Saturday, October 29, 2011

Richard Wilkinson: Why Greater Equality in Developed Countries Makes Societies Stronger....

I did a search of youtube and another video in which Richard Wilkinson discusses the effects of inequality in greater detail. Richard Wilkinson has co-authored a book with Kate Pickett entitled "The Spirit Level: Why Greater Equality Makes Societies Stronger" published last year.

In response to my previous posting there were a few comments that suggested that Singapore has managed to be an outlier that avoided some of the deleterious effects of inequality. I don't think that is true. The reason being Singapore became a very unequal society very rapidly and very recently. The ratio of income of the top 20% to bottom 20% roughly double from 1990 to 2000 and continued to worsen until 2011 when Singapore become the most unequal society among developed countries.

"During 2005-2007, the average income for families in the bottom decile of the income distribution increased just 3-4% while that of the topmost decile grew by 6-11%. As a result income inequality has grown markedly in Singapore, far more that most developing and developed countries which also experienced long periods of high growth."

- Income Inequality in Singapore : Consequences and Policy Options[Link]

Believing Singapore can avoid the problems associated with income inequality is analogous to a healthy man who suddenly takes up smoking and drinking....after one week he looks at the people with chronic health problems from these bad habits and wrongly concludes that he is immune. There is nothing in our social "immune system" that makes us invulnerable to the problems Richard Wilkinson talks about - if anything they are starting to hit us. Our society is becoming less cohesive, there is rising poverty and social mobility has declined markedly., ...and we are already suffering the highest stress levels in the world.. We are not immune...and we are foolish to think we are immune.

Friday, October 28, 2011

Richard Wilkinson: How economic inequality harms societies....

Saw this video on The Online Citizen Facebook.

Richard Wilkinson presents some very compelling evidence to show why equality is more important than GDP to the well-being of a society.

The extreme inequality in Singapore shows up in 2min30sec into the video.  Singapore has the worst inequality among countries Wilkinson analyses.

Wednesday, October 26, 2011

Why you should try not to sell your stuff through middlemen....

In the book Freakonomics, the authors did a study of prices of homes sold by property agents for their clients and compared it with the price of homes when the property agent is acting for himself i.e selling his own home. They found that the property agents sold their own homes at a price significantly higher than the homes of their clients. The property agents' interest is to earn a commission and to do that they try to make sure transactions go through by persuading sellers to lower their selling price and buyer to up their bid. Many Singaporeans are not aware of this but you can sell your home quite easily without a property agent - the paper work is relatively simple. My father sold his HDB more than 20 years ago without an agent and it is easier to do it now because of the Internet which enables sellers to put up ads for free at various websites. (here is a forum on people sharing their experience of selling their HDB without an agent amd HDB itself conducts a regular seminar on how to sell your home without an agent[Link].

If you walk around the town central of a HDB estate, say Toa Payoh Central, what you will see is one 2nd hand phone dealer after another. Sometimes within an area of 50 meters by 50 meters, you can count up to 20-30 of such small shops. They exist because new hand phones models are introduced by manufacturers every few weeks and your iPhone 4 becomes yesterday's model when the 4S is released. Singaporeans get rid of their old phones through these middle men. The other day I was standing by one of these shop and a young men sold his relatively new phone for $80 to the dealer. I was very familiar with the model as I was thinking of buying one for myself and it was changing hands in the bazaar[Link] at about $140 or higher.  Without much hassle, the seller could have gotten an extra $60.  People sometimes sell the stuff at Cash Converters or pawn shops because they need money quickly - the problem is they are actually throwing money away because they get far less than what they can get for their goods at a time when they need money badly.  The lesson is not to get into a desperate situation when you have to "fire-sale" your belongings.The proliferation of pawn shops like Money Max [Link] perhaps tells us that more Singaporeans are getting into financial situations where they need cash quickly....and this is exploited by the numerous 2nd hand phone dealers, money lenders and pawn shops.

On History Channel, there is a TV show called Pawn Stars[Link]. The show follows the going ons in a Las Vegas pawn shop operated by a family. Given the subject matter, the show is surprisingly successful and has a large following since its debut in July 2009. The show sometimes gives you a hint of the economic malaise in USA as some of the people were pawning away their family heirlooms passed from one generation to another to make ends meet. People were selling their belongings to raise money for medical treatment, rent and so on. The Harrison family running the pawn shop makes a good living buying and selling....they are all overweight from sitting around in their shop's a clip from the show:

A woman walks into the pawn shop asking $2000 for a FabergĂ© brooch. Mr. Harrison being a man of conscience knowing the real value of the brooch offers to buy it for $15,000. The truth is this :if the brooch is genuine FabergĂ© , it is worth something in the region of $80,000-$250,000. Either the woman walked in with a fake and cheated the pawn shop or the pawn shop just made something like $100K from a $15K sale. So even a middle man with conscience like Rick Harrison of Pawn Stars is not averse to making excessive profits off people who are ignorant and too lazy to double check the value of what they are selling. Next time think twice before you go to a middle man to sell something specially if you don't know how much it is worth!

Even if you are rich and don't need to squeeze every dollar from the 2nd hand stuff you're selling, you might want to consider selling it direct to're doing a favor for them and yourself. If your price is good (still higher than what you can sell to the middle men) many buyers are willing to drop by your house to pick it up and that is more convenient than bringing it down to cash converters or to a 2nd hand phone dealer.

Websites on the Internet where you can offer your 2nd products for sale:

EBay :
Hardware Zone: Market Place :
Phing :
Gum Tree:

Sunday, October 23, 2011

Singapore Leads 'Occupy' rally Reluctance....

It is always interesting to watch the reaction of Singaporeans when the same events/situation take place here as in other countries. Surely there are people concerned about the social inequalities, corporate greed and the global financial system - I've met many people personally who feel strongly about these issues. However, why is Raffles Place rather empty today and last weekend? Before I attempt to answer that question, I'll tell you a few "protest stories".

I have a friend working with a multi-national company who was sent to S. Korea . 2 weeks into the posting, he turned up at the office and found that workers have blocked the entrance. Rather baffled, he pushed his way through the blockage.When he got to the office, he asked around to find out what was going on. It turned out, to his surprise,  that the small strike/protest was encouraged by the management. The S. Korean govt was about to sign an FTA( Free Trade Agreement) and there were some "minor" disadvantages for that industry. The protest ended after a few days. The goal was not to overturn the FTA but to send a signal that they (the industry) should be taken for granted and their interests traded away next time policies were made. For my firend who has never seen a protest in 3 decades living in Singapore, he exact words were "Like that also protest?!".

I was in LA many years ago when the cleaners (Americans call them janitors) went on strike and protested their working conditons- they were basically bullied by employers who sometimes underpaid them Most of them were Mexicans and many were illegal workers. The Californian govt had "close one eye" to the large number of illegals from Mexico that cross over the border to work. The protesters were taking a big risk because some of them could have been deported but they could no longer take the "injustice". After 2 days, toilets all over LA began to stink and public sympathy build up for these lowly paid workers - they were not asking for higher pay....only asking to be paid on time what the pay they were promised. Within a week, the LA authorities promised to enforce labor laws that protected both legal and illegal workers to ensure that these janitors were protected.

In the 90s, I did a self organised tour of Europe and stayed in Athens for 5 days. On the last day, I planned to take a cab or public bus to the train station. After I paid for my hotel stay, the guy at the hotel reception told me, "Bad day to travel today".  I stepped out of my hotel and instantly understood why. Protesting workers blocked the roads preventing buses and cars from moving. Thousands of workers were involved in the protest. Stranded and unable to get to my destination and somewhat curious, I decided to move around and observe the protest more closely. The protestors seemed to be concentrated at the parliament house where it was most rowdy. I made my way to the parliament house to watch the protest. The protesters were shouting loudly but lets put it this way : it was all Greek to me! Suddenly the protesters got very excited, extremely rowdy and the shouting increased in volume. A Greek minister or MP was making his way out of the parliament. I could see the protesters were very angry and were trying to prevent the minister from getting into his car. The police and body guards were able to create a path to the car. However, when the car door opened and the minister was about to get in, more than a dozen raw eggs was thrown at him and his suit was really messed when he was driven off. I found out later that that protest was organised by labor unions who wanted better pay for workers.

