Monthly Archives: August 2011
Harmony, Gridlock and River Crabs
The Prime Minister has of late taken to warning us that Singapore needs to get its politics right as well as its economics. He emphasised this in his National Day Rally Speech last weekend and again at The Ang Mo Kio- Hougang National day dinner. He clearly feels beleaguered these days with six Worker’s Party MPs in Parliament, a new spirit of confidence among the Singaporean voters and what he views as an unnecessarily politicised Presidential Election. With no sense of irony he urges Singaporeans to play their part in our country’s progress and warns them that Singapore is too small to afford political paralysis.
Getting the politics right is getting the economics right. Look at Communist East Berlin and how it fared compared to Democratic West Berlin despite a huge concrete wall. The PAP policies are preventing Singaporeans from playing a meaningful part in the country’s future just as that wall kept Berliners from crossing over to democracy. We are storing up dissent through the denial of basic freedoms.
Speaking at the Ang Mo Kio-Hougang National day dinner on Sunday evening he added, “And we must have harmonious political system (sic) where we make important decisions in the best interests of Singapore and Singaporeans, and keep ourselves safe in this uncertain environment.
We are too small to be able to afford impasse and gridlock, to have two sides blocking one another so you can’t move, you can’t solve problems, you can’t go ahead. We have to work together.”
The elephant in the room is that hidden behind the phrases ‘going ahead’ and ‘working together’ is the PM’s unwillingness to relinquish any control at all even though this would further progress and harmony. Even the DPM said that he welcomed opposition in Parliament. So what the PM views as an over politicised Presidential election campaign is a direct result of a pressure cooker environment that the PAP have created by denying the people an outlet. Although cyber space is the only place left to them for their voices they clearly can’t be fobbed off with stage-managed, so called interactive, websites and chats. Singaporeans have made it clear that they want debate, transparency and accountability.
In any case, “Harmonious” is often just a euphemism for conformity and control and was the Confucian ideal, the Mandate of Heaven (undermined in practice by the emperor’s exercise of absolute power without accountability), for the relationship between the Chinese emperor and his subjects. A harmonious society was the end goal for the Communist Party of China as announced by Hu Jintao at the 2005 National Peoples’ Congress. While it may have been intended to herald a new emphasis on social goals such as lessening income disparities, in practice it meant a redoubled effort at asserting control over new media and the right to freedom of expression. In fact, so much so that the pinyin for “harmonious” was often transformed by Chinese netizens into the similar word for “river crab”, slang term for internet censorship.** Perhaps when PM Lee talks about needing a harmonious political system, he is hinting at new controls on the new media to prevent what he and the PAP might define as unpatriotic elements?
It is risible that, with just six out of 87 MPs not coming from the ruling Party, the PM is already warning of gridlock and paralysis! Is the PM really saying that we need a one-party state, and no open debate on the PAP’s policies, in order for Singapore to survive, let alone grow? Far from being in a state of gridlock both arms of the US political system for example have worked together to come up with a proposal. And they were at opposite ends of the spectrum pitted against each other, so why can’t the PM openly welcome the people’s choice?
If the PM’s main emphasis is that he and his cabinet need complete control and freedom from the pressure to be responsive to the people – then perhaps they should agree to draw a lower salary more in keeping with remuneration levels in non-competitive and non-stressful environments? The old saying, “if you can’t stand the heat stay out of the kitchen” comes to mind.
Their salaries are explicitly justified by reference to what salaries are in the private sector. But in the private sector the people who earn these salaries have to face intense competition and in the case of public companies, the very public scrutiny of demanding shareholders and activist investors. As an economist I can tell you that at a time of global economic uncertainty we need more scrutiny and debate of government policy, not less.
Activist investors are dedicated to robbing management of an easy life in order to ensure that these CEOs maximise returns. And that pressure on the CEO’s keeps them accountable to the shareholders. That is how it should be under a capitalist system and is the economic justification for the high levels of financial reward. Our PM needs to be able to justify his high salary by reference to how successful he has been in raising living standards for his shareholders, the people of Singapore, not by reference to low-quality economic growth fuelled by a swelling population
If we are all going to be shareholders in Singapore Inc. then we need to make it a model of corporate governance. I have always believed that the best way to achieve this is through more competition, not less, whether that be in the economic or in the political system. Yes, Prime Minister (no pun intended) we need to get our politics and our economic right. This is why there need to be more Opposition MPs in Parliament and the government needs to face a credible threat of replacement at the next election before they will truly respond to our needs.
