PRC Immigrants Complain About Noise from BE Electioneering

Some PRC immigrants living in Punggol East appear to be unhappy about the noise generated from the campaigning activities of the various political parties.

We have here an example of what economists call 'free rider' behaviour, where one wants to enjoy the benefits of the system without paying a price for those benefits.

Electioneering activities are part of the democratic process in this country. Non-citizens need to accord basic respect for the process.

2011 Presidential Elections

I have thus far taken only a tangential interest in the positioning moves of the various potential candidates in the upcoming Presidential Elections, the reason being having other issues to deal with and also due to the fact that I think it's not particularly an important thing given Singapore's current constitutional arrangements.

Some of the potential candidates appear to believe that the office of the President has more power than are actually allowed for in the Constitution.  Such beliefs appear to pander to the desires of some segment of the electorate for another alternative voice to the PAP government.  Whether or not the President should have the powers that these people think ought to be invested in the office is another story, and should rightly be dealt with either through a referendum or through Parliamentary Elections.  It's a sign of the increasing irrationality of our politics that there are citizens and politicians who believe that they can and should push for things that are not allowed under current law, without going through the due process of changing those laws.  The people who harp on the rule of law somehow feels that they should be exempt from the same.

One of the things that the PAP government use to stress the importance of the Presidency is that this office holds the metaphorical '2nd key' to our country's financial reserves.  While there is some truth to that claim, I would argue that this is an inferior form of safeguarding the country's wealth.  There is no guarantee that the President will always be independent.  And even if he is, there is no guarantee that he will not share same similar ideological positions with the government of the day when the time comes for him to exercise his discretionary powers in respect of the reserves.

If we are really serious about protecting our national wealth, I would suggest amending the Constitution again to take away the relevant financial powers of the President and instituting instead a gold-back currency.  Using the financial markets as an external check on government financial policies is the best way to achieve our goal of protecting national wealth.  This is because markets express the collective views of the multitude of market participants and are less likely to be subjected to direct political influence.  Furthermore, many of those market participants will be overseas and thus cannot be influenced by domestic politics.

Given the financial mess that the world is in now, having a gold-backed SGD will help Singapore to navigate through the storm that will hit us in the coming years, as the developed world struggles to maintain the current unsustainable fiat currency system that has helped them live way beyond their means.  With a gold-backed SGD, Singapore will be able to secure its future after passing through the crisis, irrespective of what the likely future global financial architecture.

As we prepare to vote for the next President, let us keep our eyes on what's really important.  The current constitutional powers of the President are neither here nor there, and should be abolished in favour of a truly independent and objective mechanism for protecting our national wealth.  The Swiss are already looking at re-establishing a gold-backed currency.  If we want to be like them in terms of financial status, shouldn't we be doing the same?

Thoughts on Tan Jee Say's Economic Regeneration Ideas

I have just read the 3-part summary of Tan Jee Say's paper "Creating Jobs and Enterprise in a new Singapore economy – Ideas for Change" as presented by The Online Citizen. There is much that I can agree with in the paper, especially with regard to the deleterious effects of the casinos, the need to consider a minimum wage as well as the errors of 'trickle-down' economics. Without addressing his ideas on a point-by-point basis, I'd like to a different perspective on some of those ideas, as well as to point what where I think his ideas are fundamentally flawed.

Manufacturing vs. Services

My first disagreement is his claim that the increased volatility in Singapore's economic output has its cause in the manufacturing sector. While evidence from big economies such as the US have suggested that a service economy does have lower volatility, we have to remember that the US has a internal market, and that it has 'bought' that lower volatility at the very high cost of structural budget and trade deficits.

From an Austrian School perspective, I would argue that the increased volatility in recent years is actually due to the more volatile global aggregate demand situation, driven as it were in by the persistent money printing of the advanced economies, leading to multiple asset bubbles and ever-greater misallocation of capital.

As for moving out of manufacturing and becoming more service-oriented economy, I am not quite convinced that this is the way to go if raising productivity is a prime concern. From my business experience, the empirical evidence for the rate of diffusion of technical innovations in the domestic services industry is very low. Apart from MNCs and GLCs who have deep pockets to invest in process improvement technologies, local companies are very reluctant to undertake such enhancements, even with the plethora of government subsidies and incentives that are currently available. Apart from the availability of cheap foreign labour, there appears to be some structural rigidities in the domestic economy which allows many inefficient companies to continue to operate free from the forces of 'creative destruction', which I have yet to figure out.

Besides this, if we use the example of the United Kingdom, we see that if we remove the world-class City of London, the so-called knowledge economy there is arguably non-existent. Given that none of the service sectors identified in the paper are areas were Singapore is already world-class, how confident are we that the move to a service-based economy will not result in structural deficits or persistent low-productivity? Would Germany, Japan or South Korea be a better model for us?