The distrust among workers, govt and business in Greece continues until today. Greece was a poor country and when they switched to Euros in 2002, the govt borrowed heavily to spend creating an illusion of wealth and GDP growth. A few years later everything fell apart. The tension between workers and govt reignited and we see violent protests in Greece today. There is little anyone can do the change what is coming for the Greeks - rising unemployment and economic pain. At a time when unity is needed to overcome its problems, the society appear to be disintegrating and falling apart.

I put up 3 stories to show the good, bad and ugly side of protests. Is not having protests all good? Well, they don't have protests in N. Korea because the citizens know that protesters "disappear" very quickly after they show up and the disappearance is permanent! Over time fear becomes habit and it becomes a silly idea to protest there. Their brothers in S. Korea are their diametric opposites and fervent protesters. Those who argue that protests hurt a countrry's economic progress just have to look at N. Korea and S. Korea. Protests are an important part of the political process and when used by a populace applying the right values can lead to a better society e.g. civil rights movement.

Singaporeans were good at organising protests in the 50s and 60s. We protested against colonial rule. We protested for independence. We protested for workers' rights. Even in the 70s, some Singaporeans protested against the Vietnam War. Over time effiecient police action against protesters,  tightening of rules on public assembly and control of the media to convince the public that protests are always bad, misguided and destablising turned this whole nation into non-protesters. At some point even the PAP thought it was not so good an idea for the population to be so obedient so they carve a a small place at Hong Lim which they called the Speakers Corner. People started going there to organise small protests when they feel that things were not done right in Singapore. I guess that the govt felt a bit uneasy when they discovered that using digital cameras and  Internet tools such as YouTube, the small place has a bigger reach than expected.  The govt decided to put up their cameras and people wondered whose entertainment those recordings were going to become (police? ISD?) and activities at Hong Lim started winding down.

There is no lack of reason for an "Occupy Raffles Place" protest. We have higher income inequality than most places like New Zealand and Australia where people turn up to protest income inequality. There is no lack of corporate greed and excessive executive compensation - the ratio of top executive pay to ordinary workers is higher here than in most places where people protested. The social contract here broken by the high cost of living and rising poverty have left many here feeling tehir sacrifices are not being repaid but still...there are no protests.

Singaporeans have over the years lost their ability to stand up for what is right. There is habitual apathy, mind your own business attitude and many Singaporeans under years of authoritarianism learn to leave solutions to the govt because political participation by ordinary citizens always comes with a big price - police action and humiliation. For those who will turn up, the fear is others won't and the few will be left holding the bag....ridiculed by media for being misguided and a segment of society that believes this govt can do no wrong and should be trusted all the time to solve our problems. The reluctance to protest is not the result of a lack of problems in our society but a deeply ingrained fear and many years of authoritarianism that resulted in an excessively apathetic and obedient society.

Singapore leads Asia in 'Occupy' rally reluctance[Link]

KUALA LUMPUR -- Australia and New Zealand started the rolling global protests denouncing corporate greed but capitalist countries elsewhere in Asia were reluctant to demonstrate, with the turnout in wealthy Singapore almost zero.

Protesters gathered across the world on Saturday to denounce bankers and politicians over the international economic crisis, with violence rocking Rome where cars were torched and bank windows smashed.
Protesters had gathered in Japan and across Southeast Asia, but in the hundreds at most. Singapore didn't even manage that.

The pro-government Sunday Times appeared to take pride in the non-turnout after a call to gather at Raffles Place in the financial center failed to materialize.“What's missing in this picture?” it asked on its front page above a picture of three policemen patrolling an almost empty Raffle Place.
Speakers' Corner
An unidentified person had set up a Facebook page and Twitter account calling on Singaporeans to protest against income inequality and a lack of accountability in the country's sovereign wealth funds, prompting a police warning.
Singapore bars demonstrations, gatherings or speeches without a permit except at a tiny “Speakers' Corner” in a small park at the edge of the central business district

Saturday, October 22, 2011

QE3 : Operation Twist...will the stock market rally again? ...Part 2.

Part 1 is here

In late September I asked the question if the Fed Operation Twist will coincide with the next rally on the stock market.

Here is the schedule of treasury purchases by the Fed for Operation Twist :[Link]. The very first one is on 3 Oct 2011 when the Fed purchased $2.7B of treasuries from the market. Lets see what happened following the start of Operation Twist:

Despite the mainstream media focus on the problems in Europe and doom and gloom of the global economy, on exactly 3 Oct 2011 when the Fed started Operation Twist, the market bottomed. and rallied more than 10% in about 2 weeks.. This can be attributed to sheer coincidence but it is quite amazing coincidence if you go back to my article in Sep 2011 where there is a chart showing when the other QE started and where the market rallied.

It is strange that as the financial media harps about the disastrous downgrade of Spain, potential downgrade of France, contagion in Europe slowdown in China, rising frustration over the economy, rising unemployment, impending recession...and all the bad news, the US Dow Jones Index rose 10% in 2 weeks starting exactly on the day Operation Twist was put into action.....I looked around and nobody actually noticed or reported it in the media....

Thursday, October 20, 2011

Citigroup to Pay Millions to Close Fraud Complaint.

"As the housing market began its collapse, Wall Street firms and sophisticated investors searched for ways to profit. Some of them found an easy method: Stuff a portfolio with risky mortgage-related investments, sell it to unsuspecting customers and bet against it." - Article Below.

I brought up this case because what Citibank was accused of doing is very similar to what was done when the Pinnacle Notes and Lehman Minibonds were sold to Singaporeans. The products developed by American investment banks were linked to the US mortgage markets become worthless during the financial crisis. While the investment banks covered themselves legally in contracts pertaining to  the sale of these products, the SEC went after them for fraud - if they knew these products will blow up and sold them anyway, no contract or legal document is going to stop the SEC from investigating potential fraud. 

The Singapore govt took a different approach.

"But many went in with their eyes open. They're not old or uneducated. Now they are saying 'please include me too'. Well...we've got to go according to what's fair. " - MM Lee 8 Nov 2008.

While the Singapore govt did not go after investment banks for what they did in Singapore, a group of Pinnacle Notes investors have sued Morgan Stanley[Link]. It is important not to let these investment banks get away because it will send a strong signal that you cannot just come to Singapore and defraud Singaporeans by hiding behind a contract. 

Citigroup to Pay Millions to Close Fraud Complaint[Link]


Published: October 19, 2011

WASHINGTON — As the housing market began its collapse, Wall Street firms and sophisticated investors searched for ways to profit. Some of them found an easy method: Stuff a portfolio with risky mortgage-related investments, sell it to unsuspecting customers and bet against it.
Robert Khuzami of the S.E.C. said the bank should have been more forthcoming.

Citigroup on Wednesday agreed to pay $285 million to settle a civil complaint by the Securities and Exchange Commission that it had defrauded investors who bought just such a deal. The transaction involved a $1 billion portfolio of mortgage-related investments, many of which were handpicked for the portfolio by Citigroup without telling investors of its role or that it had made bets that the investments would fall in value.
In the four years since the housing market began its steady descent, securities regulators have settled only two cases related to the financial crisis for a larger sum of money. This is also the third case brought by the S.E.C. accusing a major Wall Street institution of misleading customers about who was putting together a security and about their motive. Goldman Sachs and JPMorgan Chase & Company both settled similar cases last year.

The settlement will refund investors with interest and include a $95 million fine — a relative pittance for a giant like Citigroup. On Monday, the company reported that in the third quarter alone it earned profits of $3.8 billion on revenue of $20.8 billion. The settlement may also have trouble getting approval from Jed S. Rakoff, the federal district judge in New York who must ultimately sign off on the fine and who has taken a hard line on S.E.C. settlements.

