Archive for the ‘Economics and business’ Category
Why does Singapore have one of the lowest crime rates in the world? What is responsible for such a phenomena? Of course the usual PAP establishment apologists attribute this to the government’s policies on crime, which they argued have kept Singapore as one of the safest cities in the world. But is there all there is to it? How exactly did the PAP do it?
Let us first examine the trend of overall crime decline. Looking at old articles, the crime rate began falling in 1989 as stated in this 1991 ST article:
Senior Assistant Commissioner Khoo Boon Hui said yesterday: “The decline in the overall crime this year is particularly heartening as it indicates that the police have successfully sustained the falling crime trend of the past 2 1/2 years.”
What could account for such a steady drop in committed crimes? Kishore Mahbubani, a Lee Kuan Yew School of Public Policy professor attributed it to policies such as the high level of trust between the public and police, tough laws, economic growth and development as well universal education. But is that all?
Update: Amended the title just to be more specific with the content of the article.
Some time ago I wrote this post explaining why I felt that Singapore’s high GDP per capita ranking is unexceptional when put into context. It’s still worth a read. The main gist of the argument (more specifically the 2nd point) is that Singapore’s GDP per capita when compared to numerous other cities does not rank amongst the top in the world. The obsession with GDP per capita, is understood to have reached fever pitch when Singapore was judged to have reached a Swiss standard of living simply by attaining a comparable GNP per capita with Switzerland’s in 1999. For example, Matt Miller of the Washington Post gushed over Singapore’s GDP per capita in a recent op-ed here.
A recent publication by an American think tank seems to support this argument. The report argues that the US is more economically developed than much of Europe simply because more of their population is packed into mega-cities:
The United States, it turns out, actually derives more economic benefit from its cities than any other country on the planet. Roughly 83 percent of America’s GDP came from its “large cities,” defined as cities with a population of 150,000 or more. By contrast, China got 78 percent of its GDP from large cities and Western Europe got a surprisingly small 65 percent of its GDP from its large urban areas. Here’s the chart:
The report’s authors argue that the city gap between the United States and Europe account for about three-quarters of the difference in per capita GDP between the two. In other words, the United States appears to be wealthier than Europe because it has a greater share of its population living in large, productive cities.
All told, some 80 percent of Americans live in large cities, versus just 58 percent of Western Europeans.
In any case, the report also notes that America’s largest cities will continue to play an outsized role in the global economy. In 2025, the report predicts, about 600 cities around the globe will account for 60 percent of the world’s GDP.
So what does this tell us? It means that if a country has more cities and a larger proportion of its people residing or packed in mega-cities, it is expected that the country would enjoy stronger economic growth. Taken to extremes, what happens if your country consists of just one mega-city (ie. a city-state)? The answer is that you would enjoy stellar high GDP per capita figures.
Recently, Finance Minister Tharman stirred up a ruckus when he defended the foreign talent scheme by citing how Taiwanese wages had flattened over the last decade due to its closed door policy. Popular blogger Lucky Tan rebutted Tharman here and here, primarily by turning Tharman’s argument on its head: Tharman essentially put the cart before the horse; the reason why Taiwan’s not attracting foreign talent is precisely because of stagnant wages which had flatlined over the past ten years, not the other way round.
This point is echoed by Taiwan’s deputy Labour minister:
It is not the government’s policies that have led to the brain drain, but Taiwan’s “comparatively low wage levels,” which have failed to retain local talent or attract professionals from overseas, Pan said.
While the average starting pay for new graduates in Taiwan is between NT$20,000 and NT$30,000, “a Taiwanese college graduate may earn NT$50,000, NT$60,000 or even NT$70,000 if they work in Singapore,” he said.
“The problem lies with enterprises who are unwilling to raise salaries for their staff members,” Pan said.
Ok let’s try to talk about something other than Dr Patrick Tan’s national service. GIC released its annual report last week. Unlike most investment funds, GIC doesn’t provide year-on-year performances. It reports its performance in the form of a rolling annualised 20 year rate of return in USD. So there’s no way to know, unlike for Temasek Holdings, how much GIC lost or made in a single year. So we make do with what we have.
Now most people, including myself is under the impression that CPF monies are managed by GIC which invests them overseas. Call this the CPF-GIC model. I recall reading a book by Rodney King, The Singapore Miracle which says that GIC is barred from investing in the domestic market because it is feared that its large size may destabilise the markets with its investment moves. True or not, I’ve no idea. But what’s particularly interesting is GIC’s performance as reported.
