Archive for June, 2009

Pay, talent, government – take a look at Singapore

June 27, 2009

I refer to an article by Mr David Rothkopf that was carried by the Straits Times on 19 Jun 2009.

Mr. Rothkopf feels that America is not paying its government officials enough and is advocating that the country look to Singapore for answers.

Mr. Rothkopf claims that he hasn’t met anyone in Singapore who complains about the grossly unfair and astronomical government pay. This is unsurprising considering that Mr. Rothkopf was probably surrounded by govt officials in his short stay here. He should ask any average Singaporean or a taxi driver or go to Singapore Internet forums to find out deep seated anger and resentment at the obscene pay our ministers has been getting.

Mr. Rothkopf mistakenly believes that the extraordinary success of Singapore has everything to do with our govt, which is a falsehood. Singapore is not the only extraordinary success on the face of this earth. It is merely one of four East Asian dragons who have all been extraordinary compared to other third world countries struggling to achieve prosperity over the last four decades. Now what is common amongst the East Asian dragons? Simply said, they are East Asians. How else can we explain why of the hundreds of developing countries around the world, only four achieved extraordinary success and somehow miraculously, all four happen to be in East Asia? The growing success of China and the already successful Japan further support this thesis.

Mr. Rothkopf thinks that the US has been underpaying its government officials which led to talent flocking to the private sector, thus overcrowding it. If he can think that way, then he should understand that it is precisely because our govt has been paying themselves too well that top brains can afford to rot themselves in the ministries so much so that our private enterprise has suffered. Apart from the SIA, we have no technological big names like those of Korea and Taiwan to boast of. Here in Singapore, we have the opposite of the problem Mr. Rothkopf described. Our ministries are over crowded and lowering compensations would be a good way to lessen the crowd. Just as lessening executive pay in the US would help to alleviate over crowding in private enterprise too.

Mr, Rothkopf is also a fervent admirer of Singapore’s Changi airport which is understandable because it is indeed an excellent airport, one that its people can be proud of. But in case he doesn’t already know, this year’s airport rankings have seen both Korea and Hong Kong overtake Singapore. So in the case of airports, once again we see that excellence is not a uniquely Singaporean trait, it runs in the other East Asian dragons too, further supporting the thesis that it is who we are as a nation of people that makes the difference.

Mr. Rothkopf sees Singapore as the best run political entity. But the best run political entity is a mere facade. Behind that beautiful facade is untold suffering that he as a foreigner would find hard to see. It is hidden in small pigeon holes in HDB estates and surfaces every now and then when people commit suicide by getting themselves run over by the train.

Mr. Rothkopf thinks that Singapore was led from the start by Lee Kuan Yew which is untrue because Lee Kuan Yew inherited Singapore from the British so before him, Singapore was led by the British. He labels Singapore politics as ‘constrained democracy’ which sounds nice for what is virtually absolutism and dictatorship.

He was also wrong to say that Singapore had to trade freedom for prosperity. The other three East Asian dragons – Hong Kong, Taiwan and Korea achieved prosperity without compromising freedom. So the need to trade freedom for prosperity is a mere myth that is being perpetuated by people like Mr. Rothkopf to lock the Singaporean mentality into perpetual slavery. Singapore, like the other East Asian dragons achieved prosperity because of who we are as a people, not because of the govt. In fact, as a British colony way before Lee Kuan Yew was born, Singapore was already a prosperous city in Southeast Asia and it still is.

Mr. Rothkopf was told by a Singapore state representative that the state was the entrepreneur right from the beginning. What do you expect a state representative to say Mr. Rothkopf? That the state is a good-for-nothing leech sucking on its citizens to grow fat? If only he had a cursory understanding of Singapore’s history, he would know that some of the most successful early enterpreneurs in Singapore like Tan Kah Kee and Lee Kong Chian have made their mark perhaps even before Lee Kuan Yew was born. So this is again nothing but another falsehood that govt officials would be most pleased to serve him.