Neither the S.E.C. nor the Justice Department would say whether the case raised questions about whether Citigroup had been involved in any criminal wrongdoing. But the case highlights a growing frustration felt by foreclosed homeowners, investors and Wall Street protesters alike that few, if any, senior banking executives have faced criminal charges for losses growing out of the financial crisis.

Citigroup has settled one case stemming from the crisis. Last year, it agreed to pay $75 million to settle federal claims that it hid from investors vast holdings of subprime mortgage investments that were losing value during the crisis and that ultimately prompted the federal government to rescue the bank.

“The securities laws demand that investors receive more care and candor than Citigroup provided” to investors in the security, said Robert Khuzami, director of the S.E.C.’s enforcement division, referring to Wednesday’s action. “Investors were not informed that Citigroup had decided to bet against them and had helped to choose the assets that would determine who won or lost.”

The complex amalgamation of investments known as Class V Funding III produced $126 million in profits for Citigroup’s brokerage subsidiary, and another $34 million in fees for putting it together. All of that, including interest and the $95 million fine, will now be going back to the investors; the government will not receive anything.

In a statement, Citigroup noted that the S.E.C. did not charge it with “intentional or reckless misconduct.” Rather, it settled charges that its actions were negligent and misleading to investors. Despite its profits on the current deal, over all Citigroup lost tens of billions of dollars on its holdings of mortgage-related investments.

“We are pleased to put this matter behind us and are focused on contributing to the economic recovery, serving our clients and growing responsibly,” the company said in a statement. “Since the crisis, we have bolstered our financial strength, overhauled the risk management function, significantly reduced risk on the balance sheet and returned to the basics of banking.”

The S.E.C. on Wednesday also brought a case against Credit Suisse, which played a smaller role in the transaction, and against one individual at each company. But those individuals were midlevel employees in each company’s investment and trading departments; no senior executives at either company were charged

Wednesday, October 19, 2011

Unemployment Truth.....the real statistics...

One of the most peculiar things about our unemployment statistics is that it has always been released for the "resident" (PR+citizens) population so we don't know what the numbers are for Singaporeans. However, some light shed on 11 Oct 2011 when MoM finally released the numbers for citizens and here they are (extracted from the report "Singaporeans in the Workforce":

"Singaporeans have one of the highest employment rates internationally. The unemployment rate amongst citizens declined to 3.1% in June 2011, down from a high of 4.5% in 2009 during the recession."

"Singaporeans have one of the highest employment rates internationally. With nearly eight in ten (77%) Singaporeans aged 25 to 64 employed in 2010, our employment rate surpassed that in the other Asian NIEs and many advanced economies. This has occurred because, although our citizen labour force participation rate is not higher than in many advanced economies"

We have to be careful about unemployment rates because if the situation is so bad that people give up looking for a job, they do not go into the unemployment numbers. There are also various criteria used to count people considered unemployed so many people have no jobs but are not considered unemployed. For countries that give out unemployment benefits, there is more incentive for the unemployed to get themselves registered. In Singapore you probably can't get any financial help if you're unemployed so it is possible for you to go below the radar and the govt assumes you're in early retirement! When the mainstream media talk about unemployment in other countries we sometimes get the impression that Singapore is spectacularly better because we have unemployment of 3% and some European countries have unemployment of 14% so our situation here is much better - this however, is not the real picture.

The preferred number to look at for some economists is the employment rate and this too came out in the Oct 11 report. Our citizen employment rate is 77% of the employable population. 23% of the employable people are not working. How does this stack up?

When you look at employment rate, the situation in Singapore still looks good but the difference is smaller than if you look at unemployment rate.  Now lets throw in another aspect to consider when looking at the numbers. Most if not all the countries in the table have minimum wages so people who have jobs in those countries found one that paid decent wages. We don't have minimum wages in Singapore.  If we now minus those who don't make enough for a decent living from the 77% we end up with a number much smaller. There are 400,000 workers on workfare[Link] who are considered employed but earn less than $1700 (generally less than the minimum wage in developed countries) take that out from the 77% employment rate and you find we drop quite far down. I've often written that it is meaningless to look at employment without looking at wages - forcing a large segment of the populace into low wage jobs menial jobs can make our employment numbers look good but masks the structural unemployment and various problems faced by Singaporeans - the difficulty in finding jobs that pays decent wages is as high if not higher than in other countries.

For many years, the PAP govt has tried to paint a rosy picture to Singaporeans on employment when the real situation on the ground has deteriorated badly especially among older Singaporeans.

Sunday, October 16, 2011

Occupy Raffles Place?.....Where got?

"Although the movement isn’t exactly catching fire in Malaysia, Saturday’s gathering at least was bigger than a similar meeting called for Saturday in Singapore that mainly was made up of journalists and photographers wondering where all the protesters....." - WSJ[Link]

We cannot interpret the no show by Singaporeans at Raffles Place as a lack of problems in Singapore. We have the highest income inequality among developed nations - higher than many of the countries where there were protests. There is serious structural unemployment and deep unhappiness with the large foreign influx.  We know from the Lehman Minibonds saga - an event that affected people in Hong Kong and Singapore - people here are subdued in their response and most will not get involved if it is not something that affects them directly. When we had political detainees, we don't see people protesting their decade long detention because people were afraid of becoming detainees themselves.

The police issued a very clear statement that any gathering at Raffles Place is unlawful [Police warn against unlawful Occupy Raffles Place protest]. The police warns the public not to be "misguided". There is a real danger for those involved in such protests that they will be labelled as anarchists by the mainstream media and humiliated as instigators who disrupted public order when they have legitimate concerns about the current system like those of citizens else where in the world.

Nothing happened at Raffles Place today. A sad reflection of the repressive political climate, draconian laws, and a citizenry that has capitulated to the belief that they cannot change, shouldn't  try to change, shouldn't be bothered to change what is not right about our society today.

Saturday, October 15, 2011

World Charity Index - Where we stand....

I will tell you where Singapore is later...after you listen to all my stories.

When I was young, there were many Hong Kong soap operas showing on Media Corp and Hong Kong movies showing at the cinema that I enjoyed watching. They all portrayed Hong Kong as a capitalistic selfish society a place where some people would sell their friends  for money - an "every man for himself" society where the love for money overwhelms the humanity in people. It turned out those movies and dramas were not so accurate and the ugly side of people were played up for dramatic effect. The Hong Kong people are big donors and many volunteer to social work. Their billionaires leave their fortunes not to relatives or children but to foundations. Li Ka-Shing pledge half his wealth to charity and will leave behind the biggest charity in Hong Kong. Nina Wang, once the Asain\s richest woman, left her fortune to a charity in her will. Even Jackie Chan will leave his entire fortune to charity[Link]. Chow Yun-Fat will leave his entire fortune to charity [Link].  It turned out people in Hong Kong are big givers and rank 18 on the Giving Index ahead of Germany and Denmark.

The people in US are also big givers (rank 5). The richest man in the world, Warren Buffett, will give away his entire fortune. Together with his good friend Bill Gates, Buffett formed an organisation that persuades the richest Americans (billionaires) to pledge half their wealth to charity. Facebook billionaire Zackerberg signed up so did many others.  Buffett is also the proponent of the Buffett Rule for proper progressive taxation to narrow the inequalities that has emerged in American society. Buffett known to some as the greatest American capitalist knows that a system based on capitalisam cannot work well if people hoard money and exacerbate the rising inequality. When Buffett and Gates appeared in China and hosted a dinner for The Giving Pledge organisation in China, not a single Chinese billionaire turned up out of fear they will be asked to donate their money :

" Strikingly India ranked at 134 and China at 147 - with Chinese people among the least likely on the planet to volunteer"  - [Link]

A few years ago, when Goh Chok Tong was promoting philanthropy in Singapore, he urged the wealthiest Singaporeans to consider giving away 0.5% of their annual income to charity[Link] - a very modest goal compared with the The Giving Pledge.

