Convex Set

On the Terms of Reference for the Corrupt Practices Investigation Bureau

2012-01-29T00:55:00.003+08:00

A quick thought: If I were the Prime Minister, I would, against partisan self-interest, boot the Corrupt Practices Investigation Bureau (CPIB) out of the Prime Minister's Office (PMO) and restructure it.

At the highest level, the CPIB should be headed by a group of equals. If any member of that group wants to launch an investigation, the investigation will be launched. (Of course, there should be rules governing how these investigations might be conducted.) Now the question is how to appoint these individuals and their tenure.

Perhaps, each government might appoint up to 3 individuals, the President up to 1, and the Attorney General up to 1. These individuals would serve up to the dissolution of the government after the present one. That is to say, they may be there for up to two Parliamentary terms. (This is to prevent a corrupt government from...)

Taking this further, the CPIB might be split up into two independent organizations (which can investigate each other).

But I'm not the Prime Minister, and I'm not in the Cabinet, and I'm not in Parliament, and I didn't even bother to run. So my initial statement looks rather vacuous in this light. Still, I would support any Prime Minister with the integrity to properly institutionalize anti-corruption in the government.

Implementing Proportional Representation within the GRC System

2012-01-28T22:26:00.007+08:00

While it may be popular to support the existence of GRCs, there are administrative arguments for the grouping of constituencies into GRCs in Singapore. However, the current implementation of the administrative grouping is poor. Parliamentary Elections for GRC seats are akin to a high stakes game where large fractions constituents of constituents will be disenfranchised. (e.g.: in a 55% - 45% result, 45% of the constituents are not represented by the team they voted for.)

Now, unless candidates from political parties are of such atrociously low quality as to be unable to work together with each other, there is a strong case for the use of Proportional Representation in Singapore. Having representatives from various political parties ensure that each constituents can be represented by the party they believe in (if that party has sufficient support for at least one representative to enter parliament).

Who Gets How Many Seats

In a Proportional Representation system for GRCs, voters vote for parties. There are various variants of Proportional Representation, but we shall adopt one where each party selects which of its candidates take the seats It wins. This variant is selected to address the legacy of race in Singapore politics. But before getting to that, an important aspect of implementing Proportional Representation should be dealt with.

The chief issue with Proportional Representation where there are small numbers of seats (less than 7, for instance) is how to allocate seats to parties in response to the realized vote-share realized by the participating parties. In principle, the number of seats each party wins in a GRC should be the fraction of votes won multiplied by the total number of seats available in that GRC. In practice, however, these numbers are never prefect whole numbers. Thus, it is important to deal with this matter in as fair a manner as possible.

This means that the objective is to use a rule of seat allocation that, in all cases, under-represents as few voters as possible, and over-represents as few voters as possible.

To calculate the level of over/under-representation, take the fraction of allocated seats and divide it by the vote-share of the relevant party. Let that number be γ. If that γ is greater than 1, then the party is over-represented by (γ-1)×100%. If that γ is less than 1, then the party is under-represented by (1-γ)×100%. If γ is exactly 1, it would be sufficient cause to "go buy 4D".

Going back to the example of the 55% - 45% result, if there were only a single seat (or the winning party took all seats), 55% of the constituents would be 81% over-represented and the remaining 45% would be unrepresented (infinitely under-represented/disenfranchised). In the case where there are two seats and one went to each party, the 55% would be 9% under-represented and the 45% would be 11% over-represented. This is a much better result. Now, in the case where there are three seats and 2 went to the party with a 55% vote-share and 1 went to the other party, the 55% would be 21% over-represented and the 45% would be 26% under-represented. Flipping this around, in the case where there are three seats and 1 went to the party with a 55% vote-share and 2 went to the other party, the 55% would be 39% under-represented and the 45% would be 48% over-represented.

Now, I would like to propose a truly optimal rule, so like many academics, I will shift the goal posts slightly. Philosophically, we might say that each constituent is allocated a representative holding a seat, and each representative in a GRC with K seats may be allocated to at most 1/K of all constituents. It is clear that almost always, even in the best case, some constituents will be allocated to a representative whose party he/she did not vote for. Now, we would like the number of such consituents to be as small as possible. With such an objective, it is easy to propose an optimal rule.

Now, suppose the vote share of each party i is given by v(i) and the total number of seats is N. Then the number of seats that party should get (in a world where seats are infinitely dividable) is f(i)=v(i)×N. Since this is not to be, each seat is to be taken by a single representative from some party. Now, party i is initially allocated a number of seats equal to f(i) rounded down. The remaining seats are allocated in order of how close each f(i) is to "the smallest whole number greater than f(i)" (a.k.a.: f(i) rounded up if f(i) is not a whole number, and f(i)+1 if f(i) is a whole number).

Using this rule, it is obvious that as few as possible voters are left unhappy ("allocated to a representative from a party they did not vote for"). This is because we made "unallocated" groups of voters "happy" in order of size. So the left over ("unhappy") groups are, thus, the smallest ones.

Before dealing with another important issue, here is a worked example. The vote share of three parties are 25%-45%-30% in a 6 seat GRC. This means 1.5-2.7-1.8 fractional seats. So the initial allocation is 1-2-1 seats with 2 balance seats. Now, 1.5 is 0.5 less than 2, 2.7 is 0.3 less than 3, and 1.8 is 0.2 less than 2. So, the third and then the second party are allocated an additional seat each, resulting in a 1-3-2 seat allocation. This means that (1.5-1)/6=0.5/6=8.33% of the electorate are left "unhappy". In a majority takes all system, 55% would be left "unhappy".

A Legacy Issue: Dealing with the Race

Now, race is a legacy issue that Singaporeans have to deal with. The ethnic integration policy that the PAP government implemented in 1989 to prevent the formation of racial enclaves led to the concern that minorities would be disenfranchised as they would not have the critical mass to vote minority candidates into parliament in a first-past-the-post voting system. While it is my hope that, eventually, race becomes a non-issue, I felt it necessary to have a reasonable answer to the question of how to deal with it.

Now, disenfranchisement is not a purely philosophical issue, and to resolve it in a Proportional Representation system one would have to argue that representation at a national-level is a sign of enfranchisement, and the lack absence of minority candidates at a local-level does not affect the level of aid that minorities receive. I will not bother to make the argument for the latter as other commentators have already made it for me, and the former is self-evident.

Now, Singapore's resident population is 74% Chinese. It would be reasonable, then to require that political parties to, of all the candidates they send to parliament over all GRCs, send at least one minority candidate for each four Chinese beyond the first four Chinese candidates. Arithmetically speaking, if the number of candidates that a party sends to parliament is greater than four, the ratio of Chinese candidates minus 4 to minority candidates sent to parliament should not be greater than 4. (e.g.: 4C, 3C+3M, 8C+1M are ok; 5C, 9C+1M are not ok.)

The above system is not perfect. It will fail in the event that the political landscape is so fragmented that small parties with small vote shares all put non-minority candidates into parliament. Thankfully, the political landscape in Singapore is far from being like that (so we can cross the bridge when we get there).

A more major problem would occur when the best candidates of political parties are non-minorities. As such, these candidates would effectively be the ones who carry the ground. Now, if this system results in any of the top candidates not being sent to parliament, then in a sense, voters would have been cheated. On the flip side, such a system would spur all parties to cultivate high-quality minority candidates, ensuring effective representation for minorities in the long run.

Conclusion?

I've sketched a practical means for implementing Proportional Representation in Singapore. In doing so, I have implicitly argued that the basis for using such a system would improve representation and reduce the extent of disenfranchisement. That is to say, it would further the democratization of Singapore.

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Afternote: I'm also an advocate for Approval Voting, which can be said to properly measure "the mandate of the people". (Refer to this past post for details.) I would like to think of a way to integrate Approval Voting with Proportional Representation. Unfortunately, the two obvious ways of doing this (interpreting approvals as full votes and interpreting approvals as fractional votes) are less than satisfactory.

The Government as Friend to the People (An Essay from Long Ago)

2012-01-28T00:20:00.003+08:00

I decided to re-read the contribution that I wrote for the 35^th ISC Symposium in 2005. (Incidentally, a fellow PSC scholar from my "batch" won the top prize/one of the top prizes for his contribution to the 2006 symposium.) That was my first exposure to, not the "Swiss standard of living", but Swiss prices. I also looked at some of my old blog posts. Amusingly, it turns out that I my beliefs in social justice have not changed very much.

In any event, I'd like to share that old essay. It is essentially an extended idealistic rant about how a government should relate to the people. (Notably, the flow could have been better.) My own views on this subject have not changed: the government should act with the good of the people as the ultimate objective...

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The Government as Friend to the People
Introduction
“Distrust of Politicians High” reads an online newspaper article dated 20 November 2004 [1]. There is arguably no more poignant outcry against this international phenomenon than a recent track and MTV by rap artist Eminem, “Mosh”. The lyrics say it all: “… no more blood for oil, we have our own battles to fight…” [2]¹ The decline in public trust is corollary to a growing number of governments being perceived not to be fulfilling their responsibilities — to govern in the interests of the people. This essay advances a view that governments should act in the manner of a true friend of the people, while seeking to discuss public policy in a realistic manner. To achieve this, an education centric policy will be advanced.

Consider the idea of friendship, sound conceptions of which are found in Aristotelian thought. Aristotle defines three possible forms of friendship: friendship based on pleasure, friendship based on utility, and the “perfected” friendship [1]. In Aristotelian thought, paramount importance is placed on telos — that for the sake of which something is done. In each of these classes of friendships, the purpose of all interactions is exactly the basis of the friendship. It is clear what the first two categories entail. As for the “perfected friendship”, interactions are characterized as being for the sake of the friend. Hence, in such a friendship, one acts not with a view that benefiting a friend is good for oneself, but rather with a view that benefiting a friend is good.

This essay suggests that governments should relate to the people in the sense of the perfected friendship — regulating and allocating resources for the sake of the people. This is not as easy as it sounds. In a manner of speaking, it is an attempt to benefit all parties involved — no mean feat. This essay would discuss various aspects of attempting to achieve this goal. I will then venture to propose a policy based on education as a means to this end. It is practical, though probably difficult to implement, but arguably within sight for a number of countries in the world today.

Governments Have To Make Choices
No theory of government can be divorced from economics, the allocation of state resources being a chief function of a government. It is useful to perceive the economy as a mapping from the set of “possible allocations of physical and human resources, and forms of economic regulation”, to the set of “possible outcomes”. In its duties, a government has to make choices, even in the unlikely event of perfect knowledge of all possible choices and outcomes. Unless viewed with a one track mind, there exists no magic formula best for a state.

A certain statement illustrates this point well: “Maximizing commodities is not the only measure of a decent living.” It should be noted that the aforementioned set of outcomes does not reflect only economic output, but rather various other so-called “performance indicators”; Social welfare, for instance. But there exists no basis for meaningful comparison between this and commodious aspect.

Hence, the role of the government is to choose within the perceived set of pareto-optimal options, to introduce vocabulary from multi-objective optimization. A pareto-optimal option means an option that is not dominated by any other, that is, there exists no other option with all aspects of output performing better than or equal to it, with at least one aspect performing strictly better.

Certain choices benefit certain groups more than others, or even at the expense of others. A one liner describing US President George W. Bush’s tax cuts reads “Rich gain, Poor lose, Trade-offs for the middle class.” — a poignant illustration of this, as well as singular focus on economic growth². In this essay, it is proposed that governments make choices based on the interests of all. This is difficult, but arguably possible as discussed below.

Conflicts of Interest
An apparent obstacle to the simultaneous promotion of the interests of all is the conflict of interest between the corporation and labor, with huge implications on technical progress and economic growth. I speak of the fact that certain actions require a given critical mass of motive strength to be performed. A single man may be able to master all workings and contingencies of operating a mill, but he is inadequate to the task of managing those of a large nuclear power plant. Without further elaboration, corporations are necessary for the maintenance of the modern economy.

For a corporation to not disintegrate, certain prerequisites have to be met, such as revenue requirements. These requirements are invariably related to the manner in which labor is reimbursed: the greater the reimbursement, the more stringent the requirements for maintaining the corporation. Furthermore, expansion of the corporation, and hence economic growth, has prerequisites more demanding than those for subsistence of the corporation.

If government imposes safety requirements, labor potentially benefits but not the corporate baseline. With corporate tax cuts, social spending falls, affecting labor indirectly. It may appear that the interests of the worker conflict with economic progress. Or is it? Consider an endeavor that increases the capabilities of labor. Corporate performance improves as does the capacity to reimburse. This is an effect of public spending on education. Depending on how well it is implemented, in spite of increased taxation to fund it, all parties involved could benefit.

Education and Technical Progress
Promoting education promotes technical progress. This is obvious, but requires elaboration. Technical progress is a product of “creativity”. The term “creativity” is a cultural anachronism. In what we understand as “creativity”, nothing new is truly created. Rather, it is the juxtaposition of existing objects, concepts and ideas into new ones. The development of inventions and theorems is a result of this process. The role of education is to introduce known objects, concepts and ideas, primarily so they may be utilized, and secondarily that they may be improved in future. In other words, education aims primarily to increase competence, and in an auxiliary capacity, to promote technical progress.

Technical progress increases efficiency, but often causes unemployment, which may be circumvented by suitable public spending for the creation of jobs — opportunities to put education to use, to be addressed next.

Self-cultivation, Opportunities and Meritocracy
A major problem in modern day society is the loss of hope among parts of the population. This stems from the apparent lack of prospects for advancement, and hence, apparently nothing to work towards, in turn leading to a lack of willingness to pursue self-cultivation. A leading symptom of this is the “Don’t ask me why; I only work here.” mentality. Promoting education is pointless if people perceive that they derive no benefit from heightened capabilities. By extension, there would be apparently no point in any exertion to the end of education or self-cultivation. Hence, it is necessary to promote an environment where there exist opportunities for advancement, rewarding actions benefiting society.

All else being equal, people pursue greater rewards in preference to lesser ones, and it is logical to encourage higher levels of competence. It follows that rewards should be bestowed proportional to levels of competency. This is the principle of meritocracy. But employing a principle is not sufficient, it is necessary to provide the actual opportunities or promote an environment in which these may arise. The principle of meritocracy gives a basis for hope. Opportunities make it real.

What exactly constitutes an opportunity? At an abstract level, it is the possibility to employ oneself in return for a desired reward. On a practical level, this would mainly refer to jobs, for the most part, and outlets for the exhibition of ability. Drawing on historical evidence, in the USA during the 1940s and 50s, well implemented public spending in the avenue of job creation was able to cancel the effects of recession and bring about prosperity. This suggests that public spending on the generation of opportunities brings tangible reward and possibly a high return on investment. These need not be jobs per se; facilitation of the recognition of educational qualifications is a benign improvement to the economic environment with related positive effects.

Opportunities are not handouts. Rewards have to be worked for and it becomes a matter of personal responsibility to cultivate oneself to achieve these rewards. One who wishes to be employed as a scientist has to accumulate and synthesize knowledge; the aspiring athlete must train his mind and body; one who does not desire to pursue anything need not do so.

It would appear that such a manner of juxtaposing the principle of meritocracy and promoting opportunities equates to empowering people to live their lives as they will, depending on how they wish to interact with society. In the presence of opportunities, to emphasize the point, this empowerment acquires a reality as various courses in life become truly open to people. This is the gift of liberty.

Responsibility in Personal Life
The grant of responsibility is a sign of regard. Previously, meritocracy and opportunities were discussed as being functionally equivalent to placing the responsibility of selection and pursuit of professional goals in the hands of people, where it arguably belongs. This section discusses the return of responsibility to people in their personal lives.

As mentioned in the introduction, in recent years, the government has had an increasingly greater hand in dictating what actions are permissible even when they affect mainly the person performing the action. For example, the consumption of selected drugs without prescription has been outlawed, and gambling is often regulated. A notable opinion is that this, sometimes called “the criminalization of victimless acts”, serves as a tool for the control of “dangerous classes”. Whatever form they take, these restrictions represent a denial that the individual has the capacity to act responsibly; tantamount to saying, “You are incapable of choosing wisely, I shall choose for you.” The government, I believe, should respect the people.

To respect the people, the government has to deregulate the personal lives of the governed. However, sudden deregulation could lead to individuals harming themselves, which, on the outset was what regulation was put in place to prevent. Given the state of affairs today, immediate deregulation is not a practical option. One looking back to the Fall of Man may wonder how much of that fruit of the Knowledge of Good and Evil presently remains within the descendents of Adam and Eve. It is knowledge that is required.

To be able to act responsibly, people require knowledge of what possible choices they may make, and their respective outcomes. Given a comprehensive scheme promoting education, people would be able to choose in an informed fashion. Naturally, deregulation of the lives of the governed should proceed in tandem with the promotion of education.

On the whole, I believe this to be the exemplar of the government acting as a friend of the people. “You have the following choices, these are their consequences. Choose what you will.” This statement is characterized by respect tempered by concern — the mark of a true friend.

Summary and Conclusion
The ideal outcome of such a policy is a people that on one hand is a skilled workforce, and on the other, also a collection of individuals taking interest in self-cultivation and responsibility in their lives. This is a scenario congenial to the development of both economy and individual, in general beneficial to all and arguably worked towards for the sake of all.

The maintenance of this condition, I am inclined to believe, is predicated on sustained public policy promoting education and a sufficient range and volume of opportunities. Personally, I am inclined to believe that the humanistic educational reforms³ of Wilhelm von Humboldt in Germany in 1809 were the root cause of the rise of Germany as a scientific and industrial powerhouse [4].

Although, the comparatively short term gains obtained by promoting the interests of corporations at the expense of the people may seem attractive to a party trying to stay in power or please its corporate backers⁴, it remains that a choice has to be made. And the true friend will act for his friend, for the sake of his friend.

Excerpts from a translation of Wilhelm von Humboldt’s Limits of State Action were read by Noam Chomsky at a seminar in 1970, of which one aptly describes the ideal product of such a policy. “… artists, men who love their labor for its own sake, improve it by their own plastic genius and inventive skill, and thereby cultivate their intellect, ennoble their character and exalt and refine their pleasures.” [3]

References
[1] Daniel Robinson, “Lecture 13: Aristotle on Friendship” in The Giants of Philosophy. The Teaching Company. (Audio Lecture)
[2] Eminem, “Mosh”. Music Television. (Music Video)
[3] Noam Chomsky, “On Government in the Future”. Sound Seminar, Recorded at the Poetry Centre of the New York YM/YWHA on 16 February 1970.
[4] Richard Miniter, “Wilhelm von Humboldt: German Classical Liberal”. Accessed on 11 December 2004.
[5] Straits Times Interactive. “Distrust of Politicians High Globally”. 20 November 2004. Singapore Press Holdings.

Note: Endnotes are included for interest only and are not part of the essay.
Also of interest: “In Praise of Idleness” by Bertrand Russell

Endnotes:
^{1 (back)} This endnote is best read after the essay.

Eminem denounces the “psychological warfare to trick us to think that we ain't loyal”. This appeal to the somewhat vacuous notion of “supporting our troops” is meaningless in the sense that any American taking an interest in America cannot be against that. Yet, that same person can be against waging a pre-emptive war. In a related issue, consider the “scientific methods of strike breaking”, where strikers fighting for better working conditions were demonized as being “against harmony” or “un-American” in massive propaganda campaigns.

This form of propaganda partially denies one moral freedom to choose. It is an even stronger affront to human moral freedom than regulation of one’s personal life. It amounts to deception, or at least deliberate misguidance. This very denial of moral freedom is denounced by moral philosopher Kant.

Returning to Eminem, in the same track, “Mosh”, he also advocates Americans taking responsibility to shape America’s future.

^{2 (back)} One may argue that the policy or deliberately increasing inequality had economic growth singly in mind. Evidence supporting the policy is most likely based on studies, such as "A Reassessment of the Relationship Between Inequality and Growth" by Kristin J. Forbes appearing in the September 2000 issue of “The American Economic Review". The author is a current member of the President’s Council if Economic Advisors and was appointed in May 2003. In that article, regression analysis was performed on a number of data sets, and it was found that “in the short and medium term, an increase in a country’s level of income inequality has a significant positive relationship with subsequent economic growth.” This conclusion was said to be “highly robust across samples, variable definitions, and model specifications.”

^{3 (back)} See reference [4] for a short introduction to the reforms of Wilhelm von Humboldt.

^{4 (back)} Noam Chomsky writes voluminously on the topic of corporate power and its effects. Among other things, he is also a strong advocate of collective responsibility. One is strongly encouraged to read him.

The Case for Government Transparency and Openess

2012-01-24T22:45:00.001+08:00

The recent CPIB probe of high-level Home Affairs officers (the SCDF commissioner and the CNB chief) [See: MHA's statement] has resulted much mockery of the idea of that good (high) pay keeps people honest and un-corrupt. That idea makes sense, but one must do the math, and the math is all about risk and reward. The smaller the risk of being caught and the larger the reward, the more likely someone is to be corrupt. At a high enough level, one would actually face a lower risk of being caught. This is also why a past Minister of National Development was investigated for accepting $1M in bribes (in 1981-1982 dollars) (he committed suicide before being charged).

This presents a strong case for government transparency. When decisions are made with sizeable economic consequences (such as urban development plans), such information should not be kept secret for too long. (For property development, that might mean 1 to 2 weeks; for financial information, that might mean immediate release.)

Without such transparency in place, the ones to benefit would be crooked corporate interests in corrupt public servants, and there is no reason why crooked parties and corrupt public servants should be the main beneficiaries of information of economic value.

Transparency would improve economic efficiency. Economic interests with the capacity to take advantage of this information would compete for the business that that information generates. This would mean higher capacity, lower prices for consumers, the pressure to innovate, and an virtuous cycle of positive economic outcomes.

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Postscript: To those who argue that we should trust "our own people", I am not convinced that we should rely on a large number of self-interested individuals to all be un-corrupt. There is bound to be some number who think they can get away, and a decent fraction of those who do. Instead, the system should guard against this through disincentives. I advocate strong institutions in almost all areas of government and business.

Preventing Floods in Your Garden

2012-01-22T23:49:00.005+08:00

A long time ago I wrote to the Straits Times Forum grumbling about (irresponsible/deceptive) subcontractors of property developers who leave all manner of building waste, discarded food containers, wires, and so on buried in the garden plot in landed homes. Furthermore, the garden soil would be low quality clay with a thin layer of top soil covering it. Last year, my dad bought a terraced house along Corporation Walk, and I took charge of the garden. That was when I discovered, first-hand, these shady practices. That is not the point, but it paints the backdrop for this post on small-scale flood prevention.

Clay soil is horrid for planting, digging and draining water. My garden flooded horridly when I first moved in. I did a bit of clay removal last year, which improved the situation, but there was still flooding, albeit acceptable. Today, inspired by the potentially visionary point made by Minister for MEWR Vivian Balakrishnan that a prolonged drought would be more worrying to him than flash floods, I have decided to exercise my mechanical engineering muscle for the first time in real life (fluid mechanics, in particular; I transitioned to being something of an engineer of data-driven decision support systems from my third year as an undergraduate, but still got my degree in mechanical engineering).

Over time, I noticed that one area of the garden drained well, while another was dismally horrid, ponding (*snigger* *snigger*) with even low levels of rainfall. So I decided to channel some of the water from the former area to the latter. Now, a pipe would clog, and I didn't have the material. As a result, I settled for a sand channel. Sand is rather porous and a channel of sand would behave like a pipe. Now, fluid flow through a porous material is governed by Darcy's Law, which basically says that the flow rate is proportional to the gradient of the channel. So I dug a channel with a small gradient, and filled it with sand and prunings (just because), then covering it with some soil.

Long story short, when it rained moderately to slightly heavily just a while back, there was no more flooding. Now, with a little more civil engineering expertise (and a hundred million dollars), I'm sure we can get flooding under control in the city area. All it takes is a suitable application of engineering principles.

Improving the Verification of Credentials for Foreign Professionals

2012-01-16T17:54:00.008+08:00

In view of the fact of endemic college application fraud in China and India (supported by a cottage industry of "Application Agencies"), it would not be surprising that application fraud from those countries would extend to the realm of work permit and Permanent Residency applications. In fact, it seems that the most distrustful of college applications from China turn out to be college professors who are themselves China nationals. (I put it down to it being likely that they have encountered the "Application Agencies" on their visits home.)

Perhaps higher verification standards should be used by the Singapore government for verifying the credentials of foreign professionals. The both applications for Permanent Residency and Employment Passes require documentary evidence of degrees and diplomas. This takes the form of originals which are viewed and returned. The high level of professionalism of the fraud industry would make it hard for ICA staff to detect fraud even with their training and experience.

Now, applications for postgraduate studies typically require original transcripts, either with the application or before an offer is made (scans are accepted as a preliminary in those cases). These transcripts are required to have been sent directly from the degree awarding institution to the assessing body at the applicant's own expense (typically less than SGD 20). This additional layer of security might reduce fraud. Or, it might turn out to be another iteration in the fraud arms race. Ultimately, I see a business opportunity for Chinese and Indian university registrars. (Which may end with fraud penetrating the university registrar, leading eventually to fraudulent grades, and finally a painful bursting of the fraud bubble.)

The future has always been bright for the street smart and amoral.

Reimagining the Kampung

2012-01-16T07:00:00.002+08:00

When I was an undergraduate, I stayed in on-campus housing. The place I stayed in was set up like a "large apartment" which comprised a corridor flanked by personal rooms with a shared kitchen and bathrooms. The set up resulted in a natural place for hanging out (the kitchen) and private places to retreat to when one happened to feel less sociable.

There is a sense in which the Kampungs of old, or at least my picture of them, were like that. The use of common facilities led to people from different familial units leaving their private spaces and gathering in common spaces to use these shared facilities. While waiting for these to become available or after using them, people would hang around to interact with each other.

Why does this not happen in HDB apartments, landed developments and just a bit in condominiums? To me it seems that there are too many steps to take. Locked doors. Distance. Socializing is not as easy, and opportunities are not so readily available due to more daily functions being performed with private as opposed to shared facilities.

In my undergraduate "home" on-campus, the main door to the "apartment" was secured by "transponder access" (horribly insecure, I know), so those of us staying inside were comfortable leaving our doors open and stroll out to the kitchen to see who was there. I would imagine that a similar process would take place in a Kampung where the village would be "secured" by the property of everyone knowing everyone else (thus, everyone knowing who did not belong and to be wary of them), so homes would be open and people would step out and look to see who was around in some "central plaza". The lack of private facilities would force people into a shared space to socialize. Social interaction, in turn, generates friendships, attachments and mutual assistance. This was what happened when I was an undergraduate too. (Well, there were one or two anti-social people who kept to themselves and we did not reach out to. Amusingly, there are always a few people who keep to themselves in every village.)

I think such a housing concept might work. Multiple families which are not necessarily related sharing a mega apartment with shared facilities. The fact that appliances like washing machines are not fully utilized implies that cost savings (earth savings) will be accrued. The generation of mutual assistance would create an additional social safety mechanism which could supplement public assistance schemes and not suffer from the same "awareness" problems.

