Tuesday, July 31, 2012

Nation, city state, globalized-city : What will our future be?....

"You see, people in Singapore, they're pampered. They're not seeing how crowded Tokyo or Hong Kong or London or New York subway is. And therefore, they think it is very crowded. But Singapore has only 5 million. And I think if you plan it properly, I think we can live comfortably with 8 million"
I don't have to tell you what will happen if we listen to Tan Gek Yap. I take "pamper" to mean "enjoying a good quality of life" . Tan Gek Yap says we should be "less pampered" and learn to live with a population of 8 million. Why would a people want to "less pamper" themselves. If the purpose of having more people is not to deliver a higher quality of life then what is the purpose? We can't be emulating Tokyo, New York, London as an end in itself. There has to be a purpose in mind when we talk about growing our population.
When Paul Krugman received the Nobel Prize in 2008, there was a conspiracy theory that he was awarded it for political reasons - his left leaning views and support for Barak Obama. His Nobel Prize, however, had nothing to do with is ideas on income inequality and labor unions. It was awarded for his work on New Trade Theory and the New Economic Geography. Embedded in this New Trade Theory is the idea of  gaining economic advantages by forming big cities where various economic activities are in close proximity[Slides for Nobel Prize speech] [Summary of New Trade Theory]. What Krugman contributed to the old economic comparative advantage model was to allow capital and labor to migrate to seek higher returns - this migration is from rural areas to cities and free movement to foreign countries.
"n his 1979 article, Krugman not only laid the groundwork for a new trade theory; he also sowed the seed for a new theory of economic geography – a theory that he developed 12 years later. This new theory helps us to understand rapid worldwide urbanisation. Today, for the first time in history, more than half of the earth's population lives in cities.

As earlier, Krugman's analytical assumption is that there are economies of scale in production at the same time as consumers demand a differentiated range of goods. But he also adds a new dimension: labour mobility between different regions. Highly populated regions are attractive because they offer a richer choice of different goods. Companies, too, have incentives to move to highly populated regions, since they can thereby keep down transport costs and meanwhile benefit from economies of scale. A self-reinforcing process may arise, with migration to cities making possible greater economies of scale and thereby further reinforcing the attractiveness of cities. Krugman shows that the end result may be a concentration of most economic activity in one or a few regions. The exact outcome depends on the interactions among transport costs, economies of scale and consumer demand." - Citation for Krugman's Nobel Prize

Krugman foresaw the trend towards the urbanization of the world population in 1979 and described the urbanization as a self-reinforcing process -greater economy of scale leading to benefits which then results in more urbanization. Technology (transport, communications, housing) allows mega-cities of extremely large sizes to emerge. Tokyo has 34M people, Jakarta has 25M people and if you go down the list Paris is at 27th place with a population of 10M. China has 30 cities with population above 8M people and 200 cities with population above 1M [Link]- to put things in perspective, the German city of Frankfurt has less than 700K people.
For a govt whose priority is to keep the economy growing as fast as possible, the idea of a big city is very attractive. Such a city will have numerous economic advantages, attracting the best talents from all over to create numerous competitive advantages. If such a city is located within a country say KL in Malaysia, it will attract the best talent from the rest of the country - if you have a few cousins in Penang and you ask them where they want to work once they graduate, those who are more ambitious and academically talented will say KL, Sydney and the less ambitious ones will stay behind and take over his father's business in George Town and lead a slower pace of life. If you believe you're the next Siti Nurhaliza, you will try to make your way to KL to seek your fame and fortune. Today KL has a population of 1.8M people or less than a tenth of the population in Malaysia. Nobody in Malaysia needs to be KL unless they really want to, similarly no American needs to stay in New York unless they love the place.

Singapore is different from cities like New York, Tokyo and KL which can be filled by people living else where in the same country....and those who don't like the place can find other parts of the country to go to...for an American there are plenty of options from the east coast to the west coast of this big country. Singaporeans have no other options if they want to stay in their home country. The other difference between us and Tokyo or New York is although our population is still smaller than these cities. New York like most other American cities has a population density that is one quarter that of Singapore's. Because the city is located with a country, the city limits can be shifted as the population grows. Singapore cannot expand its land area except through reclamation i.e. our land area for the city is limited.
In order to grow to 8M, there is only one way - import people and increase the population density. If your goal is to make Singapore as big an economy as possible then enlarging the population size is a no-brainer. However, if your goal is to elevate the quality of life, there is an optimal size. If you want to maximise the per capita income, there is another optimal size. If you want to minimize income inequality and its effects, there is yet another optimal size. So nobody can say what the right size is for the Singapore population unless we can figure out what we want to outcomes we want. If we make it to 8M people as suggested by Tan Gek Yap, the number of Singapore born Singaporeans will shrink to 20+% how is that going to affect the Singapore identity and our nationhood?

One frustrating feature of the discourse on immigration is the leadership has not clearly defined the goals of immigration.  In a recent speech our prime minister suggested that the number is dependent on how well Singaporeans integrate....but what outcomes are we trying to achieve for ordinary Singaporeans? Minister Ng Eng Hen tried to sell this idea that if we don't accept more immigration our living standards will fall. But we know we cannot improve the quality of life indefinitely by importing people at some point the effects of overcrowding will negate the economic gains of importing people - most Singaporeans believe we have already gone past this optimal point and they want the PAP govt to reduce the absolute number of foreigners not just reduce the net influx. The reason for this is simple, they have felt a very sharp decline in the quality of life themselves in the past few years and no amount of talk by politicians can convince them that more immigrants is better. Big businesses like telcos, shopping center owners and property developers can benefit from the influx even as it erodes the quality of life of ordinary Singaporeans.

Building a nation and evolving a common identity are important to us as a people. At one time, nation building was a priority for the leadership - its is unfathomable this can be cast aside to import people. We cannot achieve a common identity if Singaporeans become a minority in their own country. If we are to preserve this goal and continue to strengthen our nationhood, Singapore born citizens should be kept well above  60% - if it falls below 50%, Singaporeans lose their sense of belonging and feel like foreigners in their own country. Today foreigners  (not including new citizens)form 38% of the population and because they are not uniformly distributed throughout the country many neighborhoods and workplaces are already dominated by foreigners. Even if there further economic gains to be reaped are we going to keep importing people if the goal of nation building and economic growth become mutually exclusive?

1990 National Day Slogan : One People, One Nation, One Singapore
1998:National Day Slogan : 30 Years of Nationhood/A Nation in Harmony

2006 National Day Slogan :  Our Global City, Our Home
2007 National Day Slogan : City of Possibilities

Notice how our "nation" has slowly be turned into a "city"...and they use National Day a day that is suppose to celebrate our nationhood to promote this idea of making Singapore a globalized city.
The idea of a globalized mega-city is extremely seductive to our economic planners. According to Krugman's New Trade Theory it will result in a highly competitive economy due to economies of scale and proximity between service providers and customers. Singapore's competitiveness is achieved mainly by importing cheaper foreign labor - productivity has falling across the board.

