The PAP’s obsession with GDP growth

Following the publication of the Economic Strategies Committee report earlier this year, we were supposed to be restructuring our economy. Growth was supposed to be slower, and led by productivity gains, not manpower inputs. Yet, the other headline today directly contradicts this: “100,000 foreign workers needed: PM”.

After a drop of just 4,200 foreigner numbers last year due to the downturn, the PAP’s “open-the-floodgates” immigration policy is back with a vengeance. So much for all their promises of “moderating” the inflow of foreigners.

THIRTEEN to 15 per cent. That is the government’s latest projection of GDP growth rate for 2010. To the casual observer, this looks like fantastic news. It makes for a great pre-election fodder.

However, just like fodder, it may turn out to be inedible to humans. This kind of growth rate is not natural, not least for a supposedly developed economy like Singapore. Even China, with all the talk about its economy overheating, is not expected to have more than 10 per cent growth this year. The reality may bite for ordinary Singaporeans in a few months time: Inflation is likely to shoot up; the prices of everything, from utilities to food to transport will continue on their dramatic upward trend. Yet a recruiting firm managing director interviewed by TODAY warned that those who expect a much higher salary from their current job may be disappointed, because many hiring managers still peg their salary figures against last year’s rates. PM Lee himself said that “you don’t want it to happen too suddenly. You have to manage it (wage increases).”.

Continue reading “The PAP’s obsession with GDP growth”

What’s missing from Economic Strategies Committee report

These are just a few proposals that could help SMEs and entrepreneurs in Singapore. I believe that growing our local private enterprises holds the key to our next phase of economic growth, which unfortunately the ESC has overlooked.

I read through all 53 pages of the much-awaited Economic Strategies Committee’s (ESC’s) main report, which is supposed to “chart the course for Singapore’s economic development over the next decade”. The report proposed ways of increasing productivity and expanding our international economic footprint. It then shifted gear to talk about how to make Singapore a more attractive destination that rich and internationally-mobile “talents” would want to call home. The report’s areas of study are summarised in the diagram below.

ESC

While I appreciate the work that the committee members (or rather, their secretariats) have put in, I felt that the recommendations were too skewed towards boosting high-end growth of large corporations, with insufficient emphasis on growing the sector that is in the best position to generate broad-based growth for Singaporeans — small and medium-sized enterprises (SME).

To be fair, the ESC did present a few proposals for growing SMEs:

1. Develop stronger alliances between large and small players to promote technology transfer, test-bedding and commercialisation. Provide incentives for MNCs to co-develop innovative products and services with SMEs, helping Singapore-based companies build credible track records, enhance innovation and accumulate knowledge capital.

2. Catalyse the supply of growth capital for growth-oriented SMEs based in Singapore, through seeding public-private co-investment funds.

3. Enhance access to human capital for SMEs, which usually face more difficulties in attracting and retaining talent, through broadening the scope of internship programmes and facilitating a ready network of mentors to provide strategic and expert advice.

I think the ESC’s proposals for helping SMEs are too peripheral and are hardly enough to generate much growth in our domestic private sector. Without significant growth in our SMEs, we will continue to be at the absolute mercy of the winds of the global economy, as this last recession has demonstrated.

SMEs as a key engine of growth

Singapore cannot continue to depend so heavily on manufacturing exports and foreign MNCs to power our economy, when many MNCs are making plans to relocate to cheaper locations. We need to develop new engines of growth that are sustainable and benefit ordinary Singaporeans, not just foreigners and rich elites. The domestic private sector could form this new growth engine.

To achieve broad-based growth, it is critical that we help local enterprises prosper. This will not only benefit the national economy, but countless individual Singaporeans as well. SMEs make up 99 per cent of business establishments in Singapore and employ 56 per cent of all workers here. Many of those with lower paper qualifications are only able to find work in SMEs, as they do not possess the skills that many MNCs demand. SMEs tend to cater more to local consumers and businesses, and so are less likely to shut down and move to lower cost countries — taking all their jobs, intellectual property and technical know-how with them — when economic winds shift.

While SMEs employ 56 per cent of the workforce, they contribute only 42 per cent of Singapore’s GDP. Their comparatively lower output is due to many factors, including a lack of economies of scale, international connections to market their goods, access to financing and a shortage of talented workers willing to work for them instead of MNCs.

So far, the government’s efforts to specifically help SMEs have focused on training programmes for SME managers and the grooming of a few SMEs which are deemed to have the potential to become home-grown MNCs. The result is that a few enterprises receive a disproportionate amount of funding and assistance from the government, while those that really need the help get very little.

