On Investing Sovereign Wealth

The upcoming Presidential Elections and the consequent public focus on the use of Singapore's reserves brings to mind the question of how sovereign wealth should be invested.

Growth is vital to Singapore's survival. This point has been continuously reiterated by the Singapore government. This is straightforwardly believable due to the tight coupling of the Singapore financial system (and hence, economy) to global capital markets.

It is sad, that Singapore is pursuing a labour supply growth policy rather than an productivity growth strategy. This does not make sense in the long term as ever more foreign workers have to be brought in to maintain growth, and the retirement age can be pushed back only so far. Growth is distinct from maintaining a stock of manpower, it requires continued increase in the manpower stock. Noting the presently strained infrastructure, drastic expansion in our infrastructure would be necessary to sustain further labour supply growth. The pursuit of labour supply growth is the easy way out, and it doesn't make too much sense.

It would be even sadder, to see parents with an intelligent child who choose to invest their savings in the stock market in pursuit of capital gains rather than send their child to university. Even more unconscionable would it be for them to have enough to do both, but only invest in stock and keep the balance as a rainy day fund.

It is thus sad that a large proportion of Singapore's reserves have been used to invest in (bail out), for instance, UBS (S$14.5 billion by GIC in 2007), Citibank (S$9.8 billion by GIC at the beginning of 2008), Merrill Lynch (S$7 billion by Temasek Holdings in 2007). The quick gains sought in those investments have not yet materialized, after more than 3 years. They are presently snorkelling, metaphorically speaking, and with a rather long snorkel.

Capability development has not received government support to a comparable degree. Let's take stock of recent efforts:

• A*STAR was a good try, previously helmed by a good (but controversial) man who was driven by the goal of creating economic growth for Singaporeans (i.e.: job creation). A*STAR has yet to become a national research commercialization powerhouse. It is not entirely clear whether A*STAR is on track or has gone off the rails, but we can hope that it pursues the good staffing and HR policies necessary for research and development success.
• SUTD appears to be a better one. I believe that its focus on design and development (i.e.: real engineering) are a step up from our existing universities. I base this judgement on my sense of MIT its faculty, a presentation by Tom Magnanti and looking over its curriculum.
• MOE's mandating Social and Emotional Learning (in 2004) looks like a positive capacity building policy. In my mind it is an excellent one. I project a sea change in the work force when the effects of this change in the way we educate our young eventually surfaces in the economy.

This is good, but not enough. This pales in comparison to just our investments in banks. Far more can be done to build capability in our economy and fuel sustainable productivity growth. In contrast to labour supply growth (with our presently taxed infrastructure), productivity growth is entirely sustainable. It is knowledge growth, which can accumulate without taxing our infrastructure (only perhaps our data centres).

I would like to see Singapore's reserves being used in strategic investments. Technology firms, infrastructure, engineering. Not banks. Such investments could promote local capability development and technology transfer through steering companies invested in towards joint ventures set up by appointed board members. They might steer advanced businesses towards setting up in Singapore and exposing Singaporeans to cutting-edge technology and business processes.

Philosophically, I regard investments as a sacrifice of present day consumption to build capacity for the future. Let us invest our sovereign wealth to the ends of building national capacity. It is the right thing to do.

Measuring the Mandate of the People: Approval Voting

The Elected Presidency is an office where the President is directly elected by the people. In our current elections, there are four "approved" candidates, which makes it tough for a single candidate to garner more than 50% of the electoral vote in a First-Past-the-Post (a.k.a. one-man-one-vote) voting system. With 50% being the default standard for "having the mandate of the people", this poses some difficulties.

The objective of a voting system, at least for this election, is to measure the mandate of the people. While First-Past-the-Post has been widely used in Singapore and elsewhere, it does not make sense in this setting. This is because an individual may support more than one of the candidates to be President. This would certainly be likely in a situation where all candidates have been screened for suitability. As such, first-past-the-post is the wrong tool for measuring the mandate of the people.

