It would appear that the impending population shift might be the driving force pushing the economy towards a more knowledge intensive economy where experience and know-how command a premium, and old can truly be gold. It would necessitate a culture of continuous learning and would be a drastic shift, but it would suit the ageing demographic and lighten the dependency load.
Now, the government knew about the impending demographic shift for a very long time. It only recently (within the last decade) starting talking about it. My question is, why was the vaunted foresight not exercised to gradually nudge the economy in that direction? Why are the economic incentives of policy makers still aligned with chasing labour supply-led growth? To paint them in a better light, is a bad system making otherwise good people behave badly?
Monday, May 7, 2012
Wednesday, May 2, 2012
A "New" Paradigm for Rental
Much has been said about how ballooning rentals for business premises strangles businesses and curtails real economic growth. We could ask for lower rentals, but should rentals be lowered, spaces would then be under-priced and business owners would reap windfalls instead, leading to disgruntled landlords.
I'd like to briefly talk about a "new" paradigm for rental. The prohibition against usury in Islam has led to the creation of a set of investment principles called "Islamic banking". In Islamic banking, the lender also takes equity in the venture that money is being loaned out for. In modern parlance, we might say that borrower and lender are now "in it together", and the lender now has the incentive to provide support to the borrower to help the borrower to succeed.
Rentals can be formulated in a similar way. Rentals to be paid might be a ("low") flat rental rate with additional profit sharing. That way tenants need not fear poor business as the rental to be paid corresponds to how much revenue is collected. In addition, the owner of a building becomes more responsive to the needs of tenants and does not have to wait till the tenant's tenure is over to jack up rents.
How profit sharing takes place is an important detail. One possibility is for payment support to be provided by the landlord (credit card accounts, cash registers, etc.) and revenues to be recorded. This is not at all onerous for the owner of a building, and can make for stronger bargaining power with banks for the terms of payment services. (Ok, I'm aware that even the aggregation of all Capitaland malls is unlikely to make Visa or Mastercard budge.) Paranoid landlords can also have cameras installed watching the cash boxes to record possible cheating on the part of tenants. In any event, financial risk is reduced for both tenant and landlord (though admittedly more for the tenant). Furthermore, under such a system, landlords might obtain valuable information about consumption patterns that will certainly come in handy when, say, determining the tenant mix of a new mall.
On a more philosophical note, it may be time for the rentier capitalist economy of Singapore to transform into one where renter and borrower are in it together.
(Those familiar with the econo-operations management literature, might see this as a form of supply chain coordination that seeks to ameliorate the effects of "double marginalization" that leads to supply chain inefficiency.)
I'd like to briefly talk about a "new" paradigm for rental. The prohibition against usury in Islam has led to the creation of a set of investment principles called "Islamic banking". In Islamic banking, the lender also takes equity in the venture that money is being loaned out for. In modern parlance, we might say that borrower and lender are now "in it together", and the lender now has the incentive to provide support to the borrower to help the borrower to succeed.
Rentals can be formulated in a similar way. Rentals to be paid might be a ("low") flat rental rate with additional profit sharing. That way tenants need not fear poor business as the rental to be paid corresponds to how much revenue is collected. In addition, the owner of a building becomes more responsive to the needs of tenants and does not have to wait till the tenant's tenure is over to jack up rents.
How profit sharing takes place is an important detail. One possibility is for payment support to be provided by the landlord (credit card accounts, cash registers, etc.) and revenues to be recorded. This is not at all onerous for the owner of a building, and can make for stronger bargaining power with banks for the terms of payment services. (Ok, I'm aware that even the aggregation of all Capitaland malls is unlikely to make Visa or Mastercard budge.) Paranoid landlords can also have cameras installed watching the cash boxes to record possible cheating on the part of tenants. In any event, financial risk is reduced for both tenant and landlord (though admittedly more for the tenant). Furthermore, under such a system, landlords might obtain valuable information about consumption patterns that will certainly come in handy when, say, determining the tenant mix of a new mall.
On a more philosophical note, it may be time for the rentier capitalist economy of Singapore to transform into one where renter and borrower are in it together.
(Those familiar with the econo-operations management literature, might see this as a form of supply chain coordination that seeks to ameliorate the effects of "double marginalization" that leads to supply chain inefficiency.)