There are, of course, (many) implementation issues, but this idea looks interesting and might be good to explore.

Towards a Ministerial Salary Scheme Designed for Inclusive Growth

2012-01-15T19:25:00.021+08:00

I would like to talk about developing KPIs that are robust to manipulation. Before beginning, I would like to apologize in advance that this article will be slightly technical. It has to be as KPIs have to be properly designed to be aligned with social objectives (such as "inclusive growth").

This alignment with social objectives has to be done with the maximizing behaviour of individual policy makers in mind. It is thus natural to begin with a discussion on how systems of KPIs are "gamed" by those who are the subject of measurement, since their pay-offs (salaries) are essentially (increasing) functions of the KPIs.

Following the discussion on how KPIs are manipulated, I will cover why KPI manipulation should be taken into account. Then, I will comment on the manipulability properties of the current salary scheme. Finally, principles by which robust KPIs may be designed will be discussed. In the annex, I will run through the process of creating a salary scheme aligned with the objective of encouraging "inclusive growth".

Preliminaries on KPI Manipulation

As a preliminary to what follows, it should be stated clearly that the process of manipulation of a system of KPIs is essentially one of performing optimization to maximize one's pay-off. (Here, the term optimization is used here in the sense of attempting to maximize some pay-off function over all possible decisions.) In practice, optimization is based on manipulating the (policy) levers that one has control over.

Having spoken briefly about manipulation, let us consider "growth". One might summarize all forms of economic and technological engineering as effort directed at two objectives that may be concurrent: (i) improving efficiency to reach the efficiency frontier (where it is possible for every aspect to be improved without making any aspect perform more poorly; "transitioning to a better indifference curve"), and (ii) making the trade-offs that maximize one's benefit. Of the two, only (i) may be thought of as true growth and happens to be the more challenging objective, while (ii) is the task of selecting, from economically efficient alternatives, the one most beneficial to oneself.

Now, we are concerned about policy makers trading something that benefits them less for something that benefits them more. In other words, KPI manipulation. When a policy maker does that to increase his own pay-off, winners and losers are created. In simple economic (game theoretic) analysis (which assumes self-interested behaviour), the pay-offs for those winners and losers do not matter to the policy maker, who is only interested in his own pay-off.

Why Bother?

We cannot be so naive as to assume that intelligent people will not optimize for their own benefit. This will happen, and our policy makers are, at the very least, not stupid. As such, incentives have to be set up such that the maximizing behaviour of policy makers are aligned with social objectives.

To be cynical about the present government, a peg to the salaries top earners generates the incentive to implement precisely two types of policies: (i) those that encourage higher salaries for top earners and (ii) those which trade the welfare of non-top earners for higher salaries at the top. The only defence against this behaviour would be "human goodness" or "the threat of non-election". Game theory and common sense would tell us that appeals to the former are nothing but cheap talk. This configuration of incentives is undesirable. Incentives should be in place to directly support "inclusive growth" (or whatever policy objective is articulated) rather than leaving the objective out of the incentive system (which makes sense to office holders only if it is there for public consumption and is not, in fact, the true objective).

The current and proposed ministerial salary systems are textbook examples of incentive systems which are not aligned with the stated policy objective ("inclusive growth"). Subsequently, I will do a cursory analysis of the current ministerial salary scheme, which I will abbreviate as MSS.

An Analysis of the Current Salary Scheme

One important observation that can be made about the MSS is that some aspects of the growth objective are weighed much more heavily than others. In the MSS case, the ratio of the weight given to the salaries of top earners to those of low-income workers is extreme. Without bonuses (which is based on GDP growth), this ratio is infinity (i.e.: the income of low-income workers do not matter at all). Thus, the underlying optimization problem might be framed (polemically) as such:

maximize

over

subject to

An over-simplified, but concrete, (and still deliberately polemical) version of this might look like:

maximize

over

where

subject to

which has optimal solution [EMS, EMSSC] = [(γ-βλ)/α, λ]. This solution informs us that (i) only the bare minimum will be done to "ensure re-election" and (ii) all other economic capacity will be directed towards boosting the salaries of top earners.

It should be recognized that this is a simple model designed to be polemical. However, it highlights the fact that when (intelligent) policy makers optimize for their own benefit, it can negatively affect general welfare unless their incentives are aligned with the general good.

Principles of Design for a KPI System/Salary Scheme

"Inclusive growth" is a policy objective of the "general welfare" type. The other being of the "narrow quantum leap" variety such as "putting an man on the moon by the end of the 1960s". The former entails spreading out resources and the latter entails focusing them. Presently, I'd like to make suggestions of the kind of ingredients that might go into KPIs/salary formulas for policy objectives of the "general welfare" variety.

To ensure that no one is left behind, it is important to ensure that the KPIs do not make it profitable to lower the welfare of one group in favour of another. For instance, with a KPI such as C₁ [Factor A] + C₂ [Factor B], and a technological/economic aspect that allows trading of 1 unit of [Factor A] for 2 units of [Factor B] using 1 unit of "policy effort", unless the coefficient C₁ is close enough to 2 C₂, trade offs will be made that lower one of the factors to its minimum level. (For this example, if C₁ - 2C₂ exceeds 1, [Factor A] will be increased and [Factor B] decreased; and if 2C₂ - C₁ exceeds 1, [Factor B] will be increased and [Factor A] decreased. Also, for the more mathematically inclined, this example clearly brings out how "linear" KPIs without feasibility conditions/veto criteria can be dangerous.)

Trade offs are the essential mechanism by which KPIs are manipulated. (I know of no others and would be keen to learn of others.) If the effort to make a trade off is worthwhile for the self-interested policy maker, the motivation to make that trade-off will exist. This principle has other serious implications in the public sector which I decline to touch on at this point.

Now, the converse to the aforementioned principle (which is also true), is that if the effort to make a trade off is not worthwhile for the self-interested policy maker, the motivation to make that trade-off will not exist. I believe that if growing the pie becomes the only practical means of increasing their rewards and remuneration, policy makers' efforts can be focused to that end and it will be possible to promote objectives like "inclusive growth".

As a rule of thumb, the more broad-based a KPI is, the more effort required to make gains due to trade-offs. Furthermore, a broad-based KPI is precisely what is needed to measure "inclusive growth". (The more mathematically inclined might think of using a function of the minimum of a set of subsidiary KPIs, or a function of the a set of the "order statistics" of subsidiary KPIs, which would require that all/most sub-KPIs rise in order for the parent KPI to rise.)

Conclusion

I hope the forgoing discussion was useful and helped stimulate thought on how to design KPIs or a salary scheme to achieve policy objectives. We have discussed how the ability to make trade-offs allows policy makers to optimize their KPIs without growing the economic pie (or the per-capita economic pie) and how this can be dangerous. It has been suggested that if these trade-offs are no longer easy to make, it would be more profitable for policy makers to work on "increasing the general welfare" (as a chief means for increasing their pay-offs).

I would like to close with a suggestion of a Ministerial Salary Scheme that I believe is more compatible with "inclusive growth" than the existing and proposed ones. I will describe the development of that scheme and what motivates the various components of it. I hope that the principles outlined in this article will eventually be used in the development of an improved (and more rigorous) salary scheme. (The reader should be warned that math will be encountered.)

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Annex: A Proposed Ministerial Salary Scheme Designed for Inclusive Growth

Note that this does not consider MP allowances, which are (rightly) paid over and above ministerial salaries. The salary scheme will be based on a benchmark salary paid to a junior minister, with senior grades getting (arbitrary) multiples of that salary. This benchmark will move in response to changes in economic conditions and the economic performance of Singapore. Let us denote the benchmark salary for the year Y, as S_Y.

Suppose a target salary is computed using a scheme like that suggested by former NMP Siew Kum Hong and call it C₂₀₁₂ (where the 2012 refers to the year of the original benchmark and "C" is for consumption). For those who have not read Siew Kum Hong opinion piece, S₂₀₁₂ is the price of a basket of goods and services that amounts to a decent standard of living for someone of a minister's social standing. Now let C_Y be cost of the same basket of goods in year Y.

I would suggest that a minister's salary be partially inflation adjusted to make it robust to market changes. (This would be one perk of office, and is entirely arbitrary.) Suppose that (arbitrarily) that amounts to one third of the original basket of goods. The rest should move with the wage levels of Singaporeans.

Define the income at the α fractile (highest income among the lowest earning 100α % of working Singapore citizens.) in year Y is I_α,Y, and determine K_α such that 2/3 C₂₀₁₂ = K_α I_α,Y.

So we find that S₂₀₁₂ = C₂₀₁₂ = (1/3) C₂₀₁₂ + K_α I_α,2012 for all values of α, and we can benchmark ministerial salaries as

_α

_α,Y

for any value of α. However, this pegs salaries to a particular income group, which introduces the motivation to manipulate public policy to increase the incomes of that group. Thus, we should broaden the base.

Suppose α were drawn from the set A = {0.05, 0.06, 0.07, ..., 0.99}. I start from the 5% level to avoid pathological low-income cases (such as refusal to work) and end at the 99% level. Now for any set of positive weights w_0.05, w_0.06, w_0.07, ..., w_0.99 corresponding to the elements of the set A such that they sum to 1 (Sum[α in A] w_α = 1), the following holds: C₂₀₁₂ = (1/3) C₂₀₁₂ + Sum[α in A] w_α K_α I_α,2012. This leads to a fairly broad based benchmark:

_α

_α,Y

The weights w_α should be reasonably even, perhaps even equal. However, I am of the mind that income inequality should be reduced, so it might make sense for there to be a small variation in weights for instance such that w_α decreases with α and w_{0.05 =} 2 w_0.99.

Unemployment can be incorporated in this framework by including unemployed people in the income distribution. However, care should be taken to not build in the incentive for policy makers to introduce policies that introduce disincentives for home making and other economically valuable but unpaid work. This would require a lot more work to flesh out, so this will be left as an idea.

The final modification might appear a little complicated, but the idea is simple. We would like broad income growth and not income growth focused on the "easiest" part of the income distribution. Thus, we should consider the fractiles which have had the lowest growth since the benchmark year. Since A has 95 elements (95 possible values of α), we could perhaps consider 60 elements every year.

Let G(Y) be the set {I_α,Y/I_α,2012 : α in A} and let B(Y) be the set {α in A : I_α,Y/I_α,2012 is one of the bottom 60 elements of G(Y)}. Let the normalizing constant for the weights used, M_Y := 1 / (Sum[α in B(Y)] w_α). (This ensures that M_Y Sum[α in B(Y)] w_α = 1.)

Now, we arrive at the salary benchmark:

_α

_α,Y

To arrive here, we have done the following:

Determine a benchmark standard of living, an associated basket of goods and services and its price in the benchmark year.
Split the benchmark salary into an inflation adjusted component (perk!) and a market adjusted component which depends on the incomes of Singaporean workers.
Made the benchmark depend on multiple income fractile points to account for the standards of living of a broad range of Singaporeans.
Set the weights associated with each salary benchmark to promote the reduction of income inequality, while ensuring that the weights are not "badly skewed". (Note: In effect, this is a weighted average of all the salary benchmarks of item 2.)
Decided to use only a sub-set of the elements of A to compute the weighted average. The elements used relate to the income levels which have grown the least since the benchmark year. This promotes the raising of all income levels, and punishes ministers (with stagnating wages) for stagnating wages of their constituents.

Consider the following examples of how the "performance" term (the second term) varies with changes in income. (i) all incomes rise {fall} by 1%, the "performance" term rises {falls} by 1%; (ii) income levels at 60 of the fractiles in the set A remain the same and the rest rise, the "performance" term remains constant (since the worst 60 fractiles are used). These examples illustrate the idea of inclusive growth.

I hope this portion has been informative and interesting. I must emphasize that this is just an example of how to apply the ideas in the forgoing article. However, I hope that such ideas might be used to develop a salary benchmark in a more rigorous fashion.

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Afternote 1: A final element of this scheme would be conditions for when a re-benchmarking can be called for. My sense is that it would be sensible for this to be done after each election. Also, I feel that the President's pay should be entirely inflation adjusted.

Afternote 2: It does strike me that a 1% rise in part of pay for a 1% overall rise in income seems stingy. However, it is arguable that while government policies are able to torpedo incomes, the dominant cause of rising incomes are drive and intelligent action on the part of individuals. To postulate a further bonus for income growth does not make much sense.

The problem with this is that indifference to facilitating income growth might be encouraged on the part of office holders. It this makes sense is to add loss aversion into the mix (c.f.: prospect theory, which led to a Nobel Prize in Economics), where drops in income at the reference fractiles are penalized more heavily than increases are rewarded.

Afternote 3: It is entirely possible to use a similar mechanism to allow salaries to rise to match that of top earners if national income growth targets are met. (Naturally, I refer to stretch goals.) The functional form of such a benchmark, R_Y ("R" for reward), might look like the following:

_Target,Y

_Target

where I_Target,Y is some target "top rate" income for the year Y,

_α

_α,Y

_α,2012

is a measure of "inclusive growth", G_Target is its associated (stretch) target and f is a non-negative function that is increasing in the first parameter and decreasing in the second. (e.g.: f(x, y) = Max(0, x/y)² or f(x, y) = Min(Max(0, x/y)²), Max(0, 2x/y - 1)) which is more reasonable.)

Afternote 4: It is appears that the idea of designing KPIs to make effortful manipulation non-profitable has not been mentioned in the academic literature. I would like to pre-emptively coin the term "friction" for it.

Coordination Problems and Approval Voting

2012-01-15T00:53:00.003+08:00

I came across the following abstract. It is not too technical, and highlights the coordination problem that Approval Voting solves (i.e.: vote splitting leading to a strictly inferior outcome for most voters).

This paper shows that information imperfections and common values can solve coordination problems in multicandidate elections. We analyze an election in which (i) the majority is divided between two alternatives and (ii) the minority backs a third alternative, which the majority views as strictly inferior. Standard analyses assume voters have a fixed preference ordering over candidates. Coordination problems cannot be overcome in such a case, and it is possible that inferior candidates win. In our setup the majority is also divided as a result of information imperfections. The majority thus faces two problems: aggregating information and coordinating to defeat the minority candidate. We show that when the common value component is strong enough, approval voting produces full information and coordination equivalence: the equilibrium is unique and solves both problems. Thus, the need for information aggregation helps resolve the majority's coordination problem under approval voting. This is not the case under standard electoral systems.

The conclusion the authors arrive at is not surprising (though the math might be novel, noting that the journal it is published in is regarded as top-tier in the economics establishment).

In the article, the benefit the majority perceives for the two preferred candidates is modelled as a combination of a "common value component" (with different values for the majority and the minority) and an "individual component".

What the authors conclude is that when the "common value component" for the majority is "large enough", then the use of approval voting produces a outcome with a perfectly coordinated majority (as if there were perfect information) where the candidate with the largest number of expected (approval) votes is the majority candidate preferred by more (majority) voters.

The intuition behind it is that the "common value component" serves as a signal of the possibility of a bad outcome is the majority does not coordinate itself. When the inferior outcome is a threat, the majority unites; when it is not, the majority falls into partisan voting.

The citation information of the article is as follows: Bouton, L. and Castanheira, M. (2012), One Person, Many Votes: Divided Majority and Information Aggregation. Econometrica, 80: 43–87. (Here is a link to a recent pre-print.)

On the Ministerial Salary Review

2012-01-08T17:52:00.017+08:00

The recent ministerial salary review has sparked substantial discussion on the principles upon which political leaders should be remunerated as well as how this remuneration should be quantified. The Terms of Reference (TOR) of the committee appointed by the Government to perform this review stated that they were to (i) "take into account salaries of comparable jobs in the private sector and also other reference points such as the general wage levels in Singapore", as well as (ii) to recommend Ministerial salaries at "a significant discount to comparable private sector salaries to signify the value and ethos of political service".

It can be said that the committee did well within the ambit of their TOR. They proposed technical improvements such as reducing the volatility of the benchmark by basing it on a larger pool of top earners in the private sector and a slightly better metric for national progress which does not rely entirely on Gross Domestic Product (GDP), itself discredited as a measure of the size of a modern economy. Their report is available here. However, it is clear that their proposals were not well received by all. Many recent commentaries on the subject opine that the proposed ministerial salaries are still too high, and also that the TOR of the committee were too limiting and essentially presupposed a salary structure.

The intent of this article is to summarize the various positions taken on the ministerial salary review. I will compare the proposals of the government appointed committee (henceforth, GAC) with those in the November 2011 report by the Singapore Democratic Party (SDP) and the positions taken by the National Solidarity Party (NSP), those of the Reform Party (RP), those of the Workers' Party (WP) as well as those of others.

A Comparison of Proposals

I begin by comparing the guiding principles behind the two reports proposing systems for ministerial remuneration. These are presented below and they could not be any more different.

Guiding Principles

GAC

SDP

Take reference from comparable jobs in private sectors and other reference points.

Recommended wage levels should be at a significant discount to comparable private sector salaries to "signify the value and ethos of political service".

"Place greater emphasis on public service."

Propose a system that promotes transparency and accountability.

It is apparent that the TOR of the GAC greatly restricts the kind of solution that the GAC can present. At first glance, one might assume (correctly) that the resulting report would recommend a refinement of the current system and a tweaking of the parameters therein to incorporate the "significant discount" stipulated in the TOR. It turns out that this happens to be the case.

The SDP report, in contrast, begins by surveying practice in selected countries (with healthy Corruption Perception Indices) and distilling the principles underlying those remuneration systems. This methodology, essentially presupposes that ministerial salaries will not be pegged to those leading earners in the corporate world, but rather to either general wage levels or to salaries in the civil service. The recommendations of the report reflect this, adopting the former peg. In addition, the SDP report sets out to propose a system that promotes transparency and accountability, which is an institutional objective. The GAC report, however, does not include such an objective in its TOR and, as such, does not report on this matter.

The following table summarizes proposals on basic pay made by the GAC, SDP and others.

Proposals on Remuneration
GAC	SDP	NSP, RP, WP, Others
Pay for a entry-level minster (MR4) with good performance pegged to 60% of the median income of the top 1000 in the private sector. Allowances of MPs and salaries of other political appointments as multiples of the MR4 salary level. President's monthly salary will be set to be equal to that of the PM, but no performance bonuses will be given. No pensions.	Allowance of a Member of Parliament (MP) should be pegged to ten times the mean wage of the bottom 20th percentile of the workforce. Salaries of ministers and the president to be pegged to MP allowances.	(NSP) Median wage as a benchmark. (WP) Salaries of ministers should be pegged to MP allowances. MP allowances should be pegged to the salaries of divisional directors in the Civil Service. (RP) Small fixed component with larger variable component linked to a broader set of KPIs. (RP, WP) Introduce deferred components to address the time lag in impact of policies.
MP: $192,500 Minister of State: $770,000 Senior Minister of State: $935,000 Minster (MR4): $1,100,000 Minster (MR4): $1,100,000 Minster (MR3): $1,320,000 Minster (MR2): $1,540,000 Minster (MR1): $1,760,000 DPM: $1,870,000 PM: $2,200,000 President: $1,540,000	MP: $168,000 Cabinet Minster: $504,000 PM: $672,000 President: $756,000 (It is clear that these numbers are intended to be indicative, so the same resolution as in the GAC's report is not necessary.)	(Former NMP Siew Kum Hong) The salary should be enough for ministers to maintain a reasonable lifestyle. i.e.: "comfortably cover mortgage payments for a reasonably-priced landed property in a reasonable location; payments for 2 cars for the family; education for a minister’s children (including overseas education); some retirement savings; and so on." This will be politically defensible and allow the minister to do his/her job without undue financial distractions.

There isn't much to say about the proposals by the GAC. As previously mentioned, the report proposes some technical improvements but does not deviate much from the pre-existing system. The underlying assumption that ministers sacrifice high corporate salaries (in the non-government-linked private sector) requires proof in the form of leaders from private sector taking pay cuts to serve as ministers. Only given such proof would the opportunity cost argument, underlying the system proposed, be acceptable. While the absence of such proof does not demolish the argument, it significantly weakens it.

The SDP report, having surveyed international practice, highlights that ministerial salaries are typically not pegged to those of the highest wage earners, but rather median incomes of citizens or to those of certain ranks in the civil service. It proposes pegging MP allowances to the mean wage of the lowest 20% of earners in the workforce and pegging ministerial salaries to MP allowances to link living standards of ministers with those of their constituents.

While I feel that this is a reasonable proposal, it is, like that of the GAC, entirely arbitrary. In this respect, a proposal by former NMP Siew Kum Hong strikes me as a more realistic method for arriving at numbers. He sketches how to ensure that a minister's salary should support a certain standard of living (as a function of his/her rank), which amounts to a system which will be simultaneously politically defensible and allow the minister to do his/her job without undue financial distractions. It also links the living standards of ministers to the prevailing cost of living.

Moving on, the following table summarizes proposals on performance bonuses made by the GAC, SDP and others.

Proposals on Performance Bonuses

GAC

SDP

NSP, RP, WP, Others

Annual Variable Component: up to 1.5 months

Performance Bonus: up to 6 months (good performers typically get 3 months)

National Bonus: up to 6 months

Discontinue variable bonuses.

(NSP) Include a variable component tied to national vote share, vote share being a "composite KPI, encompassing all issues that Singaporeans care about"

(RP) Small fixed component with larger variable component linked to a broader set of KPIs.

(RP, WP) Introduce deferred components to address the time lag in impact of policies.

The National Bonus Matrix (below) gives the payout levels for the National Bonus proposed by the GAC. The 100% level for each component corresponds to a payout of 0.75 months for a maximum total National Bonus payout of 6 months. Notably, it has been argued that the bonus targets are too easy to meet.

The SDP report recommends no performance bonuses as ministerial pay is remuneration for "public administration performance rather than private sector achievement". This argument is somewhat unconvincing. On the other hand, it might be argued that a well selected peg to incomes incorporates bonuses in the salary as income growth increases pay for ministers. (Furthermore, income growth is strongly positively related to growth and the standard of living.) I am under the impression that they have, in fact, made this alternate argument after the GAC published its report. However, I can't find a statement to that effect on the SDP website.

I feel that some element of pay for performance should be present. However, it should not be along the lines of the National Bonus which I feel is, to put it frankly, wimpy and uninspiring. Is an unemployment rate of less than 3.5% truly a stretch goal? A broad-based National Bonus would incorporate the diverse interests of the various groups of Singaporeans. One might develop such a bonus scheme though doing a massive survey of Singaporeans and distilling all that is important. Such a bonus scheme would be very broad based and robust to gaming, leading to office holders giving up gaming the system in favour of pursuing truly inclusive growth. Such a scheme would not deter public spirited individuals from stepping forward, but it might cause apprehension in those who are more concerned about easy money.

Furthermore, I believe that individual performance bonuses should be split into a discretionary component (decided by the PM) and a well defined KPI-based component. To properly measure relevant performance, the KPIs should be individualized based on the mission of each minister's ministry. Such KPIs might be easy for ministries like Transport to develop, but good KPIs are not so easy to develop for those such as Education. This is a challenge that I cannot shy away from. Furthermore, noting the (possibly long) time lags associated with the introduction of a policy and its impact, deferred payouts are not unreasonable and should be considered.

Finally, I come to the institutional proposals that have been made. Notably, the GAC makes none since their TOR makes no mention of institutions.

Institutional Proposals

GAC

SDP

NSP, RP, WP, Others

Establish independent salary commission.

Ministers to make public, through the commission, their commercial interests, shareholdings, directorships and other financial interests.

(NSP) Ministers to make public, through the commission, their commercial interests, shareholdings, directorships and other financial interests.

A major thrust of the SDP report are recommendations to the build government institutions that are robust to misbehavior. Aside from the recommendation to set up an independent salary commission, the SDP report also recommends that the Corrupt Practices Investigation Board (CPIB) be moved out of the Prime Minister's Office and be made directly answerable to Parliament. I agree with these proposals. Strong institutions provide an important layer of defence against a misbehavior and are important to have for a well-functioning government.

Other Comments

While income from directorships are included in the tax returns used to estimate the incomes of top earners in the private sector, directorships for ministers would provide additional income over their salaries. This provides an easy means to circumvent the pay cut. In fact, additional board appointments in Statutory Boards and Government-Linked Companies might be easily used to increase effective incomes. This is clearly open to abuse. I would regard service by ministers on the boards of Statutory Boards and Government-Linked Companies to be an important part of government. As such, no additional remuneration should be given to ministers for their service on such boards. In addition, to avoid conflicts of interest and unseemly chasing of private sector board positions, ministers should not be allowed to take up board appointments in private sector companies.

In addition, democratic values might also be a factor in remuneration. A "re-election top-up" for ministers who held ministerial positions in the last term could be a component of remuneration that reflects whether the electorate want a minister to continue as a minister. (This would be equivalent to a "freshman discount".) The NSP has made a similar proposal, noting that vote share was, in effect, a composite KPI. In contrast to them, I think it should be an element of basic pay.

Conclusion

This has been a somewhat long article (for a blog), and I thank the reader for joining me up to this point. I have summarized notable proposals for the review of salaries and presented our own perspectives. I hope that this has been interesting and/or useful.

In closing, I would like to quote a paragraph from the citation for the Man of the Year award by The Guardian (Nigeria). I think this is fitting as it would be ideal for our national leaders to be men and women who are, to put things in local public-service lingo, of "Man of the Year calibre"; men and women who leave lasting positive legacies of thought and action; men and women who are, simply, great:

Greatness is an attribute much in retreat in our society these days. But it is the quality that is imperative for a nation, for a people to make progress. Greatness is the depth of character that is unswayed by material attraction and superficial rewards, especially of the sort that is flaunted by persons of lesser pedigree, and craved by many, including sundry jobbers and petty crooks. Greatness is the strength to say no when everything and everyone else seems swept away by a certain madness that benumbs the senses. Greatness is the ability to look past the present and see beyond the future. It is the courage to envision a better society, to insist on what is right, on what is proper to realize that better society.

Comments on the Education and it's Goals

2011-12-24T22:20:00.001+08:00

What are the immediate aims of education? Do we seek, through education, to (i) create good workers, (ii) equip the young to become good citizens, or (iii) place them on the path to a flourishing life? Presently, to pick any one of these options would require a polemic to follow. I'd like to avoid that. Also, rather than delve deeply into operational methodology in a field which I'm no expert in, I'd like to engage in more high level commentary.

Education has multiple objectives, the service of which can have differing impacts on the interests of various parties in that society. They maybe described in terms of preparation for participation in different classes of activities. Analogous to the list above, they are (i) preparation for participation in the productive economy, (ii) preparation for participation in politics, and (iii) preparation for immersion in the world of experience. Allow me to introduce them in reverse order.

Preparation for immersion in the world of experience is, by no means, the actual immersion in that world of experience. There is no polity with the resources to run an effective educational program seeking to do that (ostensibly). Rather, this is about broadening horizons so the young can, later, pursue experiences which will enrich their lives and inform their major decisions. This requires that the classroom be connected with the world at large. There is a lot more to say about this, but I'd like to go on to the other two.

