Author Archives: Kevin L

Credit matters differently

More than 10 years ago, I took a course in microfinance and then spent some time in a village in Ghana’s Central region designing a village savings scheme for the villagers to pool capital in a manner that allowed them to access the mainstream banking system and also to invest in machines that the farmers could share in, and enhance productivity. It was microfinance but applied differently, a model the team created after consulting the people in the village and concerns around creation of debt.

Microfinance was quite popular then and the common belief was that there were productive people with the opportunities to put capital into productive use but did not have access to credit to allow them to do so because traditional finance were not accessible by these folks.

What was missing from the picture was that these people had struggled to save as well because they did not have places to safekeep cash or other asset instruments they had. This could be why the pre-paid mobile credits were popular and important economic enablers in some of these environments. Credit and savings are different sides of a coin and the way these services are valued works differently in different cultural contexts and markets.

The next generation of retail finance will have to start examining these cultures more to develop stronger value propositions. Central banks paying attention to consumer credit and savings behaviour would be wise to appreciate these elements too.

Small firm in energy transition

The energy transition exposes the weakness of the current energy system of the world. It reveals how much we are reliant on a few resources to draw our energy to power the economy despite how dispersed and distributed energy resources are.

Take for example a rural area in Indonesia, where there are small farms and villages – and they are relying on diesel or kerosene refined and fetched from some far flung areas in order to power their generators or farm equipment. All the while just sitting beside heaps of bioenergy resources that are seen as waste.

The emphasis on low-carbon economy helps us recognise that we may have to start shortening our supply chains and reducing its complexity if we want to decarbonise our economies. Part of this has to do with how stuck we are between the CAPEX and OPEX distribution of the manner we consume energy. By consuming fossil fuels, we shift the burden of costs mostly to the OPEX since equipment are mostly standardised and so they are cheaper to procure and use while we adopt the long supply chains needed to achieve the delivery of fossil fuels on regular basis.

If we were to shift to shorter supply chains where the distributed energy resources were consumed instead, there might be more local equipment needed, the CAPEX might increase. But OPEX may actually decrease because now you’re saving on storage or disposal costs of some of the feedstock that might go into making the fuel you need.

If the world is to develop shorter supply chains, it will need more small firms. And governments all around the world needs to know better how to encourage, support and empower small firms to rise up to the challenge. We need local firms who are familiar with the local constraints, context and needs. They need to be upskilled technically to rise up to the challenge and generate solutions.

This mode of development is vastly different from the old school model of having a big multi-national firm come into a less developed location to help ‘develop’ it by reshaping local demands. Aside from how much this harks back to colonialism, it is creating long supply chains which seem to create more jobs but is not doing much for the climate and environment.

Whose responsibility?

So Singapore’s target for net-zero is 2050, with the public sector aiming to reach the target in 2045. And with coordination being touted as one of the core strengths of the Singapore government, we have a Chief sustainability within the government to manage that. This role in businesses is still very ambiguous and it is not clear whether the person is managing the process of decarbonisation for the the company or to manage the sustainability offering of the firm.

Likewise, it is not entirely clear whether the Chief sustainability in the government of a country should be responsible only for the public sector emissions or taking charge of the reduction of emissions across the entire country. Frankly, the public sector emissions are already very significant. Part of the challenge is that almost all of the wastewater treatment and water supply plants are owned and operated by the government; at the same time, the government also own and operate incineration plants. This is probably why in the business times article, it was stated that Ministry of Sustainability & Environment is itself one of the large emitter.

But Singapore’s approach to decarbonisation is unlikely to be about the government just dealing with its own emissions and then trying to create structures to drive decarbonisation of the private sector. The fact that the Chief sustainability starts talking about costs, value and trade-offs is already a clear sign that the government is probably thinking about abatement cost at a system level. And it is true that the government in Singapore is uniquely positioned to evaluate this. We might have a shot at being able to collectively determine what are the lowest hanging fruit across the society to reduce emissions and then collective work through the curve of diminishing marginal returns. In other words, we can look at the avenues of abatement that incur the lowest costs while making the largest reductions first.