On "Economic Flexibility"
Being pinned down is no fun. It can be tremendously suffocating knowing that you are trapped and there is no way out. This is really the situation that many Singaporeans find themselves in. Young Singaporeans find themselves in low income jobs (as benchmarked to comparable work overseas). The necessity of a roof over their heads leads into expensive mortgages for houses whose title deeds their names are not on. It is a rut. A sad, sad rut.
The financial burden often deals a death blow to any enterprise that would entail risk. Aspirations are killed and with them, the possibility of a stronger, more vibrant, more productive economy. This may seem to be quite a logical leap, but it most assuredly does follow.
We are in need of new enterprises that generate real-value to rejuvenate our economy. The Singapore government knows this and is already gambling on what might generate, in public service lingo, the next S-curve. These businesses we need are certainly not the “safe” businesses that exploit the socio-politico-economic system to extract rents (or isomorphically, protection money). The desirable businesses will create goods and services that add-value to the lives of people or facilitate the conduct of people’s lives or businesses. Barring the most brilliant insights into consumer needs, almost all value-adding businesses will carry considerable financial risk as they will have to be operational before they can be revenue generating. The founders will have to raise capital by debt or (in the fortunate but rarer cases) issuing equity while running the risk of failure.
Many young people leave school with a different perspective on how things might be done. They have learnt about possibly new ways of doing things in school and after a year or two of hands-on work, they are ready to combine the updated perspective from the academy with their knowledge of current practices into a business. Unfortunately, the vicissitudes of the Singapore system catch up with them. Already a few hundred thousand in debt after paying for the lease of a HDB flat, the capacity to take on the additional risks of starting a business is lost.
What I hope for Singaporeans is Economic Flexibility. It is being released from the economic coercion of debt and financial risk and being able to pursue experiences and/or enterprises. While there is something primordially irreducible in start-up costs for businesses, we can do something about the financial burden that young Singaporeans are forced to shoulder. Possible angles of attack for this problem, which might yield huge dividends, are the cost of housing and the financial outcomes associated with the risk of medical disaster.
The SDP has published a proposal for a national healthcare insurance system and it looks good. In fact, I’m told that a number of doctors thanked the authors of the proposal for bringing up that important issue. Should that proposal or a variant of it be implemented, perhaps 90% of Singaporeans will have a substantial fraction of the financial risk associated with medical issues reduced.
From the housing angle, the first question to be asked is whether public housing has to cost so much. It turns out that construction costs are not as outrageous as HDB flat prices are. This is because flat prices consist of the construction cost, cost of overheads, and the cost of land. Based on the fact that flat prices have essentially doubled since 2005, while construction costs cannot be said to have increased by much, it then follows that land costs, which reflect market prices, must make up a large fraction of HDB flat prices. I’ve written about how we can create a public housing system that better meets the needs of Singaporeans without destabilizing the present housing market. (Tentatively, the reader may ignore the pricing recommendation. I've had a lot of push-back from people on the matter of pricing with auctions so it may detract from the point I'm trying to make here. The auction is for allocative efficiency and represents pure consumption of households. The article may be read as if a fixed price were recommended.) I’ve also written about how land pricing can be done on a rational basis which will enable shorter lease (hence, cheaper) flats to become attractive (LINK). In a nutshell, it is possible to quickly reduce the financial burden associated with housing costs without destabilizing the housing market.
Dealing with both healthcare and housing would certainly unshackle Singaporeans who will then be free to venture into business, invest, or pursue experiences. Economic flexibility is not just about money, it is about having flexibility in living life. This is a compelling vision for the future and I hope that we, as a nation, can get there.
The financial burden often deals a death blow to any enterprise that would entail risk. Aspirations are killed and with them, the possibility of a stronger, more vibrant, more productive economy. This may seem to be quite a logical leap, but it most assuredly does follow.