In our push to be a bigger city we have to be mindful of the differences between Singapore and, say, Seoul or New York. In Krugman's research he showed that labor will migrate from various regions with lower wages to cities in order to seek out higher wages. In the USA, city population is mostly enlarged by people migrating from suburban & rural areas - the  who gain by migrating are mostly Americans  For Singapore, it is different.  Our foreign influx is great for the Filipinos, Indian IT workers, and Chinese laborers here looking for higher wages compared with back home. Some of the wage increase they enjoy here is negated by the higher housing costs and cost of living - they overcome this by living in draconian conditions like packing 8 people into a small apartment. In the 90s, it was largely believed that the free movement of labor has net gains for native populations as it removes distortion in the labor market. The natives will enjoyed lower cost of goods and services while employers will enjoy gains from lower wages of immigrant labor. Those who compete directly with immigrant labor will see a loss but it is a wealth transfer internal to the natives from native employees to employer[Migration Theory : Talking across disciplines] . This is what you get if you keep immigration at a reasonable level - the key is right sizing immigration. However, the PAP govt turned many Singaporean wage earners into losers by importing foreigners at all levels - this resulted in a huge transfer of wealth from employees to corporations producing the largest income gap and the highest corporate profits as a % of GDP in history.

In a 2005, congressional hearing in the US,  Steven A. Camarota, the director of Director of Research for the Center for Immigration Studies listed 5 reasons why immigration will impact wages negatively[Link]:

  • Immigrants Might Work for Less.
  • Immigrants Are Seen as Better Employees.
  • The Threat of Further Immigration. This one is quite interesting. Camarota explains how immigration can produce a vicious cycle. If one company in a business sector starts to hire immigrants to cut cost, it will cause his competitors to do the same creating more demand for immigrants. 
  • Immigration Increases the Supply of Labor.
  • Workers not in Competition with Immigrants.  Workers protected from foreign competition enjoy higher wages causing income gap to increase.
Many Singaporeans have experienced all the negative effects of immigration and the greatest pain is among the low wage workers and PMETs suffering structural unemployment. The negative effects is increasing affecting the middle class. The issue now among many Singaporeans is not whether they will gain or lose from immigration,- they have already lost in terms of wages, competition for jobs, rising cost of living. The question is what else they will lose if the influx continues. Our sense of belonging, identity, strength of our nationhood.....seemed to have fallen in priority as the govt seeks to build a globalized city by expanding the population with immigrants from developing countries. We know economic growth through immigration is not sustainable as we are reaching the limit or have already reached the limit of how many people this small island can host. At the end of the day, what really is the purpose of getting there, what do we lose along the way? This reliance on immigrants from 3rd world countries for growth distract us from finding more sustainable ways to grow - through innovation, higher productivity, moving up the value chain...that will broaden the benefits of economic gains and help us to reduce the severe problem of income inequality in our society.

The PAP govt muddling along and failing to define clear goals of immigration has caused Singaporeans to be apprehensive about supporting this policy. Are immigrants here to complement the workforce to help us better compete against the world or are they here to compete against us? Will more immigrants result in a vibrant society or reduce the livability by over-crowding our country?  How do we ensure that economic gains are broadly distributed throughout our society...and labor immigration does not result result in a transfer from poorer wage earners to rich employers?

Should the citizens of Singapore trust the PAP govt with making the tradeoffs? Their track record of the last 10 years tell us that we better demand greater clarity, transparency and accountability. The day you stop questioning the PAP about immigration will the day you give away the future of your children to be shaped by their priorities and interests that may not be aligned with yours.

Wednesday, July 25, 2012

From the Courtesy Campaign to Integration Woes...

Here is a video of a current affairs programme during which a caller phoned in and made his views felt (see 30 seconds into the video). He spoke very bluntly but he echoed the sentiment of  so many Singaporeans across the country who feel crowded out and 2nd class in their own country. It is hard not to feel this way when one witnesses so often incidents similar to the one on the bus involving the old lady and the foreigner. On a typical ride on the bus or MRT, more than half the time Singaporeans find they are a minority in MRT carriage or bus they are on.....let me ask you, how else do you expect ordinary Singaporeans to feel?

I remember many years back our leaders felt that Singaporeans' manners were not too good and courtesy campaigns were organised to get Singaporeans to be more courteous to one another. It seemed that our less than perfect manners were a problem for our leaders who viewed our sometimes uncouth behavior as undesirable.

This scene of a conflict between a Singaporean and (newly arrived?) foreigners is hardly new for anyone - I saw such an incident myself a few days ago. I won't venture to guess who is right and wrong in this case but such incidents can happen due to cultural and behavior differences. Also, a video may not show the full story and finding fault with foreigners is not the point of this posting.
My point is this. Over the decades, the very domineering PAP govt has put many  demands on Singaporeans - be more courteous, do not spit and litter, don't chew gum, be bilingual, speak proper English not Singlish, flush toilet after use, You get this sensing that Singaporeans are perpetually not good enough for our leaders. Not courteous, don't speak proper English, not good at 2 languages, not graceful ...and so on. They were serious about fixing  what they saw as deficiencies in Singaporeans. For example, many of my friends despite good grades for science and maths subjects couldn't get into university because they failed their GP (General Paper). Others had to struggle with 2nd language because they were not good at languages.,,,and some of these Singaporeans had to forgo tertiary education that they were able to attain if they didn't have the money to go overseas.   However, when the PAP wanted more foreigners, they gave them scholarships to study free in Singapore and some of them have such bad English, they can't even speak one proper sentence, yet they were allowed to enter our universities and polytechnics. We see this eagerness of PAP govt to embrace foreigners and a comparative lack of appreciation in the treatment of Singaporeans in the past. 
PAP elitism is not just  about amplifying the glorious achievements of leadership but also about amplifying the inadequacies of ordinary Singaporeans. Ordinary Singaporeans are never good enough for the leadership - I often wonder if one of the favorite past-time of our leaders is to lament the deficiencies of lesser mortal Singaporeans and how to stick the spurs into their hide....oh how we fall short of their high standards. I remember a speech given by Lee Kuan Yew years ago about how Singaporeans workers did not perform as well as Japanese workers because we were not a homogeneous workforce and he went on to talk about how many decades more Singapore workers would take to overcome this disadvantage. At that time the Singapore workforce was ranked number 1 in the world but Singaporeans were still not good enough. However, when the PAP wanted to import foreign workers, the importance of " a homogeneous workforce" can be tossed aside just like that. When it comes to foreign imports, it is almost like "anyone will do".  Don't speak good English? ...never mind, here's a scholarship come study here for free. Don't have courtesy? Lets just tell ordinary Singaporeans not to be xenophobic and tolerate it. Homogeneous workforce? Not important anymore.
See when the PAP imported new citizens and workers, they are willing to accept what didn't accept in their own people. With this elitist myth of superior leadership being primarily responsible for Singapore's success slowly breaking down as more people see the govt for what it really is,   the gulf between the leadership and the ordinary people is widening as the leadership tells us to integrate with foreigners.
Watching the video just reminds me those past old PAP govt campaigns to make citizens better - be more courteous, be bilingual, speak better English....make ordinary Singaporeans better because they are never good enough.
But when they wanted foreigners, anyone will do....lets open our arms to embrace them, they are good for Singapore, they help to build our economy, they are critical to our growth. Despite what ordinary Singaporeans have done in the past, we have never been "embraced", appreciated and our achievements acknowledged in the same way the PAP govt acknowledges that of the foreign workforce. When it comes to foreigners everything can be accepted and the PAP govt tells us to be tolerant, non-xenophobic and integrate....accept their behavior...somehow Singaporeans find it hard to do this especially when it comes from a leadership so high-handed in telling us how to behave and  lead our lives.....now when it comes to foreigners we must just accept. 