Family Regeneration

Given that the paper used a moral argument against the casinos, I was somewhat disappointed that it stated that the root causes of our low fertility lie in the stresses and high cost of having children. As I have argued elsewhere, this problem is not amenable to economic solutions, since it has to do with the fundamental issue of an individual's worldview and moral compass. Given the self-centred, materialistic ethos that pervade mainstream Singaporean society, we ought not be surprised that having children is not considered a priority amongst many married couples. Furthermore, I would also argue that the fundamental existential insecurity arising from Singapore's small size and geographical location have also contributed to our unwillingness to reproduce, unless that is countered by strong religious beliefs. As such, unless the problem is addressed from a worldview perspective, all measures will ultimately be ineffectual.

Fundamental Problem

The fundamental problem with the model proposed in the paper is that it appears to assume a global macro environment that is a mere extrapolation of the one that has been extant in the past 40 years, which had provided the stability and economic structure for Singapore to grow rapidly. This can be seen in the strategy of making Singapore into a service hub, which assumes that this region is prosperous and stable enough to want to use our services. It fails to account for the possibility of unfriendly competition from neighouring countries, as had happened, for example, during Mahathir's reign in Malaysia, where he adopted many policies aimed at weakening Singapore's competitive advantage. Furthermore, with the inevitable need of the US and other advanced countries to repair their national balance sheets, the free-trade regime that we have operated under may no longer exists, as newer rising powers such as India and China are more inclined towards a statist model of capitalism. Under such a scenario, the free-trade assumptions underlying the strategies will not be valid. Whither then our sources of growth?

Lastly, the paper also does not account for the possible threat of resource and energy scarcity, which can lead to geopolitical instability in the region, and a weakening of Singapore's position relative to the resource-rich countries around us. This, in my view, may well be THE defining issue for Singapore in the coming decade.

Notes: A follow-up article on this topic can be found here.

Thoughts on the Budget

Having listened to the Budget Speech in its entirety over the radio yesterday, I came away with the feeling that there was very little new thinking in it, apart from what I believe is a structural shift towards greater welfare spending, the latter being an acknowledgement of the inevitable reality of our aging population, the magnitude of which most Singaporeans seem to have yet to grasp.  The government appears to be giving what the people wants - more welfare.

While there were targeted measures to help the poorer segments of the population cope with inflation, nothing was done to address the fundamental causes such as the rapid growth in M3, reliance on real estate speculation to create the illusion of wealth and the impact of such speculation on rentals and other overhead costs for businesses.  Furthermore, I could not find anything in the Budget that was aimed at preparing the country for the energy transition that will be coming our way within the coming decade.  But on this point, I am less disappointed since the awareness of an energy crisis is not mainstream.

SDP's so-called Shadow Budget

Notwithstanding the above, I also found the SDP's attempt at gaining credibility rather amusing.  Based on what I saw on my Facebook news feed, SDP supporters were busy hailing its budget proposal as a breakthrough in thinking.  There were even claims that it must have caused considerable distress to and panic in the PAP government.  So I went to the SDP website to have a look, and came away thinking that SDP supporters must have been drinking too much of their own Kool-Aid, just as they have accused government supporters of the same.

The idea that “[o]ur re-prioritized spending is to benefit the people rather than the PAP” is nothing more than the stale idea of welfarism that has been practised in the West for the past 60 years.  There was absolutely nothing original in the SDP's shadow budget.

As much as the SDP harps on about the tyranny of the PAP government and how it will offer freedom, the fact that it has proposed a budget similar in size to the government's last budget show that the party has no understanding of the concept of freedom, since it feels that the need to maintain the power to allocate the people's wealth as it feels fit.

The idea of bio-fuels as an alternative industry shows that the SDP's energy literacy is very low.  If it had done a simple search on websites like theoildrum.com, it would have discovered that bio-fuels is a total waste of time.

Furthermore, its proposal to cut defence spending shows that its geopolitical sense is very poor, unable to see beyond the pleasant rhetoric of the diplomatic pronouncements of countries in our neighbourhood to discover all the undercurrents in foreign relations.

Paying you with your own money

The other irony in all these is that while the critics of the PAP government accuse it of using an 'election budget' to buy votes, opposition parties such as the SDP are basically doing the same thing with their emphasis on greater social welfare spending.  They should perhaps read 'The Law' by Frederic Bastiat to see the beam in their own eyes, rather than harping on the speck in the PAP's.

If you are interested in learning how politicians of all stripes strive to bribe you with your own money, I'd suggest reading this article: The Sad Road to Socialism.