So where does Singapore stand in area of giving?

Right in the doldrums with a rank of 91 (compared with Malaysia ranked 76 and Hong Kong ranked 18) [Extracted from Charities Aid Foundation Report].

I wonder if this dismal performance has something to do with the PAP turning welfare into a dirty word in Singapore. Charity and giving is after all about welfare - giving to the needy, helping the poor, treating the sick. The PAP approach of making the sick shoulder as much financial burden as possible, giving as little as possible to the needy to keep taxes for the richest Singaporeans low and insistence that the inequality in our society is acceptable (as long as there is social mobility?). The PAP leaders themselves too set the wrong example - taking as much salaries as they could justify (and sometimes couldn't) when they are in public service. It could also be elitism where the belief that "some are more equal than others" dominates the upper echelons of our society - remember what Wee Shu Min was brought up to believe?

Are we turning in the Hong Kong portrayed in the dramas and movies?  A society in a never ending pursuit of wealth and GDP growth at all cost where social cohesion and values are traded away for money?

Thursday, October 13, 2011

Special Treatment does not earn respect....

Several years ago when PM Lee Hsien Loong and his wife, Ho Ching, visited his son who was in Tekong doing his NS , he took the same ferry to Tekong as all the other parents. When he arrived at the island, there was no colonel or any officer standing at the jetty specially assigned to greet him. He had to find  a seat on the bus at Tekong bus like all the other parents to get to the camp. At the camp, he ate at the cook house, queuing up with all the other parents to get his food.   He then sat with his son for lunch on an ordinary seat at an ordinary table like every other parent that day during the BMT open house. How do we know all this? One of the parents who was there that day wrote to the ST Forum about how great an impression he had of PM Lee. Whatever differences in thinking or political disagreement we may have with PM Lee, what he did that day was commendable. Given what usually happens in Singapore, he probably took the trouble to indicate to the organisers he did not want special treatment that day.

A few years ago, I was at Holland Village queuing up for chicken rice and the retired minister for law, the late EW Barker, came and queued up behind me. The chicken rice seller instantly recognised him and asked him for his order. He replied that the other people were there 1st and he would wait for his turn. He probably understood that people wouldn't be impressed and would lose some respect for him if he had been given special treatment.

 Here is an example (see story below) of how not to do it. While old folks and children had to eat at an open tent, VIPs were put in the comfort an airconditioned room.  The special treatment was not well received by one of the attendees of the event.


Undoing community bonding

LAST Saturday, a friend invited me to an event organised by the People's Association (PA) at Cheng San Community Club.

The ticket cost $12 per person, and a high-tea buffet was included. In attendance were Ang Mo Kio GRC MP Ang Hin Kee and PA chief executive director Yam Ah Mee.

While I appreciate the efforts of the PA and community clubs in organising such community-bonding events, it left me with reservations.

I was flabbergasted to discover that the organising committee, judges, sponsors and other VIPs enjoyed their high-tea in a closed air-conditioned room while the rest of the guests had theirs outside under a tent.
Why was there a 'divide' for an occasion aimed at community bonding?
On the same day, across the road from the PA event, Prime Minister Lee Hsien Loong was officiating at an event marking the completion of an upgrading programme.

According to press reports, he emphasised that the Government was determined to improve citizens' lives, and this included community bonding.

What happened was unfortunate because the grassroots leaders who organised the community-bonding event were undoing what the Government is trying to achieve.

Lum Yan Meng

Wednesday, October 12, 2011

CPF : New Face, New Media, Old Ideas....

This is a critique of what Tan Chuan-Jin wrote on on his Facebook on CPF [Link]. Before you think of me being too harsh on him, I actually think he is one of the more promising young leaders from the PAP. It is rare that I praise someone from the PAP but I think he has a natural flair for leadership. The problem is ideology - his article on CPF illustrates the problem.  As a new leader in the PAP, he appears to be constrained by old ideas and can't seem to get out of the box (my comments in RED)
Looking at CPF from the other side...[Link]
This is one of the significant responsibilities in MOM. DPM and myself spend a fair bit of time on this, and rightfully so. Sometimes, I wonder if my job would be easier if we just let people withdraw their CPF totally.
(It is their money and earlier promised to them for withdrawal at age 55. I agree early withdrawal would create other practical problems. But shouldn't the PAP have pursued a course of action to fulfil that earlier pronmise?...we will get to that a little later).

It would make things easier...for awhile. But it would be wrong.

Life expectancy is going up to 82 and beyond. One is likely to live for a good 20 years after retirement. There is a strong likelihood that many may not have saved enough.
(Here again we fall into this trap in thinking. Just like the PAP justifying the large foreign influx using low fertility rates. A large part of the inadequacy is caused by liberalisation of CPF for housing, and money set aside Medisave programs so that the govt can lower its own expenditure on health care (lowest in the developed world as a % of total expenditure).  If CPF is kept strictly as a provident fund and HDB live up to its mandate is to provide affordable housing without touching the CPF, Singaporeans would have a better retirement if public housing is more reasonable priced and does not drain our CPF which is kept strictly for retirement. .

CPF pay outs would help to ensure some form of regular income stream for individuals. With an ageing population, this becomes more critical because the burden on our children's generation will be significant if older Singaporeans are not providing for themselves.

(In the ideal state, we have each generation paying for its own retirement. The issue here is not whether the those who are retiring have paid - they were setting aside 20% of their income for did they end up with insufficent to retire on? ...We will go to the other factors later on. However, each generation paying for its retirement is a good principle to go by to we don't end up in a vicious cycle of either heavier taxation or debts with each generation. However, within each generation and the current generation,. there is income disparity. When you have disparity as large as those we have today, some people cannot have a proper retirement due to this inequality - that is where progressive taxation can help to bring some equality and provision for those who cannot afford to retire. How long do we Singaporeans have to endure the sight of 70 year old cleaners - it is a human rights issue. The PAP insists on an every man for himself system but creates a system with the highest income gap in the developed world without minimum wages and extremely pro-business policies that makes it hard for many Singaporeans to "provide for themselves").

As a citizen, I did not really bother too much trying to understand the CPF construct. (Okay, generals in the SAF are well paid so they don't have to worry about CPF). Like many, I wondered if the returns made sense, especially a number of years ago (seems like a long time ago actually!) when bank interest rates were high. Why can't I withdraw my OWN money when I retire?

Things look quite different now that I am on the other side of the fence. CPF is an important part of retirement provision for our people. For an almost risk free profile, the returns are reasonable. This is worth reading to understand how your CPF returns have fared given inflation rates over the recent years

(There are numerous pension funds around the world that invest stakeholders money for higher returns so that it grows and beats inflation. From Chilean pension fund that return an average of 10% to Calpers to the Malaysian EPF, the people  properly managed pension funds means that workers can set aside less money and still enjoy a good retirement.

What he said about reasonable return for "risk free profile" is not true. He should reflect on this. Our CPF money is loaned to GICs at a fix rate. GIC then uses this money to make risky investments. Its ability to pay us and the fix return depends on how the risky investments turn out. Hence we incur a very high risk but GIC keeps the extra return when their investments does well. It is a very bad deal. If GIC falters all the way, our CPF money will be risked and since the PAP is the govt, they might try to legislate their way out of it by delaying withdrawal age and reducing the amount we can withdraw.

Locking our money at a fix rate makes us vulnerabe to sudden increase in inflation rate (esp imported inflation) is in fact a highly dangerous strategy.

Singaporeans are only asking for their pension funds to be managed based on how successful pension funds around the world are managed.)

Higher returns would always be nice but it would entail greater risks. The challenge of any portfolio that includes equities is volatility. At point of withdrawal, you may be right in the throes of a downturn. (Pension funds manage this volatility by smoothing out over longer durations.) To  provide for some balance, we had opened up the space for individuals to invest part of their CPF monies via the CPF Investment Scheme should they wish to do so. Hence, one should therefore treat the 'untouchable' part of the CPF monies as the very stable and low risk component of your portfolio.