The government should dispense of its habit of “picking winners”. Instead, more effort should be put into attracting venture capital (VC) funds to our shores. These private sector investors can provide a greater amount of funding that start ups need to bring their ideas to market. VCs are more in touch with the market than civil servants are, so they are in a better position to assess the investment potential of start ups. Also, the risk of failure is spread out among many VC firms. So even if one VC makes a wrong investment, the fallout will be more limited than if a government agency makes a huge bet on an industry which ends up in utter failure.

Developing an entrepreneurial culture

Entrepreneurship is the bedrock of SMEs. Without entrepreneurs starting small businesses, there would be no SMEs to speak of. Thus, increasing the number of entrepreneurs and their success rate will directly contribute to the growth of SMEs.

The government has a few training programmes to support entrepreneurs. However training alone will not help Singapore reach the tipping point of entrepreneurship. For this to happen, a culture of entrepreneurship needs to be developed among not just working adults, but has to start from young with students and their parents.

The entrepreneurial culture in Singapore is weak, especially when compared to other developed economies like Taiwan, Korea and the US. The recent Global University Entrepreneurial Spirit Students survey (GUESS) of 2,300 students from local tertiary institutions found that only 18 per cent of them intended to start their own businesses after graduating. In contrast, a whopping 69 per cent planned to take up salaried jobs.

We need a mindset shift in our society regarding what constitutes career success. Our current education system is too geared towards preparing students to be good employees, not entrepreneurs. Most local students strive to ace their exams so they can get into good universities and land a stable, well-paying job working for some large firm or the government.

Entrepreneurs require a very different skill set from salaried workers. A business owner needs to do a lot of selling and marketing of one’s goods or services. This takes a lot of innovation, confidence and humility — all skills which our schools have not adequately prepared our young for.

The stigma of failure in our culture needs to be changed. There needs to be a greater tolerance for those who stumble while trying. A lot of the “afraid to fail” mindset originates from our education system, where examination results define a student’s success or failure.

Schools should see it as their mission to nurture future business owners, not just salaried workers. They should start teaching the basics of running a business, like managing cash flow and selling, early in secondary school. Our young should be brought up with the mindset that the brightest and most capable students start their own company after graduating (or more likely the other way around), rather than win government scholarships or work in MNCs.

Parents often frown on their children taking the entrepreneurial path, as it is seen as more risky and less likely to guarantee financial success. To counter this, schools could consider tying up with business associations to conduct seminars for the parents, to explain the motivations behind what their children are learning, so that parents too can catch the vision about entrepreneurship and encourage their children to pursue that as a career.

Conclusion

These are just a few proposals that could help SMEs and entrepreneurs in Singapore. I believe that growing our local private enterprises holds the key to our next phase of economic growth, which unfortunately I feel the ESC has overlooked.

Measuring economic performance: Looking beyond GDP

While GDP is a broad measure of a country’s economic performance, it falls way short as a comprehensive measure of the economic health of a nation in more ways than one.

It is the highlight of every National Day Message from the Prime Minister[1]. No National Day Rally speech gets delivered without its mention. Economic statistics dished out by the government never fail to mention it. It is used as  the main measure of how well our nation is doing economically. Indeed, it is such an important statistic that the bonuses of all the Cabinet ministers and 60,000 civil servants are pegged to it.

I am talking, of course, about Singapore’s Gross Domestic Product (GDP).

The GDP is the market value of all final goods and services produced in a country in a year. Specifically, it is the sum of consumption, investment, government spending and exports, minus imports, in one year. Economists usually talk about GDP in terms of its year-on-year growth, measured as a percentage increase (or decrease) from the previous year. Also frequently quoted is the GDP per capita, which is the GDP divided by the total number of residents in the country.

GDP a poor measure of performance

While GDP is a broad measure of a country’s economic performance, it falls way short as a comprehensive measure of the economic health of a nation in more ways than one.

Continue reading “Measuring economic performance: Looking beyond GDP”

Tripartism the secret of S’pore’s success: PM

From Straits Times, 23 Feb 09:

Speaking to a crowd of over 500 at the Singapore Tripartism Forum, he told of a conversation he had with a Latin American leader, whom he did not name, over a recent lunch.

Recalled Mr Lee: ‘He was interested to know how we do it in Singapore: What is the secret to Singapore’s success?’

To answer the question, Mr Lee pointed to labour chief Lim Swee Say, who was seated at the same table.

‘I told him, this is Lim Swee Say, the secretary-general of the National Trades Union Congress, elected by the unions. He is also a minister in the Prime Minister’s Office, appointed by me. Same person.