The solution for a harmonious society is for the Prime Minister to stop being afraid of the voice of his people. He needs to put more confidence in their common sense and in his own ability to sway public opinion without the controls and mechanism currently at his disposal. As a first step I suggest that they look at repealing the Newspaper and Printing Presses Act. Building a democratic society is building a harmonious society. Current attempts to control that and prevent it are making Singapore an outlier amongst advanced and prosperous nations.
The litmus test for the Prime Minister’s commitment to building a harmonious society would be seeing how smoothly he could work with any President chosen by the people, even though that President may have a different ideological viewpoint to his. Two heads, as they say, are better than one.
*http://www.channelnewsasia.com/stories/singaporelocalnews/view/1148283/1/.html#.TlEYrvHoVFs.facebook
**http://en.wikipedia.org/wiki/Harmonious_society
Like this:
Are Foreign Investors Scared?
The Prime Minister Weighs in on Pragmatism v Populism
Hot on the heels of ESM Goh’s comments about the need for Singaporeans to be “pragmatic”, the PM has decided to go for the old scare tactics of warning Singaporeans that foreign investors are scared off by an Opposition presence. To quote:
Speaking at the National Day Rally at the National University of Singapore last night, he said: ‘They have asked us directly whether Singapore is changing course fundamentally, because our society is changing, our economy is changing, our politics is changing.
‘But what new Singapore will it be? Will we respond to the pressures of the day and become like so many other countries, short-term and reactive, or will we maintain our strengths? As (Emeritus Senior Minister) Goh (Chok Tong) put it, will our politics remain pragmatic or will we become populist? And that is a very direct question, important, which they have asked us.’
Mr Lee said he had met with concerned CEOs of multinational companies at the Economic Development Board’s 50th anniversary dinner earlier this month. ‘I reassured them that we are determined to keep our strengths, that we know what Singapore’s prosperity depends on… We will maintain the policies that are important to us, and therefore useful to them.’
But they will wait to see if the actions follow the words, he added.
‘If I were them, I would also wait to see what Singapore does. So make sure we do the right thing so they continue to invest, we continue to have good jobs and Singapore continues to prosper.’*
Several observations spring to mind. Firstly, I would question the assertion that our politics is changing. If by changing it is implied that it is becoming more open or democratic. In fact the executive branch of government has held off from convening Parliament till October. So despite all the hype about this being a watershed election and the fact that WP might want to ask some questions about the Elected Presidency, the PAP have complete control. In place of the live televised debates of yesteryear the PAP uses the State controlled (and mostly State owned media) to conduct the business of being accountable to the people and Parliament is just a nice container for the rubber stamp. Despite the 6 seats we are arguably less open and less free than in the 1980s.
Next, this type of PM speak engenders a strong sense of déjà vu because precisely these arguments were advanced, though in blunter terms, by his father when JBJ was elected in 1981. Then there were dire warnings along the lines that the sky was about to cave in if more Opposition MPs were elected to Parliament. Not those exact words obviously. (But Hey, sue me ! ) These economically nonsensical warnings were repeated in GE 2011, when Mr. LKY warned that property values would be destroyed if the Opposition parties gained too many seats in Parliament. With the added push that you would all be daft. (But you weren’t daft were you? You all followed the perfect media lightening rod, GMS’ Tampines campaign struggled to get visibility and Tampines remained in PAP control. As for MBT – well that’s another story.)
It is absurd to say that the loss of six seats out of 87 in any way dents the power of Singapore’s overweening executive. Legislation can still be rushed through Parliament without effective scrutiny and the Workers’ Party do not have any ability to hold up its passage. Even if twenty seats had fallen to the Opposition in this election this would still be the case. Or 30.
Most of the foreign investors and multinational companies come from countries that are considerably more democratic than Singapore. Surely they cannot be alarmed at the prospect of a bit more democratisation in Singapore especially if this increases political stability. Despite the complaints about “gridlock”, based largely on misunderstanding about how separation of powers works, the US system is extraordinarily stable because of democratization at all levels, from the election of town mayors and police chiefs to the President himself.