Monday, July 23, 2012

Managing your finances in an artificially low interest rate environment....

UPDATE: Just out this afternoon S'pore's June CPI at 5.3%, FY2012 seen at upper half of 3.5-4.5% forecast. Such high  inflation rates erode the fixed interest savings of Singaporeans making it harder for savers to retire. A commenter suggests that low interest rates are here to stay. While the prevailing  economic conditions support a low interest rate, how long this lasts has to be considered relative to the housing loan tenures of 30-50 years. The global economy may just muddle along but the high stresses we see from the numbers tells us we are in a dynamic situation rather than a stabilized one.
I was writing this article half way when I heard that UOB has introduced the 50 years mortage[Link]. At the current low interest rate of 1.7% for housing loan, an outstanding loan of $1M can be serviced with just $2.4K a month for 50 years.

"Homeowner Edward Ti, 28, said he would certainly take up a 50-year loan for an investment property. 'I would take a 50-year loan if interest rates are low. I would think that it is more efficient to use the money saved from the monthly mortgages to do something else.'" - Straits Times article.[Link]
If you can easily service a 20 year mortgage, stretching it to 50 years is not a bad idea under the current low interest rate environment. However, if you're depending on the low rates for affordable instalments, you are asking for trouble. If interest rate rises, say from 1.7% to 5%, your home mortgage payment will balloon from $2.4K a month to $4.5K a month. If you're doing what Edward Ti is doing, you have to be prepared in case interest rates move up. For a businessman with $4M-5M in the bank, instead of paying for a $1M condo in full, he may still want to take out a mortgage because he wants to keep cash for his business that earns a higher return. For a professional risk taker like a businessman, 1.7% interest is very cheap money and should interest rates go up, he can pay down the loan because he has sufficient cash in the bank to do so. The people who should take up these 50 year loans are people who don't really need these loans. The people who shouldn't take up these loans are the ones who need to stretch their mortgages to achieve affordability. The low interest rates and longer term mortgages (20 years and above) are a partial cause of the housing bubbles in US, Spain and Ireland. In Japan at the height of the housing bubble in 1989,  banks were lobbying for 100 year 2-generation loans. 50 year mortgages can easily lead to trouble for those who are counting on low interest rates for affordable instalments. The interest rates we are seeing are artificially low.

Just to give a historical perspective, here is how US 10 year treasury interest rates has changed over time. Unless there are local factors, interest rates around the world follow the sane trend.

Just 13 years ago, interest rates on housing loans were 5%.  You go back further to 30 years ago, housing loans were 10-15%.. As interest rates trended down, debt levels around the world went up - people borrowed to buy homes, businesses borrowed to expand, govts borrowed to fund deficis and consumers borrowed to spend.

One of the reasons global economy has stalled is the large amount of debt that has piled up. Everyone from European govts to American households are highly leveraged, because they need to cut down on their debt levels, they have to cut spending and this causes demand to fall. What central banks are now using various tools (QE1, QE2, LTRO) is to keep interest low so that the debt can be paid down - at least that is one of the reasons for pushing rates down. However, there is no free luuch. Rates stay low because inflation remains moderate and global economy is weak...which means there higher risk of people losing their jobs as unemployment creeps up. If the economy recovers, interest rates are likely to move up. The problem is inflation can show up even if there is no strong recovery in global economy and this may cause interest rates to rise as central banks try to contain inflationary pressures. So the only situation that rates stay low in the next few years is a weak economy without serious inflation concerns. You really shouldn't bet on this...and you shouldn't bet on rates staying low for the longer term. However, given the current low rates, there are ways to optimize your finances.....a little.
A month ago, an alarm I set on my computer calender rang. My fixed interest mortgage loan which I refinanced 3 years ago was about to expire. I called up the bank to check what would happen. If I do nothing, the interest rate on the loan will be 3.6% floating rate based on a markup of the prime rate (the lowest interest rates the bank charges its best customers). I told them I wanted to refinance. The bank officer told me the outstanding loan was too small (5 figures) and the remain tenure was too short.- I either pay up in full or live with the 3.6% interest rate. I told the bank officer, I was very unhappy the bank was no longer interested in keeping me as a customer and told her to talk to her manager to see if something can be done. A few days later, she called up and told me the best offer they can give me is a fixed rate of 2% for the remaining period of the loan and I had to pay $200 for the refinancing.  I was still unhappy because I knew that banks were offering deals closer to 1.5% for larger loans but she was quite clear it was a "take it or leave it" deal. The last time I refinanced my loan 3 years ago, I was already to pay it back in full either with my savings or CPF funds. The reason why I didn't do it was the low interest rates for mortgage loans. At 2%, I can keep my CPF funds in CPF at an interest of 2.5% and still make 0.5% more by paying off the loan in instalments from my CPF. - so there is no logical reason not to take up the 2% fixed rate offered by the bank.....except maybe something goes wrong in the next few years and the withdrawal rule for CPF changes.
There are other reasons to do this even if interest rates are slightly higher, say 3%. When you use cash to pay down your housing loan, it is very hard to get the cash out again easily. You have to sell your home or take out a mortgage on your fully paid home - the legal fees, admin fees etc makes it expensive to do so. Facebook billionaire, Zuckerberg, who is in a different league altogether bought a US$5.9M home when he got married recently. Given he has hundreds of millions in cash, you would think that it is pocket change for him to just buy it with cash. His wealth can change by much more than $5.9M in 10 minutes when Facebook stock price changes, Why trouble himself with a minuscule $5.9M mortgage from the bank? Well interest rates are so low, even Zuckerberg took out a mortgage loan - for a billionaire like him with near zero chance of default, the bank offered him 1.05% mortgage loan deal [Zuckerberg's Mortgage Rate is Now 1.05%]. A 1.05% interest is below the inflation rate of 2+% in the US and economist call this a negative real interest. Even Zuckerberg couldn't resist taking up a mortgage loan at this low interest rates.
When I first took up my mortgage loan, things were quite different. A 5% interest rate for a mortgage was considered a good deal and it was not uncommon for people to pay 6% for their mortgage loans. The first thing I did when I bought my home was to empty all my CPF money to pay down the loan as fast as possible because it didn't make any sense to keep money in the CPF at 2.5% when the bank was charging an interest of 5%. for mortgages.
Singapore's inflation rate rose to 5.4%[Singapore's inflation rises to 5.4% in April], fixed deposit accounts in DBS are paying 0.125%[DBS Fixed Deposit Rates] and a 1% interest is considered a great deal [OCBC's fixed deposit deals]. Basically what has happened for savers is the buying power of their money has declined 4-5% due to inflation last year due to low interest rates. If nothing changes, their money will keep eroding. The negative real interest rates is supposed to encourage you to spend or bring forward your spending. If you want want to expand your business,  you might as well do it now instead of later because prices are expected to rise due to inflation. Keeping money in the bank is not risk free - your money is eroded by inflation when the interest you're paid is below the inflation rate, there are periods in history during which savers are completely wipe out by high inflation. While there are people who keep savings in bank out of habit not realising the risk, there are legitimate reasons for keeping some money in the bank as savings. You might want keep the savings to buffer against unexpected events - job loss, emergencies etc.  For the risk averse, the negative real interest rate situation is a conundrum because a positive return can only be achieved by taking risk otherwise your money gets eroded by inflation i.e. there is no way to avoid risk for the risk averse!