‘He looked at Swee Say, and looked at me. He said: ‘Is that really true?’ He could not imagine it,’ said Mr Lee.

The Prime Minister’s point: Singapore’s longstanding tripartite partnership, while not a secret, was a strength that could not be easily copied by other countries.


Singapore still the same after 23 years

One of my friends flagged on his Facebook this archived Fortune Magazine article from January 1986, the year after Singapore reported its first economic contraction in 20 years.

It’s uncanny how similar the situation is today, compared to 23 years ago. I guess we’ve changed, but not much…

———————–

A HARD LANDING AWAITS SINGAPORE
The economy shrank in 1985 after two decades of 9% annual growth. Other Asian highfliers stalled too, but Singapore’s troubles are more than cyclical. Its high-wage policy backfired, and Prime Minister Lee Kuan Yew’s paternalism has stifled entrepreneurship.
By Lee Smith RESEARCH ASSOCIATE Hiroko Hara

(FORTUNE Magazine) – LIKE ANY GOOD FATHER, the government of Singapore knows when it’s time to back off and let the children run the business — to struggle, stumble, and with luck succeed. And like any good father, the government of Singapore finds that it’s easy to talk about letting go and tough to do it. Clearly the family business is in trouble. A financial panic temporarily closed the Singapore Stock Exchange in December. After two decades of roaring growth that averaged almost 9% a year, the economy has suddenly gone cold. The gross domestic product shrank an estimated 2% in 1985. Asia’s other little dragons — Hong Kong, South Korea, and Taiwan — have temporarily lost their economic fire as well. Exports of TV sets, computer peripherals, and other electronic gear from all four places have suffered as the U.S. economy has slowed down. Singapore has depended heavily on oil refining and shipbuilding and repair, businesses in serious decline. Getting out of the hole will be made harder by the paternalistic rule of Prime Minister Lee Kuan Yew, 62. To Lee’s great credit, his regime has given the 2.6 million Singaporeans the third-highest per capita income in Asia. (Brunei, which has lots of oil and few people, is No. 1, followed by Japan.) The government has no debt, and the inflation and unemployment rates both run about 4%. At the same time, Lee’s paternalism can be suffocating. At a recent Scrabble contest sponsored by a local hotel, players kept censorship guidelines in mind as they chose words. (The government forbids racial epithets, for example, lest they stir up animosity between Singapore’s Chinese, who make up three-quarters of the population, and its Malay and Indian minorities.) Singaporeans have always been smug about the tidiness of their society, especially in comparison with the boisterous, anything-goes capitalism of Hong Kong. Now some are beginning to think they are paying too high a price for domestic tranquillity. ”Hong Kong is more vibrant,” says Lee Hsien Loong, 33, son of the prime minister and his likely eventual successor (see box). For now he is a junior minister heading a committee charged with devising a new economic strategy for Singapore. ”People in Hong Kong are quick to see opportunities and quick to cut their losses,” he says. ”We don’t have quite the same crop of entrepreneurs here.” So now the government is trying to release the creative energies of the citizens so they can come up with new products and services to get the economy moving again. In March, Tony Tan Keng Yam, 45, then minister of finance, now of trade and industry, proclaimed that the private sector rather than the government should be the ”engine of economic development.” Government, which owns part or all of some 500 companies, should not get into new businesses, he said, unless private enterprise can’t or won’t. And except where its presence is essential, the government should get out of the businesses it’s already in. BY SELLING OFF COMPANIES the government might slap life into the sleepy Singapore stock market. The weakness of the nation’s capital markets limits entrepreneurship. Singapore Chinese traditionally raise cash for new ventures by putting the touch on aunts and uncles, but that kind of money is rarely enough to launch, say, a bioengineering company. The government sold 100 million shares of Singapore Airlines at $2.38 a share in November. Including some stock earlier sold to airline employees, 37% of the superbly managed carrier now is in the hands of local and foreign investors. The airline earned $69 million in fiscal 1985 on revenues of $1.4 billion. With such powerhouse companies trading on the exchange, more investors will be drawn in. That in turn should eventually produce more capital for start-up companies. Still, despite Tony Tan’s ringing rhetoric, not much else has gone on the block. Nor does the government seem ready to relinquish majority ownership of Singapore Airlines or sell some of its other leading companies. More sales apparently have been blocked for now by an argument within government. The prime minister has yet to say where he stands, though he must be at least open-minded on privatization or the idea would not have been floated. Pushing for it is a group of young ministers including Tony Tan and Lee Hsien Loong. Arguing against them are traditionalists who continue to think that government can run the economy best. ”Young politicians think that government is too big and that if a business makes money, government should get out of it,” observes the amiable P. Y. Hwang, 50, chairman of the Economic Development Board. ”But we’ve done things quite well. We hardly ever run businesses as charities. We run them as businesses.”