Preparation for participation in politics means equipping the young with the basic skills necessary to discern the merits of competing policies. That is to say, it is about basic logical and statistical reasoning, as well as bringing critical thinking to any proposal. It also entails teaching the young that they often should assess the veracity of evidence and the credibility of sources, that is to say, to have sufficient awareness not to be played for a fool. In a sense, this would be incomplete without some immersion in the wider world, which would give a perspective on different socio-economic environments and the outcomes arising from the policy decisions that have been made in each locale.

We now come to the element of education which most think about when sending a child to school: preparation for participation in the productive economy. This entails instruction in the foundational building blocks of technical and business knowledge. It should be noted, however, that without a dash or critical thinking and exposure to the wider world, such education would not be able to effectively prepare individuals to be innovators or good leaders. Depending on where a society is on the ladder of development, the capacity to think critically (and hence, innovate or lead well) may vary in importance from vital to good-to-have, and even to better-not-to-have.

At this point I would like to close. It is not my place to recommend some detailed allocation of effort between these three goals of education. However, it is important to have clarity on the societal goals that underlie the need for education. With that, a program can be crafted that takes precise aim at those goals, and, with sufficient resources fueling it, will achieve the goals set for it.

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Afternote: If a knowledge-based economy is sought, then effort has to be dedicated to all three aspects, the second and third especially. While achieving the third goal might be said to be simple, achieving the second is very difficult, requiring deliberate effort from both educators and their charges. Singapore is taking steps to improve on its historically horrid record on the second goal, so it would be interesting to see the state of things in a decade.

Best Teacher I Ever Had (Reader's Digest, 1991)

2011-11-25T22:27:00.001+08:00

Best Teacher I Ever Had
by David Owen
Extracted from Reader's Digest (Asian Edition), April 1991, pp. 47-48.

Mr. Whitson taught sixth-grade science. On the first day of class, he gave us a lecture about a creature called the cattywampus, an ill-adapted nocturnal animal that was wiped out during the Ice Age. He passed around a skull as he talked. We all took notes and later had a quiz.

When he returned my paper, I was shocked. There was a big red X through each of my answers. I had failed. There had to be some mistake! I had written down exactly what Mr. Whitson said. Then I realized that everyone in the class had failed. What had happened?

Very simple, Mr. Whitson explained. He had made up all the stuff about the cattywampus. There had never been any such animal. The information in our notes was, therefore, incorrect. Did we expect credit for incorrect answers?

Needless to say, we were outraged. What kind of test was this? And what kind of teacher?

We should have figured it out, Mr. Whitson said. After all, at the every moment he was passing around the cattywampus skull (in truth, a cat's), hadn't he been telling us that no trace of the animal remained? He had described its amazing night vision, the color of its fur and any number of other facts he couldn't have known. He had given the animal a ridiculous name, and we still hadn't been suspicious. The zeroes on our papers would be recorded in his grade book, he said. And they were.

Mr. Whitson said he hoped we would learn something from this experience. Teachers and textbooks are not infallable. In fact, no one is. He told us not to let our minds go to sleep, and to speak up if we ever thought he or the textbook was wrong.

Every class was an adventure with Mr. Whitson. I can still remember some science periods almost from beginning to end. On day he told us that his Volkswagon was a living organism. It took us two full days to put together a refutation he would accept. He didn't let us off the hook until we had proved not only that we knew what an organism was but also that we had the fortitude to stand up for the truth.

We carried our brand-new skepticism into all our classes. This caused problems for the other teachers, who weren't used to being challenged. Our history teacher would be lecturing about something, and then there would be clearings of the throat and someone would say 'cattywampus.'

If I'm ever asked to propose a solution to the problems in our schools, it will be Mr. Whitson. I haven't made any great scientific discoveries, but Mr. Whitson's class gave me and my classmates something just as important: the courage to look people in the eye and tell them they are wrong. He also showed us that you can fun doing it.

Not everyone sees the value in this. I once told an elementary school teacher about Mr. Whitson. The teacher was appalled. "He shouldn't have tricked you like that," he said. I looked that teacher right in the eye and told him that he was wrong.

Ideas on Reforming the Institution of "Permanent Residency"

2011-11-25T13:51:00.002+08:00

I recently read a lament on how the PR system has been abused ("Stop PRs from Gaming the System", The Online Citizen, 25 Nov 2011). Much anger has been generated recently by this aged and imperfect institution and I would like to offer some ideas on reforming Permanent Residency.

I take it as a fact that Singapore needs skilled workers and talented individuals from various fields. In order to make terms attractive for these individuals, they should be granted privileges similar to those Singaporeans enjoy. To me, it should not matter even if they skip out on NS. We do not need them to learn how to dig holes in the ground and fill them back up. Rather, we need them to contribute maximally. From this point of view, I would rather have freshman PAP MP Janil Puthucheary spending "the last 10 years saving kids' lives" as opposed to spending the last 7.5 years saving kids' lives and 2.5 years certifying the MCs of reasonably healthy NSFs.

The problem with the present implementation of the PR system is that there is a failure to verify. I, as a technical elitist, would argue that many PRs do not fit the description of "skilled workers" or "talented individuals". I believe that Singapore should grow in a controlled manner, taking in only those who advance our interests.

Verification cannot be entrusted to a central organization except as a rubber stamp to credible nominations. This is so clear and uncontroversial as to not require explicit supporting arguments. I believe that "enlightened self-interest" is the key to the verification of capability or talent. In particular, the "free market" will be able to judge effectively whether a potential PR can contribute sufficiently. Firms can, and will, put a dollar value on the benefit that an individual can generate. It is on this firm bedrock of rational self-interest that I propose we build our PR system.

Firms (private sector or public sector) should sponsor the Permanent Residency of their foreign staff, and those who are not deemed able to contribute should lose their PR status. Sponsorship of Permanent Residency should be expensive enough to provide a clear signal that the firm values the contribution of a PR. (For instance, it might cost, annually, some large fixed sum and plus some fixed percentage of the PR's total annual compensation.) As such, on top of a firm having to offer an attractive enough compensation (along with the promise of PR status) to attract talented foreign staff, it also has to pay a premium to certify its esteem of the capabilities of its foreign staff. This, to me, is credible verification.

Perhaps after at least 5 years of Permanent Residency, a PR might apply for citizenship contingent on continued sponsorship as a PR for a period of time (like 3 months). PRs, whose capabilities would have been credibly certified by then, would find it attractive to take it up at that point. Their employer might offer them a pay raise corresponding to a portion of what it formerly spent to certify them as skilled or talented individuals. A higher compensation package would be a material inducement. If they do not accept citizenship, they are welcome to remain PRs so long as they remain sponsored by some firm.

It is interesting how going back to fundamentals has brought us to something like the "Employment Pass" system. I believe that the intent behind that policy was to use salary as a credible signal. Unfortunately, the signals that the Ministry of Manpower decided on were less than credible as salary paybacks were used as a tool to game that system, which should also be corrected.

I would like to close by emphasizing that the privileges associated with being a PR should be attractive, but Permanent Residency should be a costly employment perk that firms offer to their foreign employees. The willingness to incur a high economic cost is a credible signal of the expectation to reap an even higher gain. Only credible signals should be used in the award of privileges like those of Permanent Residency. Economic signals like the aforementioned might be the default, but the judgment of eminent (not just qualified) figures in the relevant disciplines should be accepted as credible signals as well. All in all: credible signals, credible signals, credible signals.

Idiocy Should be Seen Once and Never Heard of Again

2011-11-18T22:49:00.002+08:00

In the span of less than a week, there were two furores over some things idiots said. A (now former) Young PAP member captioned a picture of some Malay kindergarteners on a bus as "young terrorist trainees" or something to that effect. Today, a police report was filed, under the Sedition Act, against someone posting an image with text featuring "strong anti-Islam sentiments".

My personal opinion (and this is really a matter of opinion) is that idiocy should be ignored and not spread. There is the perspective that strong reactions highlight what is acceptable to "us as a society". Then again there is the dynamic where unpopular views are retained but not expressed until an opportune moment with respect to the power balance. There are many ways to look at this.

To promote my view that I don't want to hear about these idiots, I'd like to say that (i) there will always be negative elements in society and life is too short to enumerate all of them, and (ii) if it was a case of "I wasn't thinking and did something stupid", I'd like us to forgive rather than embitter (in this case, I don't want additional "Muslims ruined my life" sentiments to form).

There are more important things facing our country than people saying stupid things. Long term economic viability, housing, immigration, governance, civil rights, the list goes on. I'd like to heard more debate on these from the media, mainstream or otherwise.

A Proposed Auction System for Public Housing

2011-11-16T00:17:00.009+08:00

Following on from the counterfactual public housing system I previously wrote about, I would like to flesh out the auction system used to allocate HDB flats.

The allocation of HDB flats will be done through the conduct of regular VCG-based auctions of all available flats in Singapore by HDB, with a reserve price on each flat set to a reasonable value reflective of cost or cost-plus. Interested buyers would first register with HDB and then be issued with accounts to bid for flats. They would then place bids for each flat they are interested in.

In what follows, I intend to recapitulate my description of the auction mechanism and how it works. Then, I will describing the kinds of outcomes generated by the auction through graphs generated from numerical experiments. Some of this will be repeated material (for which I apologize), as it is intended to make this as self-contained as possible.

Auctions and Free-Market Prices
Before moving on, I would like to emphasize that a major aim of using such an auction is to get at the true free market values of flats. I have previously mentioned that personal valuations for flats take into account both economic, relational and personal factors that are mostly unaccounted for in “independent valuations”. Furthermore, the phenomenon of substitution throws another wrench into the work of arriving at an accurate valuation. A household may be willing to consider 3-room, 4-room or 5-room flats. If valuers do not account for this, they will double (or triple) count demand, leading to artificially high values. (This insight was obtained from viewing allocation and pricing output from the auction based on various scenarios.)

While I concede that valuers may have some knowledge of substitution patterns, difficult as they might be to measure, there is little incentive to use it. Furthermore, it is a "forgivable mistake", noting the simplistic "price is determined by intersecting supply and demand" image that many have of economics.

Eliminating Dilemmas
It is, perhaps, underemphasized that potential buyers face dilemmas when flat issues are conducted in “unfortunate orders”. One’s second choice location might be up first, followed by one’s first choice. One then faces the dilemma of whether or not to apply in the first issue. The associated “what if” questions are a needless hassle. Furthermore, it stands to reason that clearing a national public housing auction is likely to increase allocative efficiency.

Characteristics of the Proposed VCG-based Auction
By allocating all available flats (old and new) through a VCG-based auction mechanism where bidders articulate their valuations for the (multiple) flat types they desire in their bids (and revise them periodically until the auction closes), the following will be achieved:

It would certainly be agreeable that these are desirable socio-economic outcomes.

Having hopefully motivated the use of an auction mechanism to allocate flats, I would like to sketch the mechanics of the auction. Firstly, this auction mechanism will stand up easily to scrutiny because it is based on a well-known (and well-studied) family of mechanisms called Vickrey-Clarke-Groves (VCG) Mechanisms. In the auction, each bid price is intended to be the maximum amount the relevant bidder is willing to pay for a flat of a particular type in a particular location. Bidders will make bids for every type of flat they are interested in.

The outcome of the auction will be the socially optimal allocation based on the bids made and subject to allocation constraints that HDB has such as reserved quantities for first timers and the Ethnic Integration Policy (EIP). This leads to the achievement of (i).

Furthermore, it may be said that only preferences of buyers and the constraints of the (non-profit seeking) HDB are incorporated into the allocation. As such, the input of external parties seeking to profit off the outcome of the auction is minimized, in all it is arguable that this leads to (ii).

The pricing of each allocated flat is done via externality pricing. That is to say, for each winning bidder, the maximum social welfare of all bidders is computed again with the winning bidder removed. Necessarily, this new number is never larger than the maximum social welfare when all bidders are included. Call the difference between these numbers w. The price that bidder pays is his bid less w. With some thought, it would be clear that had he bid anything more that the price he paid, allocating him that flat would certainly remain part of the optimal allocation, and had he bid less, allocating him that flat would no longer be part of the optimal allocation. For mechanism design neophytes, it may require a bit more time to understand this argument, but it explains (iii). From a different perspective, it stands to reason that the optimal bidding strategy is for a bidder to truthfully bid the actual maximum value he is willing to pay for a flat, and the auction mechanism will not use this information to extract additional revenue from him.

This leads to a major criticism of the VCG Mechanism by academics and auction practitioners: revenue from VCG-based auctions compares poorly to that from other auction forms. This arises as VCG enforces the property of truthfulness by charging winning bidders the lowest amount they could have bid and been allocated a flat, an amount typically much lower than the amount bid, as mentioned in the explanation of (iii). However, having less revenue extracted from winning bidders turns out to be a strength for allocating public housing. Since the mission of HDB is to "provide affordable homes of quality and value", it may be said that selling flats at the reserve price is a mark of successfully meeting housing demand in an affordable fashion and low revenue from the auction is not, in fact, a problem.

Consider conducting the auction in manner where the tentative outcome for one’s bids and the tentative prices for flats in each category are made available at regular intervals, and bidders are able to update their bids in response to tentative outcomes. It cannot be assumed that people have full clarity on the real value of a flat to them. By viewing a tentative outcome, they may realize that they are willing to pay more for a flat of a particular type, or that they have overvalued a flat of a particular type. This explains (iv). It is suggested that prior to the close of the auction, there be a (long) period where results are no longer updated to reduce the incentive of last minute “sniping”.

The Allocation Model for our VCG-based Auction
The Allocation Model is basically defines the characteristics of the socially optimal allocation, expressing it as a mixed-integer linear optimization problem, the objective of which is to pick an allocation which maximizes the total sum of the bids corresponding to allocated flats. Note, however, that the price of the flat is at most the bid price and usually strictly lower.

The parameters that define the problem are:

v_ij: Bid price of bidder i for a flat of category j
m_j: Number of available flats in category j
n_j: Maximum of available flats in category j that second timers may buy
o_jr: Maximum of available flats in category j that members of racial group r may buy

... and the variables that define the allocation:
x_ij: Boolean variable defining whether bidder i was allocated a flat in category j (for the bidder representing HDB, this is a not a boolean variable, but rather a non-negative integer variable)

So, the following optimization problem is to be solved using linear optimization software: (I know I said that this is an integer program, but the linear relaxation is equivalent under very mild conditions.)

maximize Sum[over bidders i and flat categories j] v_ij x_ij
subject to:

x_ij

m_j

x_ij

n_j

x_ij

o_jr

Note that HDB bids the reserve price for each category. Also, bidders not bidding for a flat category bid zero.

The set of constraints (1) mean that each bidder (other than HDB) may be allocated at most 1 flat. The set of constraints (2) mean that all flats are allocated. The set of constraints (3) serves to reserve some fraction of flats for first timers. This in turn results in higher prices on second timers due to the higher externality they will impose on other second timers when allocated flats. The set of constraints (4) reflects the government's “Ethnic Integration Policy” (EIP). The inclusion of (4) will probably translate the previous time to sell/time to buy difference for different ethnic groups to a price difference. With this constraint, it would really pay to be among more of those of other races.

One can prove that if the bid prices (other than HDB's) are all not equal (and other non-equal "difference" conditions hold), this integer optimization problem can be relaxed to an equivalent linear optimization problem. (This can be easily engineered and implies big computational savings, which will be necessary for quickly producing an allocation and pricing the allocated flats.) Such a scenario can be engineered by requiring minimal bid increments (of say $100) and incorporating random tie breaking by doctoring bids by random values smaller than the bid increment. This practical measure is similar to allocating flats by ballot, but differs in that it first takes allocative efficiency into account.

Examples
Having outlined the characteristics of the auction, allow me to provide some concrete (albeit simple) examples of bids and outcomes. If only 800 bidders compete for an issue of 1000 "identical" flats, regardless of how wildly high some bidders might bid, all bidders bidding at least the reserve price pay just the reserve price for their flat. In contrast, if 1800 bidders compete for an issue of 1000 "identical" flats, all bidding more than the reserve price, the 1000 winning bidders would end up paying the 1001-st highest bid price. In the setting of auctioning identical items, the VCG auction reduces to the k-th price auction.

One might visualize the results by using bid prices to describe "demand" and relating it to the quantity of the respective type of flat supplied. Notably, this auction tends to see winning bidders paying less than the price determined by the point where the (assumed vertical) supply curve intersects the "demand curve". This is due to substitution effects, as HDB flats of different types are related goods. This is true for all bidders when no first timer and EIP constraints are included, when those constraints are included this would still typically be true for the first timers.

Now let us look at some auction results. The graphs that follow will depict demand for a type of flat (bid prices), fulfillment (allocation of flats at some price), flat supply for this type of flat, and the reserve price for this type of flat. I've neglected to label the axes, but the vertical axis denotes price and the horizontal axis denotes quantity.

The first example (Figure 1) is a fairly pedestrian one. This particular instance reflects supply exceeding demand for this type of flat, so all demand is satisfied at the reserve price.

Figure 1: Supply exceeds demand

The next examples (Figure 2 and Figure 3) are part of a small-medium sized example with 2000 bidders (1712 of whom made at least 1 bid) competing for 521 flats in 10 categories. (Data was randomly generated.) About 40% of the bidders are second timers and for each flat category, at most 15% to 30% of the flats may be allocated to second timers. The EIP constraints were not imposed.

In Figure 2, one sees that 13 bidders paid 146 for their flats while the other 44 paid 115. The former group were all second timers, while the latter were all first timers. This illustrates the effect of restricting the number of flats available to a certain group. A similar effect is visible in Figure 3, from the same example. In general, with k "groups" with different constraints on each, one would expect to see k price levels in the fulfillment curve.

Figure 2: Flat Category C0 from a Small-Medium Sized Example

Figure 3: Flat Category C4 from a Small-Medium Sized Example

The next examples (Figure 4 and Figure 5) are part of a small-medium sized example with 2000 bidders (1476 of whom made at least 1 bid) competing for 297 flats in 10 categories. (Again, data was randomly generated.) About 40% of the bidders are second timers and for each flat category, at most 15% to 30% of the flats may be allocated to second timers. Each flat category was restricted to 70% Chinese buyers, 15% Malay buyers and 10% Indian buyers. However, 80% of the bidders were Chinese, 5% were Malay and 10% were Indian.

In Figures 4 and 5, one sees multiple price levels, corresponding to different subsets of bidders, with each group facing different forms of restriction that increase, in varying degrees, the level of competition for flats between bidders in the respective subsets. In both figures, the highest prices are paid by the second timer ethnic Chinese buyers, due to the restrictions placed on them and the higher competition for available flats within their ethnic group.

Figure 4: Flat Category C0 from a Small Example with EIP Constraints and Unbalanced Demand from Ethnic Groups

Figure 5: Flat Category C1 from a Small Example with EIP Constraints and Unbalanced Demand from Ethnic Groups

Hopefully the above examples have been helpful in illustrating how the auction behaves. While some of the examples suggest that prices can get high, I would like to assure the reader that they only get high in the event that supply is inadequate. The fact is, examples with adequate supply are boring, probably with all flats selling at or near the reserve price, these were constructed to exhibit "interesting behavior".

The small-medium example of Figures 2-3 took about 5 sec to solve per optimization problem using an open source solver (GLPK). With about 500 allocations, it actually took just under 50 min to compute the pricing decisions for each flat allocated. A more realistic example with about 15000 bidders competing for about 5000 flats takes about 5 min to solve. However, to generate tentative prices in the auction prices for each and every flat allocated need not be computed. With parallization, much larger instances could be solved to allow tentative results to be refreshed every hour. Commercial software (CPLEX/Gurobi/Xpress MP) might be used if they're found to be much faster.

Closing Remarks
In my assessment, this auction mechanism is technically feasible and produces sensible results. I think this is worthy of exploration as a means for allocating flats in our public housing system.

In presenting this and advocating for it I do bear in mind a certain cautionary note, as so well put by Malcolm Gladwell, against the "infatuation with the things we make". We all have our blinders. With that in mind, I would like to receive comments on this especially those that point out what I've missed.

Late Payment, Adverse Incentives and Monetary Policy

2011-11-15T18:41:00.003+08:00

A letter was written to the Straits Times Forum on Sat 12 Nov 2011 titled "Pay first, repaid last policy is unfair". The subject matter is rather obvious. I wrote back to the Forum with comments, my letter appeared in today's (15th Nov) issue of the papers (a day when it seemed that no one in my office touched the newspapers before 4pm). Let me give the gist of what I was trying to say:

One thing that one might learn in an introductory finance class is the value of holding other people's money. In particular, that one should watch one's cash flow, as some large clients are apt to make late payments. For insurers and other financial institutions, holding other people's money for longer times serves to artificially boost one's capital ratio. Hence, there exist incentives for insurers and other financial institutions to make late payment. (The same applies to B2B transactions, but these are harder to regulate and have less direct impact on "the citizen".)

This is a real concern. Laws do exist to limit the time banks can hold deposits before making them available to write cheques on. The Expedited Funds Availability Act in the USA is an example of this that addresses a particular face of this form of moral hazard. I previously heard an anecdote of some bank(s) in the USA being found guilty, a number of decades ago, of wrongdoing by their sending payment (in the form of cheques via snail mail) from the furthest branch away from the destination in order to have access to the customer's money for a day or so more. The sheer volume of payments made this profitable. Insurance and other financial transactions are similar. Long processing times seem like a weak excuse.

I wrote that it may be time for Singapore to deal with the underlying problem. I said that the MAS should determine whether deferred payments may be considered reserve capital. (Yes, money could be used for other things, but I thought pointing to reserve capital as something tangible would make sense.) If the response turns out to be "no", incentives for such, arguably dishonest, corporate behaviour would be reduced.

Public Transport and Queueing Systems

2011-11-14T20:49:00.003+08:00

Queueing systems are systems where demand arrives with inter-arrival times (distributed according to some probability distribution; perhaps independent, perhaps correlated, perhaps time dependent). On arrival, demand is served by one or more servers with service completing after some duration (also distributed according to some probability distribution).

There are as many kinds of queueing systems as one might imagine, but they do have one characteristic in common. Before stating it explicitly, let me introduce the M/M/1 queue, where interarrival times and service times are both distributed according to the exponential distribution, but with different parameters.

The M/M/1 queue is the first queue that engineers learn about, and the arrival rate (a) and the service rate (s) fully determine the behaviour of the queue. Now, the mean number of customers in the system at any given time is finite (i.e.: the queue length doesn't grow unboundedly with time) if and only if a < s, which is intuitive as you can't have a finite average queue length if arrivals come in faster than you can serve them. The mean waiting time is, in fact 1 / (s - a), which informs us that as demand rises and approaches service capacity, the mean waiting time in the queue grows very very fast. The analogy is clear.

It is clear that the public transport system is some form of queueing system with complicated behaviour. If we increase the vehicle population such that demand approaches capacity, we court disaster. The simple relation 1 / (s - a), does not hint at congestion being linear in demand, in fact the derivative of that expression with respect to demand gives us 1 / (s - a)², which tells us that congestion growth accelerates at a frightening rate as we get close to capacity.

Emergency rooms in the USA formerly tried to match demand with capacity, but met with huge problems when demand surged. Now, they cater some additional capacity to deal with these surges.

I'm unsure why we continue overloading our road network, but the disaster that will befall us when demand reaches capacity will not come slowly and gradually. It will be like stepping off a cliff: sudden and spectacular. (Gridlock is, afterall, quite a sight.)

----

Afternote: I actually wrote this in response to a TOC article on the MRT network. Interestingly, the MRT network is not quite near capacity yet (in the queueing sense), so only a rather big increase in peak hour capacity will alleviate the crowding situation. The road network is what we need to watch out for. We need real engineers in charge of such systems. This is important.

Continual Improvement is Good

2011-11-14T20:21:00.000+08:00

I happened to come across a press release by MHA detailing recent efforts by the police force to improve its operations over time. It is good when improvement is sought. We are aware that response times are rather bad, evolution towards a better structure will drive performance to, itself, improve. To give credit where it is due, kudos to Wong Kan Seng.

A Counterfactual Public Housing System (Revised)

2011-11-10T22:03:00.007+08:00

(This is a revised version of a previous post containing a revised auction mechanism with nice properties, including strategy-proof-ness. An edited version of this was published at NewAsiaRepublic.)

I would like to examine a counterfactual. What if, in Singapore, public housing were more tightly controlled by HDB in the following fashion:

purchase and sale transactions could only be performed with HDB itself,

prices were controlled so as to preserve only market forces based on location-based desirability to individual buyers while, at the same time, removing the speculative component.

Let me elaborate on how this might be achieved.

A Counterfactual Public Housing System
The resale price (back to HDB) for a flat would be set according to its type and floor area. Thus, a 1000 square feet four-room flat in Marine Parade would be sold back to HDB for the same amount as a 1000 square feet four-room flat in Pasir Ris. Furthermore, these resale prices would be kept low. (This may be tweaked to account for age and recent upgrading work.) The purchase of flats would be done by sealed-bid auction, with the previously mentioned resale price as the reserve price. (The details of the auction mechanism will be outlined in the Annex.) In addition, if an owner of a HDB flat comes to own any private property in Singapore (through purchase or bequest), that person must dispose of either the HDB flat (to HDB) or the private property.

Due to the low resale prices, there would be no incentive to purchase HDB flats for speculative purposes. Presently, there is a loophole where some foreign nationals (PRs and those with dual citizenships) are essentially able to buy to rent, reducing the strained public housing supply and profiting off the misery of the "flat-less". Measures to plug that loophole will be outlined in the next paragraph. On the other hand, to avoid market distortions where a flat is priced at the same amount as a less desirable one, sale of flats will be done by (country-wide) auction (with a reserve price dictated by the nature of the flat). It is intended that buyers make bids for available flats of all types in all locations so as to eliminate dillemas of whether to participate in an auction for flats of a second choice type or in a second choice location. All this would serve to "defragment" the public housing market and ensure that the premium paid over the reserve price reflects desirability due to location, and does not contain a component pricing potential future speculative profit.

To reduce actual foreign speculative pressure, consider requiring all flat owners holding any foreign citizenships (non-citizens and citizens with dual citizenships) to certify their occupancy of their flats by certifying, in person, every quarter (or some suitable time interval), their occupancy of their flat at their local town council. This will not be onerous as town councils are typically located close by.

The philosophy behind this counterfactual system is that residents derive value from public housing based on the housing space and the location. The actual public housing market, comprising the buyers, is best equipped to price this premium. Hence the auction mechanism. The premium paid over the resale price would reflect the value derived from the flat consumed by the owner over the tenure of residence and, as such, would not be returned when the flat is sold back to HDB.

Implications for Economic Vibrancy and Investment
It follows that without a concomitant increase in prices and without an accompanying fall in wages, lower housing prices will result in higher household savings. (The former two do not appear to follow from lower housing prices.)

The upshot of this is that funds would be available for the enterprising to start businesses. The less entrepreneurial would have funds to invest in those new businesses. With less funds tied up in property, the economic landscape would be fertile enough to encourage new businesses to spring forth and be nourished by the increased availability of funds.