We are in need of new enterprises that generate real-value to rejuvenate our economy. The Singapore government knows this and is already gambling on what might generate, in public service lingo, the next S-curve. These businesses we need are certainly not the “safe” businesses that exploit the socio-politico-economic system to extract rents (or isomorphically, protection money). The desirable businesses will create goods and services that add-value to the lives of people or facilitate the conduct of people’s lives or businesses. Barring the most brilliant insights into consumer needs, almost all value-adding businesses will carry considerable financial risk as they will have to be operational before they can be revenue generating. The founders will have to raise capital by debt or (in the fortunate but rarer cases) issuing equity while running the risk of failure.
Many young people leave school with a different perspective on how things might be done. They have learnt about possibly new ways of doing things in school and after a year or two of hands-on work, they are ready to combine the updated perspective from the academy with their knowledge of current practices into a business. Unfortunately, the vicissitudes of the Singapore system catch up with them. Already a few hundred thousand in debt after paying for the lease of a HDB flat, the capacity to take on the additional risks of starting a business is lost.
What I hope for Singaporeans is Economic Flexibility. It is being released from the economic coercion of debt and financial risk and being able to pursue experiences and/or enterprises. While there is something primordially irreducible in start-up costs for businesses, we can do something about the financial burden that young Singaporeans are forced to shoulder. Possible angles of attack for this problem, which might yield huge dividends, are the cost of housing and the financial outcomes associated with the risk of medical disaster.
The SDP has published a proposal for a national healthcare insurance system and it looks good. In fact, I’m told that a number of doctors thanked the authors of the proposal for bringing up that important issue. Should that proposal or a variant of it be implemented, perhaps 90% of Singaporeans will have a substantial fraction of the financial risk associated with medical issues reduced.
From the housing angle, the first question to be asked is whether public housing has to cost so much. It turns out that construction costs are not as outrageous as HDB flat prices are. This is because flat prices consist of the construction cost, cost of overheads, and the cost of land. Based on the fact that flat prices have essentially doubled since 2005, while construction costs cannot be said to have increased by much, it then follows that land costs, which reflect market prices, must make up a large fraction of HDB flat prices. I’ve written about how we can create a public housing system that better meets the needs of Singaporeans without destabilizing the present housing market. (Tentatively, the reader may ignore the pricing recommendation. I've had a lot of push-back from people on the matter of pricing with auctions so it may detract from the point I'm trying to make here. The auction is for allocative efficiency and represents pure consumption of households. The article may be read as if a fixed price were recommended.) I’ve also written about how land pricing can be done on a rational basis which will enable shorter lease (hence, cheaper) flats to become attractive (LINK). In a nutshell, it is possible to quickly reduce the financial burden associated with housing costs without destabilizing the housing market.
Dealing with both healthcare and housing would certainly unshackle Singaporeans who will then be free to venture into business, invest, or pursue experiences. Economic flexibility is not just about money, it is about having flexibility in living life. This is a compelling vision for the future and I hope that we, as a nation, can get there.
Monday, April 23, 2012
On "Weak" Singaporeans and NS
On the matter of the "weakness" of Singaporean males, I came across this which led me to this. There we have a professional soldier C attacking reasonable advice from a non-professional soldier K. C gives a rousing account of honour and glory while K gives pragmatic sounding advice about doing what it takes to be safe.
I think it is good for men to be manly. There is something about being able to walk around with a 20-30kg combat load with the optional (annoying) Hand Held Thermal Imager dangling around your neck and enjoying jalaning in the semi-open terrain in Thailand or Australia under the hot sun. There is something quite manly about doing all that and in the course of doing so, falling into a somewhat deep hole, quickly emerging cursing and swearing and then carrying on like nothing happened. (The falling into a whole bit happened to someone else.) There is something satisfying about getting nods of approval as some people stop to count the 20 chin-ups you do before lunch.
Yet, I take K's point that it is important to be careful while being manly. Brief recognition for an episode of manliness is not worth permanent injury. I think K was horribly misunderstood by many who took him to be advocating unbridled malingering. My take away from what he wrote was: do the risk-reward calculus and make your choice.
I think it is good for men to be manly. There is something about being able to walk around with a 20-30kg combat load with the optional (annoying) Hand Held Thermal Imager dangling around your neck and enjoying jalaning in the semi-open terrain in Thailand or Australia under the hot sun. There is something quite manly about doing all that and in the course of doing so, falling into a somewhat deep hole, quickly emerging cursing and swearing and then carrying on like nothing happened. (The falling into a whole bit happened to someone else.) There is something satisfying about getting nods of approval as some people stop to count the 20 chin-ups you do before lunch.