Enter Approval Voting. (Which I've written about previously. [1] [2]) Approval Voting is a system where voters indicate all the candidates that they would support for a position. That is to say each candidate is rated with either "Approve" or "Do Not Approve". The candidate with the highest number of approvals wins the election. Based on this description alone, one might conclude that Approval Voting:

(i) is straightforward and comprehensible, (ii) is simple to implement given our present electoral practices, (iii) removes (or at least greatly reduces) personal dilemmas of choosing between two or more favored candidates, and (iv) directly measures mandate of people.

A further minor feature is that Approval Voting may increase the percentage of valid votes. This is because a voter may approve of all or none of the candidates available, reducing the incentive to destroy one's vote. In addition, Approval Voting has good theoretical properties, which the interested reader may look up. The property of "truthfulness", in particular, is described in the Annex below.

Approval Voting is a good voting system and should receive consideration for subsequent elections. In parliamentary elections, it would mean that multiple opposition parties will be able to contest in a constituency without fear of splitting the opposition vote. But foremost should be the fact that Approval Voting directly measures the mandate of the people.

Approval Voting is already in used by bodies such as the Mathematical Association of America and the Institute for Operations Research and the Management Sciences. In the selection of the Secretary-General of the United Nations, rounds of preliminary approval polling are used to build consensus before a formal vote is held in the Security Council.

As such, there is a strong argument for exploring Approval Voting for use in future elections. More generally, it makes sense to form a committee to re-examine our voting system and make a recommendation on whether or not it should be changed, and if so, to what system. Such a committee might contain senior public servants, representatives from major political parties and academics who are familiar with the properties of various voting systems.

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Annex on the "Truthfulness" of Approval Voting:

Under a reasonable model of preferences, it can be mathematically proven that Approval Voting ensures voters need not misrepresent their preferences on the ballot to pursue an election outcome they prefer. We say that "truthful voting" is an optimal response for each voting individual.

Specifically, the model of preferences referred to is one where individuals either support or do not support each candidate. Each candidate in the "Approved" category are equally supported, and all candidates that are in the "Not Approved" category are equally un-supported. This is known in the literature as "dichotomous preferences". This is a realistic model of the "voter thinks candidate is suitable for position" and "voter thinks candidate is not suitable for position" dichotomy.

What I mean by "misrepresenting preferences" is best illustrated by an example from the USA. In the 2000 US Presidential Elections (using First-Past-the-Post), the front-runners were Al Gore (Democratic Party), George Bush (Republican Party) and Ralph Nader (Green Party). The final outcome was that Nader got 2.74% of the popular vote and Bush (47.87% of the popular vote) won by a razor thin margin only through the electoral college versus Gore's 48.38% of the popular vote (yes, Gore had more votes). If one were a Green Party supporter, one would typically favor the Democrat platform far over the Republican platform. Thus though one would prefer Nader to Gore to Bush in that order, since the election results in just one winner, it would be strategically sensible to vote Gore even though one preferred Nader. Such misrepresentations of preferences, which can occur in first-past-the-post elections with more than two candidates, represents a distortion in the electoral poll which may have unpredictable results.

While the assumed model of preferences which generates "truthful voting" is wrong, as all models are (to any given voter, not all Tans are equal), approve/do not approve is a reasonable approximation. At the very worst, when inter-candidate preference effects are strong in the extreme, Approval Voting produces exactly the same result as First-Past-the-Post, with each voter approving only their most preferred candidate.

As a matter of personal preference, I believe it is sensible to encourage "truthful", "non-strategic voting" among voters. This is very much akin to asking someone to talk straight and direct.

Majority Party in Parliament v.s. President: Does an Appropriate Forum Exist?

In an interview with The New Paper on August 8, Law Minster K. Shanmugam said:

"If the Head of State challenges the government, he will be acting unconstitutionally. In the UK, the last time that was done was in 1642 by (King) Charles I. The King lost both his life and his throne for his troubles. Nowadays, of course, we deal with these issues through the courts."

Whether or not to interpret this as a threat directed at the non-government-endorsed Tans is not as important as the issue of what the appropriate forum is for the resolution of conflicts between the majority party in Parliament and the Elected President.

