As I ponder over the paradoxes of our society and nature, I begin to see more and more how our traditional linear paradigms about advancement and growth jars too much against reality.
There are many things that appears contradictory and yet continue to co-exist peacefully in the world without apparent conflict except in our minds. There are tyrants who are charismatic, loved and admired but also incompetent democratically elected leaders who could set a country back by decades. And there are both decentralised and centralised systems that appear to thrive, and also implode.
We ask ourselves if history proceeds through its course regardless of individual’s actions and it is just collective macro force created by the tiny actions of every individual that matters, or that it progresses through the agency of a few, put in the positions of power and influence? It’s not clear at all.
So when we think that progress in the system involves maturity of technology, of having regulation, standardisation, proper rules of engagement in place, we also recognise that these things stifles innovation and block new, emergent contenders from taking over incumbent structures.
Similarly, having contending standards or technology pathways look as though they are going to create a gridlock that prevents the industry from adopting a single unified approach.
The western, perhaps Anglo-Saxon, thought models make it difficult to hold those juxtaposing, contradictory ideas together because it supposes that there is just this one way that is the right way.
Whether it’s climate tech or climate or sustainability startups, I’ve been encountering them recently. Of course, they are just startup companies, looking to find a product-market fit and then scale their business. There is a massive distraction in today’s market where you could grow a business out of making grant applications and putting together plans, where you try to get funding to take off.
This sounds a lot more like research in academia than the economics of a free market. While government is hoping to drive the development of good climate solutions, they are still tapping on the market where it failed, doing so through what they believe are ways to keep things market-driven when they have actually replaced the market and allowed the grant application processes to pick winners.
The challenge is that the winners picked through a grant application process are not going to be the type who wins in the market. These are firms who would have scrutinized the fine print, delivered on arbitrary KPIs and proxies that some bureaucrat came up with in his or her office. And these schemes are just distracting time, money and resources away from the startups towards satisfying governance requirements. After all, ‘it is taxpayers’ money”
The work of growing a new industrial ecosystem isn’t easy and I’ve spent considerable part of my career thinking about ecosystems, value chains, bottlenecks in developing an industry. If the government can give some demand assurance perhaps for a specific project, or product that the customer would be able to use or satisfied with, then it could help. And very often, if politicians want to be able to make claims about having supported one particular development then things becomes more difficult, not easy. When economic support is driven by a desire for narratives rather than allowing the stories to emerge from a system that is created, you can get a poorly specified policy.
As our nation crosses the diamond jubilee at SG60, people were putting down their wishes of ‘I want to…’ during NDP. The messages played on the videos for NDP were really inspiring and had nice stories from ordinary Singaporeans of diverse background. I felt genuinely moved and encouraged that we can be more than just ourselves and what we bring because Singapore is just a society that has been on the move, that has been developing and growing and thriving. It all feels good.
The stuff that doesn’t feel that good – how do we approach it though? The fact that places and spaces have been sacrificed, people uprooted to make way for development (as the Tekong story suggested). Or that sporting feels more like a lone wolf endeavour more than a national one, particularly during the ‘invisible phase’ of training, working towards Olympic qualifications, etc (story of Lloyd Valberg; though one can’t say this through that story since Singapore wasn’t yet a nation in 1948). Or that the big corporations often push around small businesses because that is ‘normal’ in our culture (story of Yanee; ‘but are you ready for an order of this scale’).
There is a choice to be made on how we see things. And whilst we have been told repeatedly there would be trade-offs, we haven’t yet learnt the real principles and intentions behind the decisions on those trade-offs. Why do we choose one over another? To the ones in places of power, it might be obvious. How could the sacrifice be made worthwhile for those suffering from its consequences?
What principles do we use to uphold our values – whether they are peace, justice or equality? Or perhaps progress? What happens when they are trading off each other? What if we cannot accomplish all of them at the same time? Often, ‘progress’ as the value seems to take centre stage. And is the kind of progress broad or narrowly defined?