Yet, I take K's point that it is important to be careful while being manly. Brief recognition for an episode of manliness is not worth permanent injury. I think K was horribly misunderstood by many who took him to be advocating unbridled malingering. My take away from what he wrote was: do the risk-reward calculus and make your choice.
Friday, April 6, 2012
Measuring the Efficacy of Education: A Possible Methodology
Given the mission of education to enable upward mobility, an obvious methodology for measuring the efficacy of education suggests itself: measure the decrease in the level of correlation of student performance on family background from primary 6 to secondary 4/5.
It goes without saying that student performance at Primary 6 is strongly related on family background. Given that secondary school is a substantial part of the Singapore education experience, where academic preferences are formed, the Secondary 4/5 level is a good time to make the comparison. In fact, a first reading may be obtained at the end of Primary 1/2, which will be very strongly related to family background.
Any competent econometrician would be ale to do the analysis given the data. We should be measuring this and using it as a KPI.
It goes without saying that student performance at Primary 6 is strongly related on family background. Given that secondary school is a substantial part of the Singapore education experience, where academic preferences are formed, the Secondary 4/5 level is a good time to make the comparison. In fact, a first reading may be obtained at the end of Primary 1/2, which will be very strongly related to family background.
Any competent econometrician would be ale to do the analysis given the data. We should be measuring this and using it as a KPI.
On the Transfer of Risk from Corporations to the Publlic
The 3rd April 2012 running over (and dragging) of a 66 year old woman, crossing the road with traffic signals in her favor, by a SBS bus calls into question the training given to bus drivers. The bus driver was reportedly a national of China, where SBS actively recruits and where buses are culturally regarded to have right of way over pedestrians.
From this perspective, the accident is simultaneously unsurprising and shocking, the former because it would have been a matter of time and the latter because this obvious risk has not been comprehensively mitigated by training. This accident would not have happened if appropriate training was provided. This failure constitutes an unconscionable transfer of risk from SBS to the public. An investigation should be conducted and a stern regulatory response should follow if SBS is shown to be negligent.
Risk costs money to mitigate. It is not surprising that corporations are keen to find ways to transfer the burden of risk from each other. I myself have been taught to be careful with what risks I accept. It is up to the party bearing the risk to take mitigating measures. But what is the risk has been transferred without being accepted? Can the party now bearing the risk be blamed for not mitigating the risk?
This matter can easily be reframed into the standard picture of negative externalities imposed on the public. So I am not saying anything new. However, the risk and risk mitigation perspective I'd far more relevant to this setting and generally more concrete. Pollution leads to a risk of disease that can be mitigated with the discomfort of masks and/or the expense of good air purification systems. Yet the risk remains, albeit slightly diminished. What is the appropriate transfer back to society then? I think the answer lies in the cost of mitigation measures scaled up by an appropriate factor for time expended.
Where there is no transfer back to society, law and regulation should incentivize the corporation to do risk mitigation on its own. Financial penalties for negative outcomes should be capable of wiping out all or most cost savings for not handing risk, otherwise simple arithmetic tells us that nothing will be done.
Without commenting on the state of regulation in Singapore, let me say that this is important. The next grandma run over and dragged to death could be yours.
From this perspective, the accident is simultaneously unsurprising and shocking, the former because it would have been a matter of time and the latter because this obvious risk has not been comprehensively mitigated by training. This accident would not have happened if appropriate training was provided. This failure constitutes an unconscionable transfer of risk from SBS to the public. An investigation should be conducted and a stern regulatory response should follow if SBS is shown to be negligent.
Risk costs money to mitigate. It is not surprising that corporations are keen to find ways to transfer the burden of risk from each other. I myself have been taught to be careful with what risks I accept. It is up to the party bearing the risk to take mitigating measures. But what is the risk has been transferred without being accepted? Can the party now bearing the risk be blamed for not mitigating the risk?