It is not too much of a stretch to project that a number of these new businesses would introduce innovative business models and new uses of technology, thus bringing a new vibrancy to the economy. With this, investment in Singapore will no far less property driven, but rather, innovation led, as befits a knowledge economy.

Closing Remarks
The counterfactual public housing system I have proposed has a number of positive features. However, the problem is how to get from the present state to this one. In my mind, the way forward entails a number of steps (i) legislate that the divestment requirement for all public housing to take effect in a number of years (as existing current legislation to that effect is not retroactive), (ii) begin a two-speed public housing market where the resale of all new flats will be based on this paradigm and current flats can be sold to other buyers or to HDB at the aforementioned resale price.

Step (ii) will result in a gradual conversion of the public housing market to the aforementioned counterfactual system. In decades to come, as newer, more desirable, flats are rolled out, the prices of current flats will naturally decline due to the greater availability of cheaper flats, as well as their age. Eventually they will be sold back to HDB at the dictated resale price, reducing the share of flats held in the old housing system.

Will this take place? It depends on the priorities of the government and the electorate.

Annex: Remarks on the Merits of Using Auctions for Allocating Public Housing

At first glance, it might appear that the use of auctions would punish poorer Singaporeans based on the historical use of auctions for selling collectors' items. However, auctions are a direct mechanism to mark to market. Auctions have been used for certain types of items that are difficult to properly value a priori, such as collectors' items whose market value is uncertain. Homes are similar to an extent. HDB and banks cannot properly assess how much value a flat has to a buyer as work location, residents of friends and family, and a host of other factors contribute to this.

It might be argued that current market prices cannot be said to be true free market prices. They are essentially monopoly prices set by the "housing establishment" which includes developers and banks who both profit from "high valuations". Current prices also include premiums for potential future gains.

In contrast, if buyers know they cannot resell flats to HDB for much more than the set resale price (as only small corrections are made due to inflation), then the premium they would indicate that they are willing to pay over the reserve prices would really comprise just the benefit derived from the availability of the flat to them for their planned time horizon.

Furthermore, a bidder pays at most the bid price, and in subsets of an issue which are not oversubscribed, essentially everyone (bidding for flats in those subsets) pays the reserve price. Only when there are wildly oversubscribed segments can prices get high, and only for flats in those segments.

The reserve price is intended to be a statement by HDB of cost or cost+, and that HDB will not sell for anything less than that. It should reflect the economies of scale associated with good contracting practice and good management of outsourcing contracts (i.e. costs should be low).

Annex: Remarks on Managing the Cost of Public Housing

Procurement and the management of outsourcing contracts must improve to ensure that costs to HDB, and hence flat buyers, do not increase in an unwarranted fashion. Public officials in such roles should have their incentives explicitly linked to ensuring that costs do not go up (or go down due to productivity improvements). This is aimed at eliminating the mentality that as long as the lowest cost alternative in the tender gets the award, the job is done. Such a mentality demonstrates the "not my own money" view of using public money and should be eliminated using proper incentives.

Public officials in such roles should be rewarded for keeping costs in place, and given large bonuses when costs go down (as they have generated huge value for the public). These officials should be replaced when cost increases are not supportable by market conditions. Furthermore, exclusion clauses should exist to prevent them, for a period of time, from working for construction firms, firms in closely related industries, companies linked by a parent company or in a parent-child relationship with such firms. All this serves to prevent collusion that harms the public.

Annex: An Attempt at an Auction Mechanism
I envision the conduct of regular auctions of all available flats in Singapore with the reserve price on each flat set to the aforementioned resale price. Interested buyers would first register with HDB and then be issued with accounts to bid for flats. They would then place bids for each flat they are interested in.

This is my third attempt. The first attempt at a mechanism is featured at the previous post. It was not satisfactory. The second was online just briefly, but was taken down because I realized that an aspect of the proof of strategy-proof-ness was wrong and it couldn't be fixed. (I found a clear counterexample.) This auction mechanism will stand up easily to scrutiny because it is based on a well-known (and well-studied) family of mechanisms called Vickrey-Clarke-Groves (VCG) Mechanisms.

In the auction, each bid price is intended to be the maximum amount the relevant bidder is willing to pay for a flat of a particular type in a particular location. Bidders will make bids for every type of flat they are interested in. The beauty of VCG mechanisms is that the optimal bidding strategy is for a bidder to truthfully bid the actual maximum value he is willing to pay for a flat, the auction mechanism will not use this information to extract additional revenue from him. This is in contrast to situations where perfect price discrimination is possible and buyers have an incentive to hide information on exactly how much they are willing to pay.

To jump the gun, the allocation portion of the auction seeks to maximize allocative efficiency, which is quantified by the total value of the allocation to the bidders defined by the sum of bid prices for all allocated flats (including unallocated flats which are valued at the reserve price. The pricing portion charges each bidder allocated a flat a price which represents "the social cost to society of him having been allocated the flat". Imprecisely speaking, this social cost typically entails the loss to someone else who would have been allocated a flat, and as such, is typically the bid price of the bidder "next in line" to be allocated a flat (the first among the losing bidders). More accurately, the price charged for each allocated flat is precisely the lowest amount the respective bidder could have bid and been allocated the flat.

To give a concrete (albeit simple) example, if only 800 bidders compete for an issue of 1000 "identical" flats, regardless of how wildly high some bidders might bid, all bidders bidding at least the reserve price pay the reserve price for their flat. In contrast, if 1800 bidders compete for an issue of 1000 "identical" flats, the 1000 winning bidders would end up paying the 1001-st highest bid price. In the setting of auctioning identical items, the VCG auction reduces to the k-th price auction. One might visualize the results to be exactly "intersecting the demand curve with the supply curve" to determine the equilibrium price. This justifies the claim that such a mechanism is a direct (and accurate) means to price flats through the free market.

One criticism of the VCG Mechanism turns out to be a strength for allocating public housing: revenue from VCG-based auctions compares poorly to that from other auction forms. This arises as VCG enforces the property of truthfulness by charging winning bidders the lowest amount they could have bid and been allocated a flat, an amount typically much lower than the amount bid. Since the mission of HDB is to "provide affordable homes of quality and value", it may be said that selling flats at the reserve price is a mark of successfully meeting housing demand in an affordable fashion and low revenue from the auction is not, in fact, a problem.

If this takes off, there will probably be a short lived cottage industry of housing agents offering bidding services for flats, but with proper communication of what the optimal bidding strategy is, this market inefficiency (due to lack of awareness) will disappear.

In the future, I will probably post examples of the VCG auction at work.

Annex: The Allocation Model for the VCG Auction

v_ij: Bid price of bidder i for a flat of category j

x_ij: Boolean variable defining whether bidder i was allocated a flat in category j (for the bidder representing HDB, this is a not a boolean variable, but rather a non-negative integer variable)

n_j: Number of available flats in category j

maximize Sum[over i and j] v_ij x_ij
subject to:

x_ij

n_j

Where the Public Housing System Should Be (With Diagrams!)

2011-11-05T17:11:00.009+08:00

I'd like to make a quick comment on where I think the public housing system to be. The following diagram depicts the public housing market without specification of the number of flats supplied. (The market here consists of all Singaporean households with household incomes lower than the income ceiling.)

The reserve price would be the price below which HDB would not be willing to sell, reflecting cost or cost-plus. Now, I would like to consider the simple situation where all sale transactions involve purchases from HDB. With that, let me compare "low supply" with "high supply". Suppose that allocation is done according to the "most reliable market signal" of willingness to pay. Now let us consider "low supply".

With a low flat supply, only those who are willing to pay are able to get flats. Prices are high and much of the viable demand is not served due to scarcity effects. (... where viable demand denotes the number of flats that could be sold given market demand.) The above diagram reflects the perfect price discrimination scenario, which leaves no consumer surplus. (Somehow the shape of the postulated demand curve leaves little room for any consumer surplus even in the event of all falts transacting at the "equilibrium supply-mets-demand price.)

Of course, all flats are sold. Now consider "high supply".

Now, many more people can get a flat. Note that the surplus flat buffer allows for all flats to be sold at the reserve price. All viable demand is satisfied. One can see that some people without the means to pay still cannot get flats. Additional government measures may help more people to get flats, up to the flat supply. This has already been done through the creation of another housing market with a lower income ceiling. As for the rest who still fall through the cracks, I don't know. My sense is that a Singapore version of the New Deal could work.

I think the last diagram illustrates where I would like the public housing system to be. It better illustrates fulfilment of the first line of the HDB mission statement ("We provide affordable homes of quality and value"). In so far as this is a main objective of public housing, this is where we should be. HDB is doing well by ramping up supply.

A Counterfactual Public Housing System and Its Outcomes

2011-11-01T20:55:00.012+08:00

Today, I would like to examine a counterfactual. What if, in Singapore, public housing were more tightly controlled by HDB. In particular, what if purchase and sale transactions could only be performed with HDB itself and prices were controlled so as to preserve market forces based on location-based desirability while, at the same time, relieving speculative pressure. Let me elaborate on the basic mechanism behind this.

A Counterfactual Public Housing System
The sale price for a flat would be fixed upfront, according to its type and floor area. Thus, a 1000 square feet four-room flat in Marine Parade would be sold back to HDB for the same amount as a 1000 square feet four-room flat in Pasir Ris. Furthermore, these sale prices would be kept low. (This may be tweaked to account for age and recent upgrading work.) The purchase of flats would be done by sealed-bid auction, with the previously mentioned sale price as the reserve price. (The details of the auction mechanism will be outlined in the Annex.) In addition, if an owner of a HDB flat comes to own any private property in Singapore (through purchase or bequest), that person must dispose of either the HDB flat (to HDB) or the private property.

Due to the low, fixed sale prices, there would be no incentive to purchase HDB flats for speculative purposes. Presently, there is a loophole where some foreign nationals (PRs and those with dual citizenships) are essentially able to buy to rent, reducing the strained public housing supply and profiting off the misery of the "flat-less". Measures to plug that loophole will be outlined in the next paragraph. On the other hand, to avoid market distortions where a flat is priced at the same amount as a less desirable one, sale of flats will be done by (country-wide) auction (with a reserve price dictated by the nature of the flat). All this serve to ensure that the premium paid over the reserve price reflects desirability due to location, and does not contain a component pricing potential future speculative profit.

To reduce actual foreign speculative pressure, consider requiring all flat owners holding any foreign citizenships (non-citizens and citizens with dual citizenships) to certify their occupancy of their flats by certifying, in person, every quarter (or some suitable time interval), their occupancy of their flat at their local town council. This will not be onerous as town councils are typically located close by.

The philosophy behind this counterfactual system is that residents derive value from public housing based on the housing space and the location. The actual housing market, comprising the buyers, is best equipped to price this premium. Hence the auction mechanism. The premium paid over the sale price would reflect the value derived from the flat consumed by the owner over the tenure of residence and, as such, would not be returned when the flat is sold back to HDB.

Implications for Economic Vibrancy and Investment
It follows that without a concomitant increase in prices and without an accompanying fall in wages, lower housing prices will result in higher household savings. (The former two do not appear to follow from lower housing prices.)

The upshot of this is that funds would be available for the enterprising to start businesses. The less entrepreneurial would have funds to invest in those new businesses. With less funds tied up in property, the economic landscape would be fertile enough to encourage new businesses to spring forth and be nourished by the increased availability of funds.

It is not too much of a stretch to project that a number of these new businesses would introduce innovative business models and new uses of technology, thus bringing a new vibrancy to the economy. With this, investment in Singapore will no far less property driven, but rather, innovation led, as befits a knowledge economy.

Closing Remarks
The counterfactual public housing system I have proposed has a number of positive features. However, the problem is how to get from the present state to this one. In my mind, the way forward entails a number of steps (i) legislate that the divestment requirement for all public housing to take effect in a number of years (the current legislation is not retroactive), (ii) begin a two-speed public housing market where the sale of all new flats are based on this paradigm and current flats can be sold to other buyers or to HDB at the aforementioned fixed price.

Step (ii) will result in a gradual conversion of the public housing market to the aforementioned system. As newer, more desirable, flats are rolled out, the prices of current flats will naturally decline due to the greater availability of cheaper flats, as well as their age. Eventually they will be sold back to HDB at the dictated sale price, reducing the share of flats held in the old housing system.

Will this take place? It depends on the priorities of the government and the electorate.

Annex: An Attempt at an Auction Mechanism
I envision the conduct of regular auctions by district/sub-district and category (based on type, upgrading status, age bracket, size bracket, floor, etc.) with the reserve price on each flat set to the resale price. Interested buyers would first register with HDB and then be issued with accounts to bid for flats. (These accounts will be closed on the successful purchase of a flat.)

Before moving on, the auction described is probably not strategy proof. However, care was taken to reduce the potential gains of strategic manipulation to those reflecting personal preference by stratifying the flats on auction such that they have similar valuations. Having said that, auctions would be carried out as follows:

Each auction will be only for a certain by district/sub-district and category. Naturally, the number of flats will be known to all bidders as well as the reserve prices for each of the flats. The intent of conducting an auction by district/sub-district is to reduce the variation in valuation (resale price) each bidder holds for the available flats in the same category. (Note also the assumption of small per square foot prices.) Thus, bidders will specify a single (sealed) bid price. Each bidder will select only the available flats he/she desires (with reserve prices not exceeding his/her bid) and indicate a preference order on those.

The gist of the auction is that it is similar to the generalized second price auction. Readers for which the above is sufficient may skip the details and go on to the next paragraph. Now, onward. The winners of the auction will be selected in descending order of bid. While there are flats or bidders remaining in the auction, the following process takes place:

The question "Can parts of the auction be cleared at the reserve price?" is asked. Computationally, the set of bidders is partitioned into "bidder groups" such that for the bidders in a given group, all bidders there do not desire any flat selected by the bidders in all other groups. (This can be visualized by picturing the auction as a graph with bidders as nodes and edges corresponding to common demand for flats remaining in the auction.) For each bidder group, if all demand can be satisfied by allocating, ordered by descending bid price, the most desired remaining flat to all bidders, then all bidders in that group get their desired flats at the reserve price. (Note: "bidder groups" are recomputed at each step, as the removal of a flat can split groups, necessitating a re-check. Of course, a computational improvement can be made over this process.)
If the top bidder has no flats remaining on his/her list, remove him/her from the auction, doing this until the top bidder has a non-empty list.
The top bidder wins his/her most preferred flat remaining on his list at the price defined by the next highest bidder's bid or that flat's reserve price if he/she is the only bidder remaining.
The flat won is removed from all remaining bidders' lists and the current winning bidder is removed from the auction.

Bidders are obliged to take any flat they have selected and won. If a flat is declined without good reason, the buyer will be barred from bidding for some period of time.

The orchestration of the auctions, including the user interface, automation of bidding (such as bidding in a sequence of auctions until a flat is won) and other details can be ironed out at implementation.

Again, this is a sketch of a possible auction mechanism. Clearly it is an attempt, and a better mechanism may be developed. Perhaps with corrections for the (small) differences in flat valuation. (I attempted to incorporate this, but found I had to accept a mechanism with swapping of the order of awarding flats, thus I accepted non-Nash Equilibrium outcomes for comprehensibility.) Hopefully gaming this system would be more effort that it is worth. Perhaps a further analysis of the system would show that it admits epsilon-Equilibria as outcomes.

On Pay For Performance

2011-10-31T07:37:00.004+08:00

Ministerial salaries in Singapore are a bit on the high side. In a just world where everything fit, that fact would imply that Singapore is prospering (check: more or less) and the people are extremely pleased with government services, the business environment, their standard of living and the direction the country is taking. On the latter count(s), it would take tremendous sampling bias to check those off today. Thus, there appears to be a remuneration mismatch which I will attempt to delve into.

In this opinion piece, I will discuss the basis of ministerial remuneration and pay for performance. I will talk about the inadequacy of using GDP growth as an indicator and show, by example, how one may easily develop better indicators. My intent is to contribute to the discourse on how we may more precisely reward good performance on the part of our ministers and provide incentives for good policy making.

The Basis for Remuneration
The nation's leadership must be properly remunerated for the time they put in to policy making and for the associated burden of responsibility. Remuneration for this base-load of effort would be partially covered by the non-variable component of their salaries. In addition to this, the nation's leadership should also be rewarded (or punished) for facilitating good (or poor) social, economic, security or foreign relations outcomes. This position is very much in line with what the ruling PAP government has argued in explaining the justifications behind their salaries. While I agree with the idea of pay for performance, I feel it has not been properly implemented.

On Performance Evaluation
What is good performance for government and how can it be evaluated? Presently, GDP growth is used as an indicator that determines a significant portion of ministers’ (and senior civil servants’) bonuses. By and large, it is agreeable that this is insufficient to cover the gamut of areas where government has a significant impact.

In addition to the above, a significant portion of ministerial bonuses is confidential and known only to the Prime Minister and the minister in question. We shall assume that the Prime Minister is privy to the efforts that each minister puts in and is qualified to judge the quality and effectiveness of the initiatives put in place by each minister. Behind this appears to be the assumption that the body politic is not qualified to properly judge these and their input could have a distorting effect on rewarding the deserving and punishing the blundering. This is only partially correct.

Before elaborating on why, let me enumerate on the major components of performance: (i) the standard of living of the body politic, (ii) the delivery and effectiveness of government services, (iii) the state of the business environment, (iv) economic and geopolitical security, (v) the direction of the country and (vi) the effort put in by individual ministers.

I believe that it would also be agreeable that while the body politic are able to evaluate (i) thru (iii), they are not equipped with the information and knowledge to evaluate (iv) thru (vi). Conversely, the Prime Minster is far less qualified than the body politic to evaluate (i) and (ii). The Prime Minister may also be less qualified than the average business owner to evaluate many aspects of (iii).

While we might conclude that the Prime Minister and selected advisors should be the ones to evaluate (iv) thru (vi), and to some extent, (iii), we might also conclude that there are gaps in the evaluation of (i) thru (iii). Furthermore, it is (i), (ii) and aspects of (iii) that the body politic care most about and are most qualified to evaluate. As it is impractical to award ministerial bonuses by referendum, proxy indicators must be used to measure these effects that arise indirectly from the actions of our ministers. These proxy indicators must also be formulated such that the body politic would agree that they measure the aforementioned elements of performance.

On GDP Growth as an Indicator
GDP growth has little relation to (iv) thru (vi), it is also only weakly correlated with (i) and (iii). However, it would appear that GDP growth is, in some sense, being used as a catch-all to evaluate the changes in standards of living, the state of the business environment and even the quality of government services. Supporting the truth of this hunch is the fact that a substantial portion of ministerial (and civil service) bonuses depend on the level of GDP growth. If this does, in fact, reflect reality, then there is a problem.

I would like to, first, justify the inadequacy of GDP growth as an indicator by quickly explaining why GDP is only weakly correlated with (i). There can be many economic outcomes (states) in which GDP growth can be high but large segments of the population experience decreasing standards of living. It is the existence of these outcomes and the likelihood of their occurrence (we have been experiencing these outcomes in recent years) that justifies the contention that GDP is only weakly correlated with (i).

(Note: A more precise mathematical statement on the inadequacy of GDP growth as an indicator could be made along the above lines. In addition, except for effects arising from the regulation of businesses and promotion of competition, it is difficult to relate GDP growth to (ii). Also, it would take more effort and business /economic reasoning to explain why GDP growth is ineffective as an indicator for (iii).)

Proposing a Better Indicator
More effective indicators can be easily developed. As an exercise, consider using real household income growth to build one. We will use a weighted sum of average real household income growth of various segments of the population. For example: 0.5 times the average growth of the lower 50% plus 0.5 times that of the upper 50%. Extending that logic, consider measuring at finer granularities such as 10% segments of households or even 1% segments. For weights, we adopt the "democratic option" of equal weight being given to each individual regardless of income level, which is consistent with our electoral system. Let us call this indicator "Aggregate Real Household Income Growth" (ARHIG) and suppose that ten equally weighted 10% segments are used.

This indicator is consistent with findings in behavioral psychology where percentage growth is what matters and not absolute growth. In addition, prospect theory, which has been empirically verified in a wide range of activities involving expressions of preference, informs us that losses loom larger than gains, which suggests that percentage income contraction should be weighed more heavily than growth. Naturally, the difference in weight between growth and contraction should be determined by a proper survey.

Clearly, ARHIG and similar indicators correlates far better with standard of living. In fact, one could reasonably argue for a causal relation. Furthermore, income growth at all levels may be a better measure of the quality of the business environment as it measures the benefits derived by all elements of the economic hierarchy. I have not thought about this in sufficiently detail and thus can only make a conjecture. On top of all this, ARHIG is eminently easy to explain to the body politic.

As the this section indicates, it is possible to build indicators that are more relevant to ministerial remuneration. I believe in this short section, I have convincingly argued that the ARHIG that we have sketched out is superior to GDP growth as an indicator for standard of living. Competent government economists should have proposed something like this at several points, and if it was, I wonder why it was rejected each time.

Admittedly, we have worked on an indicator for the aspect of performance that is easiest to measure. With more work, one could describe an indicator for (ii) and (iii), though my sense is that a survey of sorts would be needed, necessitating a (secret) sampling process.

Summing Up
In this unexpectedly long opinion piece, we have discussed the basis of remuneration and the measurement of the various aspects of performance. I have explained why GDP growth is a poor indicator for improvements in the general standard of living. To show that it is not difficult to build more relevant measures, "Aggregate Real Household Income Growth" (ARHIG) was presented as a simple indicator that more directly measures improvements in the general standard of living. The fact that such indicators are not used do not square with the fact that many Ivy League and Oxbridge educated economists are working in government ministries. Without good indicators, "pay for performance" does not mean anything. Thus, the failure to use better indicators should be explained. In so far as the ruling party is correct that rewarding good performance is a vital ingredient for good government, the lack of good indicators of performance is harmful and is a problem that should be addressed with haste.

----

Afternote: I've computed ARHIG for 2001 thru 2010 using data from SingStat, though it is annoying to reproduce them on a blog. (So I shall be lazy and not do so.)

There is one interesting tidbit though, real household income growth over 10 years has generally not been too shabby except for the lowest earning 10% of households. They experience a -6.55% contraction in real household income. (The 11-20% decile has 10%, the 41-50% and 51-60% have about 23%, and the 91-100% have 34.85%.)

However noting that SingStat's income data excludes government transfers, such as WorkFare, we see that measures are being taken to close the gap. In fact, a quick look at the Workfare Income Supplement numbers reveals that that WorkFare would result in real household income growth over 10 years for the lowest 10% of households of around 5% to 8%.

On the flip side, these (few) numbers do not provide a clear picture as only households with at least one working member are counted. Ideally, unemployed households should also be accounted for.

Afternote 2: This article was also published on New Asia Republic.

A Route to Value Creation: Cut Out Unnecessary Middle Men

2011-10-30T02:24:00.002+08:00

Rentals for food stalls in Singapore are high. This comes as no surprise when rental to stall holders is done by real estate companies who have won government tenders to run a food centres. To quote an article reposted at the HardwareZone forum: (I can't find the original.)

Recall the fiasco last year, after the Housing Board put up a tender for a market and food centre to be wholly operated by a private operator in Sengkang. This was a pilot project following calls from HDB flat dwellers for wet markets and hawker centres to be built.

Renaissance Properties, a subsidiary of foodcourt chain Kopitiam, beat 24 others with the highest bid to build and run the centre at $500,100 a month. That bid, however, translated into rents as high as $6,000 per stall, which is more than double the average rent for a stall in an NEA-run centre. As a result, stallholders charged about 30 per cent more for their cooked food than stalls elsewhere. Residents complained, or stayed away. Business was poor and some stalls were forced to close.

...

Throughout, hawker stall rents have been kept moderately low, as an incentive for hawkers to price their food affordably. About 42 per cent of stallholders in NEA-run centres pay subsidised rent of between $160 and $320 per month. These are either hawkers who were relocated from street stalls, or their immediate family members.

The other stalls are tendered out for between $300 and $4,900 per month. This rental is based on a valuer's assessment, taking into account stall size, location and the prevailing economic climate.

The contrast is stark. Before delving into the underlying economics, consider the following exchange that occurred in Parliament last year. In March 2010, then Hougang MP Low Thia Khiang argued in Parliament that competitive bidding for land to build these centres might result in high prices for consumers. Then Senior Minister of State for National Development Grace Fu disagreed. She said that private operators need to ensure that what is sold is affordable and relevant to the needs of residents, and that it would be presumptuous to say that a market which is operated by a private operator would lead to high prices.

With respect to her station, she is wrong. Basic undergraduate level economics would inform one that the commercial operator would attempt to raise rents as high as possible while making the rental transaction feasible with respect to the stallholder's participation constraint. Stallholders will participate in the rental transaction as long as they are able to make a living at the store and will raise prices if necessary to do so. This contention can be supported empirically. Kopitiam is known to attempt to estimate revenues of their tenants and raise rentals for the stalls that are doing well. It would be unsurprising if other landlords do the same.

(Naturally, if a stallholder expects to be able to make a better living at another location with a different rental, he will. However, when NEA-run stalls are not available, stallholders have to turn to commercial landlords, who have no incentive to lower rentals as they know the market can sustain their asking price. )

High rentals and raising rentals for successful stalls are a mechanism landlords use to transfer the economic value generated by stallholders to them. This strikes me as unfair. Without commenting further on equity between landlord and stallholder, I'd like to point the reader to the obvious negative externality that the economics leads to: higher prices, which reduce value for Singaporeans. The fact of the matter is, both theory and empirical evidence point to private profit seeking operators causing higher prices. The onus is thus on SMOS Fu to show that they do not.

On a more general note, this highlights a more general problem where the government enables middlemen to extract economic value from the primary value generators while generating little value themselves. In certain areas, middlemen do generate value. For instance, linking borrowers to savers is an economically valuable role performed by banks.

The government's justification for outsourcing tasks like management of food centres is that it does not want public service manpower performing non-core tasks. The government should bear in mind that this should not be done at the expense of value for the public.

It is axiomatic that commercial entities will not take on projects if good profits cannot be made. This profit has to come from somewhere. The government should keep this in mind when divesting operations. Where middlemen are unnecessary they should be cut out, otherwise they will extract value from the end-user (the public). In such cases, the public service does the people no service. Presently, value can be recaptured for the public (and value generators) by rolling back divestments that destroy value for Singaporeans.

Economic Data Should Be Revealed to All

2011-10-25T23:55:00.005+08:00

I refer to two recent Straits Times articles "Academics call for more detailed, regular data sharing" (25 Oct 2011) and "Two areas where information gaps can be plugged" (25 Oct 2011). I largely agree with the positions taken by academics on availability of data collected by government agencies.

However, one of the articles hints that some academics have been lobbying for economic information to be revealed to them without public release. One of the above articles reported that an economist has urged the Central Provident Board to "trust Singaporean academics not to reveal data at the micro level". I believe such selective revelation to be wrong.

