Wednesday, December 24, 2008

Economic Miracles and Illusions....

Hi. I've been clearing my leave before the year end and spent most of my time configuring the 5 computers in my home cluster, shopping, reading......and reflecting on this amazing year.

In the early 1980s there was this magazine called 日本第一 (Japan No. 1) which had monthly updates of the developments in Japan. The title reflected the widespread belief that Japan would surpass USA and become the No. 1 economy in the world. At that time the Japanese economy was considered a miracle - a phoenix that rose from the ashes of WWII to conquer the world economically. It turned out that the Japanese economy was largely a bubble and it only became clear how flawed the system was and how incompetent the people running it were when it fell apart. The real miracle was the how the highly motivated and extremely hardworking Japanese workers held up the whole system for so long. Nowadays so-called economic miracles are common place. China, India, Taiwan, S. Korea, Hong Kong and of course Singapore have at one time or another been described as economic miracles. The S. Korean miracle was unravelled during the Asian crisis and it was only when the chaebol system and the political system fell apart that ordinary citizens understood its weakness.

There were changes that could have been implemented to avoid to downside but it is difficult in countries like S. Korea which had an authoritarian govt that believed that it was largely responsible for the past success and stand to benefit by keeping the flawed system going. Critics who pointed the flaws when they were hairline cracks were silenced. It was only when the cracks become gaping holes that cannot be hidden that political and economic reform came.

Singaporeans wonder at which point something will be done about those cracks ...cracks that bloggers and members of the opposition have brought out. You would think that a highly paid admin service would quickly steer the country away from trouble but things don't work that way...never have. Civil servants working in a very hierachical system and they climbed up this system doing what they are told, obeying the rules and pleasing their bosses. If such a system could have worked withour additional external check and balance, the Soviet Union would still be around today. This year many cracks showed up and even the PAP govt acknowledged there is a need for change ...but they want to "change themselves". It will never happen because it has already shackled itself in its own form of elitist ideology.

....and the cracks are getting bigger:

1. Income Inequality. A decade old problem that keeps getting worse every year. Why is it getting worse? The floodgates of foreign workers caused not just structural unemployment and underemployment of older workers, it also caused the wages of Singaporeans to be depressed. Singapore has the worse income inequality in the developed world and worse than all our peers in Asia. The PAP's claim is that the import of these workers is necessary to keep businesses in Singapore. Labor is only one cost factor and the others ( rental, utilities) have increased over the years as wages remained stagnant for a large segment of the population. The shopkeeper who hires a mainland Chinese for $1000 instead of $1200 now pays $200 more in rent to the govt or the landlord. Company profits as a % of GDP has risen to record highs. Also, foreign workers are willing to accept low wages, poor living and working conditions because they are from 3rd world countries where there are few laws to protect workers from exploitation. Importing these workers without the implementation of minimum wage and other laws imperils our most vulnerable workers.

2. Debt. Debt levels have risen because the cost of living rose as wages remain stagnant. The household debt as a % of GDP is among the highest in the world. Debt is what makes slowdown and recessions painful. Debt for public housing burdens a family for 20-30 years. We see the wave of downgrading, defaults and bankruptcy every slowdown...this recession HDB saw an 8% default rate at the beginning of the recession. This number is set to rise. There have been numerous letters to the forum asking HDB to be more transparent in the pricing of flats. HDB's standard reply is that public housing is affordable and subsidised - this reply is no longer good enough for so many Singaporeans financially strained by the cost of housing. Expensive housing drains CPF funds meant for retirement. The HDB has responded by saying it will build 4000 smaller flats.....yes, the solution to the problem is to have Singaporeans lower their standard of living not HDB containing the cost of new flats. HDB is now sort of stuck because it has sold so many "expensive" flats, lowering the prices of new ones will cause earlier buyers to scream.

The other problem with debt is the level of unsecured lending - credit cards and credit lines. Many banks have resorted to predatory lending activities to boost their profits. Many other Asian govt have stepped in years ago with tough legislation on predatory lending while the rollover credit card debt has been growing in Singapore.

3. Rising costs. The average Singapore worker is pushed to work much harder today than he did 20 years ago. More households today have both parents working than in the past decade yet the financial strain on the Singapore family has been rising. Why? Cost of living has been rising much faster. 30 years ago the cost of a HDB flat was $35-40K. Today the same flat sells for $350K. The cost of medical care and transport have escalated. The worker is pushed to work much harder for the same wage as wage increases are kept below productivity for decades....while the everything else rose in price.