A guaranteed floor of 2.5% on your Ordinary Account, and 4% on your Special, Medisave and Retirement Account or SMRA, and an additional 1% to the first $60,000 of the SMRA monies, represents a reasonable return for such a portfolio, especially in an increasingly volatile environment (and the current batch of retirees missed out on the spectacular investment returns of the past 25 years based on GIC's own record it is 6% per annum).

A big plus of our CPF construct is that it helps facilitate our owning our own home. This is important not just from a home ownership perspective but housing is a decent hedge against inflation. Meaning that instead of keeping our CPF monies as cash, part of this is now 'saved' in the form of housing. If needed, this can be monetized (lease buy back, rental of rooms, or adjusting accommodation to smaller units like studio flats) to release the monies. Some analysts tend to leave out this component of our CPF savings; it is actually an important feature of our savings.(Mixing retirement with housing means people have to monetise their homes to retire properly. It is better to keep the 2 separate. Home prices can also crash as we have seen in Japan, USA, Ireland, Spain. If you link retirement to housing, it is a disaster when housing prices crash down. If the PAP keeps public housing prices through its policy artificially high, it burdens our next generation.)

Some seem troubled by the CPF Minimum Sum Scheme, especially when we announce the increase. No, we have not run out of money! :) This scheme has been articulated before and the increases have been announced. At 55, you can withdraw your monies but must retain the minimum sum. Why?

The CPF Minimum Sum Scheme provides members with a monthly income to support a modest standard of living during retirement. The Minimum Sum left with the CPF Board currently earns 4% interest per annum. The interest rate is revised every yearly.
Upon reaching 55, you will be able to withdraw a portion of your CPF savings based on your available CPF balances. Setting aside the Minimum Sum when you reach 55 ensures that you have some regular income from the current Draw-Down Age (ranging from 62-65) to live on in your retirement.

The Minimum Sum was set at $80,000 in 2003 and will be raised gradually until it reaches $120,000 (in 2003 dollars) in 2013. These amounts will be adjusted yearly for inflation. If you are unable to set aside your full Minimum Sum in cash, your property, bought with your CPF savings, will be automatically pledged for up to half of your Minimum Sum. You will receive a monthly income from your Draw-Down Age until your Minimum Sum is exhausted. You may wish to start your monthly payouts later. It benefits you as your payouts will last longer.

There is probably more to talk about this in the coming months and years as we see how best to improve the system. I have not talked about the medisave component. There is also CPF LIFE which is an annuity that provides life long payouts instead of the present one which will stop when your CPF savings run out. This is important with life expectancy increasing.
(The CPF Life is an application of PAP ideology that simply refuses to move slightly away from an "every man for himself" approach. In doing so they insists on individual stretching the CPF even further to cover unexpected(unplanned) longevity. During the parliament debate, the Workers party proposed that individuals fund their retirement up to a certain fixed age and the govt starts a fund to take care of the small minority who live beyond that age. This scheme is simple and practical sharing the burden between state and individuals. Pushing CPF further using CPF Life to cover ultra-longevity, stretches and complicates the CPF making it less adequate for those who have normal or below normal lifespan. In an already unequal society, we make things even more unequal for the person who dies one yr after enrolling CPF Life - he dies younger and loses his CPF funds to others who live longer).

Please see the following links to provide a better understanding of our considerations behind this important scheme.

Check out the CPF website. Its a good site with useful explanations...try it!

Speech at Ee Peng Liang Memorial Fund Forum at NUS on 22 Aug 11

Speech at the launch of the "Are You Ready" campaign on 9 Oct 11.

Tuesday, October 11, 2011

Speeches from Speaker's Corner

These are ordinary Americans speaking up against inequality amd the financial system in America at a speakers' corner set up by CNBC at the Occupy Wall Street protest.
A few weeks ago I went to the Borders closing down sale. I walked around for an hour but was unable to find anything to buy - my fellow 'kiasu' Singaporeans had bought trollies full of interesting books leaving behind stuff that few people would buy. Just when I thought I wasted my time going to the sale I found a book that only people like me would be interested in reading. The book is "Going to Extremes" by Barbara Ehrenreich:

"Over the past decade America has become increasingly divided between gated communities on the one hand and trailer parks and tenements on the other between the super-rich travelling by private jet and low-paid workers making multiple bus trips to get to their jobs, between a wealthy minority consuming cosmetic surgery, and the many too poor to afford basic healthcare for their children"
-  "Going to Extremes"

The part about workers in US taking buses to work. I'm quite sure those buses are not packed like cattle trucks. In the last 10 years, in Singapore, we see prices of expensive homes crossing $2000 per square feet and the demand for good class bungalows rising to record levels at the same time the segment of the population too poor to afford their own homes has grown to record levels:

A few weeks ago, I saw a little ang moh kid at a playground near my home - I teased the hyperactive kid as he ran around the playground. They family has been here for several months and the mother came over to ask me where she can the parks and places to cycle, camp ..and so on. . After she was done with her queries, I asked her what she "thought of Singapore so far".  Before she got to anything else, she said she was quite stunned by what she saw "so many rich people with big cars" and so many poor people..."poor old people working". Coming from France, she said has never seen anything like this. I've asked many foreigners how they find Singapore and this is the first time someone responded by talking about the inequality in our society before anything else. Very often they will say how impressed they were with our airport, how clean and green we are and so on before they sometimes asked why there are so many old folks working.

America is the only other developed country with comparable income inequality. But you have to remember that America is a big place with rural, sub-urban areas and top cities. Their inequality is spread over a vast territory many thousand times bigger than Singapore. Our inequality is concentrated on a piece of land 700 sq km in size where extreme wealth and poverty exists side by side.

Unless there is political change, the situation can only get worse. Today our parliament is dominated by the elitist PAP party. While they promise changes in response to poor election results, they are not ideologically inclined to address the huge and growing inequality in our society. This is the same govt that eliminated healthcare benefits and pension for rank anf file civil servants while preserving these benefits for themselves. They imposed GST to cut taxes for the rich and corporations. They increased their own pay as poorer Singaporeans saw falling incomes and marked decline in the quality of life.  They richly reward a small select power-elite with scholarship and opportunities in the network of GLCs. Our inequality is manufactured  by political strructure that preserves a system ideologically shaped  for the benefit of a few. This ideological extreme has led to the extreme inequality and the situation will not improve unless Singaporeans wake up, speak up and stand up for what is right.

Saturday, October 08, 2011

Unstable Employment and fall in fertility...

Recently, after I gave a talk to a group of university students on technology, a student walk up to me and asked if he took up a job in the company I worked, what is the length (how many years) is the employment contract. I told he there is no contract if people are hired, we prefer them to stay forever until they choose retire because we are working with  high tech stuff that require extensive and continuous training. Unfortunately, the company where I work is fast becoming a rarity in its hiring policies.  I've interviewed many young people in the past few years and became quite familiar with what employment is like for engineers and IT professionals in Singapore today. It is easy to find someone who had 4 different  jobs in 6 years. One applicant came with a pile of certification and list training courses he attended, he told me he paid for every one of those because the short term nature of employment means that employers are reluctant to spend too much on training. Some companies hire people for the duration of one project and retrench them when the project is over. Increasing numbers are hired in temp jobs lasting a few months as employers are unwilling to commit to hiring full time.

While this phenomena is something that has occurred world wide, it is has become far worse in Singapore because having a large foreign influx means there is always a ready pool manpower available and employers do not hold on to workers during the bad times because they don't have to fear that they will have difficulty hiring during the good times. In good times, they have manpower from the foreign influx so they don't have to hire older workers creating a structural unemployment problem in Singapore.