I take exception to the implicit contention that academic economists should receive raw economic data from the government while taxpayers and business owners who actually finance the collection of that data are kept in the dark. More tangibly, such data has commercial value and should be revealed to all so as to avoid granting unfair potential commercial advantages to a few parties, current and former government employees included.

It may also be noted that private sales of the results of analyses of the data may take place that do not violate the letter of any agreement to not reveal raw data. In fact, to the numerically savvy, this can be done in a manner such that it becomes relatively easy to "invert" for a good partial picture of the raw data. (The technical term would be to deconvolve aggregated results.)

Furthermore, selective revelation poses the further problem of selecting from the number of academics assessed to be competent enough to produce useful analyses those that are "trustworthy".

All data should be released so all businesses and analysts can benefit from it to the extent of their capability to analyse. This is the fair option, and the Singapore economy will be richer off for it.

On Singapore's Long Term Economic Viability: Tertiary Education in Science and Engineering

2011-10-24T11:26:00.003+08:00

(This rant was published in edited form at New Asia Republic on 4th Nov 2011.)

The key to the long term economic viability of Singapore is not government prescience in selection of the next big thing. Rather, the "key driver" will be the quality of education our young receive. A series of knowledgeable and well-educated cohorts will be able to identify opportunities and innovate to grasp those opportunities. I would like to focus on science and engineering graduates as these are the necessary "skilled inputs" required for a healthy high-value-added economy.

It is disappointing that the quality of output from our universities is not exactly up to scratch. Most are not capable of independent application of what they have learnt or should have learnt in school. Few are willing to learn new/subsidiary skills and even fewer have the breadth and depth of knowledge to make their learning process efficient.

Many will disagree with me. Most will be part of the group I am referring to. Sadly, many employers will probably agree with me. In addition, I believe that a number of local university professors will agree with me. I did my undergraduate studies at NUS and one of my professors told me, some time ago, that "the quality of Singapore engineering has fallen." (He presently holds a high appointment in the school, and naming him may do him a big disservice.) From my previous interactions with university professors and people who assess potential hires for technical ability, most do not expect much from fresh graduates and seem pleasantly surprised when a one exhibits knowledge and demonstrates capability.

I wouldn't blame the faculty. The incentives present in society rewards middlemen who have constructed a system where they oversea financial flows and take a fraction of the financial flux as a cut. As such, many who choose to read science and engineering look to a career in financial intermediation, "connecting financial supply to demand". Intermediaries are useful to have -- money itself, which makes transactions convenient, is an intermediary. However, with the arguably incorrect reward system, the rush into finance is impoverishing the world due to the fall in creation of real economic value. Furthermore, textbook supply and demand does not work due to monopoly effects: there is basically one financial system (... and this should change so the free market can kick in). With that background, many science and engineering students primarily seek only to obtain a paper qualification that indicates some quantitative training and at the same time gives them license to apply for a technology job. What this causes is a lack of interest in coursework and eventual lack of knowledge retained after graduation.

Many engineering graduates lack the confidence or ability to do engineering. Most of those who do take up engineering jobs take on sales roles or roles that previously would have been done by non-graduate technicians. The booming of the financial services industry has been a boon to many who take on sales jobs and work on basic quantitative analysis. Most do not even know how to properly price a financial derivative and end up selling products that they themselves do not understand. (Insurance policies are in essence financial derivatives too.)

(In fact, I have even met "scholars", including those who studied overseas, who cannot describe even in a cursory manner what they did in their final year projects not 5 years ago. Can one reasonably forget work that one recently spent a year or half a year on? This hints at a larger problem in new and upcoming members of the workforce.)

This is a sorry state of affairs and does not bode well for long term economic viability. Without going into what I see as consequences of this, I would like to propose a measure to ameliorate this. I believe that local universities should raise the bar substantially and only allow students who have demonstrated a good level of proficiency to pass courses (and hence, graduate). Universities should not be afraid of failing students who are not yet competent in their coursework.

Why do this? I believe that in science and engineering, most of the value is created by those who have at least some threshold level of knowledge and capability. I do not refer to "the talented tenth" or any notion that hints at a top X%, what I mean is that some approximate level of knowledge and capability that generates network effects of knowledge, making the individuals within which such a dynamic exists proficient value generators. Now, rising waters lifts all boats, but does not leave all intact. Competency levels will be raised, but some will not be able to graduate. That is fine, in my opinion, those people would not have made good scientists or engineers anyway and would definitely have trouble on their own in the job market.

What may not be easy to predict is whether even more would like to pursue quantitative finance (as opposed to sales roles) as a career given the raised capability levels. I do not think I can address this issue here.

In the short term, the value of a science/engineering degree will be raised, and new graduates will be able to find good jobs more easily with employers having greater confidence in the technical competency of job applicants. Graduates will also have been equipped with a good level of knowledge and facility with that knowledge to confidently do their work effectively and pursue new knowledge when the need arises.

On the flip side, this will cause a dip in the number of science and engineering graduates with those who are unwilling or unable to handle the rigour. However, I would argue that the number of engineering graduates should be raised not by lowering standards, but rather through the force of personal aspiration on the part of students. We should not play with our nation's long term economic viability to raise a KPI in the short term.

Operationally, this will demand a greater focus on teaching in universities, meaning more staff will be needed and changes in remuneration policy will be required rigorously assessed projects are not practical from the standpoint of manpower, a shift to high stakes examinations will take place. While the benefits of high stakes examinations is debatable at the primary and secondary levels are debatable, sound reasons exist for institutionalizing them at the tertiary level. To argue by example, building a bridge is a high stakes project, and the skills that go towards building that bridge should be rigorously ensured. If these skills are not demonstrated through (rigorously assessed) project work, challenging examinations will have to serve as a proxy.

Notably, with high stakes examinations, professors will be hit more often with the "annoyance" of students griping about grades. I would argue that greater transparency in marking would be a solution. By allowing students access to their marked papers and the marking guide, fewer frivolous requests for review will take place. (Papers could be scanned and the images made available to students.) Furthermore, releasing marked transcripts and revealing marking guides might turn out to be a useful post examination review with high pedagogical value.

I believe that raising standards at local universities will be necessary for long term economic viability. This will involve potentially expensive operational changes, but the net effects will be well worth our while. What I am certain about is, we cannot continue this way or future Singapore will be largely populated by port workers servicing ships making brief refuelling stopovers.

The Proper Role of Business

2011-10-17T22:46:00.003+08:00

Business is the expression of the productive urges of individuals expressing their skills and capabilities, and seeking, in a sense, to be valued by others. In this sense, business is intricately bound up with self-hood is an important part of life and being alive.

Problems arise, however, when business is perverted so as to subordinate life for the sake of profit, robbing the many through cunning schemes.

As such, we should always remember that business is and should always remain a vehicle for self-actualization. Selves should never be consumed for the sake of business. For a nation to forget this, pain will necessarily follow. With luck, there will be regret and there will be learning. I, however, will not be keeping my fingers crossed.

On Producing High Value While Tolerating Low Quality,

2011-10-13T22:25:00.004+08:00

Just a short statement on this matter. I've noted that HDB has been telling citizens that they have to tolerate things such as noise (due to bad sound proofing) while residents of other developed nations have well defined regulations on sound proofing. To make a sweeping statement, albeit with broad truth, this reflects the larger picture where the government admonishes Singaporeans to be cheaper, better and faster, while telling them to bear with teething problems of administering the country.

I do not think it is possible for all Singaporeans to aspire to high productivity while enduring unsatisfactory responses from government representatives.

Naturally, there is one way to go: Better, faster gahmen!

Ramblings on Self-Radicalization

2011-10-01T12:38:00.003+08:00

The ruling party and the state-controlled media has more or less issued a blanket condemnation of critical voices online as "noise". In addition to making the claim that these voices have little to offer, they have also said that some of the individuals get their information from a limited pool of sources and end up "self-radicalizing". Having been previously used to refer to those who have perpetrated or planned to perpetrate lone wolf terrorist acts, this term has taken on a very negative conotation.

In a way, this as an attempt to draw an artificial dividing line between "us reasonable people" and "those who would promulgate senseless chatter" that is wasteful and should be "considered harmful". I'd like to ramble a little about this so called "self-radicalization" and consider why it may be the appropriate reaction of reasonable people.

When one hears of famine in Africa and children dying, one feels sad. When one hears that many innocents were killed in a terror attack, one feels angry. When one is told of how one's social/ethnic group has been systematically marginalized by those in power, one gets very angry. Information often supplies the motive force for one to take action. This information may be unbiased or biased. Whatever the case, if it is taken to be a good reflection of reality and resonates with the recipient, that individual may be driven to action. This is a fact of life, and applies to all but the most apathetic.

Perhaps this is why people leave well-paying jobs to serve the underprivilleged; this is why people volunteer to support social causes; this is why positive action happens. (The flip side to this exists and should be acknowledged.)

Naturally, news and direct observations about the state of Singapore naturally touches Singaporeans; Information about the way the ruling party and its associates behaves would necessarily have resonance with Singaporeans. When people feel that something is wrong, they are driven to say something. Inarticulate as such a statement might be, there is probably something behind it. If it is backed by action, it is all the more certain that something is behind it.

Since disenchantment and jadedness sets in when good intentions are thwarted and denigrated, the prevalence of the jaded Singaporean can be easily explained.

So the question for the labellers to ask themselves is, why are people being, in their words, "self-radicalized". Simply tossing out a label is cheap and somewhat dishonest. When people are driven to action, something important and salient to them probably underlies that action. The only responsible thing to do is to find out what drives such action, and address it in good faith. Anything less is not acceptable.

Some Ramblings on Privacy and Security

2011-10-01T12:12:00.002+08:00

Telecom companies have access to a lot of information on us and our activities. Given a cellular phone connected to a telco's network, that telco is able to store a time series of approximate locations of that phone. By appropriate computational post-processing, this time series can be made even more accurate.

Power companies, too, are able to monitor power usage in our homes, and by trying to solve an appropriate inverse problem, are able to estimate what is going on. This might entail what appliances are present, and what kinds of activities occur at what time.

The question is, what do we, as a society deem to be reasonable use of that information. In some manner of speaking, we are willing to trade some privacy for security. On one hand, there will be little opposition to the use of cellular phone tracking to pin point the location of terrorists en route to commiting a planned attack. On the other hand, the sale of such information to commercial entities for marketing purposes will be frowned upon by society at large.

Legal and regulatory lines have been drawn, so I will not go into those. However, in the wild west of the global network, one concern is the security of such information. Nefarious parties may get access to such information and use it for their profit. Even more sinisterly, unethical elements in telcos may collude with such nefarious parties to open backdoors to stored data and hence sell private information through a criminal front while hiding the breach.

Storage should be avoided to protect privacy. However, storage is necessary to identify possible terrorists through data mining. It is thus thoroughly annoying that telemarkets turn out to be the proxy elements of terrorists, causing daily disruptions costing millions in lost productivity daily. Once again, the terrorists win.

On Investing Sovereign Wealth

2011-08-23T18:28:00.007+08:00

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

2011-08-17T18:42:00.004+08:00

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:

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.

-
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?

2011-08-16T23:40:00.003+08:00

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.

---

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

2011-08-14T19:39:00.004+08:00

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

2011-08-04T13:31:00.003+08:00

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.

--
In closing, let me offer up the following scenarios:

Scenario 1:

T - x: Study Begins

T: Announce Conclusion

T + y: Implementation

Scenario 2:

T - x: Study Begins

T - x: Announce study

T: Announce Conclusion

T + y: Implementation

Scenario 3:

T - x - y: Receive private lobby

T - x: Study Begins

T - x: Announce study

T: Announce Conclusion

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

2011-08-02T20:57:00.006+08:00

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.

On Fairness in National Service

2011-07-30T15:27:00.003+08:00

The recent fracas about Dr Patrick Tan, son of presidential hopeful and former DPM Tony Tan, arguably escaping a doing proper NS term raises the old issue of fairness. Let me outline some of the relevant considerations:

Patrick Tan's background would have made him a suitable "Defence Medical Scientist".
If the position was created just for him, it points to nepotism. On the other hand, it may have been his case which highlighted the usefulness of creating such a post.
If the position was not retained following his exit, the evidence of MINDEF functioning with both fear and favour would be rather damning.

I haven't been able to find anything about the role/career of "Defence Medical Scientist" on the MINDEF, DSO and DSTA web pages, so I've tentatively resolved the greyness for myself on this matter.

On my own experience, I myself disrupted, did my undergrad degree and my masters in what might essentially be operations research (same as Tony Tan amusingly, and at the same institution). Now, when I came back, I returned to 3rd Battalion Singapore Guards to a combat role. It was a good time. I did another ICT in July (it was a high key), and it was fun too. I can't really complain too much.

However, I could have been better deployed, the only time I used my knowledge was when I did a simple network simulation for NDP 2008 to identify choke points in the movement of performers to and from the floating platform. There was a certain SAF Operations Research Office in MINDEF and I would have definitely been better deployed there. My skill level would have been, conservatively putting it, between that of a Senior Analyst and Principal Analyst, and since the equivalent pay would be between $5k-$8k, that would have meant considerable cost savings to MINDEF, along with the introduction of new ideas to that office. (Well, the money may be peanuts to a certain some, but the ideas would be even more expensive to buy.)

It would not have been too difficult for the Central Manpower Base to have conducted interviews with returning scholars to determine if they might be better deployed elsewhere. It is markedly unfair if this process is only available to the privileged and well connected.

If the purpose of National Service is to train young men to be a cohesive fighting force to serve as a credible deterrent, the claim that a descendent or relative or a minster can better serve the nation in NS by not really doing NS is highly disingenuous and dishonest.

Singapore and The Talented Tenth

2011-07-24T11:38:00.003+08:00

William Edward Burghardt Du Bois graduated from Harvard, where he earned his Ph.D in History, the first African American to earn a doctorate at Harvard. One of his most memorable quotes reads:

The Negro race, like all races, is going to be saved by its exceptional men. The problem of education, then, among Negroes must first of all deal with the Talented Tenth; it is the problem of developing the Best of this race that they may guide the Mass away from the contamination and death of the Worst, in their own and other races.

with the clarification that

... the power of this aristocracy of talent was to lie in its knowledge and character, not in its wealth.

I would argue that a position like this is precisely that which is behind the Singapore government scholarship scheme and other highly exclusive talent development schemes in the civil service. The obvious, and most serious, problem is the identification of "the talented tenth". It is my position that this problem has not been solved.

(In response to any personal attack of the sour grapes variety, I was/am a PSC Scholar and gave up the chance to be assessed for absorb-tion into the Administrative Service in favour of doing more engineering work.)

At the other end of the ladder, which begins with scholarships and the "all important" GCE 'A' Levels, is cabinet - "the talented 1/100000". Again, the long selection process suffers from a similar but lesser problem. While the issue of capability is largely solved, issues of motive remain. Will they work to guide the Mass away from contamination and death? This has consistently been on trial in the public sphere. To play the devil's advocate, can there be smoke without fire?

Later in life, Du Bois came to believe that leadership could arise from many levels, and that grassroots efforts were also important to social change. He wrote that:

When I came out of college into the world of work, I realized that it was quite possible that my plan of training a talented tenth might put in control and power, a group of selfish, self-indulgent, well-to-do men, whose basic interest in solving the Negro problem was personal; personal freedom and unhampered enjoyment and use of the world, without any real care, or certainly no arousing care as to what became of the mass of American Negroes, or of the mass of any people.

This time, his position was consistent with observed outcomes around the world. While Singapore has been busy learning about development from the West, it may have neglected this trajectory of development. Sadly.

---

Further Comments:

These "cut-off" schemes are extremely ugly from a mathematical/engineering/risk point of view. They are highly discontinuous and do not provide a good hedge. Purporting to have correctly identified the talented 1/10000 or 1/100000 is not only arrogant but stupid. (Considering self-selection, I would grant that it may be successful in identifying the politically ambitious 1/10000 or 1/100000.)

It would be good to move for a more broad based distribution of resources to kindle the talents of many that may be otherwise obstructed by socio-economic obstacles.

Leaders, Coordinators and Executors

2011-06-13T22:17:00.004+08:00

I've been thinking about leadership and what it means. Here are some of my thoughts:

Leaders are at the head of a series of roles that must be filled for an organization to succeed. Leaders outline where the ship is to sail and chart the course. They dwell at the intersection of vision and strategy, outlining the vision and working out, in broad terms, how it might be achieved.

Supporting the leaders is a group akin to what most know as senior management. They keep the vision in view, while working predominantly to develop strategic thrusts that further the vision. At the same time, they remain aware of how strategies can be made operational. They connect the vision to the tangible operations that collectively work towards its achievement. These are the coordinators.

Supporting this group, in turn, is a group that handles detailed operations while keeping the relevant part of the strategy in sight. These are the executors.

Certainly, one could generate a continuum of roles working with vision, strategy and operations. Allow me to throw some (purely indicative) numbers together to an indication of what these roles are like:

Role \ Type of Work	Visionary	Strategic	Operational
Leader	50%	45%	5%
Coordinator	15%	65%	20%
Executor	0%	20%	80%

Again, the numbers are purely indicative. Note that this is my personal take on leadership and may differ from treatments of leadership elsewhere. (So as usual, caveat emptor.)

I feel that the correct progression of activity is to start with a vision of where to go (or at least a direction), then develop strategic thrusts that move one towards that vision (or in that direction), and finally to develop operational initiatives in line with the various strategic thrusts. (i.e.: It doesn't make sense to decide what to do and then figure out where that will take you.)

It is amusing how one comes to the question of leadership from so many different angles. In fact, one perspective of leadership is that it is the art of living, a fair and interesting perspective that comes from the point of view of self-improvement and personal fulfillment. One comes to the question of leadership when a cloud of operational tactics and strategic thrusts need a guiding principle.

I sorely regret not paying attention to leadership in the past, thinking it a subject for insufferable blowhards. Paying attention now, perhaps, is not too late.

Revisiting Regulation in Singapore

2011-06-07T08:17:00.004+08:00

I've written to the ST Forum again about IDA's weak regulations in response to another reported "ISP incident". I did so earlier this year, raising the example of the $5,000 penalty (per month) for violating Quality of Service requirements. IDA neatly sidestepped the issue with a non-sequitur. (See: An earlier post titled "Regulation of Industry")

While I call for more stringent regulations, I am not an uninformed Luddite whose crazed propositions would tear down the economy. I understand that Singapore's survival is predicated on a strong economy. Today, we have a decent to good economy, with business-friendly regulations and business-friendly labour policy.

However, in recent years consumers have suffered. The minibond saga is emblematic of this, with Hong Kong investors getting relief while Singapore investors lost most of their principal to (what I believe to be) deceptive marketing practices (and a touch of greed fogging their vision). Telecommunications too is a much complained about industry.

To be a great economy, corporations and consumers in Singapore will have to work in partnership. This can only happen with equality in the said partnership. When corporations have too much power, they use that power in an easy route to gaining economic benefits as opposed to the tougher route of innovating and developing ever better goods and services. Thus, government regulations have a role to play in this: creating a healthy business environment for both firms and consumers.

Good regulations are necessary for us to go from Good to Great.

----
Addenda:
Now, allow me to attach my letter to the forum, which I've just sent off. (So I'm unsure if they'll publish it.)

I refer to the letter "Poor show by SingTel after broadband disruption" (Jun 7, 2011) by Garrick Woi, who, in late April this year, suffered a 16 hour long disruption to his broadband access along with others in "limited residential areas". He reports the lack of communication on the part of his ISP and difficulty getting information on the outage.

I believe that a blase attitude has been encouraged by the weak penalties specified by IDA's regulations, which are not stringent enough to shape good behavior on the part of ISPs. For example, Quality of Service violations, which are necessarily severe, warrant a fine of $5,000 a month. When preventing an impending outage or swiftly remediating an outage would cost significantly more than $5,000, ISPs are encouraged to take no special remedial action, especially in view of the fact that customers are locked in to long term contracts. The "sense of responsibility", that might nudge them in the opposite direction, should be bolstered by a strong set of regulations.

I've written to the ST Forum ("Slow broadband: IDA's rules are not effective enough", Mar 28, 2011; "IDA yet to address crux of issue"; Apr 11, 2011) and to IDA on the weakness of existing regulations, but their reply neatly side-stepped the issue ("Broadband speed not part of service quality standards", 2nd Apr 2011).

In the 16-hour outage affected home businesses would have lost revenue and reputation, and probably will not be compensated due to difficulty in reigorously quantifying the losses. Similarly, it is unlikely any answer to Mr Woi's question "Can affected customers claim compensation for the service disruption?" will be to his satisfaction.

I invite IDA to answer, directly, whether it thinks a mere $5,000 penalty is justifiable for a violation that could lead to losses orders of magnitude above it. This is a matter of national econmic interest. I hope IDA will review it's internet regulations and establish a comprehensive set of rules and penalties that are fair to ISPs and customers.

Internet regulations are a side-show in the grand scheme of Singapore's economy. There has to be a change of mindset on the part of regulators, bearing in mind that regulations should make it easy to conduct business responsibly. Allow me reiterate my conclusion: Good regulations are necessary to take Singapore's economy from Good to Great.

On a Dam, Heavy Rain and Floods: Engineering Ramblings of a non-Civil Engineer

2011-06-06T22:40:00.000+08:00

In the wake of one of many recent 50-year floods, Minister for the Environment and Water Resources (MEWR), Vivian Balakrishnan, said that all planning norms have to be reviewed "taking into account the very high probability that our weather patterns have shifted". (Note: it's not his fault. He's only just been appointed to helm MEWR.)

On the matter of the floods, I find it bewildering (or telling) that no one in government has publicly asked (and answered) the most basic systems-level question: "What has changed?" The first answer to that question is that the Marina Barrage was built.

Construction of the dam started in 2005 and was completed in 2008. Government estimates have that it would reduce flood-prone area in Singapore from 150 ha to 85 ha. At this point, I am suspicious at the validity of that estimate. I'm no civil engineer, but let's just talk things through.

Collection of water in the Marina Reservoir itself, is not a factor that encourages flooding even in high intensity rain like the 65mm in 30min of 5 June 2011. A crude estimate of the area of the reservoir is 1.5 million square meters, ensuring it collects about an average of 54 cubic meters of water per second in such rain, which is just over a sixth of the capacity of the pumps in the Barrage (280 cubic meters per second), so there is no problem dumping out just that amount of water. But what about when all the water from the CBD comes in? I'm not sure what multiple to use, but it appears that the CBD and all the area channeling water into the Marina reservoir may have more than ten times the area of the reservoir.

While it sounds like even an open channel (~350m wide) would not be able to discharge as much water as the pumps, it is notable that the Barrage raises the water level of the Marina basin and that of the water table of the central area. If I were to hazard a guess at outcome of the possibly complex impact on the drainage system brought about by the addition of the Barrage, I'd say that due to the raised water level (relative to pre-2005 levels), the Barrage may well reduce the rate at which rainwater can be removed in the drainage system (through the reduction of the "linear hydraulic head loss" or "slope of the water surface", reducing flow rates) and through percolation into the ground (since the water table has been raised). One might guess that (the limited) percolation into the ground provides some buffer time (whose magnitude I'm not sure of) so the drains will be able to remove a decent amount of water. On the possible flow rate again (determined by the "linear hydraulic head loss"), the opeartion of the pumps might be able to increase it, but the effects would most certainly take time to propagate back towards the town area. Thus, by some magic hand-waving, it is not clear that the post-2008 situation is less flood prone.

I do hope that all this was considered in the feasibility study for the Barrage. Call me skeptical, but I do not think the "vision" of a lawyer named Lee should take precedence over sound engineering analysis. (... which this is not, exactly, though the questions asked may be featured in such.)

But before blaming the Barrage, let us try to look for more direct causes.

Singapore has had storms before, and a cursory comparison via looking out the window does not seem to support any marked increase in intensity. While the numbers do indicate that the June rains have been rather intense, though it is not clear that "climate change" has occurred. Even with a change in weather patterns, there is no reason to believe that these numbers would not increase fairly continuously without any huge jumps. ("Chaos" in weather does not work as an explanation unless Singapore is in a special "attraction" basin for storm clouds, which, if so, would be apparent in large changes in annual rainfall.)

Some relevant numbers:

5th June 2011: 124mm in the Central Area (with 65mm within 30min)

16th June 2010: 100mm within 2 hours (leading to flooding in Orchard Road

More numbers from 2010

Average rainfall in June: 161.2mm; Average rainy days: 13. (Averaged over more than a century.)

20 Dec 2006: 24-hour rainfall recorded was 366 mm, third highest 24-hour rainfall recorded in 75 years.

1969: second highest recorded 24-hour rainfall (467 mm)

1978: highest recorded 24-hour rainfall (512 mm)

Absent any other information, we should then ask the question of whether over the past years, during periods of relatively high rainfall, drains were filled to near capacity. If this were the case, it would explain the discontinuous effect where a non-drastic increase in rainfall leads to so many (statistically speaking) 50-year floods. It would then clearly not be due to the construction of the Marina Barrage. The question then becomes, if this were the case, why wasn't anything done to prevent flooding? Drains filled to near capacity clearly implies that a reasonably probably variation in rainfall could easily lead to a flood. Was a cost-benefit analysis done or was this just not noticed?

If, on the other hand, during periods of high rainfall, drains were not anywhere near filled to capacity, there is a stronger case that the Marina Barrage is the cause. Again I ask, albeit more specifically, did the team that built it assess the impact of the dam on drainage. Some of this could have been easily done by numerical simulation.

Whatever the likely cause, a lot of economic damage has been done by the floods and there are questions to be answered.

We the Citizens: A Call for the Articulation of a Clear National Direction

2011-05-29T22:35:00.006+08:00

Singapore seems to have been, for the past decade, floundering with no well defined heading. Granted, there have been some great new initiatives such as NParks' work in building a greener and more pleasant environment, as well as forrays into large scale event management (with mixed results), but it appears that the only truly concerted movement has been increasing the population, as seen in extensions of the rail network to and relatively rapid building of housing in the northeast. Most lists of Singapore's major achievements do not contain anything post-2000. This leads to the question of whether our leadership thinks we are "there" and only minor incremental moves are necessary. I would most certainly disagree with that proposition, pointing to clear quality of life issues that are widespread.

As a national direction, I would propose something familiar. As a statement of objectives, it reads: to build a democratic society, based on justice and eqaulity, so as to achieve happiness, prosperity and progress for our nation. (Nostalgically: 建设公正平等的民主社会，并为实现国家之幸福、繁荣与进步.) That definitely sounds good and agreeable to most, though it need not be the direction for our nation as articulated by the government, but there are compelling historical reasons for it.

We need a direction to tack to and it should be clearly articulated. It will serve as a set of principles and objectives to verify all legislation and initiatives against. Conversely, such a direction may be used to design and formulate legislation and initiatives.

With apologies for the abstractness, this call for an articulated direction is basically an appeal for a statement of mission, vision and values, on which strategic thrusts and the crafting of initiatives may be based. We need this, or, like corporate entities without one, be destined to flounder and envying the increasing success of others with clarity of purpose and alignment to that purpose.

