Moving to

I'm moving to Mostly.

I plan to use that site as a "self-marketing website" of sorts and to manage content in a way that I would otherwise not be able to do on blogger alone.

This blog will stay, ostensibly for more provisional ideas prior to refinement. I'll be gradually moving content (I still like) over to the other website. =)

Monday, May 7, 2012

The Implications of the Ageing Population on the Economy: An Observation

It would appear that the impending population shift might be the driving force pushing the economy towards a more knowledge intensive economy where experience and know-how command a premium, and old can truly be gold. It would necessitate a culture of continuous learning and would be a drastic shift, but it would suit the ageing demographic and lighten the dependency load.

Now, the government knew about the impending demographic shift for a very long time. It only recently (within the last decade) starting talking about it. My question is, why was the vaunted foresight not exercised to gradually nudge the economy in that direction? Why are the economic incentives of policy makers still aligned with chasing labour supply-led growth? To paint them in a better light, is a bad system making otherwise good people behave badly?

Wednesday, May 2, 2012

A "New" Paradigm for Rental

Much has been said about how ballooning rentals for business premises strangles businesses and curtails real economic growth. We could ask for lower rentals, but should rentals be lowered, spaces would then be under-priced and business owners would reap windfalls instead, leading to disgruntled landlords.

I'd like to briefly talk about a "new" paradigm for rental. The prohibition against usury in Islam has led to the creation of a set of investment principles called "Islamic banking". In Islamic banking, the lender also takes equity in the venture that money is being loaned out for. In modern parlance, we might say that borrower and lender are now "in it together", and the lender now has the incentive to provide support to the borrower to help the borrower to succeed.

Rentals can be formulated in a similar way. Rentals to be paid might be a ("low") flat rental rate with additional profit sharing. That way tenants need not fear poor business as the rental to be paid corresponds to how much revenue is collected. In addition, the owner of a building becomes more responsive to the needs of tenants and does not have to wait till the tenant's tenure is over to jack up rents.

How profit sharing takes place is an important detail. One possibility is for payment support to be provided by the landlord (credit card accounts, cash registers, etc.) and revenues to be recorded. This is not at all onerous for the owner of a building, and can make for stronger bargaining power with banks for the terms of payment services. (Ok, I'm aware that even the aggregation of all Capitaland malls is unlikely to make Visa or Mastercard budge.) Paranoid landlords can also have cameras installed watching the cash boxes to record possible cheating on the part of tenants. In any event, financial risk is reduced for both tenant and landlord (though admittedly more for the tenant). Furthermore, under such a system, landlords might obtain valuable information about consumption patterns that will certainly come in handy when, say, determining the tenant mix of a new mall.

On a more philosophical note, it may be time for the rentier capitalist economy of Singapore to transform into one where renter and borrower are in it together.

(Those familiar with the econo-operations management literature, might see this as a form of supply chain coordination that seeks to ameliorate the effects of "double marginalization" that leads to supply chain inefficiency.)

On "Economic Flexibility"

Being pinned down is no fun. It can be tremendously suffocating knowing that you are trapped and there is no way out. This is really the situation that many Singaporeans find themselves in. Young Singaporeans find themselves in low income jobs (as benchmarked to comparable work overseas). The necessity of a roof over their heads leads into expensive mortgages for houses whose title deeds their names are not on. It is a rut. A sad, sad rut.

The financial burden often deals a death blow to any enterprise that would entail risk. Aspirations are killed and with them, the possibility of a stronger, more vibrant, more productive economy. This may seem to be quite a logical leap, but it most assuredly does follow.

We are in need of new enterprises that generate real-value to rejuvenate our economy. The Singapore government knows this and is already gambling on what might generate, in public service lingo, the next S-curve. These businesses we need are certainly not the “safe” businesses that exploit the socio-politico-economic system to extract rents (or isomorphically, protection money). The desirable businesses will create goods and services that add-value to the lives of people or facilitate the conduct of people’s lives or businesses. Barring the most brilliant insights into consumer needs, almost all value-adding businesses will carry considerable financial risk as they will have to be operational before they can be revenue generating. The founders will have to raise capital by debt or (in the fortunate but rarer cases) issuing equity while running the risk of failure.

Many young people leave school with a different perspective on how things might be done. They have learnt about possibly new ways of doing things in school and after a year or two of hands-on work, they are ready to combine the updated perspective from the academy with their knowledge of current practices into a business. Unfortunately, the vicissitudes of the Singapore system catch up with them. Already a few hundred thousand in debt after paying for the lease of a HDB flat, the capacity to take on the additional risks of starting a business is lost.

What I hope for Singaporeans is Economic Flexibility. It is being released from the economic coercion of debt and financial risk and being able to pursue experiences and/or enterprises. While there is something primordially irreducible in start-up costs for businesses, we can do something about the financial burden that young Singaporeans are forced to shoulder. Possible angles of attack for this problem, which might yield huge dividends, are the cost of housing and the financial outcomes associated with the risk of medical disaster.

The SDP has published a proposal for a national healthcare insurance system and it looks good. In fact, I’m told that a number of doctors thanked the authors of the proposal for bringing up that important issue. Should that proposal or a variant of it be implemented, perhaps 90% of Singaporeans will have a substantial fraction of the financial risk associated with medical issues reduced.

From the housing angle, the first question to be asked is whether public housing has to cost so much. It turns out that construction costs are not as outrageous as HDB flat prices are. This is because flat prices consist of the construction cost, cost of overheads, and the cost of land. Based on the fact that flat prices have essentially doubled since 2005, while construction costs cannot be said to have increased by much, it then follows that land costs, which reflect market prices, must make up a large fraction of HDB flat prices. I’ve written about how we can create a public housing system that better meets the needs of Singaporeans without destabilizing the present housing market. (Tentatively, the reader may ignore the pricing recommendation. I've had a lot of push-back from people on the matter of pricing with auctions so it may detract from the point I'm trying to make here. The auction is for allocative efficiency and represents pure consumption of households. The article may be read as if a fixed price were recommended.) I’ve also written about how land pricing can be done on a rational basis which will enable shorter lease (hence, cheaper) flats to become attractive (LINK). In a nutshell, it is possible to quickly reduce the financial burden associated with housing costs without destabilizing the housing market.

Dealing with both healthcare and housing would certainly unshackle Singaporeans who will then be free to venture into business, invest, or pursue experiences. Economic flexibility is not just about money, it is about having flexibility in living life. This is a compelling vision for the future and I hope that we, as a nation, can get there.