This rising phenomena of "unstable" employment has been linked to falls in fertility (Job Insecurity and the Timing of Parenthood). So far all govt measures have failed to improve fertility and a few of the measures fail by design. Take the example of financial incentives in the form of tax rebates that has to be claimed within a limited time frame. This is clearly aimed at higher income individuals who need little financial assistance in the first place - how was it suppose to improve fertility rate by targeting certain segments of the population instead of all families? Here the govt mixes its social engineering goals with the measures to improve fertility.  In the 80s, they wanted to implement the graduate parents scheme providing incentives only to graduate mothers to have more children. It is no surprise they can't make a dent on the low fertility problem because they are boxed in by one man's "hard truth" belief that graduate parents have smarter children.  There is little wonder why we have made no progress to improve fertility rates in Singapore.

Today, the govt uses the low fertility as a justification for the large foreign influx.  The large foreign influx results in increased competition for jobs and housing as well as rise in structural unemployment. It puts Singaporeans in  a vicious cycle of lower fertility and increased foreign influx. There is little doubt if things continue, Singaporeans will be a minority in their own country. It would be fine if we are not a nation with little aspiration to become one. If Singapore is just an economy where people are free to come and go based on where they can find the best opportunities, we go back to what we were before independence when we were a trading post somewhere in the British Empire.  Today we have Singaporeans who are the 3rd or 4th generation here. There is something worth protecting for the young men who serve their NS - that something is eroded away with each passing year....

Friday, October 07, 2011

Steve Jobs : The Amazing Turnaround....and Spirit of Innovation

Its sad that he is gone. Like many in the IT and computer business I have seen the ups and downs of the companies in the industry that took place as a form of creative destruction. Once big names like Silicon Graphics, Sun Microsystem, Motorola and Atari fade away or disappear altogether from the landscape. New companies such as Google and Facebook emerge from almost nothing to become giants within a few years. New technologies come replace old ones that become obsolete quickly dragging down the companies that were offering them. No other industry in history has seen such rapid transformations and upheavals as the computer business. Perhaps no other industry has seen such intense and continuous competition - competition that brought great products at great prices. Today after 20 years of IT shows & Comdex type events, they are still bringing in the crowd. People are happy to be buying because IT products are one of the few things in this world that fall in price - your cup of coffee price goes up, housing price goes up but IT products go down in price. This is free market competition at its best bringing innovation and affordability to masses. There are few companies as innovative and creative as Apple.

In 1995, I remember reading about the demise of Apple Computers in Business Week magazine. The prediction was very believable. Apple has lost most of its market share to WinTel (Windows + Intel computers) and was burning up its cash at a rate that would put the company in peril within a year. When Michael Dell, the rising star in 1995, was asked what he would do if he was running Apple, he said he will just close it down and return the remaining cash to shareholders. It was believed that few consumers would buy Apple's proprietary hardware + operating system because momentum had shifted to Windows based computers and the bulk of applications were written for Windows. In the 1990s, I took a management course and one of the case study was Steve Jobs ouster from Apple. The case study painted a negative image of Jobs being an autocratic stubborn leader - I was taught not be  like Steve Jobs but to learn from his rival John Sculley who won the support of the board of directors to force Jobs out of the company. At around that time, there were several books out on Steve Jobs that painted him as a "snake-oil" sales man who took shareholders money to start NeXT and lost $200M in the hyped up venture. If Steve Jobs had decided to retire in the 90s and take it easy with the millions he made as a founder of Apple, he would have left only s small footnote in IT history as the co-founder of Apple who foundered....but he did not and came back to dazzle the world with fantastic beautiful products. He leaves the world as a great visionary who transformed our lives and touched billions of peole around the world.

In 1997, Apple has a campaign called "Think Different". Critics pointed out that it was gramatically incorrect and should be "Think Differently". Steve Jobs, however, went with his instincts to use "Think Different" because there was this "edge" to the sound of the phrase. It was a highly successful advertising campaign to convince consumers they should break away from the convention, "think different" and try Apple's products instead of the mundance stuff rivals were churning out. Steve Jobs' own life epitomised this "Think Different" spirit.  Here are a few extracts from Wikipedia to illustrate this point:

Although he dropped out after only one semester,[35] he continued auditing classes at Reed, while sleeping on the floor in friends' rooms, returning Coke bottles for food money, and getting weekly free meals at the local Hare Krishna temple.[15] Jobs later said, "If I had never dropped in on that single calligraphy course in college, the Mac would have never had multiple typefaces or proportionally spaced fonts."[15]

Jobs then traveled to India to visit the Neem Karoli Baba[36] at his Kainchi Ashram with a Reed College friend (and, later, the first Apple employee), Daniel Kottke, in search of spiritual enlightenment. He came back a Buddhist with his head shaved and wearing traditional Indian clothing.[37][38During this time, Jobs experimented with psychedelics, calling his LSD experiences "one of the two or three most important things [he had] done in [his] life".[39] He later said that people around him who did not share his countercultural roots could not fully relate to his thinking.[39]

Jobs also has a daughter, Lisa Brennan-Jobs (born 1978), from his relationship with Bay Area painter Chrisann Brennan.[89] She briefly raised their daughter on welfare when Jobs denied paternity by claiming he was sterile; he later acknowledged Lisa as his daughter.[89]

It is hard to say for sure if his creativity and innovativeness came from his unconventional life but Steve Jobs believed it was the case. Apple's founders the 2 Steves (Steve Wozniak and Steve Jobs) started Apple with money they made from an illegal "blue box" that allowed users to make distance telephone calls (across states) for free. They were rule breakers if not law breakers. In Singapore we struggle to promote innovation and creativity - we even try to "teach" this in school and "encourage" students and workers to be "more innovative". Companies hold talks and courses on innovation but we still find innovation lacking in our society. Why is this so?  Singaporeans more than people of other countries are conditioned to be obedient because breaking rules comes with heavy consequences. You distribute a few (political) news letters  on the streets and the authorities come after you for illegal hawking. You are not allowed to speak and gather openly to protest. We have extremely harsh laws enforced rigidly so that obedience pay off e.g hefty fines for litering and spitting. Companies constantly kill off innovation by imposing rules, processes and checks out of fear of making mistakes. Several prominent researchers left Singapore recently and hinted that "bean counting" was starting to get in the way of their work. The strait-jackets in our society and companies - too many rules, procedures, processes - stifle innovation and keeps everyone "thinking the same" rather than "think different". We can perhaps learn something from Steve Jobs' amazing life and wonderful accomplishments:

"Don’t be trapped by dogma, which is living with the results of other people’s thinking. Don’t let the noise of others’ opinions drown out your own inner voice, heart and intuition." — Steve Jobs

Yes, and there are no hard truths....let us, the new generation, not be trapped in another man's thinking...lets us not believe we cannot think for ourselves and lets us not be shackled by somebody else' "hard truths".  We must and can progress if we break free from those who want to box us in.

Sunday, October 02, 2011

Healthcare : An Enlightened Move...

I will tell you a better policy idea than the $2 health screening announced for the poor today later on in the posting.

There is one area that there is little doubt that govt should play a big role and that is healthcare. All we have to do is look at the mess in the largely privatised healthcare system in USA. The cost of healthcare there is growing at 22% every year and if you do quick calculation, it won't take long for healthcare cost in America to reach a point that it devours half the GDP - every other person would have to be a doctor to treat the other person! Of course that is just a hypothetical mathematical possibility, before it reaches that point the US govt will have to do something or most people will have to live without healthcare - these people will keep throwing out incumbent politicians until something is done even if it means re-nationalising the healthcare system. Having an expensive healthcare system is a big drag on the US economy and its competitiveness healthcare insurance as one of the major business cost.

I'll use this $2 screening to illustrate why a healthcare system that keeps most healthcare resources under the govt rather than the private sector will lead to a system that has lower overall cost for a nation and society.

