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Archive for February, 2012

The issue of scholarship for foreigners

February 25, 2012 1 comment

Just when I thought the Sun Xu incident will died down, comments from MP Baey Yam Keng has started flaring up emotions in Singapore. While I understand the need to attract talents, Singapore’s way of attracting talents does seem overwhelmingly generous.

A check with the MOE website stated 5 basic scholarships awarded by MOE–ASEAN Scholarship, SIA Youth Scholarship, A*Star India Youth Scholarship, MOE Scholarship and Hong Kong Scholarships. Apart from the MOE Scholarship, Singaporeans are not eligible for the rest, with most of them sponsoring up to Pre-U except for the ASEAN Scholarship. And why are there 2 scholarships (SIA Youth and A*Star India Youth) that cater to solely India nationals again?? So where is this ‘race-blind-solely-meritocracy-based’ comments from Mr Baey?

I also took issue with his statement (quote): [ “Whether they are a GLC (government-linked company), the government or a private company, they all want good people to work for them,” he told Yahoo! Singapore in an interview on Thursday]. How on earth can foreigners work in government agencies especially sensitive ones such as MOF and MHA? I would not have expected a MP to give such sweeping statements. Does he mean that the government will choose a foreigner to stand in as our minister as long as he/ she is good? I wouldn’t be surprise since that is already happening with ‘newly minted new citizens’ suddenly appearing to stand in our elections last year.

Let us take a look at the ‘Scholarship Objective’ quoted from MOE website:

Scholars in Singapore

There are various programmes in place to ensure that scholars will be able to adjust to life in Singapore. These programmes also aim to develop scholars to their full potential.

Our objectives are to:

  • Ensure the physical and emotional well-being of scholars
  • Support proper character development of scholars
  • Maximise scholars’ potential
  • Encourage outstanding academic performance of scholars

I thought that’s rather generous of MOE to use tax payer’s money to help nurture foreigners. When I clicked onto ‘Life as a Scholar in Singapore’, the contents almost read like a 5 star hotel package that not only take care of all your needs but pay you money as well. I wonder whether the website is created by someone from Singapore Tourism Board.

Quote: [Ms Sim also said that the quality of foreign scholars has been maintained over the years. She quoted some statistics: Around 45% complete their undergraduate studies with a second-upper class honours or better while only 32% of Singaporeans do as well.]. The statistical result is meaningless. We are comparing scholarship holders, or rather, singapore government sponsored foreigners with ‘average’ Singapore university students. As foreign scholars, we would expect better performances from them. If not, why are we giving them free education and money? We are also looking at a much larger Singapore students population. Why don’t MOE compare the results of foreign scholars in local universities with Singaporean scholars (including those on overseas scholarship)?

Most of the Singaporean scholars I know (but then it’s my bias view since I don’t have the big picture) performed very well whether or not they studied at local or overseas universities. In my own sample size, more than 80% achieved a first class or summa cum laude. I mean, if they are to be called scholars, there must be some substance. Looking at the statistics provided by MOE, only 67% of foreigner scholars achieved high honors (second upper included). So what happened to those who managed a second lower and below?

To be frank, I don’t think 2nd lower in local universities can be considered a scholar since more than 50% of the honors batch achieve that standing. Statistically speaking, close to half of these ‘foreign scholars’ (or half of $36 million spent yearly) is simply equivalent to the average of the honors batch. I leave it to you to decide whether $18 million is money well spent in nurturing foreigners that turns out to be average. Meanwhile, there are many Singapore students who are refused a place (much less a scholarship) in the local universities but turn out to be scoring high honors in private universities or overseas universities after paying through their nose when their parent’s tax were used to fund average foreign ‘scholars’. Maybe it’s simply because my perception of the word ‘scholar’ is too stringent?

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HDB flats: Public housing left to private market forces. SBS: Private company funded by public funds

February 22, 2012 9 comments

Competition

I mentioned earlier that the McKinsey study also mentioned the term perfect competition as one of the key to improve productivity. The fundamental idea is also simple. Under a perfect competition environment, companies are forced to outdo one another to survive. Inefficient and ineffective companies are naturally displaced by stronger opponents who could generate more output at the same or even lower input. A stronger company would also most likely mean a more productive company. More importantly, consumers get to enjoy a better quality and/or lower cost product. In essence, a competitive environment is important for productivity to thrive.

Singapore has been a great place to do business. There are many rules and regulations that build a strong system that allows businesses to compete freely. Yet, we see that such regulations are selectively applied. One industry stands out in terms of controversy and complexity when we tried to apply the word competition–None other than the transportation sector.

Many Singaporeans, including myself, were peeved when we were told that the government is co-funding $1.1 billion to help so called privatized bus companies procure buses. Many questioned the reason for the government to use public funds to assist private companies. While the intention is good, to improve the current crunch on public transport, it is not unreasonable to question whether such direct assistance is appropriate.