My experience with financiers and Industrialists, ambassadors and politicians here and abroad is that their concern is that unless there is more democracy Singapore may be storing up stress like a pressure cooker. In the global political arena (excluding Sovereign States such as The Congo or Myanmar) politicians are beginning to exert pressure on The PAP to open up. That is except for Robert Mugabe. I hope he has been given every assurance by our Government that his shopping trips will not be hindered by the presence of 6 opposition seats out of 87. In fact he had so many body guards when I bumped into them (they bumped me more accurately) at the Sheraton on Scotts Road, that I’m sure he is quite relaxed.
In the Singapore context, more “populist” policies aimed at boosting domestic consumption and reducing saving may be welcomed by foreign governments. The US, and multinational companies would embrace any move that promises a bigger potential market for their products. While the small size of Singapore’s domestic market reduces the importance of this factor, it does not diminish the principle if it was applied to large economies such as China. In the US and Europe, all the supposedly business-friendly policies of cutting government deficits immediately through slashing spending while avoiding raising taxes -may not end up being good for business! Particularly if the resultant lack of demand means a big reduction in sales.
But is it even the case that an Opposition party, if elected to power, would be likely to adopt business-unfriendly policies? Here the PM and the PAP are adopting the old trick of lumping all the Opposition together in an effort to try and confuse their audience, whether the public or foreign investors, into looking at the lowest common denominator. And yet we know that previously I was attacked for my policies being out of step EVEN with the rest of the Opposition parties (so The PAP lump us as one when they feel like it and pick RP out as distinct when they feel like it.) That is because The Reform Party is not anti-business. We have called for maintaining a low-tax environment and welcoming foreign investment.
Back in 2009, I advocated the privatization of Temasek and GIC and the distribution of shares to Singaporeans coupled with the sale of many of Temasek’s stakes in GLCs. This policy caused quite a buzz at that time with many people misunderstanding it including the YPAP website who seemed to think listing equated to disbanding (see our press release in response below). Concurrent with that policy I advocated the opening up of government monopolies in public transport, housing, mobile telecoms, broadcasting and power and other utilities to competition. I also put great stress on the fact that in order to be attractive to investors we needed to focus on productivity and not empty GDP growth mostly fuelled by an increase in imported foreign labour.
This became part of our Election Manifesto for GE 2011 and now appears to be moving into the mainstream of political discourse in Singapore. Hooray! At least one other Opposition Party is now singing from the same hymn sheet as us (in fact they don’t seem to have many ideas that didn’t originate with us) and one presidential candidate is proposing my policies on Temasek Holdings and now has jumped on the call for greater productivity. At the same time though, at least one prominent member of the same Opposition party has warned of the dangers of populist policies post-election in language that is uncannily similar to the PM’s!**
It does seem that there is a trickle-down effect. Clearly Opposition parties such as RP can be pro-business. It is actually incredibly arrogant of the PAP to think that they have a monopoly on economic and business competency. If that was ever true, it has certainly been exposed by the last election, with the most economically competent member of their dwindling talent pool being forced to double and even triple up. And I would suggest that even when an Opposition Party appears to be anti-business so long as they are pushing for and achieving democratic reforms; it is also a positive sign for investment. To answer the CEOs who asked the PM whether Singapore is changing course fundamentally.
No!
But we are starting to see a few new ideas being thrown into the arena along with a new breed of credible candidate. Now we need to start recognising the double speak rhetoric when it comes at us (and from wherever it comes) and to ask the PAP to put a different record on (or indeed shuffle that track!).
*http://www.straitstimes.com/BreakingNews/Singapore/Story/STIStory_702300.html
** https://www.facebook.com/note.php?note_id=10150245836380837
“Moving forward, greater political participations should not lead to populist policy and the Ruling Party should stop using “Grow & Share package” and “Estate Upgrading Plans” as means of creating popular support for their party. Such behaviour promotes the move towards populist policy, which many would agree is detrimental to the development of Singapore politics at this stage. “
PRESS RELEASE 02/03/2010
The Reform Party www.thereformparty.net
Response to YPAP
Today Temasek Review (TR) published an article (“YPAP activists attack Reform Party’s proposal to privatize Temasek and GIC as “squandering” Singaporeans’ future away”) responding to earlier comments by a group of YP activists from the North (Singapore) on www.youngpap.org.sg. The YP activists are conspicuously silent on whom they are responding to, but as TR says their comments appear to be aimed at our proposals.