This matter can easily be reframed into the standard picture of negative externalities imposed on the public. So I am not saying anything new. However, the risk and risk mitigation perspective I'd far more relevant to this setting and generally more concrete. Pollution leads to a risk of disease that can be mitigated with the discomfort of masks and/or the expense of good air purification systems. Yet the risk remains, albeit slightly diminished. What is the appropriate transfer back to society then? I think the answer lies in the cost of mitigation measures scaled up by an appropriate factor for time expended.
Where there is no transfer back to society, law and regulation should incentivize the corporation to do risk mitigation on its own. Financial penalties for negative outcomes should be capable of wiping out all or most cost savings for not handing risk, otherwise simple arithmetic tells us that nothing will be done.
Without commenting on the state of regulation in Singapore, let me say that this is important. The next grandma run over and dragged to death could be yours.
Sunday, March 11, 2012
A Practical Approach to Balancing the GST Burden
One way of making GST less regressive would be to simply make it progressive along the lines of income tax. (As an amusing side effect, children would be exposed to how to calculate income taxes.)
Consider the following (consumption) tax rate scale:
In this tax regime, it makes sense to levy taxes at the "item level", meaning that a multi-item purchase would have tax assessed on items individually before everything is aggregated to give the final payment amount. This would enable sticker prices to continue to make sense, and would prevent perverse incentives to perform "purchase splitting".
Consider the following (consumption) tax rate scale:
- First $5 at 4.0% (Up to $5; GST up to $0.20)
- Next $5 at 4.5% (Up to $10; GST up to $0.43)
- Next $5 at 5.0% (Up to $15; GST up to $0.68)
- Next $5 at 5.5% (Up to $20; GST up to $0.95)
- Next $30 at 6.0% (Up to $50; GST up to $2.75)
- Next $50 at 6.5% (Up to $100; GST up to $6.00)
- Next $400 at 7.0% (Up to $500; GST up to $34.00)
- Next $500 at 7.5% (Up to $1000; GST up to $71.50)
- Next $1000 at 8.0% (Up to $2000; GST up to $151.50)
- Next $1000 at 8.5% (Up to $3000; GST up to $236.50)
- Next $2000 at 9.0% (Up to $5000; GST up to $416.50)
- Next $5000 at 9.5% (Up to $10000; GST up to $891.50)
- Item value above $10000 taxed at 10.0%
- Fairprice Kaya (400g) costing $2.40: $2.40 at 4.0%, GST $0.10.
- McSpicy Double Meal (Upsized) costing $8.80: $0.20 on first $5, remaining $3.80 at 4.5%, GST $0.37 (Effective rate: 4.22%).
- Dell UltraSharp U2412M 24" LED Widescreen Monitor costing $299.00: $6.00 on first $100, remaining $199.00 at 7.0%, GST $19.93 (Effective rate: 6.67%).
- Kate Spade Signature Spade costing $429.00: $6.00 on first $100, remaining $329.00 at 7.0%, GST $29.03 (Effective rate: 6.77%).
- XFX Radeon 7970 Black Edition 3GB costing $938.00: $34.00 on first $500, remaining $438.00 at 7.5%, GST $66.85 (Effective rate: 7.13%).
- Qatar Airways Economy SG to Paris, Rome to SG (incl. taxes) costing $1030.30: $71.50 on first $1000, remaining $30.30 at 8.0%, GST $73.92 (Effective rate: 7.17%).
- iPad with Wi-Fi + 4G 64GB (3rd generation) costing $1088.00: $71.50 on first $1000, remaining $88.00 at 8.0%, GST $78.54 (Effective rate: 7.22%).
- Hermes HER Bag costing $1690.00: $71.50 on first $1000, remaining $690.00 at 8.0%, GST $126.70 (Effective rate: 7.50%).
- Hermes Picotin Bougainviller costing $3690.00: $236.50 on first $3000, remaining $690.00 at 9.0%, GST $298.60 (Effective rate: 8.09%).
- Toyota Prius 1.8 costing $170k: $891.50 on first $10k, remaining $160k at 10.0%, GST $16891.50 (Effective rate: 9.94%).
In this tax regime, it makes sense to levy taxes at the "item level", meaning that a multi-item purchase would have tax assessed on items individually before everything is aggregated to give the final payment amount. This would enable sticker prices to continue to make sense, and would prevent perverse incentives to perform "purchase splitting".
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