4. Rising profits. Company profits as a share of GDP steadily over the decades to the highest level in 2007. When the Transport Minister was asked if the public transport cost can be lowered he said the GST has to be raised if we do that. What about SMRT profits which has been rising over the years? Singapore Power made so much profits it was able to buy billions worth of assets in Australia even as a rising number of Singaporeans had their electricity cut off because they can't afford their electricity bills.

5. CPF and Retirement. The govt urge workers to work harder and longer so that they can retire. But at the same time, it adopted policies that caused and worsened structural unemployment. We are not talking about people in their 60s finding it hard to get a job. People in their 40s whose financial obligations are high find it hard to get employment. For many, getting a job to make ends meet is already hard so you can forget about saving for retirement. The govt tweaks to liberalise the CPF has caused it to be inadequate. The lastest tweak to introduce compulsory annuities only guarantees more tweaks because the amount people will be getting in annuities will not be sufficient to live on.

6. Temasek and GIC. For many years Singaporeans asked for greater transparency in these entities. We really have no idea what is going on. We did get a glimpse when they made spectacular and what was seen by many at that time as risky bets on western banks. The loss at this point in time run in the billions. Anywhere else in the world where the politics allow, it would have resulted in a big outcry and reform. But in Singapore.......nothing. While the govt can afford to lose billions, it still cannot afford to give out sufficient funds to those on Public Assistance to live on.

There was this belief in the PAP that if they kept the GDP growing fast, everything else can be solved. They took policy decisions that made the GDP grow and many of these did not benefit the ordinary Singaporeans. Instead of looking at what was happening to ordinary Singaporeans they took comfort in this number. When demographics dictate that the GDP growth had to slow, the PAP open the floodgates to foreign workers to keep it up. During the 'Golden Period', Singaporeans held on hoping that some of the wealth would trickle down to them. The 'Golden Period' is over and that hope is gone. Miracles often turn out to be illusions and illusions are shattered when reality arrives. We were suppose to be headed for the Swiss standard of living...but for many Singaporeans it is still very much about keeping their homes....keeping the electricity and water running in their homes and being able to afford medical treatment when they are sick. Singaporeans are running on a treadmill....and they have been bumping up the speed to make you run faster ....they play this nice video with great scenery (of Switzerland?) and sound in front of this treadmill so that you think you're running to a better place. 2 decades later on the treadmill your legs are tired and you're all worn out....the treadmill breaks down, the video gets turned off and you step off and realised you haven't run any where at all......that is when reality hits you...and illusions get shattered.


Anonymous said...

shopping???? thanks for helping our ailing economy. I hope you went to harvey norman.

LuckySingaporean said...

I most shop at Giant, Seng Siong...and I buy 2nd hand goods when possible. That is why I take so long to shop. Computers, phones etc they are all 2nd hand. I realised that electronic stuff don't break down so easily so you don't really need the waranty.

Great Banker Goh Chok Tong said...

Dear Singaporeans,

Everytime, I look at my monthly Swiss bank account, I feel rich. This isn't an illusion to me, right :-)

Let me run you a parallel:
Wall St in USA:
- Formulates dodgy, deceitful financial instruments, and inflated bonus scheme

PAP in Singapore: Formulates non-transparent failed overseas investments using your CPF money, your (overpriced) Town Council charges
and inflated the salary scheme of PAP leaders.

Great Banker Goh Chok Tong

Anonymous said...

Very thought provoking. Keep up the good work.

Anonymous said...
This comment has been removed by a blog administrator.
Anonymous said...

"2 decades later on the treadmill your legs are tired and you're all worn out....the treadmill breaks down, the video gets turned off and you step off and realised you haven't run any where at all......that is when reality hits you...and illusions get shattered."

worse, your money in CPF may have already been lost to a ponzi scheme. At least the signs are there, greater and greater reluctance to allow citizens to withraw their own money.

Kaffein said...

Glad you are back. Kinda missed your satirical articles.

You can be sure that the PAP chose to believe in someone who said as long as the the economy and GDP is growing, problems will 'disappear'. Yeah right, everything boils down to $$$.

I wonder which 'joker' said that.