"In other words, the money that is sitting in your bank account, with its near-zero nominal rates, is shrinking day by day. Even worse, this situation of negative real interest rates could well continue for the coming one to two years.
With the US economy not quite out of the danger zone and the eurozone struggling to ringfence its mountain of sovereign debt, monetary policy is likely to stay very loose. Indeed, the US Federal Reserve — which has kept the federal funds rate near zero since the global financial crisis — has said it would keep rates “exceptionally low” until late 2014, as it sees economic weakness persisting until that time." - Sunita Sue Leng, The Edge[Link]   

Negative real interests rates can persist for quite sometime so what  can a person do about this? If you're living in America, you can purchase something known as TIPS (Treasury Inflation Protected Securities) with part of your money to insulate one part of your wealth against inflation. In Singapore, however, your options are limited. Overcoming the negative real interest rates cannot be done without taking risk. If you buy property, at the current levels which some consider a bubble, you may see heavy losses when property prices fall. Same for stocks. Some investors have gravitated towards high-dividend paying blue chip stocks - this again carries risk of losses should the stock price go down.

The artificially low interest rate environment and negative real interest rates can lead to devastating consequences if one is not careful.  Take the example of property. A speculator looks at the current 1.5% home loans and goes out to buy a $1M, The property can fetch a rent of roughly $3500 a month giving a nominal yield of 3.6%. He figures all he needs to make money is to overcome $15,000 interest every year. He goes and take a 50 year loan. Happily pockets $1,000+ extra he collects in rent over and above his instalment payments. When the real interest rates normalises to positive, the home loan rates will be 5%, he very quickly finds himself in an unhappy situation with money flowing out of his pocket. He now tries to unload the property and there are probably thousands like him and that will pressure property prices downwards.

A very recent example is India which saw negative real interest rates, the Indan govt pushed up interest rates to fight inflation and Indian stocks and property plunged[After Mumbai flats, land prices too nosedive].

Inflation has remained moderate only because the global economy is weak - central banks have printed trillions without runaway inflation occurring as feared by many economists. However, we have seen rising inflation even as the global economy muddles along. There is a real risk of inflation [Quasi-fiscal policies pose inflationary risks, warns IMF paper] even as global growth remains anemic. When central banks shift to contain inflation, interest rates can rise and those who over-leveraged and assumed interest rates remain low will find themselves in trouble.

Property prices in Singapore has risen much more than median income in recent years. This rise is fueled by large foreign influx as well as the expansion of level of housing debt in Singapore. Buyers are persuaded by low interest rates and long loan tenure (now 50 years) to take up a large debt. The long the current situation persists, the more painful the deleveraging becomes when interest rates goes up. For those who want to avoid the pain, avoid the risk of taking too large a loan and don't be seduced by the artificially and historically low interest rates. Plan your finances based on more reasonable assumptions of where interest rates will be several years from now and avoid those super long 35-50 year tenures unless you have more efficient use for the money you already have in the bank.

Friday, July 20, 2012

Changes to Medishield - Prolonging a system with many flaws...