Recently Alex Au wrote a couple of posts here and here questioning if opposition parties’ attempt to avoid 3-cornered fights might be undemocratic to voters since they offer the electorate fewer choices. Now of course this might appear to most people as a stupid conclusion to reach. There are many reasons to believe that doing so would help only the PAP, but this post would not attempt to go down that line. Lucky has done so here and has E-Jay here. To begin let’s start by quoting Alex’s argument that having more opposition parties contest in the same district would result in a more democratic outcome:
But this logic is based on an assumption which, strangely, no one has yet interrogated: that there is a relatively inelastic pool of voters who would not want to vote for the PAP and that they would vote for whichever opposition party happened to be standing in their constituency. You see this assumption at work whenever someone talks about not “splitting” the vote.
From what I have seen, opposition parties are not interchangeable, and even if there are days when one is frustrated with the PAP, not all of the other parties are always preferable to the PAP.
But the trend to differentiate themselves by articulating convictions and policy directions can only mean that they will become less and less interchangeable. I may like Party K and Party L for their positions; I may not like Party M and Party N. So, come election time, why should I be denied the opportunity to choose among K, L, M and N?
However, it is not necessary to argue as E-Jay did, that 3-cornered fights can only be considered a more democratic electoral representation if Singapore were more democratic. Something known as Arrow’s impossibility theorem proves that result does not hold mathematically regardless of that setting. In other words, 3-cornered fights are undemocratic and unfair purely from a rigorous and mathematical point of view. I will attempt to argue that offering the electorate more choices may paradoxically result in a less fair and undemocratic outcome from a strictly theoretical perspective, without taking into account Singapore’s electoral history and landscape. Similarly the argument that having one opposition party give in the does not necessarily imply that the move was done purely out of a motive to deny the PAP their votes without any consideration whether doing so might actually result in an electoral outcome which is more reflective of the electorate’s ranking preference.
“If that is the case…does the Government short-change Singaporeans by giving CPF members 3.5 per cent of the interest rate while the GIC makes 9 per cent (and) pockets the balance of 5.5 per cent?” -Worker’s Party Secretary-General Low Thia Khiang, parliamentary session on 18th Sept 2007.
“Sir, the poor rate of returns on CPF balances is one of the main reasons why the existing CPF scheme, without reform, will be inadequate to meet Singaporeans’ retirement needs. As a long-term retirement savings plan, the CPF’s rate of return is crucial. Unfortunately, the rate of return enjoyed by CPF members has been poor.” – Then-NMP Siew Kum Hong, parliamentary session 18th Sept 2007.
“You can’t completely guarantee this system that you are providing now. This is because there isn’t any risk-free asset that can be certain to achieve the 2.5 per annum minimum return.” – Then-Manpower Minister Ng Eng Hen in reply to Low and Siew.
How does the Singapore’s CPF rate of return measure up against those of similar pension funds of other countries? This was a question which I sought to answer back in 2009. Back then I promised readers (mostly consisting of myself) that I would update the post with real returns of other provident funds instead of mere nominal figures. I barely found time (and motivation, it’s a lot of work to source for and dig up data) to do so only until somewhat recently. While nominal CPF returns may appear comparatively low, Singapore’s low inflation rate (disregarding issues of whether inflation is adequately measured in Singapore) leaves open the possibility that CPF provides a better real rate of return as compared that of other countries.
Notes: This post may be considered an update of the older 2009 one, but much of its contents will be plagiarised; there’s no need to read the earlier 2009 post if you’re reading this one.
Singapore’s CPF earns the dubious honour for having the highest mandatory contribution rate (thus robbing its depositors the most of their take-home pay) and providing the lowest return (annual interest accrued where relevant). For this article, I examined four listed countries’ provident funds in Wikipedia, namely Singapore, India, Hong Kong and Malaysia. There may well be more provident funds, but for some reason Wikipedia only has four listed. These four schemes would be examined in detail below.
Singapore Budget 2011 was just released Friday. I have yet to look through all the documents, only focussing on the main highlights on the Singapore Budget 2011 website. At a quick glance much of it looks likes the standard pre-election handout, which Singaporean voters saw in 2001 as New Singapore Shares (NSS) or its 2006 successor Progress Package. Predictably both were given a few months before the General Elections.
One long-term Budget goal in particular caught my attention. It wasn’t a new Budget or economic growth target. It was instead a re-affirmation of a long term economic goal which was first articulated by Finance Minister Tharman back in July 2010. Back then Tharman said that it was tied to the government’s earlier announcement back in Feb 2010 of boosting Singapore’s lackluster productivity by about 2-3% annually over the next decade.