Most of us go for health screening after we get past age 35. I would recommend you go every year even if you're younger. The basic checks that consists of blood pressure, cholesterol, sugar level, uric acid levels etc costs between $30-$45 at a private clinic. For many working Singaporeans the cost is not really an issue - in fact in many companies there is reverse welfare, the higher your position and your pay, the more checkups and medical care you will be entitled to. For the low income workers, their package usually don't cover annual medical checkups. These workers along with the unemployed, retirees and the poor will skip health screening because they have little money - it is just human behavior that is impractical to change. We cannot expect charities to fill the gap because of the large number of people and charities have to priorities their resources. Only the govt can take care of these people - so they have to decide whether to do or not. Suppose they chose not to do it and a poor person with high blood pressure goes untreated until he gets a stroke and has to be rushed to the hospital. At this point, the govt choose do the inhumane thing of not treating the person because he has no money - we will have to rule this out because this is simply unacceptable. The person gets surgery costing maybe $30K-$50K but because he is poor can never pay for it even if it is heavily subsidised. The person might suffer from permanent disabilities and has to be care for the rest of his life. Instead of spending $30 to screen the person, the govt ends up paying more than $30K of tax payers' money.

By spending small amounts in perventive care on the poorest members of our society, the govt can lower the overall cost to society. It is a very practical pragmatic thing to do but why did it take the PAP take so long to do this? We can go back in time to understand why by recalling the incident that resulted Lim Hng Kiang acquiring the nickname Hairdo Lim. During a parliament debate on whether the Medisave should be allowed for use for breast cancer screening, Lim Hng Kiang argued that the $50 for the screening can be easily be borne by women by saving on one hairdo. Ideologically, the PAP wants people to take as much responsiblity for their own health as possible so that govt can keep its expenses down by making people shoulder as much healthcare burden as possible. But Lim Hng Kiang's expectation of human behavior does not result in the best policy outcomes. Singaporeans are no different from the people anywhere else in the world when it comes to preventive care. People will skip it because will always make the mistake of viewing it as an unnecessary expense.At the end of the day, it will end up costing tax payers and society more money when the person fails to get early treatment.

If you look at the top healthcare systems in the world, most of them are single-payer systems with the govt playing a central role. France has the number one healthcare system in the world and treatment is paid for by the state at a overall cost far lower than the US where a large part of the system is in private hands - insurance companies, private hospitals etc. The problem is some govts are not so good at running such a system and ended up high costs, long queues and rationed care - even so, most are still considered better than  what they have the US for the average person.

In the past few years, the PAP govt has allowed the private healthcare sector to expand hoping to turn Singapore into a medical hub for the rich. So much of our healthcare resources are now in private hands, the govt has to seek help from the private sector to reduce the load in its public  hospitals (Read : Govt turning to private sector for healthcare). The aspiration to be a medical hub and growth of private sector that draws doctors and nurses from public healthcare has resulted in a cost spiral that has reduced the affordability of healthcare in Singapore.

There is a lot more to be done to take healthcare costs off the minds of average Singaporeans. Universal single payer systems like those in France, Australia & Finland are ideologically hard to accept for the PAP govt and some segment of the population to accept because it leads to higher taxes although it may have lower overall costs and ensure great equality among Singaporeans.

I have a suggestion that builds upon the $2 health check up proposed for the poor and elderly - extend the scheme for everyone above the age of 40. Here's why:
  •  Such checks unlike other treatment cannot be abused or overconsumed so that overcomes a common objection to providing free or subsidied care.
  • Some might object because people who can afford it like Wee Chaw Yaw might turn up for one of these checkups. But it is fair because he pays much more taxes. Chances are the ultra-rich won't bother they will just go for their private hospital $1000 checkups. Many in the higher income category will skip it because their corporations provide something better than basic screening.
  • Economies of scale when the govt set up clinics that specialise in these checkups so there is overall cost savings (individuals + govt expenditure)
  • There incentive created will lead to almost 100% screening for common illnesses and overall cost savings and better outcomes -less undetected illnesses = fewer emergency cases.
  • Making checkups so highly subsidised for everyone may be hard for the PAP to accept but this idea is reasonable and middle-path compared to govts that provide everything free of charge.
If you take away ideological thinking that Singaporeans must always shoulder as much healthcare burden as they can afford, there is a one objection is that the expediture might shift from individuals to govt although there is a good chance there will be savings from early detection. 

"Individual resident taxpayers will enjoy a personal income tax rebate of 20% for Year of Assessment 2011 (YA2011), capped at $2,000. The PIT rebates will cost the Government $580 million.
Taxpayers do not have to apply for the rebate. The Inland Revenue Authority of Singapore(IRAS) will take into account the rebate when computing the tax bill for YA2011. The amount of rebate will be shown in their income tax bill."
Instead of always thinking about cutting taxes especially one-off cuts before elections, there could be  ways to put some of this money to better use. $580M can provide check ups for Singaporeans for those over 40 for maybe the next 10 years to achieve better outcomes. There are numerous ways to find money for this probably we don't even need to forego those middleclass tax rebates - the govt probably has enough annual surplus to do this - the issue is not money. The only real problem is ideology - Hairdo Lim ideology....that gets in the way pragmatic beneficial approaches to healthcare. Shifting expenditure slightly from individuals to govt for a govt that already shoulders the smallest % healthcare burden among developed countries to achieve overall better results and cost savings cannot be wrong. Many positive changes in Singapore requires the Singapore govt to compromise and shift. Many at the other end of the political spectrum are asking for single payer universal healthcare system to erase some of the inequality in our society - this is a big change that will require far more debate. However, the overall benefits of the govt playing a bigger role in preventive care is quite clear and pragmatic for the angle of cost and efficiency. Still I'm a little happy that the PAP has decided to provide $2 for the poor and elderly - they are slightly more enlightened today than they were yesterday.

The China Hype...Part 2 : Dangers ahead...

China Hype Part 1 (Jan 2010):

When an economy grows as fast as that of China, the growth can mask problems beneath the surface. From time to time, the financial press will play up these problems but the lack of transparency and information makes things very unclear. Even when there are credible assessments, the issue of timing and final day of reckoning is hard to pin-point. Take the example of Jim Chanos in my earlier article  who warned about an "impending Chinese real estate collapse" in Jan 2010. Nothing much has happened since ...the action if any is in Europe and USA where economies have been weak.

Lets recap what has happened in China:

In 2009 facing the threat of recession, the Chinese govt implemented a stimulus package to avert a sharp slowdown. This money went mostly into infrastructure development and  the private sector saw a boom in real estate. State govts and real estate companies borrowed massively from the big banks to invest.

"The manic and chaotic development of infrastructure projects after the 2008
financial crisis, costing more than 20 trillion yuan, has driven the economy at
a booming pace, but at the cost of speculation and inflation. Most local
governments have borrowed massively from banks to support their own plans, but
this has occurred without even the limited level of public scrutiny and openness
that exists in ‘democratic’ capitalist countries.

This has also led to serious debt problems for the Chinese economy. The Railway Ministry has come to
symbolise this problem. While a total of 2.35 trillion yaun has been invested in
the rail system since 2008, it has accumulated debts of 2.09 trillion yuan (USD
308bn), which accounts for nearly 60 percent of the total assets of the
ministry. The ministry’s loss in the first quarter 2011 is over 3.76 billion
yuan (USD 578 million). Its debt accounts for almost 5 percent of China’s GDP,
which is forecast to increase to 7 percent by 2015. This is also why the central
government intervened and removed former minister Liu and his team."

- Report on the recent Railway Crash in China[Link]

While the Central Chinese govt is a net creditor, regional govts and various ministries have borrow heavily to fund these infrastructure projects. These debts are guaranteed by the Central Chinese govt and effectively makes the Chinese govt an indirect debtor. That is not a problem if the amount is small as the Chinese govt has massive reserves. But the total amount of debt is estimated at 200% of China's GDP.

There is a large potential risk," said Zhu Min, the deputy managing director of
the International Monetary Fund and a former Chinese official. Mr Zhu said China
had doubled the loan ratio from below 100pc of GDP before the Lehman crisis to
roughly 200pc today
. The danger is that this excess could start to unwind just
as the West goes into a sharp downturn, and possibly a double-dip recession.
China and emerging Asia are fundamentally in weaker shape this time, having used
up their "fiscal cushions", leaving them with little leeway to cope with a fresh
global shock - Link

The canary in the mine for potential problems in the debt market is the CDS (Credit Default Swap) market where investors insure themselves against debt default. This has started rising sharply last week.