While grateful to TR for defending the Reform Party’s response to Budget 2010 (the link is:
I thought it was appropriate to respond directly so as to clear up any misunderstandings. Taking the YP points in order:
(Points 1 ,2 and 4 edited for the point of this blog)
3. “We should privatise Temasek and GIC and give the equity to Singapore citizens.”
The YP accuse us of wanting to squander Singapore’s reserves and leave us defenceless.
This is based on a misunderstanding of our proposals or a basic lack of knowledge of the meaning of equity. The Reform Party has said that one option of ensuring that Temasek and GIC directly benefited Singaporeans would be to give Singapore citizens (who had either been born here or been citizens for a certain length of time, say ten years) equity in our sovereign wealth funds. This would occur as a result of a process of privatization and the listing of the shares on the stock exchange. As everyone knows, shares can be traded without requiring the liquidation of the underlying assets and this is one of the fundamental innovations of a capitalist economy. Just because shares in Singapore Airlines or General Electric of the US can be traded does not meant that the company itself has to be liquidated. A market listing would put a valuation on Temasek and GIC and put an onus on both companies to be more transparent and accountable. In addition it would put greater pressure on management to perform or risk a shareholder revolt and their ousting. A Reform Party government could retain a “golden share” so as to prevent a foreign takeover of those assets deemed strategic.
Control over sufficient reserves to defend Singapore’s currency would be retained by the Monetary Authority of Singapore.
Released by Kenneth Jeyaretnam on behalf of the Reform Party, February 25th 2010
Some Thoughts on the PE
Pragmatism v Populism: A Deliberately Misleading Choice
In his remarks on the Presidential Contest*, Emeritus Senior Minister Goh was quoted as saying that Singaporeans must choose between pragmatic and populist politics:
“In pragmatic politics, Singaporeans will accept measures with short-term pain but long-term gain. In populist politics, they want immediate gratification and ignore the long-term costs. Which way will Singapore politics go?”
This put me in mind of the remarks of our government leaders after the 1991 election in which the PAP lost an (at that time) unprecedented four seats. Then they said they were at a loss to explain how this could have happened other than that Singaporeans had a low threshold of pain.
It is funny how gratification delay is always something that should apply to ordinary Singaporeans and not to our government elite. For example, their salaries are explicitly linked toGDPgrowth which incentivizes them to boost growth in the easiest and most short-term way possible, by opening our doors to cheap foreign labour on a massive scale, as well as employ tax breaks and holidays as well as subsidized inputs to steer foreign investment to Singapore which is likely to decamp once the subsidies end.
A good case in point is the casino industry. It is taxed significantly more lightly here than inMacaoorLas Vegas, despite its negative externalities. Another is the biomedical manufacturing cluster, responsible for much of 2010’s extraordinary growth. So we appear to have short-term growth, vulnerable to changes in other countries’ tax policies, as a deliberate policy of this government which spends so much time advising us to eschew populist policies. This short-termism is at the root ofSingapore’s productivity problem. This is why our economy has grown so much without the majority of us getting richer.
In fact this message to eschew populism for pragmatism (which I have also seen sung in the chorus of one Opposition camp) is simply a direct repetition of the original PAP message that Singaporeans need to be toughened up. No iron rice bowl for us and a spur in our hinds is a cry which has travelled down in a direct line of descent from father to Holy Goh to son. It is why I called my blog after the porcelain rice bowl, explaining that we need new economic ideas for new economic times.
But one thing we can be certain of. This is that when growth reverses and turns negative, as it probably will this year, will our leaders share in our pain? Will they have to give back part of the gratuitously excessive salaries that they were paid during the boom years? Why despite all the supposedly long-term thinking of our leaders, has no long-term compensation plan been put in place focusing on raising median real incomes rather than just raw economic growth? The Finance Minister promised to raise living standards by 30% by 2020. Is that really achievable given the skewed incentives?
There is apparently one rule for our leaders and another one for us. We must be “pragmatic” and understand the need to keep running huge surpluses and accumulating reserves in our two sovereign wealth funds. How much has the valuation of our overseas assets dropped in recent weeks? How much will we lose should markets drop another 20-40% as global recession looms? In 2010 all we heard from our state-controlled media was how well the managers had done in clawing back the losses from 2008, not any honest reckoning and holding to account of those responsible for the losses in the first place.