In public procurement, the accepted policy is that a procurement officer must recuse himself from participating in a decision of what to purchase if he/she has some personal interest in the outcome.

I believe that a similar issue may apply to the courts. While the Constitution does make provisions to promote the independence of the judiciary, the fact of the matter is that judicial appointees can be selected and confirmed based on considerations such as loyalty. While it is not obvious whether or not this is the case in Singapore, this can be seen clearly in other countries. In the United States of America, Supreme Court judges are picked and confirmed on this very basis, with a huge political focus on where a potential appointee stands on issues such as abortion.

It is from this that the question of what the right forum is for the resolution of conflicts between the majority party in Parliament and the Elected President arises. I have no good answer to this, at present, but it bears contemplation.

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Boiler Plate: With reference to the second to last paragraph above, my remarks should be interpreted as carrying the following meaning which is consistent with the text. That is, that there is no contention that the judiciary is not independent, but rather that it cannot be concluded a priori/tautologically that it is indeed independent.

Afternote: Towards the end of the above note, I considered a spiel on how this would be an interesting problem in "human systems engineering", which I'm rather interested in. (i.e.: matters relating to incentives, moral hazard, strategic behavior, etc. within institutions.)

The choice of an institutional format may result in consequences that are unspecified in the terms of reference, such as the "shadow of the previous government" effect. I feel that in so far as such effects are known, they should be articulated in an appropriate attachment to ensure consistency in subsequent legal interpretations.

Protect Singapore

In the title, the verb "protect" is used in its imperative form, as an instruction to act in a way that protects the nation of Singapore from its enemies from within and without. This is what I would say to the Elected President.

He would be a great communicator who would validate good government policies as an independent assessor, doing this based on his own knowledge and the SECRET/TOP SECRET briefs shared by the various government bodies.

The one who I vote for would be the one who has the strength of character to stand up for the present and future interests of Singaporeans. He would point out flawed policies that promote limited interests (e.g.: banking families) while drawing on the resources of the many, as well as those that are based on flawed logic (e.g.: the discredited trickle down economics). He would ensure that only individuals whose loyalty is to Singapore, as a whole, are appointed to key public service positions.

In the course of working for present and future Singapore, he would not fear the wrath of a displeased government wielding all the instruments at its disposal to get its way.

I say to him, above all, Protect Singapore.

Cybersecurity: Government and Openness

Cybercrime is presently a billion dollar industry, reports Bloomberg Businessweek (in a July 2011 issue). Criminals are making huge amounts of money pilfering and reselling sensitive and commercially valuable information to unscrupulous businesses and criminal syndicates running other rackets.

Restricting our attention to commercially valuable information, which is mostly time sensitive (e.g.: transport network development plans), we note that unscrupulous business can purchase an information advantage by pilfering completed plans before they are made public or implemented. In some industries, this advantage can be worth hundreds of millions, with real estate being the exemplar of this class.

The pilfering of data is nothing more than a new frontier in illegally/unethically obtaining government secrets for private profit. Attempts to maintain secrecy result in incentives for businesses to act in an immoral/criminal manner. The driving imperative for businesses is survival through profitability. Conceding the ill-gotten information advantage to others leads to one losing the fight for competitive advantage and hence, survival.

While companies have no choice but to secure their cyber assets more comprehensively, governments can do that or be more open with information that they would release eventually anyway (within the year, for example). (At least, information whose early release would not cause social/economic/political problems.)

With more information being made available in a timely fashion, markets would be more efficient and social welfare would increase. Determined entities will get their hands on information, and in that event, only the unscrupulous will profit. Openess would give the honest a fair share of the economic pie. Not much else has to be said on that count.

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In closing, let me offer up the following scenarios:

Scenario 1:

1. T - x: Study Begins


2. T: Announce Conclusion


3. T + y: Implementation

Scenario 2:

1. T - x: Study Begins


2. T - x: Announce study


3. T: Announce Conclusion


4. T + y: Implementation

Scenario 3:

1. T - x - y: Receive private lobby


2. T - x: Study Begins


3. T - x: Announce study


4. T: Announce Conclusion


5. T + z: Implementation

The announcement of each study serves to prime the public to the release of information, allowing time for the private examination of possible outcomes and comtemplation on how to best react to them.