More than a year ago, I wrote about the inadequacy of MediShield as the cost of medical care goes up Link]. As the cost of medical care goes up, the playout by MediShield becomes insufficient for catastrophic illnesses. Yesterday's announcement increases the payout from $50,000 to $70,000 a year and lifetime payout from $200K to $300K. Deductibles goes up by $500 - from $1000 to $1500 for class C and $1500 to $2000 for class B.
For a scheme like MediShield it does not make sense not to raise premiums and payouts as cost of care goes up, The issue is whether our income rises as fast as premiums which is linked to cost of medical care. From 2006 to end 2009, the size of class "C" hospital bills rose by 30% almost 10% per annum[Link]. These premiums will become a bigger financial burden for families over time. These changes preserve the scheme as it is adjusting it for medical cost inflation. The few common little cracks that people fall through are (a) certain illnesses such as cancer require multiple sessions of treatment and patients are required to pay the deductibles (b) busting the payout limits. These 2 cracks can be mended by buying Enhanced MediShield which is offerred by various insurance companies[Link]. If you can afford it, you should consider this.
"Mr Speaker, Sir, about 830,000 Singaporean residents - citizens as well as permanent residents – do not enjoy the insurance coverage of MediShield or its enhancement products. They
make up 24% of the resident population. My Ministry will continue to encourage them to come on board, as otherwise
they may be financially vulnerable should a major illness strike."
- Minister Khaw, 14 Nov 2006
Problem with MediShield is many people are uninsured. Tommy Koh explained the problem of people who cannot get insurance due to pre-existing conditions[Link]. After Obama's healthcare reform in America to provide universal insurance coverage to everyone, Singapore will be the developed with the highest number of uninsured citizens per capita. The reason for this high number if uninsured is when MediSave was introduced, it was not done to ensure universal coverage because that would mean the govt has to increase its expenditure on healthcare as govt would have to pay for those too poor to afford insurance. When Taiwan introduced its National Health Insurance plan in 1995, the govt was committed to ensure every single citizen is covered by the plan[Link]. Today in Singapore there are a large number (830,000 citizens and PRs in 2006) who are uninsured and vulnerable to rising cost of healthcare. Those of you who have purchased insurance for your elderly parents will know that premiums go up year after year as a person gets older i.e. as earning power decline. Premiums for the elderly costs about $1000 a year and many low and lower middle income families find this too difficult to shoulder and leave their elderly parents uninsured.
The greatest pain come for the parents of children born with congential health problems. There is no insurance coverage and the cost of treatment can be extremely high.
"We do see quite a number of parents whose children are born with congenital conditions. Unfortunately, at this point in time, the medical expenses will not be covered by any health insurance plans. And if the child  needs to be admitted to the intensive care unit, the medical expenses can  actually go up to hundreds of thousands of dollars. And this is really a huge  burden on the average family."
- Chairman of the Government Parliamentary Committee for Health Dr Lam Pin Min
Out of 40,000 babies born every year about 850 are born with congenital conditions. These can be the common hole in the heart, premature births, or various illnesses such as cerebral palsy, thalassemia etc that cannot be detected before birth. The medical cost to parents can range from tens of thousands to hundreds of thousands. Very often one parent has to stop work to care for the child. This issue has been discusses for years and the PAP govt has done nothing to fix it. Why is this problem so difficult to fix? Why is helping to care for these babies who are born less fortunate so difficult?.
"For congenital and neo-natal conditions to be covered under MediShield, the population will then have to take into account the premiums that will be associated with this additional coverage. So we want to listen to feedback. It  is a process of consultation" - Minister Gan
I was hoping the new minister can quickly do something about it but he still needs more time to think about it, collect feedback and consult. Well at least he will consider doing something. So how much money are we talking about? Couples who go through IVF (artificial insemination) are required to purchase insurance to cover congenital defects because it is common among such births to have premature babies, multiple births and children born with congenital conditions. The insurance premium cost about $1500. For non-IVF cases, the insurance premium should be between $500 to
$1000. So we are talking about $20M to $40M for 40,000 babies, to give protection to couples who chpose to have babies against financial catastrophe and help these chidren get better care and support. Lets put this $20M -$40M into perspective. $40M is 0.4% of our defense budget. Every year our govt gives out $250M in baby bonus to achieve zero or negative improvement in our fertility rates. Hundreds of millions is spent on scholarships to provide education for children of foreigners.
Couples avoid having children for various reasons - one of them is finding out what your friend has gone through to cope with the medical bills when his or her child is born prematurely and
had to stay in ICU for 2 months.

Helping these families is not a question of whether the govt has the resources to do it but rather what it means to not to help them. Why does Minister Gan choose to frame it as a problem that has to be solved by increasing the MediShield premiums for everyone? Surely this is something the govt can do for parents who have taken the bold step to shoulder the responsibility of bringing a child to this world and caring for the child for many years to come. Do we put our defense budget through the same scrutiny as we are doing to spend this $20M-$40M for the least fortunate of Singaporean babies...the babies of our NS men? Why the need for all this consultancy and feedback when healthcare experts have already said repeatedly that something has to be done in this area including PAP's own MPs. Do we apply the same level of parsimony to our defense spending ...the same
level of scrutiny for our multi-billion loan to the IMF? Are these Singaporean families not worth helping?
.The PAP is willing to spend $300M on the YOG to just enhance Singapore's image, but it is shameful what we put these families through because the govt refuses to spend the $20M-$40M to help the least fortunate of Singaporean babies. Their lack of will to fix this after so many years says a
lot about the PAP thinking and what ordinary Singaporeans mean to the PAP.

Wednesday, July 18, 2012

Experts : Govt should run pre-school education and make it free.

In 2010, I wrote about the start contrast between the quality of pre-school education for rich and poor children[Link]. Richer parents can spend up to $20,000 a year for high quality preschool education while many poor children do not attend pre-school. 

300 children from lower-income families get a feel of Primary One

by Kavitha Karum 05:55 AM Dec 18, 2010

Three hundred children, some of whom have never attended pre-school, graduated on Friday from a four-week course to help them prepare for Primary One next year.

The graduation ceremony for the K2-One Bridging Programme was held at Bottle Tree Park in Yishun.

Pre-school is not compulsory in Singapore, and some children, especially from lower-income families, may not get to enjoy this benefit.

Singapore's four community self-help groups have been jointly organising the programme since 2006 to help these children improve literacy, numeracy and social skills and also adjust to formal schooling. The course fee is $10. KAVITHA KARUM
Many years ago, pre-school education was not needed when a child entered primary school. The old school syllabus assumed that child had no prior formal education - many came to primary 1 without attending kindergarten. The teacher would spend the whole year teaching A-Z, counting 1-100, simple addition and some spelling. In my time there were no exams. The teacher would fill up the report book at the end of the end of the  year - I scored "satisfactory" across the board and noticed my friend scored "excellent" for everything.  I did not know what "satisfactory" and "excellent" meant until I was older. I took my report book home and my father signed it and was satisfied  with my "satisfactory" performance. It was really no big deal because there was plenty of time to catch up if you were behind - the pace was slow and children who knew more when they entered primary school had more time to relax and play.
These days things are very different. During the first week of primary school, the teachers will try to identify students who are slow - still can't read. These students are picked out and many schools have after school programmes  to help them with their reading. So if you can't read and can't count, they are not going to slow things down for you. Some parents will even complain if they find the school teaching simple things their child already knows. For the poor without a good pre-school education, the train has left the station and you are chasing a moving train from behind and the extra lessons is like the helping hand trying to pull you back onto the train but you have to run like hell just to catch it. Many don't and 6 years passes by very quickly and they get streamed to some part of the education system where the chance of going to university drops virtually to zero. 
There Lien Foundation report[Summary][Full Report] places Singapore in 29th spot out of 40 countries on a "Starting!Well Index". S. Korea is ranked 10th. The performance is closer to that of developing countries than developed countries. 
This problem has identified by educators for more than a decade and has gotten worse as our income gap widened and poverty grew. Yet the PAP has no solution in place...why is that so? This is a govt that is willing to millions in scholarship to educate children of foreigners but fixing a problem that has held back the progress Singaporean children is too difficult for the PAP govt to solve. This is perplexing...and especially so when the PAP tells us the redeeming feature of our system which suffers from high income inequality is social mobility.   I have not seen evidence t that our social mobility is that much higher than in other developed countries where income inequality is narrower. A very important part of social mobility is everyone having a good start regardless of their family's income. We have children who go through no pre-school or if they are lucky, they get a 4-week $10 pre-school put together by self-help groups competing with children who received very high quality pre-school costing $20K a year - while it is questionable whether parents should spend so much, the difference in quality is extremely wide. It is like a 100m race where some children start 30m behind the starting line and others get to start in front of the starting line. 
Experts say we can improve in this area. Educators have highlight this problem for years.  We know that doing little will cause downstream problems such as the growth of a permanent underclass. We have a govt that can spend $300M for the YOG, millions on scholarships  to educate foreigners' children and billions on military equipment that will turn obsolete and get written off. Why the extreme parsimony in this area and extravagance in other areas such as defense? The PAP has been extremely ideological when it comes to helping the poor insisting that they be self reliant even when the large income gap and increasing cost of living result in a large segment of the populace unable to make ends meet even when they work full time jobs . A more pragmatic approach would be shield some of the effects of inequality from the children while we work out solutions for the wide income inequality - the ideological difference between the PAP and the rest of us means we will be struggling with this inequality issue for a long time....a long time for the PAP to find its way...or for us to knock some sense into the PAP. It is hence important for the govt to do something now to give Singaporean children a more equal start and we should do it.