By co-funding, it is akin to a direct transfer of $1.1 billion worth of assets (to be depreciated over many years) to SBS/ SMRT. These are valuable resources that can generate a lot more income for ComfortDelgro and SMRT. For people who are unaware, SBS is mostly owned by ComfortDelgro, and the majority shareholder of both ComfortDelgro and SMRT happens to be Temasek Holdings. If the government insists that it is best to let the companies go private and operate in a free market, why did the government decided to interfere?

Public funds go into private companies to generate more income for shareholders. The balance sheet of the transport companies got a boost and in time to come, the assets will generate more income to the profit and loss statements. Shareholders (including the government) of the transportation companies rejoiced. In the meantime, the commoners down the street did not reap any benefit from this capital injection. One can argue that the people benefit from lower waiting time for buses. However, there is also the possibility of slower traveling buses since the roads are already so congested. Simply adding more buses onto the road do not seem like the wisest move I would expect from the legion of scholars within the Civil Service.  The opportunity cost of such a huge amount of money is almost limitless.

In my opinion, the government should loan out the $1.1 billion instead of simply giving it away. After all, we are talking about healthy privatized transportation companies. From the media release by ComfortDelgro, full year revenue in 2011 increased by 6.4% to reach $3.41 billion, and net profit increased by 3.1% to $235.6 million. The Singapore taxi operations increased 7.6% to $748.7 million due to higher rental income from a larger fleet and increase in new replacement taxis. Bus revenue also increased 3.1% to $566.1 million as average daily ridership grew by 6%.

All these figures are respectable numbers. As such, I don’t see the rational to give these privatized companies such a huge amount of money for free. With more bus comes greater operating cost. Will the transport companies then again cite operating cost increase to justify their fee hike? If the money is to be loaned to the companies with interest, the returns from the loan can be put to better use that benefit the general public.

It seems that a government backed monopolistic position of SBS and SMRT has left the companies inefficient, inflexible and ineffective. Many people quoted Hong Kong and Taiwan, where the public transportation system seems to function better and smoother than Singapore even though the fares are lower despite the fact that the companies are nationalized (and they survive). With the government supporting these companies as the largest shareholder and even allow capital transfer easily from the country’s treasury, it is not difficult to see why our transportation companies had ballooned into a rigid, lurid semi-government agency that only serves the interest of the selected few. While the Worker’s Party Yaw Shin Leong incident was shamelessly trumpeted on local media in recent times, the media seems to be pretty quiet on this blatant transfer of public funds from one pocket to another, which to me is a more serious issue.

Government-linked companies like Singapore Airlines, Changi Airport and Keppel Corporations continue to do well amid intense competition from foreign companies, suggesting that free competition is good and government intervention is not required. The issue is straightforward. If the government wants to intervene with public funds, SBS and SMRT should be nationalized. If the companies remain as private entities, public funds should not be used.

Improving living standards

February 22, 2012 2 comments

Current Economic model

The government raved about the country’s phenomenal economic growth. But why are Singaporeans not satisfied? Many point to the ever increasing Gini coefficient and the seemingly absence of increase in economic well being (real income growth). While Singapore could boost to have the most number of millionaires per capita, the sad fact is, while the rich becomes richer (and faster), the rest of the society is not. Why is that so?

The key ingredient to drive improvement to quality of life

Not surprisingly, the key reason why many people don’t feel better off even with economic growth is simply the P word – productivity. A study by McKinsey Global Institute concluded that productivity coupled with free competition drives higher real wages and improves quality of life even among developing countries with incomplete infrastructure. While Singapore’s economic growth had been impressive for the past few decades, the ranking of Singapore workers’ productivity level has been dismal. For those without basic economics background, let me explain using an over-simplified illustration:

Let’s say Company A hires 10 workers and pays each worker $1 a month. Each worker can produce 2 goods maximum monthly that can sell for $1.50 each. For simplicity, assume no capital cost or any other cost. So input is $1 x 10 workers = $10 and output is $1.50 x 10 workers  x 2 goods = $30. The owner of Company A earns $20 as gross profit per month.

Now the economy is booming and there are more demand for Company A’s products. Demand for the goods increase from 20 to 40 per month (100% increment). The owner expanded production and hires 20 workers. As each worker continues to produce 2 goods monthly, the marginal increase in input is the same as the marginal increase in output. Company now pays $1 x 20 workers = $20 as input in order to earn $1.50 x 20 workers x 2 goods = $60. Input increased by 100% and output increased by 100% because demand increased by 100%. The owner of Company A thus now earns 100% more at $40 as gross profit per month.

We see that just because demand increase does not mean the company will pay more to each worker. The ones most proficient in using resources and capital (ie the ower of Company A/ business owners/ capitalists) are the ones that stand to benefit the most from economic growth. On the other hand, the typical workers are not paid a much higher wage since the owner of the company can simply hire more workers to increase output.

When we factor in labor mobility and demand-led inflation, we can see how the picture starts to get real ugly. Higher inflation erodes real wage (or purchasing power) of the workers. The influx of cheaper labor supply from another region adds downward pressure on real wages and contributes to higher displacement rate of local workers. In fact, cheaper labor supply would only benefit Company A more. Business owners and companies don’t discriminate workers. If they can only pay $0.50 per worker to get the same amount of output, they will only get to gain more.