This means that while the government might be able to try to reduce energy use in the desalination plants or secure green electricity, they might not because there may be other industries that can reduce the emissions at lower costs. This sort of system level optimisation may not be possible in bigger countries; but for a small island state where our renewable resources are too scarce, that might be the only way.

Con-sulting II

The role of language in business varies from culture to culture. And as the economy goes through greater prosperity, marketing takes hold at generating more interest and demand, even for goods we don’t fundamentally “need”.

Just recently, while in a bookstore section where they sell little gifts and trinkets, my wife mentioned to me “the thing I love about bookstores is this section where they sell such beautiful things”. To which I responded “that’s exactly what I dislike because they have such nice little things that makes you feel like buying them but they are completely useless!”

We had spoken perhaps too loudly because the lady beside us let out a huge laughter and said, “Spoken like a true man!” We all had a big laugh together and I proceeded to the books section. Where I picked up The Big Con.

Part of modern capitalism is marketing and it can have the same effect as what Mariana Mazzucato is describing about big consulting firms “hollowing” out governments, creating dependencies and weakening the public sector capabilities. Modern consumerism “hollows” each of our lives out by getting us to focus on our ability to earn the most money, purchase or outsource everything else, stifling our abilities to seek and generate the very happyness we are pursuing that the economy tries to sell us.

The very thesis of Mariana can be generalised further into the other product and services markets. The question maybe is about restricting our purist economic thinking to only certain domains and not others.

Coffee stories III

Continuing on the theme of business models, hacking the target audience in multiple dimensions, and also incentivisation by government for social objectives. More governments can learn from this but with the clear objective of advancing social good and making sure that the help they render to the populace lands in the right hands. And that people are behaving in the socially desirable direction.

This is different from the typical incentivisation that is driven by cost-benefit calculations of corporates, and enabling companies to cross certain cost hurdles to invest in certain activities in an economy. The sort of incentivisation that we are operating on here deals with longer term, more strategic directions that the government is driving at – not just trying to hit GDP growth targets or stimulating the aggregate demand of the economy.

And these strategies also gets at cultural shifts and change. Done properly, they create a new, better culture that treasures the future. That does not claim the present or the short term at the expense of the future. Parts of this incentivisation could be about a mixture of regulation that creates demand while subsidisation that buffers the costs of compliance. For example, applying a hefty carbon tax while subsidising decarbonisation technologies and programmes.

It’s not about sticks or carrots but sticks and carrots.

Coffee stories II

What is interesting about the coffee stories I shared is that entire cultures can be reshaped by business models and the slew of marketing that is fueled from the leverage investors allows. I’ve always shared the example of how Grab overturned the culture of hailing cabs off the streets in Singapore. Singaporeans don’t even hop on the cabs at the taxi stands anymore.

This has implications for government incentivisation and the manner by which incentives are doled out and the behaviours they are trying to change. Singapore government had been quite skillful in this area, having a smaller market to government and being able to impose ‘tighter’ controls. There are often careful checks and balances to prevent individuals and corporations from gaming the system to extract benefits from the system without abiding by the desired behaviours. And there’s also a big theme of maintaining consistency. This was why for the longest time, the government only allowed married couples to purchase public housing directly from the authorities; and even today, singles are only allowed to own these flats if they are aged 35 and above. The government wants to promote family formation and hence maintaining some consistency in the policy of public housing subsidisation.

Those elements recur in the position of offering tax breaks, providing further direct grants to new parents, priorities in public housing and so on. Businesses can learn from the same by ensuring that they steward the limited resources they have to reward those customers behaving in the desired manner (eg. referring other customers, posting about using their products) while making it harder for the ones whom the business do not desire as customers to consume the products.

Coffee stories

When I was doing my masters in New York, I was drinking about five cups of coffee a day. On occasion, it could be five cups of double shot. I had this coffee subcription app that allowed me to order unlimited normal brews at $45/mth and those specialty coffees at $85/mth from a base of nice cafes around New York city.