*muffles a snicker*


Anonymous said...

Someone told me all the woes the ordinary people are facing is the doing of the ruling party. Singapore is but a big illusion created for the world. The reality is stark and only those who live here long enough will know it. Our part-time MPs with full time pay and a Division 1 Ministers with Super Division Salary are all enjoying the "Golden Period". See the old man is always right.

Onlooker said...

A very poignant post.
1) There is a great discrepancy between local and FT wages too.As low wage local have to pay a lot of hidden taxes (in all aspect of life) that are not taken into account while facing competition that are artificially brought in without a similar competition for the elitist political scene.(that is why we need more than 2 parties in parliament so that our voices are heard)
2) Starting a family here will cost more for a local than a mobile Foreign worker.Some FW even have a lot of children here before returning to their one child policy or cheap Cost of living motherland.
3 and 4) are linked:- Higher profit for GLC(to boost the "??performance??" of their "CEO") = Higher cost of living for local and foreigners (who can leave anytime) alike.
5 and 6) are linked too:- Where does the money for investments came from? Hopefully it would not turn into our version of Enron.

I prefer to shop in a local provision shop because the big companies have enough clients already and I don't want to end up paying higher for stuffs (necessities) when they no longer have any competition in the same area.

Anonymous said...

A Great summary of the problem in Singapore. Thanks for the good work.

Anonymous said...

On hindsight, Chee Soon Juan is a visionary. He brought up all these issues when no one else did.

And he is paying a price for it.

Now for ignoring all these past warning signs, we are paying a price ourselves.

Anonymous said...

A certain segment of the population must be kept poor, and visible to the rest especially the large majority of middle class. This is to give the middle class a reference for comparison that will make them feel better and on their toes. Comparing with those worse off will almost always make one contented.

As for CSJ and those like him, it is almost a no brainer these days - anyone that the PAP/status quo whacks must surely be speaking the truth. The status quo fears change.

Saber said...

I love the treadmill metaphor. Beautifully expressed.

a kind of chicken said...

Merry Christmas. =)

Anonymous said...

Actually 2 big, big things they control - HDB flat prices and CPF money and withdrawal.

Control it to make maximum gains at the huge expense of the vast majority of Singaporeans and make them worse off than before in lower standard of living, quality of life, declining birth rate and higher cost of living and little or no retirement money in CPF at old age. Only brick and mortar.

Think about it, it can be depressing.

pumpkin said...

Hi Lucky, Nice to have you back with another perceptive piece. I love the treadmill reference. It so accurately portray life here!

Anonymous said...

Merry Xmas and Happy New Year Lucky! Welcome back :)

Nice piece. Reminds me of my friend's hamster.

Ordinary people use REAL hamsters. While a few like to play GOD. Sad but true.

Cheers everyone
Economics with a Heart :)

ps~ keep on running guys!!!

facts actually said...

I guess situations don't change overnight. Reformation takes time. It can be quite frustrating to wait indefinitely for something that we are not even sure if it will come to past. But I'm quite certain by now, THEY see the 'cracks' surfacing and are starting to listen a lil more... and hopefully respond fast enough.

Let's wait for the Budget 2009, heard that THEY will be pumping in some funds to cushion the economic impact (finally...) Reasonable packages will also be structured for the lower income group to tide through this downturn.

But don't expect anything too revolutionary, I guess. Afterall, change does take time.

For those who seriously bother enough, you may log on to to offer their 2 bits worth =)

Anonymous said...

Mr Lucky,
Your articles are thought provoking,insightful, sometimes serious, most of the times humorous and satirical.
You always reflect our feelings
brilliantly. I am always on the lookout for you postings.
You are second to none on the blogsphere!

Anonymous said...

George says:
The last part is reminiscent of the scene in the movie 'Solent Green' when the old man is sent for 'recycling' (only he didn't know it )in a euthanasia sort of way as he apparently went on his own free will. The scene showed him being pushed into this room on a hospital bed where he was enveloped by this entralling and beautiful scenary of flowers and music. Only, the hero of the story at the end discovered the awful truth that the stuff that the imates were fed with was made from recycled people such as the old man!

Anonymous said...

nice piece of work here..

happy new year 09...
*fingers crossed* i really hope so.

Anonymous said...


I find this to be the best of yr contribution todate.

You are shaping up well,and that is good for Spore.

Happy new year to all