Mr. Rothkopf finds the Singapore government unique in paying astronomical sums to government officials. But uniqueness in government compensation does not mean it is necessarily right or acceptable. The people are frustrated but have no say. Only in an autocratic country would you find such a situation. So uniqueness in this case simply means autocracy. I bet General Tan Shwe of Myanmar and Kim II Sung of North Korea are paying themselves very well too in their respective kingdoms.

Mr. Rothkopf also mistakenly sees that mulit-million dollar salaries led to zero corruption in Singapore. There was little or no corruption in Singapore right from the start when there were no multi-million dollar salaries. If there was no corruption to begin with, it would be false to say that money helped to eliminate corruption. Furthermore, what is the difference between using money to fight corruption and corruption itself? In both cases, money is taken isn’t it?

Mr Rothkopf calls the recent one-fifth pay cut by our ministers an innovation. Doesn’t he know, that a tiny dot of a country where leaders command 600% the salary of the leader of the world’s most prosperous country is an even bigger innovation?

Willing buyer, willing seller – the myth of the HDB resale market

June 19, 2009

The notion that HDB resale prices are market driven and therefore not determined by the govt is a widely held but rarely questioned belief. Even in a willing buyer, willing seller environment, there is a need to fully understand all the forces operating on the housing market and influencing the equilibrium price.

Let’s talk about willing buyer first. Basic economics tells us that when demand increases, equilibrium price increases too. A fundamental determinant of housing demand is people. More people means more demand for housing. Who determines people? Who controls the flood gates to immigration? The answer is invariably the govt. There has been a sharp increase in the number of immigrants and foreign workers in recent years. The govt’s ‘economic strategy’ of mindlessly importing ‘foreign talent’ not only puts untold pressure on space and housing prices, it also reveals their lack of better alternatives to grow the economy.

What about willing seller? Can a HDB reseller price his flat at half a million dollars if the govt builds a new one right next door at half the price? Certainly not. It is precisely because not enough new flats are being built where they are wanted that existing flats can command a premium. The lack of land in mature estates is one such reason, the sale of such land to private condominium developers is another. But even where land is available and is used to build new flats, the govt doesn’t price the flats at a level that discourages price escalation. The new flats are pegged to the ‘open’ market flats. When the ‘open’ market price shoots up, the new flat prices also shoots up, which in turn keeps the ‘open’ market price up in a positive feedback mechanism that accentuates the already unhealthily high flat prices.

Then there are those who appeal to MPs for a third flat and hope to make a quick buck out of it. The HDB is first and foremost a roof over the commoners’ heads and shouldn’t be used as a tool to make money. Such speculative behaviour will only put more pressure on housing prices.

The fact that there are many buyers in the open market doesn’t necessarily mean that resale flats are within the people’s affordability. Because people do not normally pay up the entire price of the HDB upfront, the question of affordability becomes obscured. What is true is that people can afford the monthly HDB mortgages but whether they can afford the entire flat is a different story altogether. First we are assuming they can keep their jobs for the rest of their lives but many are being retrenched now. Next we are assumming that they have enough left for old age but many would probably spend their entire lives slogging to pay off their HDB leaving little money for retirement. Lastly, having spent so much on the HDB, people have little left over to tide over difficult times and to improve the quality of their lives.

The fact that HDB resale transactions are active doesn’t imply that people are necessarily happy about it. Many have no choice. Newly weds whose parents’ homes are over crowded and can’t wait three years for new flats have no choice but to buy from the resale market. The fact that the waiting time for new flats is 3 to 4 years simply means that the govt is not building enough to satisfy demand so much so that people have no choice but to turn to the resale market.

So by not building enough new HDBs fast enough to cater to the rapid influx of people into this island, and by not pricing them at a level that discourages price escalation, the govt has in fact driven up the price of the HDB.

So we can see the many intricacies of HDB price determination and how the final arbiter of housing prices in Singapore is ultimately the country’s supreme landlord – the govt.