The end of 2009

It has been nearly a year since I started this blog. Initially I began this blog to apply what I’ve learnt in history, to try and link it to current affairs. Then I started to explore economic issues. For now, I think the objective of this blog is simple, to provide for myself (and maybe others) a room to analyse and explain key issues around us.

I’m keenly interested in public policy, and I hope to pen down my thoughts regarding more of it in 2010, when I’ve the time. To me, public policies are revolve around trade-offs and effectiveness. Trade-offs are basically practical issues touching on concepts of equity, justice, fairness etc. How do you ensure a public policy is just? By taxing this and giving to that, how does one reconcile the act of taking and giving to a more just society? Secondly, public policies must be effective – conceptualisation, implementation and reception. ERP is an innovative concept and smooth in implementation, but hardly popular among Singaporeans. Does it qualify as being effective then, even if it has (or some would say, has not) reduced road congestion?

Actually the Singapore blogosphere is not as potent a political weapon as the government suspects. Though some bloggers are critical of government policies, more often than not, their outreach is limited to their existing audience and a few random net surfers. Furthermore, what they say can be easily countered or dismissed. But some of them do offer valid criticism, which should be taken seriously. This kind of valid criticism may spill over to the mainstream media, so more people will hear of it. I think that’s the best bloggers can do – for now.

For 2010, I’ll like to research and write on these few issues, if possible:

1) An ideal society for Singapore, with attention on economic justice

2) Housing

3) Education

That’s all for the year, and I’m going to enjoy the last week with family and friends. Happy New Year!

Climate change: Singapore shouldn’t be leading

Yes, yes, Singapore is supposed to be a world leader in several arenas, ranging from transport to communications to the arts and culture. The government believes that Singapore should be No.1, and this is seen in how it has marketed Singapore as a ‘hub’ for an extensive list of areas. Yet in terms of climate change, Singapore should not aim to be a world leader.

When I mean ‘world leader’, I’m referring to first-mover steps. For example, Singapore aims to be a MICE hub, so there is this concept of ‘Integrated Resort’, which is probably the first in Southeast Asia. There have been suggestions that Singapore can be a centre for carbon trading, but this does not indicate the government’s enthusiasm for the Kyoto Protocol. The proposed centre is a natural extension of Singapore’s existing legal and financial infrastructure, period.

Now that the world has failed to produce any legally-binding treaty on reducing carbon emissions, it seems Singapore will not follow through on its promises made before the talks. This is a practical move which I support.

Why?

Singapore’s contribution to carbon emissions in the present and past is miniscule compared to the large industrial powers. Hence there is little justification for any historical responsibility which Singapore should bear.

The only responsibility which Singapore should agree to shoulder on, under the ‘common but differentiated’ principle, is that as a developed and modern city-state, it emits some carbon emissions. It’s like you littered your own neighbourhood, and so you should have the moral and social responsibilities of cleaning up your mess. Singapore’s area of responsibility as a developed, carbon-emitting city-state should be limited to ensuring our own people do not emit carbon beyond a disastrous level.

However, at the same time, fighting climate change is part of sustainable development. Hence Singapore’s area of responsibility can be extended slightly, insofar as mitigating climate change and sustainable development do not clash. This is because sustainable development is not just about living green etc, but ensuring that we’ve continued economic growth for future generations. Despite the hype on green industries, they merely represent the economy’s effort to diversify. Carbon-intensive industries like the oil refineries are probably here to stay, as well as the manufacturing ones.

I don’t buy into arguments that “Singapore ought to have a stronger political stance towards measures in combating against climate change”; see here. So? Crudely put, because of Singapore’s miniscule land mass and demography, it can FREE RIDE on the efforts of major industrial powers to reduce carbon emissions. If the US and China were to reach their goals of reducing carbon emissions, then global warming will definitely slow down, because they are such major contributors to greenhouse gases. Climate change will not occur as drastic as scientists have predicted, and Singaporeans can live happily ever after.