Paradoxically that’s part of the problem. Because government businesses are well managed, they not only compete effectively with private enterprise, they sometimes crowd it out. Singapore’s brightest students get government scholarships, then work five years or so for government agencies or companies. Says an executive for a large multinational corporation in Singapore: ”Bright young people, and that includes bright young bureaucrats, always want to make businesses grow.”

[Read more here]

S’poreans and foreigners both paying the price

On 4 December at a National Trades Union Congress (NTUC) forum for employers and unions, NTUC chief Lim Swee Say and Acting Manpower Minister Gan Kim Yong were both reduced to imploring employers to retrench foreign workers before Singaporean workers, in order to minimise job losses for the latter, who make up a sizeable bloc of voters in every general election. This is a truly sorry state of affairs in Singapore’s employment landscape.

Firstly, it appears the government has taken a cold, utilitarian attitude towards foreign workers. It is as if these workers are soulless machines, who should be simply discarded when they are no longer needed. In fact, each of these workers is probably the sole breadwinner whose remittances support a large extended family back home.

Secondly and more importantly for Singaporeans is the fact that if the government has to beg employers to retrench foreigners first, it implies that their policies so steeply favour foreigners, such that if left to market forces, employers would naturally want to shed Singaporeans first.

Mr Lim said it “makes business sense” to release foreigners first during a downturn if a Singaporean could do the same job equally well. His reasoning is that when the economy recovers, it will be easier to source for foreign labour than compete for local talents with business rivals.

The Minister evidently has never been a business owner himself. If both can do the job equally well, it will make better business sense to axe the Singaporeans first, since they carry the extra loaded costs of reservist duty (for men), maternity leave (for women), employer CPF contributions and paid childcare leave (for both). In addition, family responsibilities and higher costs of living compel Singaporeans to ask for higher wages to meet their living expenses. They will also be less willing to work overtime or commute to far flung factory locations as this will take away time from their families (or their second jobs, in many cases). Foreign workers, who are here without their families, have less reason to make such demands. It should therefore be the government’s duty to its citizens to ensure that the total cost of hiring a foreign worker is not lower than the cost of hiring a Singaporean.

The government’s argument is that foreigner workers — referring to blue collar workers, not “foreign talent” — provide low cost labour for our companies in good times, preventing these companies from uprooting and moving to lower cost countries like China and Vietnam, which will result in even more Singaporean job losses.

While this argument sounds good to the ears on the surface, it obscures the fact that no matter how lowly we pay our workers, the cost base of Singapore is still much higher than in China and Vietnam, or even Malaysia. Human resources firm ECA International Asia recently reported that Singapore has leapt 27 places up the global rankings of the world’s most expensive places to live in.

For most companies with operations here, the highest business expense after wages is office rentals. High rentals are caused in part by the government allowing “market forces” to run amok in the 1990s and property prices to rise so steeply that it has rendered our economy uncompetitive. Of course, the government will not admit that rentals make us uncompetitive — they will insist that our wages are the culprit. Nevertheless, even wages, while kept low for blue collar workers, have risen significantly over the past few years for senior managers and “foreign talent”, and this undoubtedly accounts for a large portion of companies’ wage bill.

The pittance paid to foreign workers has effectively suppressed the wages of Singaporean blue collar workers. At the end of the day, not only do Singaporeans lose out in wages and jobs, but so do foreign workers, whose living conditions and low salaries (after deducting the government levy) leave much to be desired for a developed country like Singapore which claims to uphold migrant worker rights.

The only ones who benefit are the corporations and their shareholders — and of course the people whose bonuses are tied to the country’s GDP growth rate, not the unemployment rate.

Socially responsible retrenchments?

A week after I wrote an article for The Online Citizen about the DBS retrenchments opining that “a company’s first social responsibility ought to be to its employees”, the government has now come forward to say companies should be “socially responsible” when retrenching staff. On first glance, it sounded like what I was asking for.

I was wrong.

What the Acting Manpower Minister meant when he said “socially responsible” is this: Firstly, companies can inform the Manpower Ministry of job cuts; Secondly, they can seek the union’s help in explaining measures like wage cuts or implementing shorter work week. In fact, the Ministry of Manpower (MOM) will be releasing some “guidelines” in a few weeks on “how to manage excess manpower”.

Knowing how pro-business our government is, and judging from their current definition of “socially responsible retrenchments”, I shudder to think of what these guidelines are going to contain. Most of it will probably centre around how to manage the retrenchment and communication process. Like informing the unions maybe a few days earlier (consultation and negotiations optional), and providing counselling for retrenched staff.

