Wednesday, May 16, 2012

A Case for Getting Out

This weekend I found myself at a very interesting forum conducted by MP for Pasir Ris Pungoll GRC, Dr Janil Puthucheary. The forum was focused on the issue of low-wage workers and the key question of the event was, “How much are you willing to pay?”

The general thrust of the discussion was thus – people agreed that there are groups in Singapore that work for what can only be called subsistence wages. Toilet cleaners for example, are paid on average, the princely sum of S$600 a month for a 6-day week. People agreed that they’d be willing to pay more to use a public toilet if it doubled the wages of the toilet cleaners. Then the question moved onto bus drivers. Dr Puthucheary then asked the ingenious question – “Would you pay more if it was guaranteed that the increase would go to the bus driver?” The two most prominent answers from the audience were ‘Depends if it’s a Singaporean or PRC bus driver”and“If the fair goes up to S $1.75 a journey, I’ll join the Worker’s Party (Singapore’s main opposition party).”

While it was heartening to be part in a lively discussion on the issue, I felt that everyone was skirting around the brontosaurus in the room – the role of the government. To be fair to the organizers of this event, they belonged to the Youth Wing of the ruling People’s Action Party. As such, it would have been hard for them to tackle the issue openly. However, if one seriously intends to get serious about tackling the issue of glaring inequality in Singapore, one must question the role of the government in the equation.

Generally speaking, setting wages is usually a question of how much an employer is willing to pay to get things done and how much an employee is willing to do for a certain amount of money. This is usually a case of a thesis meeting its antithesis to form a synthesis (In simple terms, two opposite’s crash into each other to create something new). Employers will generally want to pay as little as possible to get the most amount of work while employees will want the most wages while doing the least amount of work.

Somehow these opposing needs create a balance. It’s not a perfect balance. Market forces usually play the key role in deciding the value of wages. When there is a recession, employers don’t hire so those with jobs will sacrifice pay and perks just to keep their jobs. When there’s a boom and there is a lack of people to do the jobs created, then wages shoot up.

While everyone talks about market forces, most people forget that government plays a crucial role too. Firstly, the government sets the tone for the market through things like regulations. More importantly, the government has to play the crucial role in ensuring that the balance does not tip too far either way. Governments have to see that people get wages they can survive on (Think of Arab Spring where ordinary people took three jobs to survive) but at the same time, the government has to ensure that businesses can afford to hire people (Think of the UK in the 1970s when taxes were close to 100 percent of income – businesses could not make a profit). If you like, the government is the referee in the game.

Singapore’s government has a slight problem as a referee – namely the fact that the government is in fact the biggest owner of business in Singapore. The government owns the Government Investment Corporation of Singapore (GIC) and Temasek Holdings Pte Ltd. These entities were set up to manage the compulsory savings of the population and at a later stage budget surplus. The value of assets controlled by both these companies runs into the billions. The largest shareholder in the biggest companies listed on the stock exchange is Temasek Holdings.

In fairness to the Singapore Government, it’s kept a relatively hands off approach in the management of the large companies. The CEO’s of companies like DBS and SIA have gotten there on their merits as business people rather than government bureaucrats. State ownership has not handicapped SIA from becoming a world-class airline. DBS today hires senior people from international banks like Citibank to ensure they play as serious international players.

One can also argue that in the initial days of independence, this situation was necessary. Singapore did not have the people to run big corporations and the symbiosis between civil servants and people running large corporations was a way of sharing talent. You can argue that making civil servants spend a stint in corporations has helped to create a business friendly civil service. This in turn has been a powerful selling point in keeping the much needed foreign investment coming into the country.

A first rate bureaucracy has been one of Singapore’s strengths. The Singapore government machinery sounds like a private sector corporate machinery talking about things like efficiency and customer focus. This has been good for Singaporeans.

While all these arguments are compelling, they are losing their potency and starting to look like tiered and increasingly irrelevant arguments.

