S’pore offers China middle-road model to democracy

Dear Straits Times,

I refer to the 1 Nov 2012 letter “S’pore offers China middle-road model to democracy” by Mr David Grant [1]. There is a mismatch between the title and the contents of the letter. The title refers to democracy whereas the contents of the letter mainly refer to capitalism. Democracy and capitalism are not the same thing. The former belongs to the political realm while the latter belongs more specifically to the economic realm. China is a good example of a nation that doesn’t have democracy but that has embraced capitalism.

Mr Grant is wrong to assert that Asian societies have rejected laissez-faire capitalism when Hong Kong continues to be a champion of laissez-faire capitalism. He is also wrong to refer to Asian capitalism as though it is some homogenous way of conducting economic affairs across Asian societies. The laissez-faire capitalism of Hong Kong contrasts sharply with Singapore’s state-led capitalism which in turn is different from the capitalism of Taiwan-South Korea-Japan dominated by large, home grown multinationals. China’s model is a mixture of state-led capitalism and home grown champions like Huawei. There is thus, no such thing as a single middle-road Asian capitalism model but a variety of models with mixtures in between.

Long before Singapore could claim to be a pioneer of strong governance, many Western nations, particularly the Nordic countries were already bastions of strong governance. Moreover, the strength of our governance rests upon strong colonial institutions and civil service inherited from the British. Lack of corruption does not imply lack of corruptibility. Despite everyone having a chance to succeed, our inequality index is amongst the highest in the developed world.

China’s focus on Singapore is understandable considering its wish to maintain the marriage between authoritarian politics and capitalist economy. Singapore is no more unique than fellow East Asian economic miracles of Hong Kong, Taiwan and South Korea in as far as economic success is concerned. It is only unique in its continued hold on authoritarianism even as fellow East Asian miracles have progressed on democratically.

Given our own yawning income gap, it is unlikely China can learn anything from Singapore’s experience to solve its growing wealth gap. It will also be foolish to think that our success in kerbing corruption can be easily transplanted to a country so much bigger than ours. It is questionable if our own people, if asked to manage China’s corruption, would succeed.

The shift from income tax to consumer tax would not have worked let alone be considered best practice without government transfers. Seen from that perspective, it actually causes more pain than good for the people that necessitates soothing from government transfers. While middle income earners pay very little or no tax, they pay a lot more for housing, COE, ERP and so on. They don’t just pay 7% for the car they own; they also pay 20% import tax + registration fee + 100% additional registration fee + COE + road tax. An example below [2] shows that 72% of what they pay for a car goes straight into the government’s pocket.

The secret is not that all citizens are stakeholders but what kind of stakeholders are they. Are they equal shareholders or are they merely employees? While avoiding the supposed trap of paralysis, we ended up with the trap of galloping off the cliff every once in a while.

If we compare countries by the ratio of politician’s pay to per capita GDP [3], the chart toppers are Kenya, Singapore, Indonesia and South Africa. It seems like the so-called ‘best practice’ of paying politicians top dollars belongs mostly to Third World countries. Paying politicians top dollars so that they don’t resort to corruption is like paying the robber or the thief top dollar so that they don’t rob or steal. Where does it end? If they want sexual favours from IT sales consultants we give them vouchers to Geylang?

China is already having lots of investments from United States and Europe without adopting Singapore’s system. Its system works fine and it doesn’t need to look to Singapore to learn how to attract investments. Its purpose of learning from Singapore is to see how it can continue to hold on to power even as its economy matures.

More than just strong leadership, the West requires cultural adjustments to credit consumerism complemented by rise in wages and living standards in the East to bring about balance.

[1] Straits Times, S’pore offers China middle-road model to democracy, 1 Nov 2012
THERE are basically three types of government in modern capitalist democracies: the laissez-faire capitalism practised in the United States, the socialist system of Europe, and the guided capitalism being developed in Asia.
Asian societies are quickly rejecting the laissez-faire and socialist systems and developing something more down the centre.
This has shown great benefit in countries like Singapore, a pioneer of strong governance, lack of corruption and a meritocratic system, where everyone has a chance to succeed based on hard work and talent.
Of critical interest recently is the focus of China on the “unique miracle in the world” that the Singapore system has become, and its hope that the Republic’s experience can help China solve its growing wealth gap, corruption and weak rule-of-law issues (“CCTV goes big on S’pore with 10-parter”; last Friday).
One of the many best practices from Singapore’s experience is the adoption of a consumer tax and the concurrent elimination of income taxes.
In the article (“Prices have gone up, so have expectations”; Sept 27), Prime Minister Lee Hsien Loong noted that middle-income earners probably pay very little income tax or no income tax at all.
In summary, it was noted that the typical middle-income household in Singapore pays 7 per cent goods and services tax and car taxes if it owns a vehicle.
This system also provides cash subsidies for those in the lower-income bracket.
The secret to the Singapore success story is that all citizens are stakeholders and everyone contributes.
In this way, Singapore has largely avoided the democracy trap paralysing many Western societies.
Another best practice that could be adopted in China would be to increase the pay of government employees and politicians, further reducing the temptation to take advantage of the system.
The concern those in the United States and Europe should share is that if China adopts the Singapore system, it would lead to increasing investment and opportunities throughout Asia, providing early adopters of the guided capitalist system with a huge advantage.
All of these changes will continue to require strong and capable leadership, something that the West is sorely lacking.
David Grant

[2] http://www.onemotoring.com.sg/publish/onemotoring/en/lta_information_guidelines/buy_a_new_vehicle/car_cost.MainPar.0047.File.tmp/Car_Cost_Update.pdf
Example for a 1,497 CC Toyota Vios 1.5E auto

OMV 20% custom duty 7% GST “ARF
(100% OMV)”
Regn Fee COE Total cost Selling price
$11,117 $2,223 $934 $11,117 $140 $68,000 $93,531 $113,888

[3] http://www.economist.com/node/16525240

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