I wonder if the guidelines will contain advice to profitable companies which have enjoyed many good years to build up their war chest, that they should not be considering retrenchments at this time. This was the main thrust of my article and is what I define as a socially responsible corporation.

I agree that in dire economic times like these, some companies will have no choice to retrench to stay afloat. But I think the government fails in its duty to its citizens when it puts the obscene profitability of large GLCs and MNCs ahead of people’s livelihood.

Of course, the government’s counter argument will be that if these companies go bankrupt and shut down, then even more people will lose their jobs.

Let’s cut the hyperbole. DBS, with $1.67 billion in net earnings this year alone, is not about to turn turtle. Such retrenchments could have been avoided, period.

Sure, the government has no legal power to order commercial enterprises not to retrench staff (since our employment laws are so weak), but their statements have an almost equally strong effect on companies who are always eager to remain in the government’s good books. Ambiguous signals like this latest statement from the Acting Manpower Minister only serve to embolden large corporations to think they can willy nilly cut staff as long as the process is communicated properly from a PR standpoint.


Billion dollar profits but still axing jobs

Update: DBS shares up $11.70 up 2.63% from previous close.

The stunning news blared out on Friday that Singapore’s largest bank, DBS, will be cutting 900 jobs by the end of this month. At least half of the job cuts will be from its 7,600 workforce in Singapore.

DBS CEO Richard Stanley said that the cuts will be “across all business units and functions, and at all levels of the organisation”.

When I first informed my editor of the news, his immediate reaction was, “Damn, the retrenchments have started.”

It is natural to assume that retrenchments point to an economy that is hitting the doldrums. After all, won’t companies only start retrenching staff after all other avenues of cost cutting have been exhausted and the company is starting to bleed? Continue reading “Billion dollar profits but still axing jobs”

Govt bailout for failing casino?

The TODAY newspaper has raised the prospect of a government bailout for a troubled casino operator which is building its showcase “integrated resort” in Marina Bay.

The Financial Times reported that shares of Las Vegas Sands fell more than 40 per cent after the casino operator warned that it risked defaulting on its debt, raising doubts about its ability to continue operating as a going concern. The Sands is reportedly struggling to meet its debt obligations.

The casino operator said that failure to raise new capital would trigger a series of defaults, raising a “substantial doubt about (its) ability to continue as a going concern”.

In a bit to assure the Singapore Government, Sands chairman and chief executive Sheldon Adelson this week met with the government officials to “personally reaffirm our commitment to the success of Marina Bay Sands”.

Adelson issued a statement, saying: “I am pleased to say that the Singapore Government’s support of our project remains strong.”

Of course the Government’s support remains strong! As a gaming analyst told TODAY: “There is no doubt in my mind the Singapore Government will come in to ensure the project is completed.”

PAP MP Ho Geok Choo was even more frank: “The Government has placed a huge stake of its reputation on this project because we went loud and clear when the decision to have casinos here was made. We obviously attach a lot of importance to seeing it through.”

TODAY reporter Teo Xuanwei wrote that some observers expect it to apply an infusion of case or assume a chunk of the casino operator’s debt, possibly through its investment arms.

Investment arms? Does she mean Temasek or GIC?

You mean there’s a possibility that the Government is going to use our reserves to bail out a casino operator just to save face?

I am strongly opposed to such a move, and even more so if it is done secretly without informing the public (which Temasek and GIC could very well do).


Govt should play bigger role in managing price increases

On 11 October, The Straits Times Insight section discussed proposed changes to the Constitution to allow the Government to tap more of the returns from investing the reserves. The ST asked readers what they thought of the plan and what concerns they had about the changes.

A friend of mine wrote in, but the editor left out some of the important points he wanted to get across. Here is the full version which I obtained from him. The text in red were the omitted parts.

The government should play a more positive and active role in managing all the price increases that have been coming up since the end of the first quarter of 2008.  I believe Singapore based monopolies and especially those that are government linked have taken advantage with all the increases that have and are affecting the common man in the street.

It can be easily observed that all this started since the end of the first quarter 2008 euphoria, of a healthy economy.  There has been no let down.  This is compounded with the highest inflation rate Singapore is experiencing now.

The financial meltdown has only escalated and enhanced this.  To blame it all on the financial meltdown would be naïve as the government is in control of all the other increases that have been shoved down the common man.

Every time a price increase is announced the government announces a relief package.  Why don’t we go back to the source?  Prevention is better than cure.

Ajit Singh Nagpal