To move forward, we must also learn unravel more the principles worth learning about and keeping, which we can use to navigate the future. Our forefathers left them for us but if we don’t pick them up to use them, it would be squandering the success that they’ve worked so hard to build us.
I wrote about the government blunting their policies previously when it comes to SME grants, particularly in Singapore. The same applies to many countries where policy directions are not just unclear but constantly changing. In the energy transition world, so many projects and companies in the US were taking investment decisions on the basis of tax credits for production of renewable energy.
So when the fate of the tax credits was suddenly called into question, it massively derailed the plans of these companies and projects, resulting in a whole sector or industrial sub-segment seizing up. I have always thought it’s incredible that in Europe and US, you could build an entire business or project based on revenues that are only possible because of subsidies or government tax credits. That’s amazing to me because in Asia, companies do not rely on government subsidies to build their business cases. At least not the private companies who have no political influence.
The reason for that is that the private sector is unwilling to take a lot of the regulatory risks from the Asian government, and they are not sure about the longevity of those policies and incentives. They recognise that when leadership changes, these incentives could disappear (as it happened in the US most recently). In other words, those policy measures in Asia are actually pretty blunt because the private sector is not going to respond to it much. US government risk that happening and losing such a precious lever to influence the economy and coordinate the change that is required.
Likewise, in Singapore, one of the biggest advantage that the government have is the ability to coordinate change properly. Technically, they don’t need to use market-based mechanisms to do that, but decades of indoctrination about the need to use free-market capitalism to ensure efficiency have brought us to the approach taken these days. The topic of subsidies is tricky and often at the top level, the thinking is ‘who would not want subsidies and freebies for their business?’ Yet in practice, it is not so easy. But it is not the bureaucracy that companies are unwilling to engage with – it is the uncertainty around the discretion of agencies’ decisions on whether some company or activity merits the funding.
Often, if the government’s grants or subsidies are uncertain and criteria are flexibly applied to accept or reject applications, then companies would rather focus on dealing with the vicissitudes of the market than of the government. I’m writing these because I feel that our agencies could inadvertently undermine something precious that the government have built up in the past. The full implications can only be seen and experience when it’s probably too late.
I started my first serious job with the Singapore government over a decade ago. Before that, I worked variously in education (math and economics tutor, and teaching assistant for undergraduates), as a freelance writer for a local economics magazine, and water treatment systems (B2C and B2B sales of drinking water filters and treatment units).
But I’ve been thinking about government policies and the institutions required to build a strong economy for almost two decades. This is partly because I was influenced by Dr Goh Keng Swee’s achievements to study economics. In particular, I thought a lot about industrial policies and the approaches taken for that in Singapore.
I was subsequently part of IE Singapore, and then Enterprise Singapore. They were agencies that provided grants to local companies for various activities. To avoid ‘picking winners’ in terms of selecting particular sectors to support, most of these incentive policies are broad sweeping – they were targeted at investments that enhanced productivity such as supporting automation, digitisation, etc. Sustainability was recently a key theme for some of these incentive schemes.
As I’ve been out of the system for a long time, my views are not based on what I know from inside the system but observations made from conversations with businesses on the outside. In all of these incentive schemes, there’s a strong emphasis on governance so the process takes a bit of time. Companies are encouraged to go ahead with their plans while the grant application is in process. This plays the role of reducing risks of delays to the companies’ plans but it also mean that the companies faces uncertainty on the final outlay/expenses that the government would cover.
The government exercises a significant amount of discretion when approving grants. This is a conclusion arrived at by consulting and digital service solution providers to the Small-medium Enterprises (SMEs) with solutions or services that were supported by the grants.
What eventually happens as a result is that incentive schemes by the government becomes weaker and weaker as a tool to encourage companies to take up new solutions or move in the direction of the government. In the short run, when government pushes out incentives to help SMEs with payment systems, or improve their marketing, or even start R&D, the SMEs will definitely start looking into this areas thinking it’s their chance to defray some of their costs of making such improvements and getting more competitive advantage. Some may even realise they should go into it with or without grant support. But a majority of them would not look deep enough to make that decision – instead, they’ll make the decision contingent on the availability of support. When their applications are either denied or the amount granted falls short of their expectations, a certain trust in the government is broken.