I propose that the formulation of a clear direction be done in Parliament. The pledge could be the basis of one. It should be bourne in mind that goals like "ensuring security" and "promoting growth" are of a strategic nature (supporting the mission and vision, respecting the values). Let's do this right and get Singapore on the road to success upon success. Is any MP up to the task of raising a motion on this matter?

A Major Pitfall of Consensus in Quantitative Group Decision Making

2011-05-20T06:11:00.002+08:00

The use of quantitative methods for decision making is popular in the public sector as it affords decision makers a more defensible grounds for decisions and make them less second-guessable. Most decisions, such as who to award a contract to or what action to take, entail a group of public officers making decisions.

Supposedly, it is argued, inconsistency arises from differing opinions and "consensus" has to be reached. In the Singapore Government, the Analytic Hierarchy Process (AHP) is used to make purchase decisions for large buys. The award of the Marina Bay Sands and Resort Worlds Sentosa contracts are examples of decisions made via the AHP. The AHP is tolerant of inconsistency and one can "measure" it via a metric called the Consistency Ratio, which paradoxically is a measure of inconsistency rather than consistency.

Though seen as a necessary aspect of group decision making, the allowance for inconsistency can, nonetheless, be taken advantage of to promote an alternative by an interested party amongst the decision makers. This is especially true when the allowable margins for inconsistency are large as are those for the AHP. Such issues may arise in other quantitative group decision making methods.

Globally, for the AHP, practitioners take the recommendation of the inventor of the method that the Consistency Ratio should be less than 10% (8% and 3% for the special cases of 4 and 3 alternatives/criteria respectively). These guidelines, I have found, are unsatisfactory. Originally, I noted how obtuse the definition of the Consistency Ratio was to decision makers (even to those who are mathematicians and engineers). The Consistency Ratio is defined in terms of the eigenvalues of a matrix of preference ratios. On the face of things, one would not be able to tie the metric meaningfully to inconsistency as people might intuitively understand it or model it quantitatively. I made an attempt to link the Consistency Ratio to a model of error in related human judgments (i.e. inconsistency) and found how poor the accepted guidelines are. (Draft article here.) My sense is, the guidelines have not been tightened because few on the planet understand the Consistency Ratio.

On the flip side, many people have a good feel of how much inconsistency they can get away with without even getting close to violating the Consistency Ratio guidelines. This statement probably extends beyond the AHP. I claim that a member of the decision making group with a hidden agenda can push for certain strategically chosen judgments that will (possibly strongly) affect the decision, but be accepted by the group for the sake of "consensus". This is basically it.

What I would recommend, however, is that groups of decision makers be forced to bite the bullet and ensure consistency in their judgments. This would inoculate the decision from inconsistency-based subversion. People will have to work harder, but the fact of the matter is, consensus is meant to be an agreement on a position, not a disparate cloud of judgments that do not quite mesh with each other. In a manner of speaking, advocates of allowing "inconsistency" as a necessary byproduct of group consensus are promoting laziness in group decision making.

On a separate matter, I've also written on a vulnerability and failing of the AHP, how one might go about manipulating it, and how a minimal modification would solve the problem. (Article here.)

As a post script, I would recommend that the public understand how public money is being spent, so as to be able to check "government excesses". Somehow all this aspect of decision making has a bit of the flavor of the Sophists, who were accused of teaching a system of false and pernicious tricks of verbal fence whereby anything whatever could be proved, and the worse be made to seem the better. Would anyone like to be coached in numerical sophistry? I'm sure I could come up with a syllabus if there is sufficient interest. And like the Sophists, I will charge tuition.

In a manner of speaking, the "government excesses" I alluded to might entail things like the purchase of 472 designer chairs costing $575 each by the Ministry of Manpower. In reply to queries, a MOM spokesperson said, "We conducted an open tender in accordance with government procurement guidelines. The brand of the chairs was not specified in the tender invitation... Taking all these factors into account, the successful tenderer meets our requirements and offered the best value for money over the lifespan of the chairs." A $272,000 purchase does not mandate the use of a quantitative method like the AHP, which leads one to wonder how the decision was arrived at. If the details of that procurement decision were made public, I hope it would stand up to scrutiny.

The SG World Cup Broadcast Foundation for WC2014 Broadcast Rights

2011-05-17T00:13:00.005+08:00

The 2010 World Cup was an embarrassment for Singaporeans. We were fleeced by a FIFA that today (that is, May 2011) happens to be the subject of allegations of corruption (kickbacks to secure Russia's WC 2018 bid).

I'm not sure how much was paid but Wikipedia (via Reuters) records it to be SGD $21M. This is at variance with the hundreds of millions I heard bandied around in the local media. I'll assume that SGD $21M is the right number since with 250,000 viewing households, this comes to about $80 per household, which advertising should, ideally, drive down to $20. Note that the $21M figure is an escalation of about 33% in price v.s. the rights for the 2006 World Cup, again with numbers from Wikipedia.

It would be good if we were no longer victims of FIFA. Let's start a foundation, named the SG World Cup Broadcast Foundation, as a bidder. A few things to do to make this work:

Tie up with MediaCorp to broadcast it on free to air TV. In return, they get a fraction of the advertising revenue.
Get payment pledges from Singaporeans and the right to deduct up to some fixed amount by GIRO. (Say, with an estimated 250000 viewing households, a $50 maximum payment each gives $12.5M in pledges.) If it all falls through, nobody pays.
Get advertising pledges. An auction mechanism is to be used for this (say a 2nd price auction with a reserve price, though a combinatorial auction will be more likely). Winners are legally obligated to take the slots they win.

How this works is, if there isn't sufficient popular interest up to a certain amount say up to $12.5M in pledges, no bid is made and the whole thing falls through. If people do not care enough to pay to watch, they shouldn't get to watch.

If there is enough interest, a bid will be made up to what is made possible by promised advertising revenue. To give a sense of what is possible, look at the available advertising slots:

Each match allows 90 min of low key advertising and about 15 min of high key advertising (5min before and 10min during the 15 min halftime). Matches at different stages have different value. Valuing matches only from the Round of 16 (Ro16) onwards, with a Quarter Final (QF) worth twice a Ro16, and having a Semi Final (SF) worth 4 times a QF, and the Final 4 (F) times a SF, we have 640 min of high key time in Ro16 terms. (Note, once more, that these are not actual times, they are value-weighted "time".)

The 640 Ro16 min (225 min in real time) will be for advertisements and the "low key time" will be for one exclusive Main Sponsor to have his logo plastered strategically. That Main Sponsor may also get some special advertisement bidding rights, such as the right to win advertising slots post hoc by just paying the winning price.

The maximum bid that the SG World Cup Broadcast Foundation will make to FIFA will be the amount pledged plus the advertising revenue (minus MediaCorp's cut). If the amount is respectable, it is in FIFA's interest to just give it to Singapore since it only loses money by holding out.

However much is raised in advertising, the important thing is that if money is saved, those that pledged to pay will pay less. That is, a smaller deduction will be made. For example, with 300000 $50 pledges, $10M in advertising and a $20M bid, those who promise to pay will pay $33.34 rather than $50. There will be free riders, but as there really is no answer to that problem, it will be ignored.

Who knows, the Foundation may be able to get the rights for World Cup betting, the proceeds of which it might use, transparently, for good social causes.

---

Post Script:

While I think the foundation should hold fast to NO PROFIT to avoid any of the unhappiness of the foundation's Exco being paid $5M for their work (which raises costs for everyone else), there might really have to be real work done. Secrecy will limit the number of people doing the work, which may be a full-time affair for some period of time. Due diligence on advertising, media regulations, etc.

The advertising auction itself will be a huge undertaking. A large combinatorial auction does not run itself. In particular, one for 90 10 sec blocks for 64 matches with various considerations such as "match loading" and "premium position" (see, for instance, Channel NewsAsia's advertising prices). In fact, if the combinatorial auction solution succeeds, it could become the model for future "big event" advertising rights.

My proposal is an absolute and a relative payment cap. The absolute cap being a specified amount. The relative payment cap being a fraction of the "surplus" to be redistributed. The two upper bounds should work together to ensure there is no excessive payment.

Election Aftermath in Punggol East: Plurality vs Approval Voting

2011-05-08T14:14:00.004+08:00

The aftermath of the General Elections in Punggol East is sad, especially for SDA's Desmond Lim who garnered only 4.45% of the valid votes in a 3-cornered fight and will lose his $16,000 election deposit.

Our electoral system, with the electoral deposit in place, is broken. The intent of the deposit is to prevent frivolous nominations for the ballot by demanding some level of assurance that the voters think of the candidate in question as a viable representative of their interests in Parliament.

Even in one-on-one straight contests, this intent is subverted. It is possible that both candidates are thought of as viable candidates by, say 40% of the voters, but one candidates has more people who thinks of him/her as a possible representative. There can be voters who think of both candidates are possible representatives. Say the approval ratings stand at 80% - 60%, and in some extreme case the results of a plurality vote turn out to be 90% - 10% of the valid vote. The 10% candidate loses his/her deposit needlessly.

I have previously written about approval voting and feel that it is the right voting system for gauging the mandate of the people. The results of an election are directly translated into a mandate: a candidates percentage of valid approval votes is exactly the number of voters who approve of him/her as a representative. If a voter thinks a candidate is a possible representative, that's a +1 for a candidate's/group's mandate, nevermind that that same voter also approves of another candidate/group.

Politically, this has implications. In a non-polarized Singapore, this will lead to the ruling PAP winning more seats as their candidate will be seen as "viable" by more people, while their base will staunchly disapprove of the opposition.

From an (behavioral) economics standpoint, in a polarized nation, the modeling assumption of internal perceptions being approve/disapprove are greatly weakened/broken by the clear favoritism that hardcore party supporters have. Even if they would approve of the candidates of the opposite camp, the huge favoritism would lead them to lie about their preferences on the ballot slip. This is because the assumption is "no favorites, only approval-disapproval".

Perhaps with a more mature electorate with less polarization, this better form of voting will be feasible.

The Law Society and Legislation: If not them then who?

2011-05-07T15:36:00.007+08:00

I've just learnt somehow that in 1986 the Law Society lost its "statutory duty to comment on legislation" by special legislation. This is extremely strange to me. If not them then who? Is our country thoroughly unchecked and unbalanced?

Yes, I'm a political and legal swa gu.

It's recommended to look at the first supplementary source for a more comprehensive look at the matter. It is a worthwhile read (including the footnotes) and comprehensively deals with this part of the judicial history of Singapore.

Primary Sources:
Teo Soh Lung (Former ISA Detainee) speaking out on the ISA and her detention
Interview of Francis Seow (very long interview)

Supplementary Sources:
The Law Society of Singapore: Destined to Forever Hold its Peace? (Mohan Gopalan, forthcoming, Singapore Law Review)
Wikipedia Entry on Francis Seow

Political Memory

2011-05-07T01:19:00.004+08:00

Rallying is coming to a close and people will soon go to the polls. Soon the election will be forgotten by the man in the street, who will go back to his life.

Yet, it is important that we do not forget. We must not forget the promises made by the parties, and we must not forget the successes and failures of the various parties on the ground.

We must create a record of the actions of the parties and the candidates. Parliamentary records must be archived and referenced. Votes on bills must be searchable.

Pulling up a politician's record should be a piece of cake, whether he/she is in parliament or not. Only with a good memory will we be able to gauge whether promises made are empty, what the circumstances under which a failure to fulfill promises were and so on. With this, by the next election, we will be prepared to decide with certainty who to give the mandate to.

I attempted to, albeit a bit too late, push out a tool for making more rational voting decisions using a reasonable methodology for "multi-criteria decision making", so voters could be facilitated in balancing track record, pork, and how they are represented on issues. (http://vote.individualpreference.info/ was launched just after Nomination Day. It also tried to push out approval voting, which provides a better gauge of the mandate any candidate has to represent the public.)

It turns out that the "Candidate Notes" feature of the site (part of "Candidate Evaluation") would be a useful thing to expand. Having a record of a politician's position on matters and what he/she has done would be tremendously valuable. Knowing that their actions will be tracked will keep politicians on their toes.

I propose we all, as a community of Singaporeans, work together to make this a reality. A robust system of records of our political history (complete with a local archive of public documents).

We need a political memory. We need it to be reliable and authoritative (hence the documents).

If you'd like to form a group. Contact me. Let's do this together.

Immigration, Optimizing KPIs and Honesty

2011-05-03T23:37:00.007+08:00

Allow me to pretend I understand human nature: where the outcome is defined in purely financial terms, one is best off by being a rational maximizer. Suppose the main actor's pay is determined by some KPI, we shall call G, in a monotone fashion. (G rises, pay rises.)

Clearly, it is optimal for the actor to maximize G in so far as resources allow. If G can be pumped up by pushing a strategy that suffocates other actors, so be it. That is rational maximization.

Suppose we have an elementary economic model.

A(p) = L p^{-a}

where a > 0. So G is the objective of the main player who controls p and A is the objective of the other actors who have no control over p.

G is a logistic model for GDP growth, and A denotes average wage where total wage is a concave monomial.

G is maximized at half absolute capacity (crush load), and since M is a rather large number, A(M/2) is tiny. Note that the main actor has no incentive to ensure that A(p) is a respectable number.

Now, the model is an obvious snipe at the immigrant labour policy. It is obvious that more immigrant labour means more GDP growth. But the lack of consideration of the average wage is (note: another snipe coming) symptomatic of a failure of all the PPE (Politics-Philosophy-Economics) graduates with excellent A level results to understand basic economics or making the assumption that the rest of the country does not understand.

Social Choice balances GDP growth and quality of life. The GDP growth KPI, in the parlance of economics, cannot implement the balance of GDP growth and quality of life. It would take very good men to resist the allure of optimizing their bonus KPIs at the expense of matters important to others. While it is possible to have a cabinet of such good men, let us protect the country. Let us legislate incentive compatibility into remuneration of our executive and our legislature. There is no negative impact of the on the good men who will direct their efforts in this direction anyway. Moreover, legislating this would be the honest thing to do, especially for a PPE graduate.

Inflating Away the Debt

2011-05-03T21:43:00.004+08:00

I believe the Singapore Government has shrewdly taken a page out of the USA play book. Let me describe this classic all-American monetary play.

The post-World War II era was one where the USA had ascended to economic dominance with the decline of the Sterling Pound and the US Dollar's replacing it as the world's de facto reserve currency. As the reserve currency, trades were done in US dollars, hence it made sense to hold US Dollars and to hold US Dollar denominated debt. This made sense because of the reputation of the US Government of paying its debts (c.f. post-Independence deliberations on British debt) and the strength of its economy.

Fast forward to today, where the USA has taken on a tremendous amount of debt to finance infrastructure, war, pork, etc, and has apparently no politically likely way to turn a budget surplus. So the debt accumulates.

Now, the US Dollar used to be pegged to gold until this convertibility was cancelled by Nixon in 1971. The Federal Reserve long had the liberty to print money, but only with the dropping of the gold standard was it truly free to let the presses run with furious abandon.

The expansion of the money supply decreases the value of each dollar. So the fixed sum that is owed by the US Government to each lender decreases in real terms as the money supply increases. Furthermore, the Federal Reserve accumulates more dollars with which it can do things like pay interest on the national debt.

It's all very sneaky.

Back to Singapore. Currently inflation is at around 5%, so CPF rates of return of 2.5% represent a 2.5% year on year decline in the real value of CPF savings. The 2003 HBS Study "Singapore Inc." assessed CPF as a financial instrument that would be able to fuel government spending. This is very likely to be the case. I'm unsure what the Singapore Government's capital ratio is, but I'm very certain it is not 1. From this perspective, the Singapore Government borrows income and pays 2.5% interest on it. This is a great deal as assets can be acquired at today's value and repaid in lower real terms in future.

The next question is, is it intended? If so, it is a sneaky form of taxing both employees and employers simultaneously. (Just that employees get something out of that grift, and don't mind.) Then again, all employers calculate the CPF contribution as well as the tax rate, making it unlikely that it is a deliberate con. If it is a deliberate con, I will never see my money again. But if it isn't, I need my CPF interest to be at least on par with inflation. Again, if it is a con, it is very much in line with pushing back the retirement age (more inflating).

Whatever it is, I want my money back.

Zeitgeist...

2011-05-03T00:03:00.001+08:00

Der Zeitgeist ist die allgemeine kulturellen, intellektuellen, ethischen, spirituellen und/oder politische Klima innerhalb einer Nation oder spezifische Gruppen. Er umfasst auch die damit verbundenen Moral, soziokulturelle Richtung und Stimmung der Zeit.

Ist es wirklich wahr dass die Zeit für ein bisschen Veränderung reif ist?

Solving the Singapore Housing Problem: A Very Radical Idea

2011-05-02T14:21:00.006+08:00

Affordable housing for the young in Singapore is one of the key drivers for the vital national strategic goal of population renewal. It is also a "difficult" problem to solve as one would like to reduce housing prices for new buyer while not destroying the "value" of public housing that has been previously purchased.

As a preliminary, we must note that in public policy there will be winners and losers. Singaporean singles have been losers throughout Singapore's history as a result of housing policy. It is clear that to solve the problem of rising housing costs for first-time buyers, current flat valuations cannot rise indefinitely.

Before attempting a solution, it bears considering whether there is a point to solving the problem. If not, we are done and you can stop reading. As usual, the strategic aspect is my justification for mobilizing our efforts to solve the problem.

Consider defence. High spending on national defence is not of immediate benefit to the nation or even of much benefit in the near future. But, security is a strategic imperative which is a key enabler for secure economic expansion and consolidation. So we spend money on it continuously. If being a nation of homeowners is a strategic objective, in so far as it is important, we should be willing to spend an increased amount of money on it over some non-perpetual time horizon. If easy home ownership truly drives population renewal and population renewal is a strategic objective, then we should be willing to spend.

Naturally, if we spend money, we will, by definition, improve the situation. So I lodge the caveat that there must be a price we are willing to pay, and we will refuse to pay any more than that.

While I have official numbers, I cannot use them here. And since I do not have access to them at this very moment, I will guesstimate using publicly available information.

Via Census 2010, in 2010, Singapore's resident population numbered 3.771 million people (3.231 million citizens and 0.541 million PRs). HDB reports that currently 84% live in HDB flats. Assuming 4.5 residents per flat, we'll have about 0.7M flats. Suppose the average HDB flat has market value $300k.

SingStat reports that the median monthly household income is $5000, $4000 after CPF for those under 50. Suppose $2000 is used to pay for a home each month interest free, and the goal is to own one's own home in 7 years under such terms, we should target an average price of $170k. This is in line with reversing the 11.1% year on year price increases over 2005 to 2010 (69%).

Suppose we aim to reduce the average market value to $170k over 10 years. (I'm not, at the moment, asserting that we should.) On the surface, this entails a reduction in value of $92 billion, which has already been paid out by the current residents.

On closer observation, this is not the case. We do not want this to be a capital gains exercise, so we have to peg the value returned to the purchase price of the flat. In this event, the flats bought before 2005 are, on average, cheaper than $170000. It is the post-2005 purchases that we are concerned about. If we suppose that 20000 flat purchases were made annually, this means that it would cost $7.8 billion to compensate people for the government imposed fall in flat prices. Paid out over 10 years, this would be $780 million annually.

This is a very radical plan. Let us consider who wins and who loses.

Winners: (i) New flat owners, who may then go about making babies (or so they would like us to believe), and (ii) former HDB flat owners who cashed out after 2005.

Losers: (i) HDB flat owners who bought their flats more than 5 years ago and would like to upgrade. The capital gains due to appreciation from the 2005-2010 period will be wiped out, and (ii) all HDB flat owners who took loans and paid interest on the higher principals.

This might widen the real gap between the cost of public and private housing. (It may also remain the same as there will be less upward pressure on private property prices leading to their fall.) This is just as well. It is not the government's duty to ensure that people are able to upgrade to private property, neither should it be an objective that people should be able to profit off public housing as the ones that are buying are typically younger citizens. Public housing is not meant to be a multi-level marketing scheme.

Where would we find $800 million a year for 10 years? Let's cut the Defence... Firstly, HDB has been selling more expensive flats for the past 5 years, this is to be given back. I do not buy the "cost of land" argument. Public housing is a public good that is supplied by the government under the price the market is willing to supply it. Similarly, market prices are not paid for national defence and civil defence.

There are about 6500 resale transactions a year, with this winners, who cashed out after 2005, took away $2.55 billion (or about $78k per household). Now what we really have to fund is the capital gains of the roughly 32500 who cashed out. With HDB returning its gains, $255 million a year for 10 years remains. This is no pocket change, but it is a lot more manageable now. What would make this even more manageable would be to return money, first, to CPF up to the amount paid out of CPF. This would probably lengthen the repayment horizon to 20 years.

As for really raising the money, my solution for raising the money for this and everything including education and social safety nets is to raise corporate tax (the headline rate is 17%) and upper bracket income (the headline rate is > $320k is 20%; higher brackets could be created). That's where most of the GDP growth went anyway. (My sense is that, the richer oone is, the more the state expends to protect one and one's property. This is a service that should be paid for.)

This is just an idea, and a radical one, which I arrived at after sitting down and thinking: Let me, right here, right now, come up with an plan for solving the problem of expensive housing. I'm surprised that it was not even more radical. (Costing > $10 billion) So here's a plan. I'd like to hear more.

As a postscript, I note that in the run up to polling day, Lee Kuan Yew has accused Tan Jee Say of not being qualified to draft an economic plan for Singapore. While I respect Lee Kuan Yew's achievements, I do not appreciate his personal attack, and see it as one on myself as well. It would befit a man of his standing to, rather, rationally attack the ideas rather than the person. I, myself, like talking about public policy in a rational manner.

I, pardon my pride, see myself to be just as able, in this respect, as administrative service officers, given my larger and more specialized toolkit. (In their favor, they are reasonably capable and have access to more detailed information.) This is not all hubris and I know where I stand. Just in the recent months, I've had a government scholar delightedly refer to himself and colleagues as "laymen" when I presented them with a "free gift capability". They also accepted my practical recommendations on how to plan their own organization (which were a step down from a better solution that I wanted but knew would be difficult to achieve politically). I have also had a hand in some changes in Q1 2011 that will have a positive impact on the lives of Singaporeans in some parts of the country. This may not conclusively prove that I know what I'm talking about, but it might indicate I'm no hack.

There are many such as me who do not love "policy work" but are probably better able to do it by virtue of a combination of good technical skills and wide breadth of knowledge. We have the vocabulary for the task and it would be irresponsible to write us off. By all means, attack the ideas so we can sharpen them, but to attack the person is distracting, distasteful and dishonest.

Regulation of Industry

2011-05-02T13:59:00.004+08:00

At the expense of the general population, the Singapore Government is too friendly to big business and somewhat lax in its regulation. To cite an example, allow me to quote (the original) of my letter to the Straits Times Forum (dated Mar 28, 2011).

WoW... StarHub, why so slow?

IDA's first response (on 2nd Apr 2011, 2nd Apr 2011, Broadband speed not part of service quality standards) was totally off the mark as indicated by the title. Regulations are meant to encourage good corporate behaviour. In this respect, IDA's regulations, at least for ensuring quality of service, are greatly lacking and leave eventual customer flight as the sole real mechanism for encouraging good quality of service. Consumers should not have to bear the majority of the downside risk in service contracts.

Singapore had to be big business friendly when there was no big business to supply jobs. Now Singapore's economy is bustling. It is time to put in place regulations that may be described as having a large basin of acceptable operating standards and tremendous penalties for straying from these standards even a bit (the basin is, after all, large).

Consumer protection also known as protection of the property/contractual rights of the general populace should be a core value of any civilized nation. Why expect less of Singapore?

NS (Nursing Service) for Women

2011-05-01T01:44:00.004+08:00

The Nursing Careers page on the Ministry of Health's website (retr. 1 May 2011) acknowledges both the key frontline role of nurses and our acute shortage of nurses in Singapore. To rattle off a quick statistic, the proportion of those aged 65 and above will double to 20% in 2020. Allegedly, this is a problem because of the decline in the proportion of people who are economically productive, but that is a separate issue. Given the status quo, potential healthcare costs are set to rise and our already stretched healthcare system will be stretched ever more severely.

My proposal is the conscription of women to be trained and to serve as nurses in rather the same fashion as men are currently conscripted into the military. Nursing Service (NS) for women. This idea may be, at the outset, distasteful to young ladies and their parents. Let me attempt to convey the national and personal advantages of such a scheme.

The national advantages are obvious. All women will be trained as nurses and nursing professionals will be able to take on more specialist tasks as more basic administration and treatment is handled by NSF (Nursing Service: Full time) nurses. This would be a boon to the health service.

Another major benefit to the nation is the boost in our health risk hedge. A major element of Goh Keng Swee's design of the national service system was the intent to be able to field, in an event of military need, a large number of troops after some years of the system's operation. Hence the NSF and Reservist systems. Similarly, in the event of a healthcare incident (such as the SARS and H1N1 outbreaks) there would be, at all times, a large group of people with the basic skills necessary to support the medical profession in addressing the problem.

The female "NSFs" would spend a year or so training up to at least some subset of the National ITE Certificate (NITEC) in Nursing curriculum, which qualifies one as an Enrolled Nurse. To give a greater sense of nursing careers, let us revisit the Major Nursing Appointments section of the Nursing Careers page on the Ministry of Health's website (retr. 1 May 2011):

Major nursing appointments

Enrolled Nurse

Registered Nurse (RN)

Specialised Nurse

I am not suggesting that this be the basis for a rank structure. The NITEC in Nursing is a 3 year course, so it would be tough to even be considered an Enrolled Nurse for all but the brightest girls. What I would like to see is most girls progressing (over their NSF and Reservist terms) to the standard of Enrolled Nurses, with some progressing to some intermediate standard between Enrolled Nurse and Registered Nurse. (It is notable, that the core non-ambulance courses comprise about half of the NITEC in Nursing curriculum, which should be easily completable over a year of full-time training.)

Nursing is a worthwhile skill of unquestioned value. Such training would equip girls with real and practical skills and enable them to take better care of their families, ushering in an age of excellent preventive care. This would be a huge self-esteem boost likely to be greater than the one associated with being "a defender of the nation" for men (which has faded in the past decades). In addition to improving the overall quality of life, this would also drastically lower national healthcare costs.

NSF nurses might be deployed to hospitals, polyclinics, and even retirement villages. (I have other ideas about state sponsored retirement villages that any Singapore citizen 70 and over is entitled to stay in with free food and board. More on this when I have time.)

The big question is: Who loses and who gains? I would say that the winners are the nation, most families and most girls. Some families do not need the additional healthcare benefits of having a nurse in the house. Some girls who plan to go on to lucrative careers unrelated to nursing will see their career progression retarded a little. The nursing profession will benefit as well. The larger base of Enrolled Nurses and "pre-Enrolled Nurses" will free up capacity for professional nurses to focus on more high value nursing tasks. Furthermore, the NS period for nurses would be a useful to girls planning to move into the nursing and medical fields.

