17 January 2009

Are our economic priorities right?

Singapore was the first country in Asia to fall into recession last year, and the numbers are getting gloomier. Why are we so vulnerable? Full essay.

13 comments:

Anonymous said...

One other significant point to note is the centrally planned nature of the Singaporean economy. The sheer size of the state-owned sector and the heavy hand of direct state intervention means it bears a close resemblance to the economies of the defunct Soviet Union and her former satelites, whetever the political leaders would prefer to believe themselves. In this sense, the Singaporean economy may be subject to the same problem that usually plagues central planning - of not being able to adjust quickly or efficiently enough to changing economic situations. Being heavily dependent on foreign trade, as opposed to the natural resource rich Soviet Union, makes Singapore even more vulnerable to the fundamental inefficiencies of a statist economic model.

Anonymous said...

They need to get rid of that white elephant, Biopolis, and all its money chomping ventures going on in there. For everyday of its existence, I can feel my taxpayers money being squandered by these high salaried people in white lab coats.

yuen said...

〉heavily dependent on foreign trade, as opposed to the natural resource rich Soviet Union

this is correct in general but inprecise in the specifics of this recession: hongkong is also heavily dependent on foreign trade (including tourism especially from mainland china) but its economy has this time held up better; so far the negative economic numbers largely reflect the drop of the property market, driven to unrealistic heights 2-3 years ago with excitement over IRs and foreign property buyers; retrenchment numbers so far have been small, and consumer behaviour is cooling off only slightly; the real recession is just starting in 2009

about the comparison with Soviet Union: again in contrast to HK, Singapore has placed greater emphasis on heavy industry (I think because of the needs of national defence) and the economic ratios of capital to labour are higher; MIT eonomics professor Alwyn Young studied this issue extensively about 15 years ago in terms of "total factor productivity"; this may also have played a part in Singapore's faster fall into recession than HK because of Singapore's higher technological product export

Jon said...

"...or spent on BMWs and cooking lessons at Le Cordon Bleu in Paris."

I got a chuckle when I read that. Well done to sneak in a reference to our minister's extravagant ways despite our declining economy. Nicely played. :)

Chee Wai Lee said...

I'm not sure if the Singapore government has already dug itself into a corner.

The lowest-paying jobs, I believe, have had their wages artificially kept low - with the excuse that Singaporeans did not want to do them.

Now the question is how we can reverse this without raising the costs of business too high.

Perhaps the government could be persuaded to start this trend? Actually pay the workers in their social services sectors (municipal cleaners, trash collectors, infrastructure technicians etc ...) well and have these positions open to Singaporeans?!?

Anonymous said...

YB,

I largely agree with your sentiment that there is a need to ask question about our economic model.

However, my feeling is that the swing in our economic fortunes is in part more to do with the fact that as a Nation we have tended to live off the value of our assets rather than creating assets.

The issue of the lack of investment in domestically-oriented economy is telling but not necessarily a significant contributing factor as such. The bigger problem is being able to generate enough locally based (i.e. Singaporean owned) enterprise that can deal with domestic markets and overseas ones.

When I said Singaporean own, I mean private Singaporeans willing to set up enterprise without relying significantly on government sector to provide income. Apart from Creative, we have not seen too many private initiative growing an enterprise from a small enterprise to a large one that does not rely on capital from the government.

Contrast this to say the Scandinavian and Swiss companies, where there are many start ups and some grow to become MNCs and others get bought over by bigger or overseas owners. Those that got bought over then go on to start up another.

The Singapore model is more like a group of people owning a house releasing the equities or renting out rooms to outsider to earn income. In Singapore case, the house have the advantage of being sited at a major highway with rights to collect tolls.

In the Singapore model, the house is divided out and then rented as office spaces. To get more out, the house is divided time and time again to squeeze more income. Some of the house occupants work for the people (i.e. usually outsider or "overseas investors") that rented these rooms. But the vast majority actually do jobs that collect income from the tenants (i.e. the civil services). So when the tenant needs more workers, the house is open to outsider to come in to do the work.

The house occupant themselves don't actually set up space to make things but relies on rental income. They prefer to parcel out the house and squeeze more rental income. And get outsider to do the work required by the tenants. So here you see an ever vicious cycle working on what is in essence a bubble asset.

That is probably a more apt Singapore economic model.

The said...