If we are all “pragmatic”, as the government would like, I am sure we will all be able to understand why it was not our government’s fault or the fault of the managers they appointed. Also, we will agree like the animals in George Orwell’s Animal Farm that we must tighten our belts and continue to scrimp and save to rebuild what has been lost, while never asking uncomfortable questions as to what exactly are the reserves or where they are invested. I don’t know about you but it grates on me every time they talk about the reserves as a sum that they the government have accumulated. It’s your tax dollar. You provided it. The government’s idea of pragmatism seems to be that we behave like children who can be easily bought off with a populist vote-buying budget giveaway of a thousand dollars each which induces amnesia about the pain we have suffered before.
We must be “pragmatic” and understand why our jobs should be taken away by expatriate workers who would be paid a fraction of what they can earn in Singapore in their home countries and who do not have to do National Service even if they come as students on scholarships paid for by our taxes.
We must be “pragmatic” and understand the necessity of our men to give up two years of their lives doing NS without anything approaching adequate economic compensation while new immigrants escape any contribution.
We have to be “pragmatic” and accept that we can never own the freehold of our HDB properties. Without home ownership there never will be a fat middle class. Your HDB unit’s price has soared out of our reach due to our government’s pursuit of economic growth through uncontrolled population growth. Meanwhile we can be moved around like serfs and told where we can live. The extension of our HDB leases is dependent on government upgrading policies and the link between this and voting for the PAP was explicitly reinforced in the last election byPMLee.
Meanwhile it is “populist” to believe that we are entitled to policies that directly benefit us, such as universal free education and health coverage. Policies that are taken for granted in other countries with our level of income, even in Asian success stories likeJapan,South Korea andTaiwan. We are told that taxes will have to go up if we want these things. Even if taxes had to rise, which is debatable, we are not told that in fact the cost of replicating the same degree of insurance privately would be much more expensive and probably impossible for the ordinary Singaporean.
Life is an uncertain business and brings risks with it. Life in the PAP’s economy means no safety net to cushion to against those unexpected risks. We’ve been tough and pragmatic for 5 decades now. As an economist once said, “In the long run we are all dead.” It is time for Singaporeans to decide whether being “pragmatic”, in the PAP’s sense, means allowing ourselves to be taken for a ride!
*http://www.straitstimes.com/News/Home/Story/STIStory_701869.html
National Day Message
National Day 2011 Message from the Reform Party
Published: 9th August 2011
My Fellow Singaporeans,
Today we Singaporeans meet to celebrate our Nation’s 46th National Day. Today we can look back with excitement to a general election recently fought on a new political landscape. But today we must also look ahead with trepidation to challenging economic times on the horizon.
This election was exciting in many ways with the historic toppling of a GRC. But it also marked the introduction of a fresh political landscape for Singapore with the first new Political Party to enter the arena and contest an election in decades. With new and credible opposition figures coming forward as a result and with (almost) every single seat contested.
On National day it is common to look back at the journey we have taken and where we came from in order to measure how far we have progressed. Some of us were born and starting to grow up in the region before Singapore became a Nation. Others will have come here only recently. But most of us will be benefiting in one form or another from the hard work of the generation that founded Singapore through the sweat of their labour. Founding fathers like J.B. Jeyaretnam. JBJ, founder of The Reform Party, was the man who in 1981 first broke through a 16 year monopoly to give our Nation its first elected opposition Member of Parliament. He and the Singaporeans who voted for him put our Nation on the first rung of the ladder leading to true and fair democracy. A democracy and a way of government decreed in the National Pledge that will be recited today. A democracy still not realised.
JBJ often said that it was necessary to dismantle the GRC system, if we were ever going to break the stranglehold of the authoritarian (virtual) one Party state that is Singapore under PAP rule. In 1997 JBJ came close to doing it at Cheng San polling 45 % in a constituency where the Prime Minister felt it necessary to stand inside the Polling Station. That percentage of 45% was not bested until this year, 2011, with the historic victory at Aljunied. The length of time it has taken to topple that first GRC is a measure of how firm the PAP’s stranglehold still is and how far we still have to go before we have true and open debate in Parliament.
It is right to be proud of our success as a Nation but that hubris must be balanced with humility and we need to be ever mindful that not all of our fathers’ generation are able to retire in wealth and health. For every comfortably retired PAP minister with a lavish pension there are 100 ordinary, elderly Singaporeans facing daily financial hardship and a health care crisis.