In order to be better off, each worker must produce more than 2 goods a month. Let’s say each worker can now produce 4 goods a month, Company A can continue to hire just 10 workers and can also afford to pay each worker more. In fact, the company can now pay up to $2 per worker each month. Input would be the same as hiring 20 workers whose productivity is only 2 goods a month and output will still increase from 20 goods to 40 goods. The owner will still enjoy an increase in gross profit. The only difference is workers now also enjoy a higher wage. Even if the owner is to increase the wage from $1 to $1.50 instead of $2, output would be the same and the workers will still be better off. The rise in real wages will also increase new demand for goods, giving rise to consumption led demand increment rather than population led demand increment.

One might argue that there are many other complex factors but it is not difficult to see how productivity is the key agent behind a higher quality of life. The fundamental idea is very simple. With more output at a given level of input, there is more to go around. One produce more means one can now consume more.

The current economic model in Singapore that still prioritizes labor input rather than improving productivity will only create a country that distorts social harmony. Having attracted so many MNCs to set up operations in the island with low tax and political stability, the government is compelled to let in foreign labor to anchor those good companies in Singapore. But without a corresponding increase in productivity, it creates a cycle of self-feeding system of labor demand.

More companies mean more demand for labor. The authorities are unwilling to see a tight labor market for fear of companies deciding to uproot to other cheaper countries. So they yield to the request of increasing labor directly through allowing more foreign workers into the country. Having allowed a large population of foreign labor to the local population creates more demand for other companies’ products and country resources. Capital and resource owners enjoyed a windfall and wanted to hire more because productivity did not improve. So they demand the government to let in even more foreign workers. End result? More inflation, more stress on country infrastructure and resources, more social divide, stagnating of real wages among the lower and middle income, increasing disparity between the rich and the poor, and ultimately, unhappy citizens who do not feel that they are not better off even with all that hyped up media announcements of a fantastic economic growth in the country. It is no wonder Singaporeans are an angry lot in recent years.

Productivity can be improved in many ways. Technology is one. Education or training is another. Let’s not forget about creativity as well. But productivity may also be expensive and time consuming to generate and it can be easily replaced by additional inputs of labor and/or capital. Allowing more labor does not give the companies any incentive to improve productivity. In my opinion, it is better to swallow the bitter pill while the country is still relatively rich and stable. Restricting the option of labor would force companies to improve productivity in order to make business sense in such an environment.

Of course, this is an opinion of someone with limited economic training and I am not expecting many business owners to welcome such an idea. I would actually expect business owners to haul vulgarities into my face and reasoned that operating a business is a much more complex process. I am no business guru but I do believe having to do with less labor and improve productivity is quite possible. Productivity does not have to be high-tech. Good training and hiring the right people often pays much more dividend. How many times have you seen workers dilly-dallying away in shops waiting for business to come in instead of actively approaching customers or create more compelling marketing tactic? A perfect example of productivity as witnessed from my previous travel in France is a single waiter serving a café of 10 tables while it would usually require 3-4 workers in a café of similar size in Singapore. In the United States, you won’t see a legion of workers working on the construction sites, unlike Singapore where we compensate productivity with thousands of foreign labor workers.

Categories: Economics

Here comes the defamation suits again

February 22, 2012 Leave a comment

And what is new? So some time ago, some of the most prominent bloggers were served the legal letters from some members of the PAP government for defamation. The lack of transparency (like seriously, how much did we have in our national reserves again?) and accountability (like why is Mr Mah Bow Tan fired only after a drop in votes despite years of complaints from the public on housing prices?) of the ruling party is the sole reason why people loves to speculate. Because information is controlled by the government, it is a no brainer that the government always holds the upper hand (legally) in refuting any forms of speculation.

While the government can continue to assert their rights, they are unable to stop people from taking among themselves. Simply taking on defamation suit without a corresponding transparency might stop the rumors (online at least) for a while but it’s the after math of doing so that is more damaging. Those people who might have forgotten about the issue might take a renew interest into the matter.

Take for example the issue of nepotism. One blogger accused the reason Ho Ching was CEO of Temasek Holdings is simply because she is the Prime Minister’s wife. Of course, that accusation was refuted and it was stated (quote from ChannelNewsAsia):

“This is a false and baseless allegation. As is publicly known, Mdm Ho Ching was appointed on merit and through proper process.”

Publicly known?? Like how? I never knew the process of selecting a CEO for Temasek Holdings was ever disclosed. Is it even possible to prove whether nepotism took or never took place especially when Temasek Holdings is such a secretive organization (the financial statements don’t tell much)? While I think anyone with any background can take on a job in finance, it is not unreasonable to expect raised eyebrows when someone who had been an engineer for more than 2 decades could take on the complex job of leading and managing a company dealing with investing hundreds of billions of dollars within a couple of years. The fact that she was appointed CEO in the same year Lee Hsien Long was appointed Prime Minister also does not help in quelling more rumors of nepotism.

Categories: PAP Not Transparent