Tuesday, July 17, 2012

Crafting a bogus narrative for the imported labor issue.......

Public support is needed on the balance the Government should strike between economic growth and inflow of foreigners, said Defence Minister Ng Eng Hen yesterday.
The country should not pretend that balancing economic growth with foreigner inflow is easy, he said, adding that "the balance is based on what Singaporeans are willing to support, because if you tighten too much, your jobs are at risk".
Besides such a risk, "because you become less competitive in essential services...your quality of life will be affected", he said. - [Link]
If you have not noticed, the PAP has turned the tables around to put the onus on Singaporeans to integrate. The balance now is between what "Singaporeans are willing to support" and "economic growth" which is equated to jobs and quality of life. The PAP is saying if you don't support the foreign influx, you are risking jobs and your quality of life.
Let me ask you a simple question has your quality of life improved in the last 10 years when Singapore had the one of the highest, if not the highest rate of foreign influx per capita in the world? Has structural unemployment and job security improved in those years? The PAP is saying now if you accept more foreigners and integrate well with them your quality of life will improve and there is less risk of losing your jobs. If the whole thing come apart, it is due to your inability to integrate well. It is hard to believe the PAP govt is trying to sell us this and treat Singaporeans as people unable to think.

The truth is our economic system has become dependent on this influx for growth. But this type of growth by expanding the workforce is not sustainable. Our population density is already the highest in world. Singaporeans have experienced for themselves what this method of growing the economy leads to. It is not going to bring quality of life. It is not going to bring job security.Our structural unemployment which is the form of unemployment Singaporeans fear most - losing their jobs at age 40 is caused by the large foreign influx supplying the labor market with young workers reducing the incentive for employers to retain older workers. There is no shortage of jobs otherwise why do we need to import foreigners to fill jobs. The problem is quality of jobs, salaries and structural unemployment...all of these made worse by the foreign influx. There has never been "balance" in PAP's foreign influx policy. The extreme nature of these polices have led to extreme results - highest income inequality in the world, rising poverty and cost of living.

The real problem now for the Singapore economy is the high dependency on cheap imported labor. The PAP govt has neglected productivity imrpovements brought about by leveraging on technological innovations and did not seek out new upstream areas of growth that will create high quality jobs. We are now stuck in this cycle of dependency and the PAP is telling us to accept more of the same because they have no more new ideas. Lets face it, things are not gaing to get better unless bold changes are made. If the PAP does the same things as they did in the last 10 years, nothing is going to improve. They are the ones risking their jobs and our quality of life by insisting we go along the same path...we know clearly where it will take us and we don't want to go there.

Monday, July 16, 2012

Lessons from the Brompton bike purchase....

This tiny purchase ($56K) by a govt dept has been very extensively discussed- netizens have gone after every aspect of the purchase - cheaper and reliable alternatives exists, how the procurement processes can be gamed by specifications than can only be met by one vendor (brand), how the N. Parks misses out potential suppliers in its process because they were not informed and do not actively look out for govt tenders. The real problem that motivated people to discuss this purchase are not all these little things.
Most Singaporeans families have bicycles and many of us actually own this brand of bicycle called Aleoca which is sold at Giant. I went to check and found out that 2 of my 4 bicycles are Aleoca - I didn't even know because I was totally brand-agnostic when I bought them. Aleoca bikes cost between $100 to $200. I notice women taking their children to school every on their Aleoca bikes.

You may think I'm a cheapskate which is partially true but I'm not a cheapskate for every thing. I'm extremely fussy about chairs and mattresses because I sit and sleep on them for many hours. The chair I sit on to type my postings on this blog costs $450 and I feel it is not good enough -there are some parts of my body it does not support well and the next chair I get will have to address these issues which are a big deal for me. I looked around and the next chair I will buy is likely to be a Duorest[Link] which costs $1000 to $2000. Some people may think it is too extravagant but I think it is worth the price. Some people who are cycling enthusiasts prefer to pay $100 for chairs and $1000 for bicycles. Suppose I'm a civil servant and have been assigned to buy chairs for an office occupied by middle to upper management what should I do? I honestly think that Herman Miller chairs that cost upwards of $1.8K are definitely worth the price for their durability and design. However, these chairs are associated greedy investment banks and are very costly to the average Singaporean..... so do I avoid such a purchase that will definitely attract criticism and anger from the public? Those Herman Miller chairs purchased by NTU caused an uproar a few years back[Link]
The Singapore public wants our tax dollars to be spent they way that ordinary middle class families would spend it for items that they are familiar with e.g. chairs, furniture, bicycles. Singaporeans have gone through the thought processes themselves on how these type of items that they are familiar with should be purchased. Why wouldn't something be good enough for them not be good enough for N. Parks officers? ...Give and take some level of quality, durability and comfort. If you buy something that most middle class families will never buy because they consider it t oo extravagant you can expect criticism. There is a certain logic to this...the requirements for someone in the civil service shouldn't be too far off from people in the middle class when it comes to such items. I'm sure most N. Parks officers will have no problems with bikes in the $500-$800 range and that would be okay for members of public because it is not uncommon to find friends and relatives with an interest in biking spending this kind of money. ...but it is extremely rare to find anyone buying $2K Brompton bikes.
If I am assigned the task of buying office chairs for civil servants, I'll stick to the $200-450 price range. Those with special requirements and are very fussy about sitting comfort like myself should spend some of their bonus to buy their own chairs....and not expect tax payers to foot the bill.

Friday, July 13, 2012

More S'poreans sending their parents to Johor nursing homes...

"For some Singaporeans, growing old means living across the Causeway - in a nursing home in Johor Baru.

Home operators there say about 10 percent of their clients are now Singaporeans and they are getting more enquiries from Singapore families.

Many moved their seniors or disabled relatives up north, citing more affordable care"

-  TNP, 11 Jul 2012[Link]

The facts are very simple. Even with govt subsidy, the fees for nursing homes in Johor are much lower than one in Singapore. Many Singaporean families are under strain financially - we have 440,000 low income workers who qualify for Workfare to supplement their income because it is very difficult for them to make ends meet. The rising cost of living has pushed some Singaporeans to make painful choices.