Looks like the perfect storm is brewing for the Singapore economy. The economists at the MAS/MTI, even if they are cognizant, are unlikely to put up a realistic forecast for fear of panicking the people. The private sector economists are too polite or too kiasu to go against the official forecast.

Let me, a non-economist, cast the first stone and stone the first cast-in-stone forecast.

The composition of Singapore's GDP (2007) are as follows:
Manufacturing 23.7%
Financial & Biz Services 24.6%
Wholesale & Retail Trade 16.0%
These 3 sectors alone account for some 64.3% of Singapore's economy.

Given the global financial tsunami and contraction in trade, it is realistic to assume a contraction of 15% in these sectors, which means GDP shrinking by 9.6%. Assuming a more conservative contraction of 10% for the 3 sectors, GDP will shrink by 6.4%.

So, my quick and dirty forecast for Singapore's 2009 GDP growth - a decline of 6.4% to 9.6%. Let's take the mid point -- minus 8.0% GDP growth for 2009.

And the official MTI forecasters are still mucking around -2% to +1% growth for 2009.

You heard it here first - from a non-economist.

Betty said...

Many of your articles should be in the Straits Times. It's a dis-service to Singapore that such fundamental questions are not raised in a large public forum. Again, the needs of the dominant party in power hold sway over the needs of ordinary Singaporeans. ST is kept at a level where it functions as a mouthpiece and a cheerleader ---- intellectually, culturally, politically, and increasingly in an economic sense the costs of such policies will continue to mount -- Singapore should operate according to the interests of Singaporeans, not in the interests of the dominant party in government. I wish our minister for life aka MM would read your blog.

chwee said...

I think there's a huge caveat attached to the idea that having a free press, more open public forums/debates will enable better/responsive decision making from the political leaders. I say that because we have the prime example of America (USA), which has done the truly historic and amazing thing by electing a black man as President, and yet all his spoutings and nominees to cabinet/high level positions are the same old same old. Despite despite having a 'free' press that didn't question too deeply why the Treasury nominee Geithner (who's a total hack and crony IMVHO, since his actions at the treasury/IMF during the Asian crisis) has pretty much gotten a free pass for being a tax evader. WTF would be a severe understatement as one digs into his circumstances.

So having a 'free' press in Singapore will probably not make as much positive change as people might expect - given the fact that vested interests in the current polico-industrial structure are already firmly entrench - as they are in the US and various other places.

Anonymous said...

I agree with Alex's observations that why Singapore is suffering so much is because there are not enough local enterprises, catering to local demands which otherwise may help to stave off the effects of a global export slowdown. But I will like to caution that Singapore has a very small population and thus a small market. Therefore, the strategy that Singapore's economy should be export-oriented is right because the world is a much larger market. I think a more balanced approach is to encourage the growth of more entrepreneurs who would export world-class Singaporean-made products to the world as well as encourage our local Singaporeans not to despise Singaporean-made products. Of course, this must not be to the extent of discouraging Singaporeans from buying foreign-made products because this might trigger off a trade war. What is needed is the cultivation of more creative people which the present Singaporean education system has not been successful in doing thus so far. We need a major change in our education system and our local conformist culture where people are too "kiasu" and wait for the government to send the right signals. If we are able to produce people like Steve Jobs and Bill Gates, then maybe, Singaporeans will start to buy our local "iphones" and local "microsoft" operating systems. But even that, because of the nature of the current economic crisis, Singapore can only do so much because we do have a small market. A better strategy might be to diversify the profiles of our exporter countries, not to confine them to the United States and Western Europe but perhaps also to include China, India, Japan, other Asian countries, Latin America, Russia, Eastern Europe, the Middle East and even Africa.

Anonymous said...

It is true that the so-called "free" press in the United States does have its vested interests. But America is a country of great political diversity and there are different media agencies adopting diversified political political persuasions. So although it takes a less popular but correct view to be an official position, at least that view is articulated, expressed and heard so much so that some insightful and influential person may take it up which may lead to positive social changes. In Singapore, the case is totally different. Our media is one-dimensional. There is simply little avenues for a view that is not politically correct(in PAP's terms) to be expressed and heard. A free press is therfore essential for a healthy development of a vibrant, progressive democracy.

Anonymous said...

At least the press finally discovered that the appointed Treasury Secretary did not pay his taxes. Have you heard of our press ever reporting on our financial obligations of our ministers?

Anonymous said...

Alas, if only you knew how flawed your arguments are, even by the most basic level of economics found in Singapore - A levels.