When JBJ set up the Reform Party he broadcast in his inaugural speech the following message , “I appeal to all Singaporeans to cast off the slumber into which you have been led over the last 50 years, to wake up to your rights as human beings to your proper role as citizens of your country.” After his untimely death The Reform Party did not collapse but regenerated and to his appeal to Singaporeans to Wake Up! the Party added the appeal to Stand Up! By coming forward myself and standing I stated that my aim was to normalise democracy. I hoped to show by example that you did not have to worry that you would lose everything and be ruined for exercising your political rights. That ordinary and credible men and women could and should stand for public office if real change was to come about. That ordinary people needed to face down the climate of fear which has gripped Singapore since the PAP came to power.
And you did stand up. The 2011 election was the most exciting one for decades. It brought many new faces forward. Nearly 90,000 of you voted for The Reform Party, a new Party in its debut election, with a pioneering and sometimes difficult message. We were overwhelmed by your response and by the gratitude of an electorate who had been denied the opportunity of voting for so long.
However to this government it seems like business as usual. Despite 40% of you voting for change this translated under our rigged and gerrymandered electoral system into only six seats in Parliament for the Opposition out of 87. Before we get too excited about our new Parliament let us question why they do not feel the need to sit till October despite having gained the mandate in May. We are in the midst of a global economic crisis and our leaders are demonstrating breathtaking arrogance. No better proof could be given that Parliament is just regarded as a rubber stamp for the executive arm. The Reform Party wants to change this so that the actions of the government are held up to scrutiny by Parliament and the government is made accountable.
During the election campaign our leaders presented a report card to show how well they had done to justify their re-election. They spoke of a rosy economic future and the tremendous opportunities that lay ahead for Singaporeans. What really took the biscuit though was how they handed over a small proportion of the government’s surplus that year as a pre-election goody bag while paying Ministers and senior civil servants big bonuses. Despite the PM’s historic apology, and a few sacrificial victims who were due for retirement anyway, it appears that there is to be no real change in this government’s policies. And while the electoral system continues to deprive you of any real voice you will continue to get economic policies that are not in your interest.
Today we stand on the brink of a double-dip recession that I pointed out was likely some time ago. Singapore’s GDP fell last quarter and will almost certainly fall again in the current quarter which would constitute a technical recession. Today the government will continue to claim that the boom years are the result of the PAP’s wise economic stewardship and that the recessions to come are the result of global economic forces beyond their control. I have no doubt you will be reminded of the need to have a toughened hide in the future to take the risks of life with no safety net and to be grateful for the policies of ministers who may dance and sing on stage.
Minister Lim Hng Kiang said in May that the Reform Party was out of step even with the other Opposition Parties. And yet we have seen even the PAP now start to talk of Reform with a committee set up to review Ministerial salaries. Some opposition parties are now paying homage (belatedly) to JBJ with others picking up and subscribing to our pioneering message for pluralism, competition, accountability and transparency.
This National Day, do not be discouraged. The Reform Party was not out of step. We are just ahead of the times, living up to our name at the forefront of proposing better policies and now everyone is falling in with us. You have already shown the government that you are losing your fear and that you want things to change. JBJ told us that we have “rights as human beings” But he also reminded us that you have,” your proper role as citizens of this country.”
On this our 46th National Day we would like to extend our gratitude to all Singaporeans who have supported us over the last 3 years. You cannot shirk this role now and let things go back to how they were. Like long dormant shareholders in a company where an arrogant management has for too long had its way, it is time for you to wake up, speak up and even stand up. We are finally looking forward to emancipation 46 years after throwing off the Colonial Yoke.
Kenneth Jeyaretnam
Secretary-General
Buckle up for a double-dip recession!
Recently the flow of economic news from all around the globe has been dire. The US kept its precious AAA rating and increased its debt ceiling but only by agreeing to a deficit cutting deal. Meanwhile the US economy expanded by just 0.4% in the second quarter of this year.
At home our own Ministry of Trade and Industry announced on 14th July 2011* that Singapore’s economy grew by just 0.5% in the second quarter year-on-year but actually fell by 7.8% on a seasonally-adjusted quarterly annualized rate. The recent deficit-cutting deal in the US and the pressures on the more indebted countries in the Euro zone to cut their deficits means that demand for Singapore exports is likely to weaken further. If our economy contracts in the third quarter, as seems highly likely, then we will have entered a double-dip recession. (And don’t say I didn’t warn you!)