Citing current median wages of $2400, Tharman said that it was the government’s goal to bring that up to $3100 (30% increase) in real terms over the next 10 years. Naturally, such a proposal generated a lot of skepticism amongst Singapore netizens, some of whom claimed that the government would simply reach into its bag of tricks and pull in wealthy immigrants in order to bring up the median income instead of restructuring the economy or establishing social safety nets to do so. Yet for many others, this represented a change from vague promises such as promising to achieve Swiss standards of living, and as mentioned earlier was nothing more than a veiled GDP per capita growth target.
Note: This was published earlier in a letter sent to The Temasek Review.
I recently re-read this article which Temasek Review re-posted on the UBS study and low relative purchasing power of Singaporean workers’ wages. I tried searching for PM Goh Chok Tong’s quote where he supposedly said that Singapore achieved the 1984 Swiss standard of living in 2000 but to no avail. So I decided to search the older news archive instead. Here’s what I found. It turns out that for the ruling party, standard of living equates to GDP per capita. An August 6th, 1995 article from the Straits Times makes clear this point when then DPM Lee Hsien Loong said that Singapore had achieved that hard numbers target:
IN DECEMBER 1984, WHEN Mr Goh Chok Tong and the second generation of leaders had established themselves in Cabinet, they unveiled an agenda for Singapore that encapsulated their visions for the next 15 years.
Vision 1999 saw Singapore becoming a “city of excellence” and a “society of distinction” by the turn of the century. It set one hard-numbers target, with which it became most closely associated: to achieve the 1984 Swiss standard of living, as measured by per capita output, by 1999.
Six weeks ago, Deputy Prime Minister Lee Hsien Loong stated in an interview that Singapore had reached the goal.
There was no elaboration, but the claim is easily verifiable. It turns out that Singapore’s gross national product per person hit US$ 20,415 (S$ 31,182) last year. The 1984 Swiss GNP per capita was virtually the same, at US$ 21,307 (adjusted to 1994 dollars).
WITH Singapore’s economy growing by more than 7 per cent this year, it may have already crossed the mark.
In characteristic over-achieving style, Singapore appears to have reached a 15-year goal in 10 or 11.
If you have a government which thinks that standard of living equates to GDP per capita without any consideration of how much of that GDP ends up in the pockets of middle class Singaporean workers, it makes you wonder if Singapore would have been a lot better off if they had chosen to target median wages instead of GDP per capita. This is truly disappointing. So does this mean a Swiss standard of living simply means surpassing Switzerland in terms of GDP per capita, but losing out to them massively in terms of purchasing power of wages earned in Singapore. Is this really the Swiss standard of living Singaporeans were promised?
Recently I’ve been engaged in an online discussion with Christopher Pang of the New Asia Republic here. Christopher wrote an article on some supposed economic myths and his attempts to debunk them. My comments on his stand and opinion may be read over there. Personally I feel that much of it is heterodox Austrian economics which is questionable theory. As I and another commentator Fox have said, Austrian economics conflates between consumer price inflation and monetary inflation, the former being a general increase in consumer prices but the latter being an increase in the money supply. But here I would like to address one particular claim, that deflation might be a good thing. This is a favourite talking point of Austrians which comes up quite often so it’s worth devoting an entire post to debunking that argument.
According to the Austrians, deflation is not necessarily a bad thing. Deflation is defined as a fall in the overall level of prices in the economy, generally a fall in the price of a consumer basket of goods/services tracked. Intuitively it may be a good thing because it helps to lower prices and wages until they become affordable again. This runs counter to what is normally understood in everyday conversational economics and introductory courses. Personally I am of the opinion that in general, falling prices across the board are a bad sign, but this statement requires some clarification and qualification.
Note: I have not been able to update this blog as of late due to increasing work commitments. Loyal readers (and I personally thank you for that) should check this blog much less often for updates. Reader comments may be unaddressed for some time.This is likely to be the last post you see for a long time (I will be coming back eventually). A big thank you to those who have been reading this blog.
It was reported recently that the year-on-year inflation rate in Aug 2010 was 3.3%. At first glance this may not seem unusual. After all, Singapore is projected to achieve double-digit GDP growth for this year; some 20% growth is not out of question. It is perhaps with this in mind that the government has argued that letting in more foreign workers is crucial to prevent the economy from overheating. Singaporeans are told that unless more foreigners (whom are willing to work for lower pay) are allowed in, inflation will climb even more sharply higher. But a more in-depth analysis of the factors behind this inflation appears to undermine that argument.