Phase in can be done slowly to build the necessary infrastructure. Experienced instructors have to be appointed from the nursing and medical professions. This would reduce immediate treatment capacity. This problem may be less difficult than the introduction of the program. Whether to begin with an initial voluntary phase for 3 years with a very generous lifetime tax relief, and tapering it down to the target tax relief level as partial compensation for economic losses.

Clearly there are implementation issues, but the big picture view is: this is good, serving national needs and upgrading national resilience, providing families and communities with valuable skills, teaching young ladies practical and useful skills that will also add to their standing socially. Let's do this.

On Financial Crises and the Lack of Incentives to Prevent Them

2011-04-30T12:26:00.007+08:00

I was watching this documentary titled Inside Job. One line of narration got me:

Since the 1980s, the rise of the U.S. financial sector has led to a series of increasingly severe financial crises. Each crisis has caused more damage, while the industry has made more and more money.

This got me back to this piece of work I did some time ago on showing that a "fixed proportion portfolio" with a re-balancing trading strategy made more money the greater the volatility in the market was. (Of course the finance literature had proven that long ago, but I wanted to do it myself and in a form I was interested in.)

In this trading strategy, the fundamental observation is that if the market goes up and comes back down to the starting level, or down then back up to the starting level, the trader would have made a strictly positive amount that increases in the size of the swing.

There's no need to look up the proof. I've since lost the little paper scraps. Do this in Excel, re-balance with each price movement. You can verify this in simulation. And if you go further and do a full simulation with percentage transaction costs, you'll find that there is a level of volatility that gets you positive profit most of the time, and that that more volatility means more money.

The upshot of this is that the larger market volatility is, the more investors adopting a dumb strategy like that stand to make. More volatility means that time is being "compressed", with more swings per unit time and hence more money.

What I am saying is, this is a very basic trading strategy that means buy after a fall, sell after a rise. This is based on a random market with no inside information. In this, in so far as they can control it, there is no incentive for traders to keep volatility down. This would tangentially point to the conclusion that Finance, as an industry, has no incentive to do away with crises as those provide the biggest swings, and the way back up is paved in (bonus) gold.

The Possibility and Case for a Public Insurance Scheme

2011-04-21T13:01:00.011+08:00

It may be a massive cannibalization of industry, but there appears to be a case for public insurance. This became clear to me when I ran some simple numbers.

My insurance agent showed me a plan where a term policy with a $1M sum assured would cost over $200 per month. I thought it was outrageous (i.e.: working on an inflated probability of death), so I went home and did some estimates. (Point of separate note: NTUC income has a term policy with a $1M sum assured for 20yr for $60 per month given 30 was one's last birthday.)

SPF statistics reported about 285 fatal/serious accidents annually for 2006 and 2007 when Singapore's population was about 4.5M. This gives an estimate a lower bound for the rate of death and serious accidents for all causes each day (1.73 x 10^-7). Let's suppose, to be conservative, that an upper bound for the true rate is 3 times that since reputedly road accidents are a "leading cause of death, et. al.".

Here is a simple model for insurance. Each day an insured party pays a day's premium, if he/she encounters an unfortunate event (with the above probability), a payout is made and premium payments stop. If nothing happens by a terminal age of the insurance policy (I used 40 years), no further premiums are paid and no payouts are made (dealings with the insurer end).

Going into some technicalities (skip the paragraph to get to the conclusion), the geometric distribution was (obviously) used as a basis for the computation of the expected income of the agency. The answer comes is three parts: (a) premiums paid given an incident, (b) incident payout given an incident, (c) premiums paid given no incident. An annoying thing happened to me when I was calculating this. I was evaluating an expression (I think it was (a)) which was the derivative of some expression that I knew to be increasing. It wasn't, at least until I realized that Excel's LOG function is base 10. (One performing this computation with some "numerical sense", will know why I bring in the LOG function.)

In any event, it turns out that my insurer uses at least 91% of the premiums to cover overheads such as commissions. NTUC uses at least 73%, noting the lower premium. This is before factoring in the higher premiums at later ages. This is high.

Given a buffer that can be tapped into and repaid slowly with low interest, an insurer can insure 4M citizens for 70 years from birth with a $1M sum assured, working with $352M annually for administration and accumulating $89M on average each year for a $25 monthly premium. The buffer is there to handle variance in payouts between years. One would expect about $761M in payouts each year, and assume that 99% of the time payouts are less than $1.52B, within 9 years one would accumulate enough to buffer against a $1.52B payout year without tapping the buffer. Within 20 years, the scheme would probably never have to touch the buffer. Once a sufficiently large reserve is accumulated, surpluses could then start going into a foundation to provide opportunities for the under privileged or some other worthy cause.

$352M administration for 2M citizens may be low. But this works if business expenses are kept low. Especially marketing and sales. Also, the buffer may be operationally realized, initially, by government debt via the bond market. Debt can be rolled over the same way most governments and companies do. The national reserves do not have to be touched at all.

As a start such a scheme might just handle only accidental death and Total Permanent Disability (TPD) up to age 70 (at which age it might be assumed that the formerly insured would have been able to provide for his/her dependents). This would ensure that the low administration cost would be easily achieved. Perhaps even more rainy day reserves could be accumulated if the costs turn out to be lower.

There are issues to be worked out. Such as costs for dealing with insurance fraud. Incentives for fraud can be handled by dynamically adjusting the sum assured to annual income based on the last tax assessment (and charging premiums accordingly), and perhaps with a tapering of payouts as age 70 approaches. Payouts could be made gradually to lessen the effects of variance. However, these are problems in incentives and operations that can be worked out.

This is heavy duty security for our citizens. Who cares if we drive the death and TPD wings of insurance agencies out of business. They weren't using much of our money to protect us anyway.

If this goes through, a national healthcare system might be possible. I apologize to the L-p norm loving people (for small p), but I take a "uniform convergence" (L-infinity) view of approach to a first world nation. Rather than just increasing the total welfare, we have to make sure that the least well off are lifted up.

This should be an element of our national strategy -- the elimination of accidental poverty. Notably, this does not entail transfer of wealth from the rich to poor. It is just a matter of good management and economies of scale.

Singapore has already disadvantaged singles as a side effect of part of its national strategy. My sense is the government has been too friendly with big business to the detriment of many of its citizens (i.e.: when interests are not weighted by income). Why should part of the insurance industry be sacrosanct?

On Housing: Asset Enhancement is an Illusion

2011-04-18T09:54:00.003+08:00

The topic of property prices and their impact on both the young and society at large has been talked about recently ('Perils of asset enhancement for younger Singaporeans', 'Perils of asset enhancement for younger Singaporeans', ST Forum Apr 18). I'd like to weigh in on this matter.

A quick calculation in Excel based gives the estimate that a dual-income household with husband and wife beginning with somewhat above the median income ($3000, to simulate the time taken to build up 10% of the home value) would take about 10 years to fully own a $300,000 HDB flat. This is based on a 3% annual salary increment, their use of 30% of their take-home pay to service their loan, and an interest rate of 2.5% (based on POSB Home Ideal). Ten years is a long time. Furthermore, if the trend of property prices rising faster than incomes continues, repayment periods will get even longer. This points to a trend of increasing financial hardship, with families having less of their take-home pay available to them for longer periods.

Furthermore, assuming that a home is a necessity to a family, the family's assets are not really appreciating as other home prices are rising in tandem. Only when the family acquires a second home can it be truly said that their assets are appreciating in value. For those who do not yet own property, "asset enhancement" is a form of inflation -- the vaunted "taxation without legislation" which "greases the wheels of the labour market"; for those who own a single apartment/house, "asset enhancement" matters little; for those who own more than one apartment/house, "asset enhancement" is truly asset enhancement. With this laid out, "asset enhancement" is structurally similar to a regressive tax, which is contrary to the stated intention behind it.

On National Strategy

2011-04-14T01:17:00.001+08:00

Over the past years, issues of housing, inflation and real household income growth/decline have been increasingly central in the public discourse, pointing to the deeper issue of what national strategy is appropriate going forward.

Traditionally, we have pursued a high rate of growth which has, unfortunately, been accompanied with a rising cost of living relative to income, which in turn has led to many Singaporeans feeling left behind. While one must acknowledge that billions are spent on targeted aid to speed up the trickle-down process, which usually takes decades in other countries, targeted aid is a reactive solution to a side-effect of our pursuit of growth.

Our first and second generation leaders presciently pursued the strategy of growth while building an umbrella of security. The execution of this strategy raised the average standard of living and kept Singaporeans safe, and is now well studied by both governments and corporations as a textbook case study of well-crafted and implemented national strategy.

Empirically, economists have observed that high growth in a country is often accompanied by rising prices and increasing concentration of income with the richest, in turn leading to decreasing purchasing power of the poorer segments of that country. This leads to the question of whether high growth and increasing income inequality is, on balance, the best option for Singapore. In a related sense, is the growth chasing hot money a risk to our financial system? We have to make an informed decision on how to pursue growth and to what end. After all, the pursuit of growth should be a means to increasing the welfare of the citizenry.

Key to designing an appropriate national strategy is the articulation of our national objectives in terms meaningful to Singaporeans. Such objectives might include ensuring, by 2020, than no more than 1% of adults in a certain age bracket fall below a set income threshold (as pegged to a representative basket of goods and services), which, under the CPF scheme, would ensure sufficient retirement funds for most Singaporeans. National objectives might also include a list of privileges we would like Singapore citizens to enjoy, such as substantially longer paternity leave with job security or free tertiary education. Such examples represent a consolidation of the gains that generations of Singaporeans have labored for. With a clear sense of what we want to achieve, Singapore will be better able to negotiate the trade-offs necessary to realize her objectives.

As PM Lee as emphasized, this coming election is about the future. As such, and our nation’s long term objectives and strategy should be debated.

Academics, Consultants and Practioners

2011-03-05T13:40:00.013+08:00

In my backlog of RSS feeds, I came across an article titled Pulling Cars and Allocations on how poor application of pull systems and allocation rules for the reduced production have led to trouble in the car retail business. (Essentially, dealers can't get the cars they want.) The articles notes that this problem arises due to: (i) Car sales happening daily but allocations happening on a longer time scale — usually monthly, and (ii) variety not being handled properly, and (iii) the stickiness of allocations. I'll talk briefly about (ii) since the article explains (i) and (iii) in sufficient detail.

Operations Management folk (and those who took MBA classes on operations management) would generally love pull systems. The fact is, a properly implemented pull system that is in harmony with the conduct of retail operations greatly reduces inventory in the supply chain, meaning that less product is just sitting in some warehouse or storeroom. Pull is wonderful for goods that are standard or of limited customization.

However, where retail operations are such that one does not sells "cars" but an assortment of models and makes with various major options. The fact is, each customer comes in with demand for one car and, implicitly, a short list of variations he/she would like/accept in some preference order (and with a range of acceptable prices). This implicit list of acceptable cars can be very short or very long (for the less picky). Now if a customer comes by with a short list of acceptable options and can't find one on the, now sparse, lot, there is a substantial likelihood that the sale would be lost. It would appear that retail operations here behaves like maintenance operations for systems that require a high up-time — the particular spare parts and the particular maintenance specialist must be on hand at the time.

Since in most business transformations, consultants are called in to make concrete recommendations on what to change and how, I blame bad consultants for this mess. Clearly the end-to-end operations were not properly considered in the implementation of the sexy new "lean" paradigm. The fact is, this is not a case where "we didn't expect this to happen" could be responsibly argued.

Before laughing their way to the bank, the consultants could, at the very least, have done some thought experiments on what would happen if a customer came in and happened to not find what he/she wanted. Tracing that to the allocation system would have given some reason to make the system more robust. Moreover, such a scenario would not be of the "Black Swan" variety, necessitating some analysis on this particular "use case" of the "car manufacturing and distribution system". (In fact it would be more like the random variable "Is there a swan in Swan Lake in the time interval [T₁, T₂]?") Unintended consequences can surely not be argued in this case.

Some time ago, I read The Boston Consulting Group On Strategy (2nd Ed, Wiley, 2006, edited by Stern, C.W. and Deimler, M.) wherein Bruce D. Henderson, the founder of the Boston Consulting Group, (and the man most responsible for the famous BCG 2x2 growth-share matrix) was said to believe that:

... while most people understand first-order effects, few deal well with second-and third-order effects. Unfortunately, virtually everything interesting in business lies in fourth-order effects and beyond.

I've never observed a major fourth-order effect. At least not in a non-historical, non-geological, non-evolutionary or non-cosmological scale. Perhaps I'm just not perceptive enough. Second/third-order effects are things we all see. The worst thing about them are that they're like a one-way mirror: they're opaque one way, and you can see and understand their causes so perfectly on hindsight. On this note, I'd like to digress to talk about a well studied set of "unintended consequences" that were totally avoidable.

Consider the aftermath of the recent financial crisis of 2007-2009, everything looks perfect on hindsight. But prior to that money gots in the way of "the good ideas winning out". After the damage was done and there was no more money to cloud judgment, everything became clear and we wondered why no one saw things coming.

In Aug 2005, Raghuram Rajan, Chief Economist of the International Monetary Fund from 2003 to 2006, gave a speech about (i) how "competition" "forces" bankers and traders to "flirt continuously with the limits of illiquidity", (ii) how investment managers returns have a huge personal upside for taking on more risk and the downside is trivial, (iii) regulations should be in place to align incentives (this being my summary of his recommendations. As BusinessWeek (Feb 13-Feb 20, 2011) put it, "he was treated like a skunk at the party". It even noted that Lawrence Summers, former US Treasury Secretary and then president of Harvard, said he found "the basic, slightly Luddite premise" of Rajan's presentation to be "largely misguided". What people say is aligned with money. I find it absurd that an economist of Summers' standing could snort so pretentiously at the idea of aligning the behavior of agents to systemic objectives through the appropriate incentives.

Returning to original topic (after that rant of sorts), consultants to business play an important role of filtering academic output and tailoring it to particular business settings. Where they do, the results can be spectacularly good. Where they get lazy and transplant ideas without sufficient adaptation to particulars of an industry, unintended consequences arise. And these unintended consequences can show up after some time has huge negative effects. Laziness often takes the form of assumptions that explain away the need for more analysis (usually on incentives) or work (building institutions that align behavior to systemic objectives). Laziness explained away and still explains away the moral hazard of the financial industry with the now popularly rejected notion that bankers and traders are upright custodians of investors'/savers' money.

Consultants have an important role to play. While much new knowledge comes from academia, it is often general and abstract. Solutions arising from academia often take the form "if operations are structured like A and B holds, then C happens". Where the conditions of B are at variance with reality, it should be studied whether the outcome deviates significantly from the desired C. The value of consultants is their wider exposure to industry. Their recommendations should be made in the context of actual, real world, operations.

Advocacy: Truthful Voting through Approval Voting

2011-03-02T20:20:00.003+08:00

Noting that enthusiasm is building up for the coming General Elections, it is timely to assess our current voting system. We use a simple plurality system where each voter may choose only one candidate and the candidate with the most votes wins. In situations with more than two candidates, this system entails the possibility of voters being in a situation where they have the incentive to misrepresent their preferences.

Consider a situation where candidates A, B, and C have 40%, 35% and 25% of the electorate in support respectively. B's supporters do not mind C, but do not want A to win. C's supporters do not mind B, but also do not want A to win. In the plurality voting system, C's supporters have the incentive to misrepresent their preferences and vote for B rather than vote truthfully and have A come into power.

It can be proven mathematically that where voters' preferences are represented by a ranked order of candidates, any voting system offers situations where voters have the incentive to misrepresent their preferences. This is an unfortunate and inescapable reality. However, where voters' preferences are represented as "Approve"/"Do not approve" ratings for each candidate, a voting system known as “Approval Voting” gives voters the incentives to vote "truthfully". In Approval Voting, voters cast "Approve"/"Do not approve" votes for each and every candidate, and the candidate with the highest approval level wins.

The truthfulness of the Approval Voting system rests on the idealized "Approve"/"Do not approve" representation of preferences. I argue that elections are not popularity contests but polls of the electorate to see who has a mandate to represent them. As such, a voter might conceivably support multiple candidates or none at all. With Approval Voting, the results of the election unambiguously describe "the mandate of the people". A winner with 90% approval can be said to truly have 90% approval from the electorate as there is no incentive to misrepresent preferences. Conversely, a winner with just 20% approval can be unambiguously seen to have a weak mandate.

In addition, this ameliorates the situation for the opposition with regards to election deposits, since a viable candidate may stand and have approval from a large fraction of the electorate, yet that same large fraction may prefer another candidate.

I suggest that such a system be considered for subsequent elections. This would be a worthy matter to debate after the upcoming elections.

Advocacy: Maintain a Surplus of HDB Flats

2011-03-01T18:15:00.000+08:00

Some years ago, there was a surplus of HDB flats that was described in some quarters as mismanagement on the part of HDB arising from an over-projection of the demand for flats. I personally do not see having a surplus as a problem. A surplus of HDB flats enables first-timers to get flats sooner, perhaps a year or two earlier.

The government might like to think of the cost of empty flats as a subsidy in terms of time to first-timer flat applicants. Early acquisition of a home to call one’s own can make a positive difference to the willingness to have a children. As such, surplus flats are compatible with Singapore’s needs. The question then arises of how to manage the flat supply.

The quantity of the stock of flats should me managed so as to ensure a healthy but not excessive level of surplus flats. To do this, the key is to launch the next project only when the stock of remaining flats falls below some critical level. This critical level should be determined based on (i) the lead time from launch to the handover of keys, (ii) the number of flats to be built in the next project in the pipeline, and (iii) the estimated demand for flats over the next few years.

To manage the quality of the stock of flats, the key is to ensure that older flats get sold first by policy means (e.g.: not allowing a flat to be sold if a flat two years older is still on the market) or market means (e.g.: discounting older flats slightly).

Surplus flats can be a strategic tool to achieve national objectives, and should be used as such.

Allocation of Public Resources: A Knapsack Problem

2011-02-27T17:46:00.002+08:00

If Singapore (or the world) were to sustain a massive peace time fuel shock and we're left with imports amounting to 5% necessary to fuel daily demand for the foreseeable future, who are we to allocate this to? Should we operate a free market and literally auction the fuel to the highest bidder (say with a generalized second-price auction)? That would be efficient in the sense defined by an economist, where the one who has the highest value for the fuel gets it. The fallacy is, this is possibly sub-optimal given that the transacted price is maximized but not the end-to-end economic output.

The high bidding CEO necessarily has had his wealth built on the backs of others. Not to discount his skills, his high value skills require a functioning operation with sufficient scale to generate real returns that "justify" his pay. In order to keep society running, we'd best allocate the fuel first to the buses that get people to work and the trucks the get commodities where they need to be processed.

In terms of resource allocation, the socially optimal solution is not, as the freshman economists are taught, to allocate to those with the highest value for the good as signified by willingness and ability to spend via the free market. Instead it is socially optimal to allocate each unit to the activity that brings the most marginal benefit to society as a whole. This is a knapsack problem of sorts.

Note that I'm not saying that rewards should be allocated in this fashion. I'm neither blindly communist nor blindly laissez faire free market crusader-ish. As a "full employment approximation", rewards should be commensurate with the difference between what is achievable with and individual and what is achievable without. This is in perfect accord with the above discussion: rewards to an individual should relate to the value that the person brings.

Allocation of public resources is a tough knapsack-type problem where the contribution of an element depends on the other elements in the basket. Still it is straightforward that some elements are in any optimal solution associated with resource levels low and high. These correspond to economic necessities: food security, transport, housing and education. These needs should be filled first before allocating resources to the more fanciful.

On this account, I think Singapore has done very well with food security and education. It has succeeded with transport and housing (With the latter, most of the griping is from people wanting more.) Yet, there is significant room for improvement for the transport and housing situation, which might be partially characterized by the saying "a monopoly is a license to steal". I'll comment on this in future.

"Paying Tuition" on a National Scale

2010-12-18T11:54:00.004+08:00

Apparently I last posted on this blog on 8th August 2010. That's a pretty long time. I just moved. The study is filled with boxes, though I have managed to tidy up my own bedroom. I've got no wardrobe but I bought this "small wardrobe on wheels" from IKEA (the IKEA PS), which I believe can actually handle all the clothes I actually wear. I'm a little sick of all the unpacking and its currently way too hot for gardening (clearing out the old roots in the soil and replacing some of the clay with more suitable soils).

As I typically do, I read what people have been talking about on the ST Forum this morning (well aware that the editorial team of the forum does a lot of agenda setting). I came across a letter on how the Singapore Tourism Board should factor in cost to evaluate whether an event was successful on some measure ("Going by tourism receipts? Then count the costs of events too", ST Forum, 18 Dec 2010). This is makes complete sense to any business owner: perhaps the two most important numbers are cost and revenue. I am typically critical of bad project management, which I believe the huge Youth Olympic Games (YOG) budget overruns amounted to (S$387 million over a budget of S$105 million, with about 70% or S$260 million going to local expenditures which should be relatively easy to budget for). However, as anyone who has played games such as majong should know, to get good at something one needs to "pay tuition". In majong that tuition entails losing money as you learn the niceties of the game and how to read your opponents; in large event organization, it is experiencing the unforeseen, paying for it and learning.

Singapore's narrative is one of surviving. Being small, this entails punching way above our weight. We have done this militarily. In fact we die this in a very intelligent manner, building up fast enough to gain security but quietly enough to avoid reprisals (it also helped that we were between Malaysia and Indonesia who were jostling for power). In this day and age however, survival is a matter of maintaining relevance to the world rather than avoiding annexation. Again we have to punch above our weight.

Our drive to become a world X hub (where X might be "biomedical", "logistics", "water technology", etc) is an indicator of sound strategic judgment on the part of the government. While I feel that the efforts are lacking in terms of execution, the strategy will work as people learn from experience. Organizing large events falls neatly into this framework, and like most of Singapore's major efforts, it seems that there is "tuition" to be paid. The magnitude of the "fees payable" have been alarming (c.f. YOG), there are grounds to argue (shaky though they might be) that when operating on a totally different scale, things change and past experiences are no longer such a useful guide. An organizational structure good for an organization of 100 staff will probably not be as effective at 1000 staff. Whether this holds or not, we are paying tuition to learn, what has to be done is to ensure that we are learning.

It is natural that initial cash flows are negative in a large project, however the net present value of the project should be positive. It is key that our event organizers not be so embarrassed about operating losses that all the lessons learnt are swept under the carpet. These experiences are what we have paid for. I believe the organizers should, with the public and the services sector, pick apart the execution of past large event to distill the experiences that we have paid so much for. This way, we may start getting positive numbers in our cash flows and turn "Large Event Organization" into a profit generating machine.

Now back to the work of unpacking.

We Need a Clean Slate Analysis of the Economy and a Road Map

2010-08-08T14:44:00.005+08:00

I've just watched The Yes Men Fixed the World (P2P Edition). The synopsis:

THE YES MEN FIX THE WORLD is a screwball true story about two gonzo political activists who, posing as top executives of giant corporations, lie their way into big business conferences and pull off the world's most outrageous pranks. This peer-to-peer special edition of the film is unique: it is preceded by an EXCLUSIVE VIDEO of the Yes Men impersonating the United States Chamber of Commerce.The fact that they are putting forth is things in their country (USA) can be done much better but there is absolutely no political will to do so. I surmise that this is due the socio-economic state being stuck in a "local-optima" of sorts. More specifically it is a point that looks like its on the Pareto front, but may not be on it. Look at the following indicative production possibilities (Black Region) for a given economy with a given set of resources.
Economies attempt to increase efficiency by progressing up and right within the production possibilities, where one group can be made better off without making anyone else worse off. It's not possible to stray out of the set of production possibilities (those are "possibilities" after all). Economies can only progress along a continuous curve. Therefore to get over the "Humps" in the Pareto frontier, considerable sacrifice may be necessary. This is not easy.

Free market advocates say that economic shock (disasters) are "useful" for producing economic progress. Economic progress, on the above diagram, entails helping getting us over the humps. Disaster based "shock" enables this by shaking the economy so far from the Pareto optimal frontier (into the production possibilities set) that it ends up to the left and below the hump, from which it can progress up and towards a more improved economy. But is "shock" truly the only way?

Future envisionings exist that show, in reasonable detail, how the options for a possible future, given the current state of technology, would be better than those that exist today. On the diagram, technologists in a world of Region 1 or 2 might be able to envision Region 3. The question is how to progress on a continuous trajectory towards it. (Let's not nitpick how the regions are depicted and whether they are the frontier or the area, I used MS Paint to draw it.)

The fact is, it is politically difficult to move towards it. Asking constituents to make sacrifices is difficult. However, it might be possible if there was a (public) road map with projected progress towards that future (over time) being charted.

We need a clean slate analysis of the economy, independent of where we are today, to show where we can go. Then we need a road map to show in detail how we might get there. Finally, we need to move in that direction with will and conviction.

The one political point I want to make: The situation with renewable energy (as brought up by the movie) falls squarely into this category. On 27 Jul 2010, the US House Majority Leader unveiled the "Clean Energy Jobs and Oil Company Accountability Act" with the two most powerful clean energy provisions missing: a cap on carbon emissions from the electric power sector and a national Renewable Electricity Standard, which would require utilities to generate at least 15 percent of their electricity from renewable sources by 2021. No doubt, this was influenced by the old economy energy firms (fossil fuels) that are now rich with the pickings of their full product life cycles and using these resources in a harmful attempt to extend these life cycles via lobbying. The Aug 2 - Aug 8 2010 edition of Bloomberg Businessweek warn that this will result in USA losing out to China in the renewable energy race. (In the above framework, China's economy might be operating at a point left and below its hump, which its status as a "developing" power might support.)

In summary, a clean slate analysis reveals the possibility and what we must sacrifice, over some time horizon, to get there. A road map is a plan to get there. Political will and awareness of where we are going will get us there. Visibility of where we at all times in the process are will help maintain that will.

Road Congestion: Physical Limits vs Information-based Orchestration

2010-07-05T09:02:00.003+08:00

On 1 July, the Straits Times published a report titled "ERP system: From gantries to satellites" describing LTA's intent to invite technology firms to test such a system next year.

The article notes that the new system "will allow LTA to extend its ERP coverage to congested roads anywhere on the island, without having to install more gantries, which cost about $1.5 million each" and that "the system can be adjusted so that motorists pay only if they are approaching a section of congested road. The in-vehicle unit can also be used to notify them that they are about to enter a stretch of road that attracts a charge".

However, a rudimentary analysis of our transportation system would lead one to conclude that given its current characteristics (that is to say: road network, vehicles on the road, etc), road congestion is highly insensitive to information-based methods of congestion reduction such as ERP.

There are physical limitations to the level of throughput a given infrastructure can provide. Even if we were capable of optimally orchestrating traffic (centrally routing all vehicles to ensure optimal performance for the transportation system), a network of heavily jammed roads would be better ameliorated by, for instance, widening a few major roads or reducing the number of vehicles on the road.