In the event a treaty is eventually sorted out, and most major powers sign up to it, then Singapore should follow suit. Otherwise there is little reason for Singapore to sign the treaty when others have not signed it yet.

So what should Singapore do now?

For a start, Singapore is not exactly a massive polluter. The Sustainable Development Blueprint is a brilliant idea – it should just stick to it and continue, without doing additional funny stuff like what the TOC article writer, Eleina, suggested.

Anyway, if one really wants to fight climate change, perhaps the first step is to get the house in order. Go pick up rubbish at the mangroves (:

Nothing Reforming

Enter the Reform Party.

Advocating economic rationalization, the party appears to have a concrete grounding. It also avoids the kind of populist rhetoric which allowed the PAP to caricature others as profligate parties leading Singaport (sic) to economic ruination.

(Liau Chuan Yi and Norvin Chan, 14 Dec 2009)

Both of them are blowing bubbles in the air, and I’m not accusing them of such because I’m a sceptic of the opposition parties. I don’t know how they arrive at the conclusion that the Reform Party has ‘come up with economic policies that are sound’ based on a wish-list created, of all places, at a public forum. My conclusion is in diametrical opposition to theirs, but I don’t speak with authority. I’m just using some simple economic common-sense. Readers can see for themselves which conclusion they think is more reasonable.

Minimum wage

Real earnings for less‐skilled workers falling because of competition from foreign workers. Average monthly income of bottom 20% of households fell from $1,309 in 1997/98 to $1,274 in 2007/08. Over this period the CPI rose by 15%.

Thus the purchasing power of this group of workers has fallen. That means every Singapore dollar purchases fewer goods and services, and obviously less can be consumed, leading to a fall in standard of living. The Straits Times did a very good write-up on this a couple of months ago, showing that Singapore is one of the most expensive cities in the world.

According to the Reform Party, a viable solution is the implementation of a minimum wage. This is not new, as the SDP has argued for it before; you can see here. But what is a minimum wage?

According to traditional demand-and-supply analysis, a minimum wage distorts the market because it provides a false incentive. It is assumed quantity supplied of labour will increase, as workers are attracted either by the higher pay of the minimum wage or its indirect provision of income stability. Firms, on the other hand, will reduce their quantity demanded of labour, as this minimum wage raises their labour costs. Hence the final outcome is an excess of workers. Some workers will be gainfully employed at the minimum wage, and there’s a possibility a few of them ‘sneak’ into the industry, while leaving those with genuine skills outside. Hence there’s inefficiency at all levels.

However, in the Singapore context, $5 per hour may not actually lead to this scenario. In labour-tight Singapore, the problem is not with over-supply of workers. Singaporeans will not all of a sudden offer themselves to work in the lowest-rung jobs, even with the income stability provided by the minimum wage. There probably won’t be an excess of supply for toilet cleaners or cashiers. What our government fears is the additional labour cost this minimum wage will impose on businesses, and so affect their competitiveness.

Critics may accuse the government of supporting the interests of Big Business i.e. MNCs or GLCs, but that’s an unfair accusation. SMEs hire the bulk of the private sector workers, and most of them are home-grown. Hence a minimum wage may increase their existing labour costs, and will cut their profit margins.

Chuan Yi and Norvin are not getting it ‘right’ when they claim this:

The Reform Party suggested that enforcement of the minimum wage, while likely increasing labor costs, will force employers to use workers more efficiently instead of simply hiring more foreign workers who are cheaply available. The rise in productivity that will follow the rise in wages will not harm employers while it raises the living standards of employees.

There is simply NO link between the implementation of a minimum wage and the more efficient use of workers. A minimum wage, if applied to all workers, will blunt the appeal of a foreign worker who is willing to work for less. However, this may be inefficient by itself. Firms which are efficient produce MOST with the LEAST cost, to put it simply. Closing an option for them to hire cheaper workers, especially for the very competitive industries, does not make magically make these firms more ‘efficient’.