It is best for our loved ones especially those who are old and those who are disabled to stay close to us so that we can visit them often and support them emotionally. The quality of a society can be judged by how we treat our old and sick. It is very easy to blame individuals for their lack of filial piety but why would Singaporeans be less filial than people of other countries? People in Malaysia. Australia, New Zealand and Canada  don't send their elderly to other countries.

The problem in Singapore is the burden that families have to shoulder relative to their income. The PAP govt has kept taxes for the richest segment of society low by shifting the responsibility of caring for the sick, old and disabled from govt to Singapore families. The large income gap and high cost of living results in enormous strain on a large segment of the population who are pushed to take up these painful options.

We have a system in which  it is common to see the elderly doing menial jobs instead of enjoying their golden years. When they are weak, some of them are sent to nursing homes in a foreign country away from their loved ones to spend the last days of their lives. It is hard to reconcile all this with our extravagant defense spending, massive reserves and the fact that we have the highest number of millionaires per capita[Link]. These extremes are the outcomes of years of  unbalanced policy making.

Wednesday, July 11, 2012

Why the light touch for big charities will not do.

This is not a posting about religion but an organisation's practices. I do not wish to see comments on religion because it is irrelevant to this posting.

“A governance review is not meant to be an audit, much less an investigation or formal inquiry to detect and establish fraud or mismanagement,” - Minister Chan [Link]
So how is fraud detected?
"He said the COC also makes use of other sources of information, including feedback, complaints or whistle-blowing, to assess if an investigation or a formal inquiry into a charity is necessary." - [Link]

In 2003, a parishioner by the name of Roland Poon wrote to Straits Times about what he saw as questionable practices and misuse of funds in City Harvest Church[Link]. Nobody in authority and the media helped him. He was threatened with a lawsuit forced by the church to apologize by paying for a $30,000 ad in the Straits Times. It was only in May 2010 that an inquiry into the use of funds in City Harvest was conducted. Long before COC decided to act, the public already knew something was not right at City Harvest. The leaders led a lavish lifestyle living in expensive properties, driving luxury cars and their method of raising funds. They associate themselves personalities like Benny Hinn [Link] who is considered a con-man in America by many Christians and non-Christians/ Other characters like Phil Pringle (CHC advisor) associated with the church is under watch by Christian groups in Australia for his controversial activities[Link].
With increased religiosity and  unscrupulous men who will use religion for personal enrichment, is the light touch of COC sufficient? I would prefer an more proactive and intelligent approach applied to the big charities that should be subjected to tighter regulation and closer supervision. .
An organisation urges its members to sacrifice and contribute while its leaders stay in the most expensive housing in the country, travel in luxury and possess wealth that is hard to account for should be sufficient to serve as warning signs to trigger action from the authorities. Taking a more pro-active approach can reduce the period of time these potentially fraudulent schemes can operate and reduce the number of people hurt by it.
"...... Basically, there are members who were sacrificing their "lives" away - ordinary people who make a honest living working hard, sacrificing/delaying their life goals to contribute to the church operating/building fund and yet somewhere out there, there were so many people giving into a seperate account unknown to more than 70% of the congregation." - Netizen whistleblower "Ronald Wong" who has warned about CHC for several years[Link]

Casinos - Controlling the harm after damage is done...

"Singaporeans and permanent residents paid a total of $288 million in casino levies in 2011 and the first six months of this year." - Straits Times Breaking News[Link]

You do the maths. This translates to 2.88M visits to the casino for the last 18 months if we assume every Singaporean gambler pays $100 to get in. Those who pay $2000 in levy are likely to visit the casino more than 20 times per year so 2.88M is a lower bound of the estimated number of visits to the casinos. If you annualize it is about 2M visits a year and the govt collects $200M in levies alone per year. That is two visits for every three Singaporeans in the country. If you leave out children, it translate to roughly one or more visit per Singaporean adult per year. I can't think of any other attraction in Singapore that is more frequently visited than the casinos. According to reports 200,000 Singaporeans visit the casino every year [Link]and this works out to an average of 10 visits per gambler every year

The govt is now considering further measures to limit the visits for those who are financially vulnerable and problem gamblers[Link]. By the time someone is identified to be a problem gambler, it is probably too late. But it is still better than doing nothing. However, much more can be done. In S. Korea, for example, citizens are not allowed to enter the casinos[Link]. If the govt is serious, we can go much further with the measures - do an opt-in scheme rather than an exclusion scheme. If you want to go to the casino, apply to go in and get means tested and some counselling before you're allowed to play at the casinos. The problem is after you allow the building of casinos here, it is unpopular and difficult to implement measures targeting citizens - some will complain it is unfair to target them rather than the measures are there for protection.

While some argue that building the casinos right here is no big deal because those who want to gamble can travel to Genting or go on a cruise, the numbers tell us a different story. Putting a casino here in close proximity to where people live gives them easy access to casino gambling. Casino gambling is very different from Toto and 4D[Link] in its ability to cause addiction. The number of cases seen by NPGC has increase sharply since the casinos are built[Link]. The main beneficiaries are the 2 foreign companies operating the casinos that make billions in profits from Singaporeans every year. That money could have been spent on services and goods provided by Singapore businesses through domestic consumption. If you look around at the town central and observe carefully, you will notice that the number of pawn shops (Maxi-Cash, Money-Max etc) has increased several fold since the casinos opened. Maxi-Cash is doing a booming business and recently obtain a listing on the stock exchange to raise money for expansion[Maxi-Cash jumps 30% on IPO debut]. All this tells me there is a kind of decay happening in our society - it is similar to termites eating a wooden pillar, it is done from the inside, you see nothing on the surface until it is too late.

Thursday, July 05, 2012

This video troubles me....

Update:  One day after this posting was made, the video below was removed from YouTube. Fortunately, Alvin (of alvinology.com) had the foresight to save a copy of the video.  I have restored the video so that the contents can be seen and issues discussed. Remember the issues here are not about religion (which religion). It is about an organisation operating in a manner that is less than sensitive to other religious groups in institutions educating young children. 

My initial concerns were the recruitment strategy of this religious groups. However, commenters have pointed out that religious leader is linked to the City Harvest Church as committee member and the organisation is affiliated with the City Harvest Church.  Given various controversies surrounding the CHC and it's teaching of  Prosperity Gospel, the recruitment strategies of its affiliate will cause deep concerns among parents. In the video, he said that poor children should be encouraged to make sacrifices to give. He told the story of one child in his church who woke up very morning at 5am to make food to sell to her friends in school so that she can give money to his organisation's building fund. 