It is depressing to see all these calls for deficit cuts when economies are so weak. It seems as though the lessons of the Great Depression have been forgotten and that we seem to have gone backward. Politicians in the US (including the President), the UK and Europe seem to believe that cutting deficits through cutting government spending or raising taxes when their economies are growing far below their potential, is somehow going to restore business confidence. They feel these moves will spark an investment boom to replace the cut government demand. But interest rates are near zero so government borrowing is not crowding out private sector investment, anyway. In fact we are close to what Keynes refers to as The Liquidity Trap. It is possible that quantitative easing on a greater scale can get the World economy out of that trap. Meanwhile unemployment in these economies is running at around 10% minimum so these economies are clearly performing well below their economic potential.
At the same time I have failed to understand the furore among the Tea Party Republicans at increasing the US debt ceiling and the accompanying threats by the ratings agencies to downgrade the US from its current AAA status. After all the US debt is all denominated in dollars and therefore in the last resort it can be repaid by the Federal Reserve printing more money.
“Hang on a minute!” some of you might say. “Won’t that result in the hyper-inflation and the rapid depreciation of the dollar? Surely China will punish the US by cutting its holdings of US Treasuries and allow the dollar to collapse?” I’ll answer by quoting the old adage that a borrower who owes the bank $1 is owned by the bank while a borrower who owes $1 million owns the bank. In fact any unilateral action by China would cause far more economic damage to China than it would the US as it would instantly devalue China’s massive reserves. Also if the dollar were to collapse it would cut off the US market as a source of demand for Chinese goods. China (and also Japan, Taiwan, South Korea, Singapore and Germany) relies on external demand as the source of growth for its economy and a big shortfall in external demand would rapidly transmit itself to recession in China.
As the continued survival of the Chinese Communist Party is highly leveraged to its growth rate (note the recent protests by Taxi drivers) China is likely to either rebalance its economy towards domestic sources of growth, which would be positive for the world economy, or keep buying US debt. In fact the only good thing about the deficit-cutting deals would be if they could force an adjustment in the chronic surplus countries more towards domestic demand to generate growth. This would remove a big drag on growth in the deficit countries.
So how is this relevant to Singapore’s situation? As I said above, Singapore’s economy, even more than China’s or Germany’s, is dependent on net exports for growth. In fact, in 2010 net exports of goods and services amounted to almost exactly one-third of the economy. The corollary of this is that savings are about 50% of GDP and consumption is about 41%, a level very similar to China’s. Vladimir Putin, the Russian President, recently described the US as a “parasitic” economy because of its big twin deficits (balance of payment and government). However I believe it is much more correct to say that economies like China’s and Singapore’s (and also Japan’s and Germany’s) are parasitic since their huge external surpluses are big drags on growth in the rest of the world.
The US has recently been calling for rebalancing by the world’s surplus economies directing some opprobrium at China over its surplus. If Singapore doesn’t attract this opprobrium it is not because our PAP economists have the answers but rather because we are currently simply too small to impact on the global level if we do not rebalance our economy. But the impact of a double dip recession will be felt by us on a national level. Singaporean businesses are likely to sack Singaporeans first and keep the cheapest labour in their work force.
The PAP’s desire to run big surpluses and keep accumulating savings and overseas assets rather than allow our citizens to enjoy a higher level of consumption and standard of living are symptomatic of the fact that our leaders are in thrall to outmoded theories that no longer make any economic sense. In particular the mercantilist theories of the 17th century French economists like Colbert and Say that exports are good and imports bad or even the response of the Qianlong Emperor to the trade mission sent by George III**. So there is no pressure on the government to rebalance the economy at the global level. And no pressure on the national level either due to the lack of political pluralism. In fact amongst the opposition, there seems to be a complacency or reluctance (for the most part) in formulating a coherent, alternative macro-economic policy. Most Singaporean alternative voices would still not presume to question the economic expertise of the PAP at the macro level.
Singapore is more fortunate than the US in that it is easier for the government to offset any big slowdown in external demand by rebalancing the economy towards domestic consumption. But whilst in China taxi drivers riot there is still no hope here that outmoded economic policies will ever be overturned by popular pressure. In fact what is politics, if it is not public opinion shifting and parliament acting in response to that pressure? The failure of our economy and the oncoming recession will be a failure of our politics.
* http://www.singstat.gov.sg/news/news/advgdp2q2011.pdf
**http://www.history.ucsb.edu/faculty/marcuse/classes/2c/texts/1792QianlongLetterGeorgeIII.htm