In fact, a study of the major means of transportation (bus, train, private vehicle) would clearly show that the current transport infrastructure is operating at or close to its limits. The promotion of information-based systems in tune with building an "information economy", but we should not lose track of reality, bearing in mind that it is the physical system providing the service. When a system is operating near its limits, its capacity should be increased or its load decreased. Only where an information system can be shown to provide a clear improvement in throughput should any investment be made. Currently, both satallite and land-based ERP fail this test.

Contrary to the claims of the July 1 report, it is not the gantries that have hit their limits, it is the road network.

On Simulations and the Future

2010-05-07T08:35:00.003+08:00

Simulations are interesting things. They are the business world's stock tool for understanding and conducting dry dry runs of proposed operational plans. They have little of the analytical beauty of the analytical trajectory of a dynamical system, but businessmen do not bother about matters like that.

The question is whether simulation is a tool that will be able to cope with future demands of it, in view of the future. This little note seeks to highlight some thoughts I had while discussing the matter on the MIT alumni Linkedin discussion board.

Computational Workload
Computational complexity is always a problem. Even when simulating rational human decision making, let's say where a simulated agent has to "make a choice" the simulation solves a convex optimization problem (may be a linear program), solves a dynamic programming problem, or perhaps uses some search algorithm to arrive at a decision. This can be computationally taxing.

Where things are probabilistic, you need about 26500 monte carlo samples to ensure that the probability that the empirical distribution resulting from the simulation is more than 1% off is at most 1%. That is painful.

I recall that on one of the evenings when I was heading home from campus on the "Big Silver Van" one of my housemates quipped that it was interesting how things deemed to be interesting were usually at least in the NP complexity class. This probably would summarize much of the difficulties in embedding decision making into simulations.

Complexity issues hurt and linear speedups and improvements do not look to help as the demand is for growing sophistication. A successful simulation study requires discipline in modeling to avoid being swamped by complexity and ending in failure.

Business Matters
In the business world, simulations make sense of the effects of a proposed set of operations under some dynamics and under uncertainty. Indeed, projects these days tend to phrase requirements to the tone of "... shall report the service level with 99% accuracy" which is an appeal to the use of monte carlo algorithms rather than simulations of the single run deterministic variety.

Of course the bulk of simulations in engineering remain the "this is my structure, here are my loads, will it break?" type, but to a very large extent, problems in that regime tend to be of "low complexity" in terms of the rate at which workload scales with desired accuracy.

An interesting point was also raised on the board:

"When a sim can let me add and subtract new variables as quickly and easily as a spreadsheet, then I get interested."

To get customer buy-in for a simulation, it has to be easy enough to use in order for him/her to quickly and intuitively vary operational parameters that he/she should be familiar with (it's the customer's operation, after all). Interface complexity is another thing that has to be managed in view of increasing demands for sophistication in simulation.

The Customary Conclusion
Simulation has its work cut out for it, its future success requiring control of both computational complexity and human interface complexity. It will be interesting to see how things go.

On Education: KPIs and Human Behavior

2010-04-02T13:16:00.006+08:00

In view of recent comments in the ST forum on education ("Remember the true value of schools", "Reward effort as much as results", etc), I'd like to make a proposal coming from a slightly less orthodox angle.

To cut a long story short, based on their observed actions, teacher KPIs appear to be based on a test score metric. Management often only sees numbers and assumes that all is well. However, proxy metrics are only proxies, and in extreme situations they may lose their association with the value they purport to represent.

No matter what people claim about the public-spirited virtue of educators, they are human — intelligent ones at that — and respond very keenly and creatively to incentives. The pursuit of rankings and test scores is a natural response to KPIs being set in that direction. The unintended fallout are, unfortunately, the well-established phenomena of forcing students to drop subjects they are less than excellent at, the trivialization of non-classroom activities and the subordination of such activities to those of a more test-relevant nature. It was almost as if educators were told: "This is the syllabus; and this is the rewards and remuneration structure. Now get to work." I understand these statements are blunt and unrefined, but they capture the gist of the situation.

While test scores and other KPI aligned measures have improved greatly, it is a fact that unintended consequences have cropped in due to the process of chasing incentives — a naturally arising optimization process. Here "optimization" is the process of making decisions so as to maximize some measure of performance and or minimize some measure of undesirability subject to certain constraints. As a practitioner of quantitative optimization techniques, I would like to state that optimization is an unintelligent process that has to be guided by an intelligent user. An example from the distant realm of finance may shed more light on the situation. When practiced naively, portfolio optimization performs poorly. This is because, incompletions in the data used to guide the process are maximally exploited. This results in a proposed portfolio that would have performed well in hindsight, but severely under estimates future risk. (The pure naive form is beautiful theoretically but needs to be embellished before it is roadworthy.)

Sociologists have proposed that when dealing in the "economic realm" (with rewards and remuneration, for instance), individuals have a tendency to make cold rational decisions. Analogous to the unintended consequences of our education system, the example from finance shows how omissions are exploited in a raw unfeeling optimization process.

Unintended consequences creep in to any well meaning statement of value. For instance, as much as I love the sentiment behind rewarding the hardworking, the execution of such a policy is literally fraught with (economic) peril. Effort should not be rewarded as much as results, as it gives students an incentive to put on a show instead of directing their efforts at improvement. I believe the well established term is "wayang". Promoting a culture of "wayang" would be counterproductive and harmful to our economy. We cannot give up the desire for a culture of performance, but it is important that the pursuit of a proxy to the abstract notion of "performance" does not retard the achievement of less quantifiable true goal. Scores alone are a poor measure of effectiveness; I'd like to suggest something a little more nuanced.

I'd like to propose using a type of metric that balances various factors such as (student) appraisal (as a proxy to "students feeling they got something out of the class"), captures the tradeoffs involved in working to achieve the various ends of education and promotes the centering of the actions of teachers to give students a more well rounded experience (which some theories of education tout as superior).

In the graphic below, effectiveness has been presented in the form of indifference curves. "Higher curves" indicate greater effectiveness. The green dotted lines indicate that for the "focused" teacher to progress in the assessment scale, there are minimal achievements in each attribute for each assessment level. This combats lopsidedness. The asymmetry in the minimal-effectiveness-for-progression boundaries captures the fact that we are a performance culture, and that must be foremost in the minds of teachers. In this manner, evaluation-optimizing teachers may straddle the green lines, but the evaluation structure limits the damage of their optimization. (In the diagram, only a (10,10) achieves effectiveness level 10, the true master teacher.)

Such a metric may be extended to multiple criteria. The curves here are of the form:

(Effectiveness)² = (Metric 1) x (Metric 2),

the natural generalization would be

(Effectiveness)ⁿ = (Metric 1) x (Metric 2) x ... x (Metric n).

Another practice in optimization has been to constrain solutions to take a particular form; at times to preclude undesirable behavior and at times with the explicit aim of making them robust to the slings and arrows of outrageous fortune. On the latter, it seems that "robustness" to the onslaughts of the real world is well correlated to "experience".

Less quantitatively, I'd also like to mention that there should be requirements for the education process that ensure that students have had a prior "experience set", leaving the system, as evidence of exposure to certain situations. This would increase the likelihood of a "robust response" to changing situations on the part of students. This would of course represent additional teaching workload and the question arises of the marginal benefit of this and whether it should displace something else. This is very much in line with the "Desired Outcomes of Education" expressed by MOE. This is considerably harder to design well.

Set up a well thought-out optimization problem, and make sure your solutions are robust.

Fertility: Just Mine the Data

2009-09-04T12:02:00.004+08:00

People have been talking about fertility in Singapore. Raising issues like how the "Baby bonus has had little impact so far" and how the economy discourages working women to have children.

The fertility problem of may well be causally structural in an economic sense, and a solution like the baby bonus may or may not be the solution to the structural issues, depending on whether the incentive addresses fundamental underlying issues.

The Economist recently published an article titled "The best of all possible worlds?" (Economist, Aug 6th 2009). The article contained a section relating the Human Development Index (HDI) to total fertility rate (TFR). The HDI, taking values from 0 to 1, is a measure used by the United Nations. It has three components: life expectancy; average income per person; and level of education. The TFR is the expected number of births per woman over a lifetime.

Graphically, the data appears well fitted by a J-shaped curve that bottoms out in a trough of a less than 1.5 TFR at HDIs between about 0.85 to 0.92. (Based on 2006 data, Singapore had a HDI of 0.918. This corresponds to a total fertility rate of under 1.5 on the fitted curve. In 2006, Singapore had an actual total fertility rate of 1.06.) Let me just plop the image here.

The excellent fit suggests (and may be said to validate the statement) that structural issues strongly dictate fertility levels. This makes sense as the structural conditions of an economy have a major impact, in aggregate, on the decisions that individuals make.

In so far as encouraging parenthood is important to Singapore as a nation, it is necessary to understand what really drives decisions to or not to have children. While one may explain the strong trend as a shift in attitudes due to changes in the economic environment, details are needed in order to craft economic policy. This suggests the need for more detailed study. This would mean, at the very least, de-aggregating the HDI to pinpoint how each factor (education, income, life expectancy) affect fertility and going beyond that.

Public policy relating to parenthood is largely within the purview of MCYS. Unfortunately, it is not staffed sufficiently with economists or statisticians who have the necessary training to mine the data. I would suppose the government's Economist Service would be better placed to lend a hand.

This would at least put more quantitative substance from the real world into the policy discussion. While anecdotal evidence has the most heartstring-tugging appeal, it is statistics that we need, and soon. Alternatively, we could do whatever it takes to increase our HDI and hope for the best.

On Intent

2009-05-06T20:02:00.001+08:00

In organizations, we have people supporting projects wherein some people do bit parts under the direction of more senior people. That is by and large the case. Many a times, junior team members feel disconnected from the project, not engaged at all to their work. In most instances, this boils down to one thing, one thing that took me a long time to learn to ask.

What is the intent? What is this project intended to achieve? This section my team is working on, how does it serve the intent? This sub-section I am working on, how is it helping? Only if one sees and takes in interest in the larger objectives of a project can one be engaged. Only if one understands the aims of his task can one truly be effective.

It is interesting how long it takes to learn a simple lesson. I've observed that the public sector, from a broad historical perspective, acted very much in line with WW2 Germany's Auftragstaktik (which was cited as the reason for the superiority of the German's warfighting ability to that of the allied forces). Subordinate commanders were given a clear picture of the intent at a higher level (i suppose sometimes 2 levels higher) and were given leave to act independently, given that clear understanding of the intent of each engagement or campaign.

Before I entered the public service, and at a time where it looked like I would join a ministry, it was hinted to me that I should look into past policies to understand their intent before crafting reports and policy papers. It took a while and some observation to realize how things worked in the public sector.

Today, at lunch, it was pointed out that junior engineers feel disengaged. And anecdotes arose as to how things fail to work. They boiled down to ineffective transmission of intent. The Singapore public service is huge, yet it is far more effective than those of other countries. Yet, as the anecdotes suggest, there is room for improvement.

The question then is, what measures can be taken so intent can be effectively transmitted? This is very much doable, but takes will. A tougher question relates to the transmission of intent where security and secrecy is a concern.

Force Structure Amid Transformation

2009-05-06T17:04:00.003+08:00

We are in the process of a massive transition. We are moving to a 3G SAF, with this and that and this capability. Of late, we have seen the addition of new equipment to our arsenal which promises that we will be able to deliver more hurt with greater precision and with a lower prospect of getting hurt ourselves.

Old equipment is being phased out, nearing the ends of their system life cycles. As we progressively undergo greater and more rapid change, the issue of training and knowledge retention arises starkly. This is particularly true if the pace of technology dictates that system life cycles have to be re-examined (in particular, shortened).

The NS Man, may have to learn to operate a number of different weapons systems as his old expertise becomes obsolete in the face of rapid technological change. Instruction is a problem, do we have the manpower with the expertise to conduct instruction. I propose a modification of our force structure to accommodate this need.

Consider forming some battalions consisting an evergreen crop of NSFs and rotating NS Men, lasting the lifetime of the NSFs liability. In those battalions, NSFs aid in the training of their NS Man colleagues in newer weapon systems where needed. Teaching another is perhaps one of the most effective means of reinforcing and understanding what one has learnt. The training workload will be effectively shared. Furthermore, we accrue a further benefit. Younger NSFs will become more connected to the pulse of the country through interactions with NS Men who have been working and have seen more of life in Singapore. They will benefit from the experience that their older colleagues share. This mixing of young and old may have other social benefits such as bringing younger Singaporeans closer to opportunities such as jobs, and opening them up to possibilities that otherwise may only be observed with the benefit of personal experience.

In addition to this, hardcore expertise is needed to effectively harness the potential of equipment. We have often heard the phrase, it's not how long it is, it is how you use it. Similarly, long range weaponry is only as good as the operator (and can only be as good as its specs, but we'll buy or develop something better if we're in danger of saturation). The head of my division at DSTA looks upon my division as a centre of Systems Engineering knowledge which gives back to the entire organization. I believe in the need for regular battalions to act as centres of knowledge from which master trainers and leaders can arise. These individuals are to be the catalysts for competency development within non-regular units. There already is a movement towards this, but it's value bears reiteration.

Naturally, if this is to work, processes have to be worked out and studied in order to strike a balance between component and integrated training. I successfully pulling this off will be a boost to our overall competency, improve our force multiplier and hence contribute to greater security.

-
Update & Clarification (8 May 2009):
I've been told that currently, NS Men are sometimes deployed to work alongside regulars to understand the mind of the regular and doctrinal issues. I envisioned more of some units with NSFs being present for their liability with NS Men entering and leaving (with ICTs remaining short). At times, there would be training, at others, exercises proper. Training in exercising leadership and initiative is something experienced NS Men have to offer, NSFs in turn are in touch with state of the art technology.

Perhaps the greatest benefit I see is not so much operational as social. A connected mindset, where young NSFs are able to "grow up" faster through contact with people who have been in the world. Operationally, this social benefit will create a more engaged NSF population so they see the intended social function of NS. It doesn't matter that most will not see NS as a machine for defending the nation so much as a vehicle for transforming boys to men and an immersion into real society (by meeting people). The fact of the matter is an engaged soldier is a more effective soldier. This is what has been termed a "head fake". Making someone think he is doing something useful to him, while the real intention is for him to pick up skills. This is the idea behind some software for storyboarding (ALICE) where users (kids) think they are making a movie, but are actually learning principles of computer science.

Operationally, the effectiveness of the army is no longer how many can be fielded, as is reflected in the intent of MM Lee when he advocated a conscript system. (Being able to field a huge number of troops after a few years of running the NS system.) Also, technical obsolescence is no longer something the systems architect and master planner can really control. Speculatively, a new coating could render obsolete every radar (advanced or otherwise) in the world, while being developed in secret and deployed throughout an airforce within a matter of a day (or a few days). The cliche that "the rules have changed" is continually in effect at each break through of the arms race that sits in the background of business and commerce.

From this perspective, having a parallel system whereby all NS Men can be brought up to speed rapidly to the state of the art (perhaps at the expense of some aspect of the training of some NSFs) has value.

Religion in Politics: Idiots

2009-05-05T12:23:00.003+08:00

When I first heard about the recent AWARE fiasco, I believed the media buzz that a new team was voted in because members felt that AWARE had lost its focus and had strayed to putting overt emphasis on promoting the LGBT, with an accompanying neglect of "women". (In the USA, the feminists often band with the movement championing rights for the LGBT or Lesbians-Gays-Bisexuals-Transgendered, and it was no stretch to me that the same dynamic would be replicated here.) Only later, after some casual lunchtime talk, did I find out that it was a coup. Modeled on kiddie power grabs on college campuses. Militant Republican supporters trying to subvert the College Democrats. Militant Democrat supporters trying to subvert the College Republicans (my impression is this happens less often).

Christians seek Christ-likeness as the pinnacle of personal attainment in Christianity, as the Buddhists strive for a state of enlightened detachment and oneness. Let's start from here. There are idiots all around: Militant Christians, Muslims, Hindus, etc. Idiots. All of them. I do not mean "idiot" in the affectionate sense of saying "that idiot set the classroom OHP on fire", afterwhich "that idiot", you and various others go have lunch together. I mean idiot as a value judgment on a person's human decency. Yes, a negative one.

The thing is, people with a religious commitment are, by and large, caring folk. Some of whom, if you're sensitive enough, you might notice are surrounded by an air of "nice". People who care don't want you to "do the right thing" (where "do the right thing" simply means "do what I say"). That is simplistic and stupid. They would like you to come to a realization of what is right and put it into practice. The idiots I speak of are marginally more dishonest that Hitler types. They want to stoke their egos by imposing their will on others but pretend to do it under the guide of religion. Decent folk don't do such things. Decent folk don't go around subverting NGOs.

The damage idiots have done to the reputations of decent religious folk over the years is almost irreparable...... Idiots.

Towards P2P Social Networking

2009-04-14T08:00:00.004+08:00

Today I found an invitation to a Facebook group "We will not pay to use facebook, we're gone if that happens".

I guess this echos the sentiments of a generation that believes that it should get stuff for free. But really, can this really be so? Facebook, google, yahoo, etc can only survive given revenues that may be used to cover costs. Web portals with mounds of data are not easy to maintain.

On the other hand, people are concerned by the concentration of huge amounts of personal data, especially with the social networking sites. Who owns the data?

Privacy aside, the P2P infrastructure may work reasonably well for social networking. The idea is for the network to be built up in overlapping pieces. Each indivdual stores his own information and those of his/her friends. The informing of others that information has changed may be done through a series of pings.

Naturally, a big issue is that of the storage and transfer of data. A LOT of data may have to be stored for each contact. Furthermore, one has to ask oneself to what extent does one desire to be a conduit for people to contact one's friends and how much bandwidth one is willing to dedicate to that end. Another is that of "closed cliques" being inaccessible to the world.

The latter problem would probably be solvable after some brief thought, but not the former. People are selfish by nature, and the amount of storage space and bandwidth demanded by such an application would be non-trivial.

Well then, is Facebook's current setup as near optimal as we expect? It's hard to move away from a central repository. It makes things so much easier. We can decentralize a little though... Who knows?

Revisiting Kidneys: More Transplants through Matching

2009-01-12T03:37:00.003+08:00

There is no current legal market for kidneys in Singapore. As of the huge furore over the matter sparked by a tycoon's attempt to buy one in in mid-2008 (he has since gotten a kidney), the Singapore government remains in the process of studying the possible implementation of such a market. Is there a fair price for a kidney? While questions like that and others are being debated, there remains a constant shortage of donor kidneys for transplant and it may be more socially beneficial to also look into incremental ameliorative solutions that are morally repugnant to fewer people.

Patients requiring transplants can only accept kidneys from donors with certain blood types. Simplistically, acceptance and rejection depends on the blood types of patient and donor. Other than ABO compatibility issues, additional immunological factors may impinge on compatibility, but in a nutshell, a patient may have a relative or friend willing to donate a kidney to him or her, but is unable to accept that kidney. (Friends of patients are unable to donate kidneys in Singapore due to possible abuse of such a provision.) In the USA, schemes such as paired donation combat the problem of immunological incompatibility and allow more patients to obtain kidneys. In a paired donation, a friend or relation of patient 1 donates to patient 2, and a friend or relation of patient 2 donates to patient 1. More can be done in this vein and is being studied.

In the spirit of the medical student-residency matching in the USA, a central clearing house for matching kidneys is being studied. Issues of moral hazard relating to information revelation do exist. For instance, with a central clearing house, a patient at a transplant centre may end up not getting a kidney even though a suitable donor is available at the same centre possibly due to another centre playing the priority game. Should that transplant centre reveal information about the existence of that donor? In Singapore, fewer of such issues exist. In fact, the constraint of distance between patients and donors for kidney swaps is essentially a non-issue. Furthermore, a central clearing house is eminently in line with the culture of Singapore.

Suppose K gives the set of available kidneys, P gives the set of patients, and C(j) gives the subset of K that is compatible with patient j. Consider the following optimization problem:

Decision Variables:

x_ij = 1 if kidney i is allocated to patient j and 0 otherwise. For all i in K and all j in P. (These are {0, 1} variables.)

Parameters:

w_j is a subjective priority for patient j.

Objective:

Maximize ∑_{j in P} w_j ∑_{i in K} x_ij
This represents a weighted sum of the number of patients who get kidneys.

Constraints:

Each kidney is allocated to at most one patient:

∑_{j in P} x_ij ≤ 1

for all i in K.

Only a compatible kidney is allocated:

∑_{i in C(j)} ≤ 1
x_ij = 0 if i is not in C(j).

for all j in P.

A system for deciding patient priority w_j, depending on the patient's circumstances, must be agreed upon to ensure fairness or some modicum of uniform unfairness. Other matters may need to be addressed. For instance, patients with compatible directed donors must get kidneys to prevent information from being hidden from the central clearing house. The participation of these donors in the system represents a positive externality on the system.

To represent patients with compatible directed donors, we consider the set of such patients D and add the constraints:

∑_{i in C(j)} = 1

for all j in D.

Some patients may be willing to consider ABO incompatible kidneys (these have an 85% to 90% success rate in comparison to 98%). This may be done by replacing the objective function with:

Maximize ∑_{j in P} w_j ∑_{i in K} c_ij x_ij

where c_ij is a parameter representing the compatibility of kidney i with patient j. Again, a systematic means for choosing this parameter must be developed that captures the tradeoff of the risk of the transplant failing and the value of additional transplants being possible.

More issues may and will arise should such a system be implemented but I would like to close. Singapore is in a unique position, due to our circumstances, to implement what may be the most effective transplant infrastructure in the world. Aside from being an education to the world, a few patients may find themselves with a kidney, and that alone will be sufficient cause to implement a simple clearing house.

In Defence of Opportunism

2008-12-03T14:38:00.001+08:00

Yesterday, I was picking up a book at Kinokunia and as I was waiting to check my book out, I picked up "The Shock Doctrine" (by Naomi Klein) and read the blurb. The book claimed to expose the evils of crisis capitalism, which is taking advantage of a crisis situation to make tons of money and possibly push into place political policies that advance the goals of the great free market conspiracy. I checked my book out, met a friend to collect another book, and went home, and googled "The Shock Doctrine".

An Amazon.com review says "Klein's assertions are coherent, comprehensively researched and footnoted, and she makes a very credible case," which probably makes this a worthwhile read if one has time and wants to get angry at something real. Books in this mould are a dime a dozen. That is books condemning the "evil" agendas of the "right" or the "left". Centrists like myself get to read both sorts and by angry at everything. If only we got to run everything. (… only to later discover the gross tradeoffs that have to be made and start drifting towards some ideological extreme)

While I have gotten upset at the opportunistic "reconstruction" after the tsunamis and wars in recent years, I cannot reasonably agree with my visceral gut feeling against opportunistic profiting from ruin and rubble of disaster and upheaval. I feel it is right to defend opportunism unhappy as I am to see the said profiteering.

The site of any disaster, crisis, or upheaval of sorts needs to recover in order for normalcy to return. By normalcy, I mean a state of things whereby people going about their lives do not feel elevated levels of stress due to uncertainty about basic needs. (While I'm aware that "basic needs" differ, this is about as much detail as is needed in this definition.) In order for the return of normalcy, resources have to be pushed to the site whether to directly meet needs or to set up infrastructure such that the community (in the general sense of the term) will be able to meet their own needs through engaging in "normal" economic activity. Clearly an urgent demand for aid and reconstruction is present, demand that is usually ineffective in the sense of the community being able to offer payment for the services, but is essential for the well being of the community in question. In a nutshell, it is obvious that aid money goes to the firms contracted to reconstruct and these firms often have non-official ties to government officials in charge of allocating reconstruction contracts. (This is similar in theme to the material in "Confessions of an Economic Hitman" where it is explained that loans to developing nations are funneled to select firms for "infrastructural development" and the country taking the loans fall into debt, become unable to pay up and fall into the thrall of the great Satan.) While it is a shame that the free market is not acting to efficiently allocate resources, it can't because it does not exist. We have to make do with some cronyism and corruption in order for speedy recovery. Is there a better solution? That is, is there a solution that works better as judged the victims of thousands upon thousands of personal disasters?

Far more sketchy is the promotion of "positive" reform, doing what up to that point would be regarded as politically impossible. For instance, recessions allow corporate restructuring "out of necessity". The book does contend that crisis may be stoked to grease the wheels of change — a "pseudo-crisis" that serves the positive functions of crisis without the costs of a real crisis. (yay for the internets, and all things that allow one to talk about a book without actually having read it) But to be somewhat unconscionably cruel, each man has to take care of his own house. Organizations and institutions have to restructure from time to time, and that means dislocation. If time and resources permit, lightening the impact of dislocation would be nice, but is strictly not obligatory, unless niceness is an organizational goal or some reciprocal obligation in kind is desired. This is cruel, it saddens me, but it is how the world works. And opportunities have to be acted upon, otherwise one ends up with stagnation or possibly collapse.

There is one relatively serious problem though. To state is simply, you can do whatever the hell you want because people are too disoriented to argue. There are just no checks and balances. Perhaps this is the greatest indictment against crisis capitalism, but is it dangerous enough in a practical sense to justify preventing crisis capitalism? At least on scene at a disaster like an earthquake or tsunami, I do not think the victims would agree.

I do not think I've put forth an effective defence of crisis capitalism. Perhaps there is no effective defence. But the coin is not one sided. It is not all evil. And to be sure, it can be improved upon. Perhaps some nuggets of wisdom on improving crisis capitalism can be found in that book "The Shock Doctrine". Hopefully.

Spring Cleaning (in Fall)

2008-09-14T10:42:00.003+08:00

It seems that everything has been cleaned out here. 'decided to do this little clean up of old cruft and clutter only after my public service posting was done and over with. They've had their chance to do their bit of net stalking. And now that they have no legitimate excuse to carry on, I've done what I've always wanted to do: clean out and start with a new bit of content.

Why clean out? I've been reflecting on the past for quite a bit, and noticed how childish I've been. Childish idealistic, childish immature, the works.

Regardless of notions normative of how we might propose that the world should be like, the realities of reality have to be accounted for. There are questions of how valuable to you a certain state of affairs or condition of society would be. And accordingly, the ultimate validation or culmination of that previous utility evaluation, how much you would be willing to pay for it. Childish idealism is the support of an ideal that one is not wiling personally to make a commitment to. Brash youth lashes out in criticism of older generations, citing their "complicity in the system" and their roles as "willing cogs in the machine". The realities of life require one to put value on one's goals, or equivalently decide what one would be willing to do in order to pursue those goals, bearing in mind that one may not, in fact, attain the object of one's pursuit.

On a far far more personal note, I've taken quite a bit of time to grow up. I hope to say that this lengthier gestation has led to a fuller and more solid level of personal maturity, but that remains to be seen. It is certainly true that maturity is the product of making mistakes, and mistakes the product of a lack of maturity. And driving this system is the fact that regret is, perhaps, the only thing that can truly change a person's constitution, a person's temperament, a person's idiosyncrasies. In short, a person.

Without the grandiose pronouncements in the style of "A Blog Reborn", I've thought that it would be fun to blog again. Furthermore, the transfer thoughts from mind to media allows for clarification and reflection: always healthy, as the unexamined life...

In any event, I guess it would be a fun diversion. *smile*