The next time these grants or incentives are peddled around, they no longer respond to them. They are skeptical about the government’s sincerity. This is especially if they had experienced cases where the rejection comes through technical grounds or when they expected a particular expense to be eligible due to vague policy wording, but eventually the agency exercised discretion to deny it.
In the long run, these policies gets more and more blunt, and public servants will be spending so much effort thinking about the policies, setting up governance procedures, only to realise that uptake of these incentives are poor. I wonder how much governments realise this is actually a problem for longer term policy-making and economic levers. As much as they try to use market-oriented levers, some of these intangible factors make a huge difference.
So it started when I was reading Cedric Chin’s writing about Morris Chang, and then about Texas Instruments dominating semicon industry through the invention of the Learning Curve pricing. Here is a situation where a large company basically finances its product into dominance by sacrificing some early profits as they expect lower prices to generate sufficient demand to increase utilisation of their machine, improving product yield through improvements in the manufacturing process.
This enabled Texas Instruments to dominate the industry as the anticipated increase in manufacturing yield (as a result of the ‘learning curve’), enabled more aggressive pricing, pushing out competitors, increasing market share for Texas Instruments, and thereby creating more scale advantages to drive more yield improvements. This is a remarkable use of financing to use scale economies to dominate the market. Essentially, most of the digital tech companies tries to use this as a means to eventually dominate a market of their niche.
The original idea of the learning curve of course came with manufacturing, and I believe this idea was applied at the scale of the entire industry in China when it comes to solar panels, Li-on battery architecture and now probably electric vehicles. By massively subsidising the products and creating demand not just domestically but also in foreign markets, China successfully increased utilisation of their capital equipment, improved their manufacturing capabilities and cement their advantage further.
While other markets are still focused on ‘costs’ of deploying solar, or using batteries, China took a different perspective, one that was driven by manufacturing capabilities and learning curve. I believe Japan had desired such an approach as well, having been subsidising certain markets and technologies, including development of hydrogen cars as well as residential hydrogen appliances (see ENE-FARM home use fuel cell system).
Sometimes when we wonder if we are too early into the market for something, when it comes to the government that is willing to orchestrate a strategy at that sort of industrial level, one can mobilise the resources to create the future rather than wait for the right time.
I’ve been fighting against the prevailing culture for the past decade of my career. And for those who blame things on culture and act like it cannot be changed, they are being delusional. I have a few examples to show:
How did we get from flagging for a cab on the street to punching our mobile phone screens to hail a cab?
How did we get from ‘solar power’ is too inefficient and there is not enough space in Singapore to targeting a 2GWp solar by 2030?
How did we get from being in kampongs where we helped each other and lived for generations in a house to thinking that our financial lives depend on getting BTO, then selling it after MOP and then upgrading non-stop over our adulthood?
While it takes time, culture can be changed. It also takes identifying some loose bricks in the existing edifice to overhaul the structure of our prevailing culture. Energy transition is one tough one to crack, but that said, our region in Southeast Asia has already moved quite a bit from the days of coal-fired power generation. Yes there was a bit of attempts to catch on with the hype around hydrogen but the dollars and sense prevailed at least for now.
So I’ve been toying with the idea of doing a lot more content to teach all of us about energy transition and to be able to learn together. There is a whole lot of de-stigmatising, trying things out, and unlearning our previous biases to be able to move the culture a bit and accelerate the transition. There’s a question of format, level of engagement, how to manage and nurture a community and so on. I guess I’ll have to dive in head first.
Popularised by Warren Buffett, the idea of business moats is simply some kind of persistence or stickiness in demand that businesses have, which can keep them going. Basically it is really anything that helps to reduce competition to a business. This is important in the real world though we tend to celebrate competition in economics. Business moats are actually necessary for innovation, and avoiding a race to the bottom.