"When young people learn to give, God will prosper them. When they can learn to give when they are poor, they will be able to give when they are rich"

"I wanted a church that is built by young people. Even financially supported by young people. ....God also said to me, 'I want you to raise up a church supported financially by young people, by students, so that you can show the world that I can work, I do miracles with young people." - Tan 
I was searching for videos on YouTube related to the City Harvest Church and I chanced upon this video of a Singaporean by the name of Tan speaking to a group of Russians. I do not know exactly who he is but what he said really troubles me. The relevant portion is the first half of his talk.

In the first part of the video, Mr. Tan told the Russians the recruitment strategy for his religious organisation. His primary target - school children. He explained that he would prefer to go directly to the school to recruit them to his organisation but the laws in Singapore forbid him from doing so. To get around this, he used school going children to persuade others to join his religious organisation essentially turning our schools into recruitment grounds. His religious groups have penetrated 70% of the schools in Singapore. Notice in the video that the funds raised by each group of children appears with their photos to highlight their achievement in bringing in donations to the organisation.
While I strongly believe religion plays an important role in our society, the strategy deployed by this religious leader to specifically target school going children in their teens really troubles me. At this young and tender age, a child's exposure to the world is limited and they are high impressionable - they can be easily influenced. Children are also to susceptible to peer pressure. By bringing these children into his organisation and imparting teachings that may be different from those of the children's parents can cause tension in the family at a time when parent-child relationship is critical phase.  In a child's teenage years it is the parents that play a key role in guiding them and many will pick the right time to bring their children to mosques, churches and temples to introduce them to the family's religion.
Whatever his intentions are, he is playing a unhealthy game in our multi-religious society. Imagine if other religious groups using the same strategy competing actively to recruit school children- imagine the tension and suspicion it would cause. When I was in secondary schools, I had friends talk to me about their religion but they were never part of an organised deliberate strategy to recruit for a religious group.
Every religious leader has strong conviction that his is the 'true' religion (or the 'true version' of the religion) that will save souls but children are not fair game...please recruit them when they are older, less vulnerable and more able to think for themselves.

Wednesday, July 04, 2012

Manipulating minds and exploiting the vulnerable.

Given the events of the past week, many people wonder how some can be manipulated and made to believe what is so demonstrably false. I know most people who visit my blog are natural born skeptics who apply cold logic to what they see and will question until they understand. So you must be wondering how it is all done - how a man using the power of words and borrowing the authority of a higher being can shape the beliefs of others, make them drop their skepticism and trust everything he says. The skill to do this consists of both art and science.

Before we continue, I just want to say that most men of faith teach what they truly believe to others with no ulterior motives except to guide them along what they believe is the right path to happiness and perpetual life. However, there are a handful who would do it for they own selfish gains.

"Mark you this, Bassanio,
The devil can cite Scripture for his purpose.
An evil soul producing holy witness
Is like a villain with a smiling cheek,
A goodly apple rotten at the heart:
O, what a goodly outside falsehood hath!"

-l Spoken by Antonio in "The Merchant of Venice", written by William Shakespeare (1564-1616)

This outstanding video by famous British "mentalist" Derren Brown shows the techniques used by the unscrupulous to manipulate others for their own gain.
42 minutes and 40 secs into the video is a segment on "Prosperity Gospel" a teaching closely associated with the City Harvest Church.

Thoughts of a contented Singaporean who has lived in Singapore
for 40 years.

Tuesday, July 03, 2012

Negative Multiplier Effects of Social Inequality

The above letter [Link]written bay Aloysius Chia explains how income inequality hinders social mobility. I have shown a number of examples of this. There is a big gap in the quality of pre-school education [Link] and at the university level the govt restricts the numbers -richer families can send their children overseas to get degrees and poor families cannot afford this. In every developed country, there is always a path for the highly talented 10-20% of the population but when you have a large income gap, the rest will have to be distributed to the unequal wage structure. Social mobility is necessary but insufficient to address the income inequality.

One lesson we have learnt or should have learnt is not to trade off income distribution for economic growth. There are numerous examples of economies that have slowed down temporary even going into recession then resuming growth after restructuring and finding new engines of growth. But there are few examples of developed economies being able to narrow the income gap after it has expanded in recent history[OECD Paper:Reducing income inequality while boosting economic growth: Can it be done?]. Once the income gap is there what can govts do? Is it sufficient to stop the gap from growing? Is it sufficient to just mitigate the effects of the inequality?

Singapore's income inequality problem is unique among developed countries. Our inequality measured the GINI index is similar to that of USA  However, the effects of the income gap is not the same. The USA is divided into urban, sub-urban and farmland - the income gap between these areas may be large causing the GINI index to be bigger that it is within each of these areas. The place with the closest resemblance to Singapore is Hong Kong which is technically not a nation.

Hong Kong has had a large income gap for a long time. 

You would think that Hong Kong residents would be able to accept this high inequality given it is not a nation and operates laissez faire economy with little govt intervention. The Hong Kong people do not serve NS and do not have reservist duties. It does not have large GLCs that dominate the economic landscape. When the income gap expanded, the Hong Kong govt expanded its social spending to mitigate the negative effects - these include free medical care for seniors, pension for the elderly, support for the poor, unemployment benefits. Hong Kong recently introduced minimum wages successfully without any negative impact to employment. If you view the Hong Kong island skyline from across Kowloon, the numerous ultra-modern skyscrapers reminds you of Hong Kong's success as a financial center. You would think the Hong Kong people in general should be able to accept the system and the outcomes but this is not case.

Today in Hong Kong there is widespread unhappiness due to income inequality. A few days ago more than 100,000 people demonstrated against its the govt and its new Chief Executive Leung. Yesterday, Leung tried to hold a dialogue with residents to demonstrate he will listen to the people but the relationship between Hong Kong leaders and the people is so strained, the meeting deteriorated into a scuffle in which residents chased after him and he had to escorted out by police. This episode shows how strained and polarised a society Hong Kong has become.

Why is Hong Kong's example important to us? Singapore GINI coefficient is 0.47 roughly the level of inequality in Hong Kong 10 years ago. A GINI coefficient of 0.40 is considered a threshold by social scientists at which strong govt action is needed otherwise there is risk of social unrest.  During this last 10 years the Hong Kong govt has done much to mitigate the effects  of income inequality including increased social spending and the recent implementation of minimum wage but it has not been insufficient to halt the polarising effect of the income gap.The lesson for Singapore is if too little is done, we will end up where Hong Kong is today and the people's trust in the govt will disappear. To understand what can happen, we need only to look at Hong Kong.

Prof Lim Chong Yau called his approach to narrow the income gap "Shock Therapy". However, it is only shocking to those who still don't understand the dangerous negative effects of a large income gap and what it will lead to if it is not fixed in the coming years. Small tweaks and reactive approaches means we are doing even less than the Hong Kong govt 10 years ago. We already know the outcome of doing too little, yet the PAP govt refuses to consider alternative ideas even those from the establishment and walks a path that is ideologically attractive to the PAP but leads to social outcomes that will become increasingly unacceptable to Singaporeans.