In a Facebook post, Jamus Lim argues that high rental costs are what drive up prices and inflation because these are fixed and unavoidable, and therefore businesses have no choice but to absorb these costs, regardless of whether their operations are profitable or not.
However, this explanation oversimplifies the issue.
Businesses in Singapore are facing more than just rising rental costs. Many are also grappling with higher labor costs, energy bills, raw material prices, and global supply chain disruptions.
For Jamus to focuse solely on rental costs is to overlook these other significant pressures that also contribute to price increases.
Theory vs reality
Jamus attempts to downplay the impact of labor costs with his economic theory that hiring and firing is a straightforward cost-benefit analysis.
While this theory works well in idealized conditions, it doesn’t capture the full complexity of real-world business decisions and economics.
In Singapore’s tight labor market, for example, human capital is not easily scalable or replaceable.
Employers may choose to retain workers who have specific skills, training, or institutional knowledge, even when business conditions are less than favorable. This is because the cost of retraining new employees or losing valuable talent can be prohibitively high.
The role of wage costs
Jamus disagrees with the position that the cost of running a business is dominated by the wage will.
However, it is important to recognize that in many industries, labour costs are a major driver of overall business expenses—particularly in labor-intensive sectors like F&B, healthcare, and manufacturing.
It is also important to acknowledge that wages in Singapore have been rising, especially due to increasing demand for skilled workers and heightened competition in the job market.
Cascading effects and multiplier impact
In his post, Jamus also refers to the cascading effect, where high land costs force businesses to raise prices.
Again, this is an oversimplified view.
While raising prices is a potential outcome, the impact might not always be as significant or linear.
In response to high rents, businesses may look for ways to reduce other costs or adjust their business models. For instance, they might adopt technology to improve efficiency, consolidate operations, or reduce their reliance on physical space.
In other words, high land costs could act as a catalyst for businesses to modernize and increase productivity, helping to mitigate some of the negative effects on their pricing power. This is a good thing.
For example, the rise of e-commerce and the shift toward hybrid work models are changing the way businesses operate in Singapore. These shifts could reduce long-term dependence on physical retail spaces or office leases, offering potential cost savings in the future.
To conclude, rental costs are not the sole or even primary driver of inflation. Rather, they are part of a larger ecosystem of factors that includes labor costs, consumer demand, technological adaptation.
Jamus’ view could benefit from a more balanced perspective that considers the multi-faceted nature of economic dynamics in Singapore.