And what ‘rise in productivity that will the follow the rise in wages’ nonsense is this? Workers will be ‘happier’ to produce more? Maybe some will push themselves harder if they have higher wages, but if their technical skills remain similar as before, then there is no guarantee their productivity will rise.

Actually the idea of a minimum wage is not exactly foolish. But as a solution to raising the purchasing power of less-skilled workers, it is clearly a stop-gap measure.

Education

Our government currently spends only about 2.8% of GDP on education which is very low compared to other developed countries. Both UK and US spend over 5% each while Sweden spends 8%.

A relatively low level of expenditure on education doesn’t say much about the quality of our education system. In fact a higher level of expenditure may represent some inefficiency, similar to healthcare.

And I’m quite suspicious about how the Reform Party got this ‘2.8% of GDP’ figure. From what I know, education and defence expenditure usually receive the lion’s share of the budget. I checked the Budget 2009 website, and looked through the expenditure estimates for this year. Expenditure on education was estimated to be 19.9 percent of the total budget allocated for this year.

I think ‘GDP’ is pretty misleading. GDP includes both government and private expenditure i.e. business and consumers. So if Singapore has a relatively low GDP expenditure on education, but a relatively high GOVERNMENT expenditure on it, this may mean the private sector is spending significantly less. Not really a cause to worry.

So the Reform Party doesn’t know its stuff about education, which in my opinion has been well-looked after by the government.

Foreign Talent/Workers

• Place obligation on employers to demonstrate positions cannot be filled locally first.

• Bar employers from being able to sack their Singaporean workers to bring in cheaper workers from overseas except in failing business cases.

These two suggestions are the most business-unfriendly in the whole list. The basic objective of a firm is profit-maximisation, and lowering cost is a step to that goal. Hence labour cost is also factored in and controlled. If the government were to intervene as the Reform Party suggested, employers will find themselves with additional costs in this ‘Singapore-first’ policy. Rather than forcing employers to find locals before turning to foreigners, what the government can do is to improve the information asymmetry in the labour market. There is just a mismatch between the demand and supply of labour, because firms and workers do not have enough information on each other. Hence improving the information asymmetry may help in some way.

The second suggestion is outrageous. What if the Singapore workers are loafing around? And what’s wrong with bringing in cheaper workers? It is aiding the firm’s goal of maximising profits. Why should the state intervene in firms’ private decisions? There are no grounds for doing so, except for a nationalistic desire to see jobs in Singapore hands. Yes, jobs should be created for Singaporeans, but not at the expense of firms. After all, there are people who own, run or work in these firms, and ultimately their jobs depend on the viability of the firms, which will be hurt by this dumb suggestion.

Housing

I thought given the recent debate over housing, the Reform Party will attempt to stamp its foot on this issue. Unfortunately, I see nothing productive from them.

It will push for increased transparency of the HDB’s accounts and examine the conflict of interest and anti‐competitive nature of the government’s position as a major landowner and its position as a property developer through the HDB.

This sounds lame. That’s not the real problem of housing now. This article pinpoints the problem.

What’s so Reforming?

The interesting thing about the Reform Party is that it has managed to come up with economic policies that are sound, at least to me, a novice in economics. By relying on economic justifications, they have distinguished themselves from other political parties which derive their economic policies by way of moral reasoning; a quick look at how the various parties have advocated for the very same issue of minimum wage, but with very different reasoning, will confirm this.

For those who don’t know, moral reasoning plays an important role in economics, much as some like to criticise economics for being part of a cold-blooded pursuit for material comforts. From what I see so far in the Reform Party’s economic wish-list, I’m not sure of their ideal society. They stated explicitly in their vision and beliefs that they want the creation of a social safety net, which I take to mean as instituting some form of welfare. That is a good idea, but the Reform Party has nothing to show for it, in terms of direction and practicality in details.

Even if all the opposition parties combine forces, their competency in economics will still be light-years away from that of the PAP. That is the sad case of our opposition state.