The third act is happening in China. In the three years since the first act started, credit in China has mushroomed from 100% of gross domestic product (GDP) to 200%, at a time when GDP itself has been growing at a fast lick.Property prices as a ratio to incomes are more than 22 in many of the coastal regions, a bubble far, far more precipitous than that which engulfed the US. There are very clear warning signs that the asset bubble in China is going to burst with considerably more venom than it did in the West.

China is not immune to economic cycles; the same economic principles apply there as anywhere else.
China has not magically found a miracle panacea that enables it to dodge economic bullets and realities - Link

The Chinese govt has US$3.2B in foreign reserves and had the foresight to tighten and control the real estate market to prevent the real estate bubble from becoming bigger. China has been tightening credit for past 2 years to ward off inflation which is very high. All these give the Chinese govt policy tools to do something when need arises, however, it is it has far less firepower than in 2008 when Lehman collapsed vs the current situation which is potentially more serious and longer lasting than in 2008.

There is an uncanny resemblance to what occurred in in Japan and USA. In 1980s, Japan was the miracle economy of the world and about to top US as the world's number one economy. The Japanese has 2 bubbles than mark the end of its time on top, first a stock market bubble from which it never recovered and later a housing bubble that burse in 1989. The US economy made a remarkable comeback in the 90s under President Clinton and that boom ended with 2 bubbles - a stock market bubble ( bubble) in 2000 and a housing bubble than peaked in 2007. The Chinese had a stock market bubble in 2006 that took the Shanghai Composite to 6000 (today 2350). That bubble burst and a property bubble took its place. This twin bubble phenomena looks like a pattern that recurred around the world when economic participants become very optimistic  and think that the country is destined for never-ending secular GDP growth...proceed to borrow too much and saddle themselves with a debt problem that takes years to solve. The product of these bubbles in Japan, US, Europe and now China is this cumulative mountain of debt and this debt will stall the global economy. That is the reason I posted  the "Debt as Money" video earlier this week. Negative factors are starting to converge rapidly in a situation when you have slower growth but a debt mountain that has expanded - as this dynamic situation unfold it will become very apparent that as govts  try to eliminate this debt with austerity or printing money - deflation (falling asset prices) or inflation (cost of living rises). I think we might have reached a point of intractability - where there is no economic path ahead without some amount of pain. If you still haven't read it, I strongly recommend this 1999 book by Peter Warburton called "Debt and Delusion" (Amazon Link) that foresaw the sovereign debt crisis and predicted every method that central bankers will use to fix it  including printing money.

I would like to add one more point. China's form of authoritarian capitalism has led to great social inequality - far higher than, say, in Japan when the Japanese emerged as a global powerhouse from the ashes of World War 2. The rampant corruption and the constant need to repress, censor and control the people means that there is plenty of social forces building up beneath the surface. Given this system fundamentals in place, the China Premier and top leadership has done an outstanding job to contain all these problems. But we know from the Asian Crisis, this superficial stability under authoritarian rule can breakdown quickly when the economy falters. That is one reason for such govts to accumulate vast amounts of reserves in case something happens. During the Arab Spring, as social turmoil threaten to spread to Saudi Arabia, the Saudi king announced an economic package worth US$400B funded by its reserves to take care of every man, woman and child with any cause to be unhappy. The Chinese govt has the reserves to keep the country going for some time should the economy falter and unemployment rises. However, the poor economy might persist given Europe is China's largest market and would be in the doldrums for a long time might result in the demands for change in China growing louder. Very often we get unusually shocking news from China ranging from reports of fraud, food scares, hopeless poverty, extreme immorality, rampant corruption and human rights abuses. All these don't matter and goes on year after year when the economy is booming, but when the economy falters - that's when real changes come. What happens to one party authoritarian rule when the economy no longer does well?  We only have to look at Indonesia, S. Korea and Thailand to know the answer. Even in Japan where the people are culturally reluctant to go for change. They eventually threw out the LDP - the party that engineered its economic miracle.  It is hard for a one party system because one-party rule concentrates the power and control in a small number of people and when serious problems occur these people have to shoulder the blame, lose credibility and the masses quickly reject their leadership.

Saturday, October 01, 2011

"Occupy Wall Street" and the our political awakening...

We will never be able to get enough people here to "occupy" Raffles Place but I suspect in the coming months events will occur around the world and perhaps in Singapore that will get people thinking more about the world and system we live in.

2 postings ago I showed a video called "Money as Debt Part 2" that attempts to explain the banking system we have today. While there are some flaws and oversimplification in the video, it is popular on YouTube because people have began to ask about the system we live in and the recurring economic crisis we have to face every few years. There is also great unhappiness over the rising income gap and pressure on the middle class.

Remember when Obama ran for president, his campaign slogan was "Change We Can Believe In". When he took office he was faced with a mountain of economic problems left by 2 decades of unbridled capitalism. The financial crisis threatened to turn into a depression and Obama didn't have much of a choice but to bailout the banks and in effect rescue the some of culprits of the economic problems America was facing. To get the economy going he spend a ttrillion or more on a stimulus package. He tried to address the problems with the healthcare system, the widening income gap and the US budget deficit. However, there were just too many problems that coverged during his term as president at a time. Severe problems began showing up in Europe - again related to banking and debt. Thesee problems that took years if not decades to get to their current magnitude will not be solve in a year or two. The current approach to print money (QE1 & QE2) and kick the can further down the road only serve to postpone the day of reckoning. In the 1930s, it was the severity economic pain that brought about an acceptance of complete revamp under The New Deal. Today, post Great Recession, with economy sluggish and unsatisfactory, but still holding up it is hard to follow through with major disruptives changes - USA's financialised economy has to be restructured. However, high unemployment persists groups such as "Occupy Wall Street" start to emerge and grow.

At this point, some readers might be asking "What has all this got to do with Singapore?". actually plenty...Singapore has done many things similar to the US. The housing bubble for example - even at the height of the US housing bubble, the median price of a US home is lower than what it is in Singapore today. We accept idea of 20 or 30 year mortages as if they are as natural as the sunset. However, these are capitalistic creations ...remember "money as debt".  In the 60s and 70s, people bought homes with cash. Even if you allow such mortgages, you would rein in the free market by making sure that housing prices do not outstrip median income gains. Strangely, our esteemed govt saw little problem with rising home prices....and defended it, just after the problematic collapse housing bubbless in Ireland, Spain,  US crippled their economies and we always have the classic example of Japan that saw a drag on its economy from the 80s housing bubble that lasted for decades. We deregulated our banks just like the Americans. We merged our banks believing that the bigger they are the better - now the lesson learnt from the American financial crisis is not to have entities that are "too big to fail". We allowed the expansion of consumer lending - credit cards, unsecured loans, money lenders (licensed and unlicensed). The govt brought in Las Vegas in the form of 2 casinos euphemistically called IRs.  The income gap in Singapore is larger than USA and we don't have the corresponding social programs to address the rising poverty we are seeing in our society.

People everywhere don't think much about the system they live in as long as things are going smoothly. It is when problems start to start to show up that people begin thinking and checking what goes on in the system. For years, Singaporeans have been apathetic about the political and economic system they live in but problems are starting to show up - income inequality, poverty, structural unemployment, rising cost of living - and we are seeing a political awakening among Singaporeans. The relentless import of people to keep the GDP growing stretches the transport and housing resources overcrowding the island - we now have the highest population density in the world  after Hong Kong and Macau.  Singaporeans are asking why is necessary for us to bring more people per capita than anywhere else in the world - is the system sustainable? A some point, just like those Americans occupying Wall Street, we too will come to realise we cannot continue as we have done so for the past few years. All the imbalances in our system will one day coverge to heighten our desire for change,