Trust Me, I'm with the Government

A thread started on HardwareZone yesterday is titled "SAF firework Projectile narrowly missed 20 yrs old girl at One Fullerton - NDP act blur at first", making reference to an event reported by the Straits Times as "Projectile lands on diner's plate during fireworks display" (ST, 31 Jul 2011). What happened was, during the NDP preview show, a hot, grey, 10cm-long object with some black powdery substance inside landed on a young lady's dinner plate at One Fullerton. A spokesman for the organizing committee denied that the grey projectile was part of the NDP fireworks display when alerted to the incident by the Straits Times. The following day, the Straits Times followed up with "Projectile that landed on plate was from NDP" (ST, 1 Aug 2011).

'We were having dinner and enjoying the fireworks when suddenly, a projectile fell from the sky and bounced off my daughter's plate,' said Mr Sia, 52.

Noting that ballistics were involved, death or serious injury would have been possible. The Sia family should be thanking their guardian angel, he really earned his pay that evening.

Was this simply a case of the classic you think, I thought, who confirm? Or perhaps a more serious (but poor) attempt at deceit on the part of the spokesman. Trust Me, I'm with the Government?

This comes on the heels of the deferment-cum-posting semi-scandal of a certain son of a certain DPM. A press statement by then Second Minister for Defence Ng Eng Hen stated that permission had been given for exceptional talent:

Straits Times, 13 February 2009

IN THE last 10 years, fewer than 10 Singaporean sportsmen and musicians were given permission to defer their full-time national service (NS).

These deferments are often sought when these young men want to pursue their studies, training or represent Singapore in international competitions.

However, rarely is approval given because it is vital to uphold the national service system’s strength and integrity by making it universal and fair to all Singaporeans, said Second Minister for Defence Ng Eng Hen yesterday.

Also, the national service system provides for Singapore’s national security and survival, he noted.

These factors form the basis of the three principles underlying national service, said Dr Ng, adding that permission had been given for exceptional talent. He was replying to Nominated MP Eunice Olsen, who wanted the Ministry of Defence to be more flexible in giving deferments.

She referred to a Straits Times report last December about Mr Keegan Ng. The 20-year-old had won the Marion S. Gray Outstanding Musician Award at age 11.

He wanted to study piano at the Eastman School of Music in New York, but was told he had to complete his national service first. He has since given up his plan and is now deciding whether to study accountancy or business administration.

...

Save his blood ties to a powerful politician, Patrick Tan was as far from exceptional then as he is now. A look at his research interests and publications reveals some important but hardly ground breaking work as well as a lot of work of the typical "minor extensions of existing work" type. (This important work I'm pointing to is his group's current work on mining DNA microarray data to improve treatment methods for breast cancer.) His current academic record is good, but hardly outstanding. His potential for research after his Bachelor of Arts degree and before his PhD was not clear either. Why was he rated to be exceptional talent? If no favouritism was shown, then logically it would then be a matter of (intentional or unintentional) gross negligence through allowing an incompetent (in the technical sense of the term) assessor to rate Patrick Tan's potential.

Furthermore, on the matter of his posting, a spokesperson for MINDEF told The Straits Times that Patrick Tan's posting as a "defence medical scientist" was done "according to vocational guidelines". This is doubtful as there does not seem to be such a vocation. If there were, it'd be a career track with that vocation name. (I'd appreciate it if someone would point me to publicly available information on this "vocation" if it exists. I just can't find it. It's like WMD in Iraq all over again, I can't prove that no such information exists.)

I'm disappointed. These are no S$12M SLA scandal, but they do not add to the credibility of the public service in a political climate where it is most needed. Many public servants manage their dealings with the public with integrity (though with a bit of fear of sticking their necks out). But now that "Trust Me, I'm with the Government" is not going to cut it, life for most public servants may get more difficult.