Moats are largely about maintenance of a profit margin. The stronger the moat, the higher the margin would be but having a moat itself makes a lot of difference. In fact, we tend to worry in economics about moats because we think it creates high margins. That’s not always true. You could have low margins as a moat itself – because being able to keep your costs low would keep competitors at bay. The point of moats is more about the persistence of the margin.
The most significant problem with competition is that you are in a dynamic environment that keeps you on your toes. Now you may think that is a good thing. But if we keep having to compete with competitors who are just diverting your customers easily through one-off gimmicks and popping up in different places, dislodging your margins here and there, it is not going to make a significant dent in your profits, but it certainly takes up your attention and ability to consider longer-term growth and innovation.
It is such long-term thinking that a business moat creates, which can support the maturing of a system. Yes, other institutional factors contribute to the growth and development of markets. But pure ‘perfect competition’ in the manner it is traditionally thought isn’t one of them. Many developed countries and markets have that sort of dynamism and competition. Just go to a weekday market in a mid-sized town in Africa. But that in itself does not produce the sort of progress that capitalism is touted to produce.
What underlies the success of market capitalism is ultimately the ability not just to accumulate capital but to be freed of that savage competition to engage in more medium to long-term strategic competition. And that is enabled by business moats.
I realise I’ve never written on artificial intelligence. GenAI swept the world quite a bit over the past 2 years and of course, the consciousness of it in the market since ChatGPT was made available for public use had driven Nvidia’s stocks up insanely.
I had realised that since I’ve got a collection of writings in the public domain from since 2009, it would not be hard for me to train an LLM to be able to almost think and write like me at least to the extent of views, ideas and information I have expressed.
The truth is I’ve somehow avoided using AI to do my work; rather, I’ve been using it more to gather and synthesize information, help me identify blindspots and figure out perspectives I might have missed. I know that what we have observed in the publicly available tools is just displaying a fraction of their potential and capability but I feel that ultimately, we are still hitting back at the same constraints that holds us back as humans. Resource.
AI continues to suck up computing power, materials and energy in order to work. This is almost silly to the extent that we are feeding machines copious amount of energy in order to produce output that pale in comparison with a human being. ‘Biological energy’ so to speak, is far superior and we already have the human brain that allows all of us to perform at a far higher and more meaningful level. Of course there are lots of ethical and safety issues confronting us as we develop AI further, and I’m not decided whether we should necessarily stop the developments – all I can say is that we are getting distracted by AI.
We are embarking on an almost insane hype in the market for AI while ignoring the greater problem that confronts mankind today – climate change. And we ignore it at our peril. AI, like the many other engineered geopolitical crises, are chipping away at our attention, energies and resources to deal with the things that matters much more.
I really believe we can do so much better with the struggles and challenges in this world if we had not been distracted by these things. I have no doubt AI is going to be important and influential, but along with a lot of other innovations that have radically changed our lives, it may only serve to exacerbate problems that are still not well appreciated by us, while taking away resources to solve the problems that are apparent today.
These days I more often talk about biofuels and bioenergy than hydrogen. Mostly because I believe that bioenergy is the best scaffolding that is available in the market for commercializing hydrogen for renewable fuel use massively.
I moderated a panel at AlterCOP 29 last year, where I help to spark some discussions about what hydrogen is good for and what could help hydrogen be a solution for decarbonisation, if at all.
There hasn’t been too much changes in fundamentals since we had that discussion but we know that a lot of bad news about hydrogen have plagued the industry since the start of this year.
Most recently, McPhy, the electrolyser manufacturer liquidated with most assets taken over by John Cockerill. One of the chief issues is that the industry has grown so much on the back of anticipated and realised policies without improving its commercial case over the same period of time.
As a result, the solution continues to be commercially challenging and expectations of handouts from government have reduced the drive to improve commercial case.