Beware of politicians bearing gifts, especially dumb ones.  Otherwise, regardless of how much reserves we have, we will be voting ourselves into national bankruptcy in our love for welfare handouts.

Erosion of Social Cohesion and Low Birth Rates

Three news stories caught my attention on Monday:

1. ST quoted Workers' Party chairman Sylvia Lim as saying that there has been a "palpable sense of loss of identity" amongst Singaporeans, and that she had some Singaporeans telling her that they felt better treated as PRs in other countries than as citizens in their homeland.
2. ST reported an increase in the number of magistrate's complaints being filed by Singaporeans to resolve disputes.
3. Channel NewsAsia reported that Singapore's fertility rate has hit a new low of 1.16 in 2010.

To my mind, these three phenomena are all related and are due to the stress and alienation experienced by Singaporeans arising from having to bear the brunt of the costs of the government's single-minded pursuit of economic growth and its belief in the quack theory known as 'trickle-down economics'.

The relentless focus on economic growth has brought about a host of 'supporting' social-engineering policies that have caused a feeling of rootlessness amongst the people, perhaps akin to what Durkheim described as anomie. This then manifests itself in the atomisation of social entities and frayed relationships, resulting in phenomena such as neighbours suing one another in court. The 'normlessness' has also resulted in the erosion of moral values and the rise of various social ills. The following quotation from the Analects of Confucius is perhaps an apt description of our social situation:

子曰、道之以政、齐之以刑、民免而无耻。 道之以德、齐之以礼、有耻且格。- 《论语》为政篇

The loss of identity also shows up as a loss of hope and faith in the country and its system, resulting in couples not willing to procreate and have children, since the common belief is that life will get harder in future and some have doubts about the long-run viability of the country. In this regard, we can again draw on the wisdom of the Analects:

子贡问政。子曰足食、足兵、民信之矣。子贡 曰、必不得已而去、于斯三者何先。曰、去兵。子贡曰、必不得已而去、于 斯二者何先。曰、去食、自古皆有死、民无信不立。 - 《论语》颜渊篇

As we can see from the above passage, Confucius emphasised the centrality of hope in the country and faith in the government as a key determinant in the survivability of a country. Perhaps our new generation of policy makers would do well to revisit the teachings of the Analects in trying to solve the demographic problem that Singapore is facing, since the current gamut of economic incentives is obviously not able to reverse the decline in birth rates. In some sense, the lack of babies is a kind of existential crisis for the country, but we are trying to fix the problem using economic tools. That, to my mind, is a wrong diagnosis of the problem.

Preparing For A Less-Friendly World

At the recent G20 Summit in Korea, PM Lee Hsien Loong rightly called for the G20 group of nations to work together towards policy measures that will sustain global economic growth. Unfortunately, as the aftermath of the meeting showed, his urgings fell on deaf ears as the Americans went ahead with QE2 despite opposition from China, Brazil and others. It looked to me like 'every nation for itself' and the possible outcome would be some kind of 'Nash equilibrium' when it comes to the trade and currency war situations.

As I have written before, I believe that we are moving into an era of reverse globalisation where there will be more friction of various kinds between countries. Here in Singapore, based on public information, it would appear to me that the government's economic assumptions are still predicated upon the continuation of the old free-trade system that has started to unravel since the 2008 financial crisis, with only a change in leadership from the developed world to Asia. What I would hope to see from our government is first an acknowledgement that we could be going into a rough period in the international scene, followed by concrete policy measures to prepare for such a possibility.

Realistically, I don't expect any change in our national economic thinking any time soon. Neither the government nor the opposition parties appear to have considered the risks of the era of reverse globalisation, at least not publicly.

Foreign funding of local politics

A member of a local group that had recently been classified as a political organisation under the Political Donations Act (PDA). wrote a piece in an anti-government website criticising the policy of restricting funding of political bodies in Singapore to local fund sources as a self-serving rule of the PAP government. He cited our openness to foreign influences in many other aspects as a kind of counter-argument.

I would say that his piece is also highly self-serving, given that his organisation's foreign funding sources have been cut off by the ruling under the PDA. No country in its right mind would want to allow foreign funding of political organisations. Even a superpower like the US, where vast amounts of money change hands in political donations, bar foreigners from donating to American political bodies. Given the size of the US, it is obvious that foreigners trying to influence US politics would have a lot less leverage. For example, donating US$20 million to a political party there would be a drop in the bucket. In contrast, that amount of money would have a huge impact on any political organisation here, even for the PAP.

To my mind, we have enough foreign influences as things now stand. Maintaining the restrictions on foreign funding of local political bodies is one of the last bastions of 'local sovereignty', even if it is merely symbolic. I don't want to see my pink IC's meaning being eroded further.