis. If you read the forecast by Wharton School of Economics, University of Pennsylvania, and the forecast by some American banks, it seems to me that many foreigners have more confidence about us than some of our own people. We Parliamentarians, as elected representatives of the people, must assure our people that we can and will overcome our current economic problems. The next question I ask myself: "What went wrong? What caused the present economic difficulties?" Let me here offer some of my observations. Basically, there are two causes. Internally, our economy is undergoing structural changes. We are in the transitional period. First, wages increased rapidly in the last few years, In 1979 to 1981, wages increased as a result of the high wage policy. However, wages continued to rise after 1981 because of tight labour market conditions. Productivity did increase in the last five years. However, productivity growth has yet to catch up with the wage increase. As a result, unit labour cost increased. The second internal factor, Sir, was that labour intensive, low-skill, low-value-added industries and other economic activities were phased out by high wages, but new high tech, high-value-added and high-skill industries and economic activities have not been established fast enough or in sufficient number to occupy the central stage of our economy. There is a third internal factor. The construction boom is over. Not only the construction sector itself is affected, but also businessmen who have used their property, either commercial or residential property, as collateral to raise loans, find it difficult to raise sufficient loans. So there is a chain effect. They face a credit squeeze. Externally, the demand for our goods and services also declined. We are highly dependent on the world market. This is not a result of conscious choice, but it is a matter of economic survival, We have no other options. We have no agricultural base to fall back on. We have no natural resources to exploit. We can only make use of our only resource, namely, human resource, and take advantage of our geographical location and infrastructure which we have painfully built up in the last 25 years to manufacture goods and offer services for the world markets. We also buy from the world markets what are needed by our people and our economy food, raw materials, machinery, equipment and even water. In this way, our economy is plugged into the world economic system. This linkage gives us economic prosperity, but it also makes our economy vulnerable to changes in world economic conditions. Let me now analyse the three economic external factors which affect our economy. First, the economic slow down of the industrialized nations and the protectionist measures adopted by some of our trading partners have further aggravated our economic situation. Our domestic exports of goods and services in the last few years failed to increase as rapidly as in 1969-1979. In the ten years, 1969-1979, the average growth rate of our domestic exports was 26.9% per annum. In 1981-1984, the growth rate of our domestic exports was only 6.6% per annum. In fact, in 1982, the growth rate of our domestic exports was negative, -1.0%. The second external factor, Sir, is specific to some industries. There are world-wide economic problems specific to some industries. For example, oil refineries and shipbuilding and repairing are suffering from excess capacity, excess supply and change in oil trade. Similarly, electronics and some sector of computer industry is undergoing a shake-out. Our refineries, shipyards, petro-chemical and electronic and computer industries cannot avoid these adverse conditions. A third economic external factor is the restraint imposed by our neighbouring countries on travel and expenditure of their own citizens outside their countries. These restraints have also affected our tourism and retail trade to some extent. At micro level, the internal and external causes which I have just mentioned would mean two things for most enterprises: (1) higher cost of operation and (2) decline in sales or turnover. Sir, I am going to argue that demand factor is more important than cost factor, both at macro and micro sense. It is true that part of the decline in external demand of some industries may be due to the loss of our competitive edge because of higher cost of operation. However, being a small open economy, decline in external demand is mainly due to exogenous factors over which we have no control. I have already identified some of these exogenous factors just now. Hence, the current economic problems could not be prevented even without higher costs of operation, or without wage increase and CPF increase in the last few years, though higher cost of operation would worsen the situation. Sir, at enterprise or industry level, decline in demand seems to be more serious than high operating cost. Sir, you are a businessman. I think you understand this. When demand is high, turnover rapid, you and other businessmen have no complaints or less complaints. Costs are not a problem, When demand starts to decline, and wages, rents, interests and other costs fail to decline or fail to decline proportionately, costs begin to bite. Less efficient enterprises find it difficult to carry on, some enterprises may go under. Sir, let me now turn to the other issue - CPF contribution rates and wages. In May and June, I already sensed there were pressures coming from the business community and other quarters on Government to reduce CPF contribution rates in order, as they argued, to reduce costs of operation. I have pointed out in an interview with Lianhe Zaobao on 18th July, that CPF contribution rate should not be used as an anti-cyclical measure. The CPF is not a levy; it is part of a worker's total wage. Reduction in employer's contribution rate alone will reduce worker's pay and worker's savings. Reduction in employee's contribution rate alone will reduce his savings but not his employer's operating costs. And reduction in CPF from both sides, employer and employee, as the Member for Anson once suggested, will reduce the worker's pay, his saving and his ability to own a flat. So let us not fiddle with CPF contribution rates, unless we are really facing a crisis. Now let me turn to wages. Wages reflect labour market conditions. We cannot expect wages to remain low when we experience rapid economic growth and labour shortage, Even without wage corrections in 1979-81, wages would have increased. However, we cannot simply look at wages or wage increase alone. Wage increase must be compared with productivity increase. If productivity increase can keep pace with wage increase, total wage cost will not go up. When we talk about wage costs of export industries, we must also compare our wage increase and productivity increase with such increases of our competitors. That is what competition in international market is all about. But here let me sound a word of caution: Competitiveness should not be achieved at the expense of the living standard of our workers. By cutting down wages, our competitiveness will surely improve but workers suffer. Wages must be allowed to increase when productivity increase, workers should be given a share of productivity gains. Sir, our productivity did increase at an average rate of 4.6% in 1980-84, This is an improvement over the average productivity growth rate of 3.2% in 1975-79 before the wage correction policy was implemented. Moreover, our productivity performance in 1980-84 was better than the productivity performance of other newly industrialized countries in Asia. But the trouble is that this productivity growth rate still fell short of the average wage increase during 1980-84. During this period, total labour cost inclusive of CPF, SDF and payroll tax increased by about 10%. Productivity growth rate was only 4.6% per annum but labour cost increased by about 10%. Why has productivity increase lagged behind wage increase? The reason is simple: it is nearly effortless to increase wages, but to increase productivity, business enterprises must be prepared to invest more in capital, train their workers and upgrade their management systems. All these will take some time before productivity performance can be improved. Under these circumstances, and given our present economic problems, it is sensible to restrain wage increase for the time being until productivity growth catches up. In other words, wages have to increase at a much slower pace in the next two to three years. However, exceptions, as I argued just now, must be made for workers in enterprises whose productivity has increased rapidly. Trade unions and workers have, in fact, taken the first step towards wage restraint. They have decided to forgo this year's NWC wage increase. Trade unions and workers must be commended for taking this action. Their action will not only help to ease cost pressure on many enterprises but it will also send a strong signal to investors and potential investors that our workers are realistic and are willing to make adjustments in the interests of our nation. I notice the Opposition Members have tabled a motion to cut Ministers' salaries and MPs' allowances and pensions by 25%. 1 wonder in what way this cut, if implemented, will help reduce operating costs of businesses and stimulate economic recovery.