I came from a coffee drinking culture in Singapore. I’d order my Kopi C each morning with breakfast and in those days, these drinks were less than $1.50 (USD) a cup, unlike the >$5 barista coffees in New York city. But strangely, I consumed more coffee than I ever did in Singapore because of the business model.

Business models are interesting and in some ways, they hack our demand curves, taste and preferences by targeting aspects of our preferences that the economists were not able to incorporate into broad demand analyses. And there are entrepreneurs, marketters who thrive on coming up with such hacks.

The issue about hacks and short term profits is that they accomplish little worthwhile in the longer term. And there are far too many short term studies in the social sciences that gives us a lot of “scientific results” which may be spurious correlations or short term correlations which do not persists. We need to engage our talents is more long term thinking and challenge them to deal with the longer term problems of our economy and societies.

Con-sulting

Chanced upon Mariana Mazzucato’s The Big Con in the bookstore today and took the chance to read a bit of it. I first heard of the book from the media and my curiosity was piqued, not least because I’m a consultant myself. The firms highlighted by the book are the usual big consulting groups and Mariana’s main area of attack was on their work for governments enfeebling the public sector and exercising undue influence on the decision and politics of countries.

Being focused on the energy transition, I thought perhaps that my work is less implicated by Mariana’s attack but having been a public servant myself, I do wander if the government contracting out work to the consulting industry is a problem in itself. I think for Singapore, we can safely say that Mariana’s attacks don’t have teeth because the public sector in Singapore maintains a lot of the critical capabilities and information even whilst drawing upon consultants to help drive forward its work.

The Big Con then has in mind very specific governments as targets and in some sense, cherry-pick specific stories, case studies and situations to make its argument. Nevertheless, I still empathize with what the authors are driving at and the change they are hoping to make. Mariana Mazzucatto also wrote The Mission Economy and while I have not read it, I understand the underlying ideas and how The Big Con interacts with some of those fundamental notions. I do think that governments and more actors in the economy needs to get together to galvanise the economy and wider society to collectively embark on the joint mission for a future that is worth creating.

Having answers

In school, the guy who raise his hands to answer a question gets praised. The one who puts up his hand to ask a question feels like he might have disrupted the flow of a lesson or wasted everyone’s time on something that no one seemed to be interested in besides him. Besides, there never was a quiz by the teacher where credit was given to a student for asking questions.

Yet the older I got, the more I realised that having answers is overrated. The ability to ask the right questions and discover new ideas or thoughts from there is so much more important. The journey of discovery starts with questions and not knowing what to discover. The incentives that our education system designed was more about ease of creating robust, scientific measurement without necessarily aligning with the needs of students going through the system.

There has always been a question of whether schooling and the education system is ultimately about training and uplifting people or just measuring and sorting them. I’ve previously pondered over this quite a bit – whether we intend for the system to produce a pooling or separating equilibrium. It is still a question on my mind and I think it’s a conundrum for systems all around the world.

Social redistribution by moral suasion?

As Singapore steps into the prosperity of modern society, we recognise increasingly that our prosperity and success isn’t about us as individuals but something we need to develop as a society. And that is driving the whole Forward SG exercise: the idea around reworking our social compact. Prime Minister Wong declared, “Here I have a plea to all: For a new definition of success to become a reality, all of us – as consumers – must be willing to bear a higher cost for the goods and services we consume. We must recognise the important work that our fellow citizens undertake to keep our society going, and do our part to uplift and boost their wage prospects.”

For this plea to work, it is not just about consumers and cultural mindset changes, the whole economic engine of the government including our policies on trade and industry. Essentially, our government needs to develop new ways to think about inflation: that it may be part of the consequences of uplifting the wages of our fellow Singaporeans and tradesmen. And the mechanisms around public sector procurement might need to change too if the PM himself is suggesting that consumers must be willing to bear higher cost?

We all are consumers, taxpayers, employers or employees somehow; the whole economy works such that we have these overlapping roles and what we fail to spend through consumerism, can be spent by the government through taxation. If the government genuinely wants to uphold certain principles of social distribution, it would be really hard to do so by moral suasion and avoid damaging the pro-growth stance.