From the business perspective, it’s possible to argue that government ownership has actually held Singaporean businesses back. Of the large corporations, only SIA has a made a mark in its global industry. The reason is simple – this is an industry where the Singapore government’s protection is useless and the airline has had to face competition from global players. The other corporate giant to hold its own has been SingTel, which used its cash pile from its days of a monopoly to acquire overseas assets. Today, SingTel’s main source of revenue is from Optus, its Australian subsidiary.

The untold tale here is that prior to acquiring Optus, SingTel tried to acquire assets in Hong Kong and Malaysia. The fact that SingTel’s main shareholder was the Singapore Government was the very reason why regulatory authorities stopped SingTel from taking over companies. Let’s face, telecommunications is a sensitive business and as friendly as Singapore’s government may be to other governments, there are few governments in the world that would allow their telecom companies to be bought over by what they view to be another government.

More worryingly is the fact that many of Singapore’s big corporations are only big at home. They have been protected from the laws of competition and have been allowed to grow flabby. Think of Singapore’s media industry. An element of competition was introduced. Both media houses lost a ton of money and the government allowed them to remonopolise. Everyone slapped their backs, happy that they had shown that the market was “Too Small for Competition.” Unfortunately they were too busy defending their turfs that they forgot about product innovation. While the media houses spent their energies sniping at each other’s product (think of the endless arguments on whether viewership or readership was more important,) the public found alternative news sources on the internet. Sure, the bloggers didn’t make money but they gained credibility at the expense of both print and media – enough for the Executive Vice-President of Marketing at Singapore Press Holdings (a former editor) to write an op-ed piece lamenting the fact that government ministers were choosing to use their Facebook accounts to make announcements instead of calling for an old fashioned press conference.

As the need to expand beyond Singapore’s shores grows, business and government need to relook their relationship. Business should have the freedom to act as businesses rather than as part of a government.

If the business case for the government to get out of business is compelling, the argument from a social policy perspective is becoming crucial.

Let’s go back to the fact that the government now has a problem with growing inequality. Let’s take the example of bus and train drivers, the group that Dr Puthucheary brought up.

Public transport is a potent issue. It’s used by most of population and so most of the population has an opinion about it. As far as the public is concerned, public transport has become worse and more expensive at the same time.

As far as most people are concerned, this situation has come about because the government allowed an influx of foreigners to enter the country but didn’t ensure that the nation’s infrastructure was prepared for this. Talk to any random person on the streets and they’ll tell you that busses and trains have become overcrowded (expect to wait for three trains to pass by during the early morning commute) as fares have increased. Both public transport operators SMRT and Comfort DelGro have been declaring record profits for shareholders for the last eight-years. Then, when the system started to experience breakdowns, the government stepped in and announced that it would finance more buses from the taxpayer’s fund. Erm, as most of us are concerned, we, the tax paying public are providing a subsidy to companies that are printing money from us.

It’s hard for the government to be seen to play the crucial role in situations like this. The public expects public transport to be affordable and of a high standard. The public transport operators are under pressure to deliver a service and profit to their shareholders. To deliver a profit for their shareholders, the operators, minimize spending on basic infrastructure like more buses and hiring less experienced drivers from elsewhere, thus adding to the downward push for blue collar labour.

A neutral government would be able to see that the situation is unsustainable and would be able to bring all parties together. It would be able to insist on certain delivery standards by the operators – yes, you can make a profit but you got to have no breakdowns within the year etc etc.

Unfortunately, the Singapore government isn’t a neutral referee. On one hand it has pressure from the public. On the other it has its own interest as a shareholder in the system. The CEO of a public transport operator deals with the government as both a regulator and a shareholder. The dual nature of the government’s role here produces an inborn conflict of interest. On one hand it needs to keep the public happy. On the other hand it wants to collect profits. Is anybody surprised that the government was quite content to allow the public transport operators to up fares and skimp on basic maintenance as long as not too many people complained and things ran. Let’s face it, nobody talked about buying more buses until things broke down.

Government must get back to basics and become a neutral referee rather than a shareholder with a vested interest in one side of the game. It’s only then that people will start believing that the government has its interest at heart and interested in looking after all parties.

Only when the government divest itself of its business interest will topics like “inclusive society” be more than just a hot talking point.

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