Category Archives: Issues & Ideas

Non-profit organisations

We can organise our economy in very different ways, and even as the free market and the idea of capitalism reign, there can be different extents to which goods and services are produced and supplied to the end consumers. The non-profit organisation can serve as a way to coordinate activity that delivers real economic results in the form of goods and services.

I think we have overlooked the ability of such a form of economic organisation to do more for the world. The advantage of a non-profit that it explicitly pursues resources specifically for a cause. It doesn’t mean it will squander resources inefficiently, but the stated purpose of it, is to generate the impact or advance towards the mission. Ironically, some of the more profitable companies in the world can tend to make claims that are similar to non-profit in terms of the contribution it brings to society.

And since non-profits often have to deliver results in exchange for funding, or to unlock pre-committed funding, they will learn to optimise their budget and utilise resources optimised to deliver some of the results or at least provide inputs to the causes they are trying to champion. The funding portion of non-profits may be different but the way it should be ran operationally is probably not so different from a typical company, with the exception it may not be able to use the usual incentives for its staff (in those circles, they sometimes call it a passion tax).

Yet perhaps more forms of organisations should be acting as non-profits. For example, banks should potentially operate without profits, with the key objective of optimising risks in the system while providing access to credit for organisations and people. In fact, I think that all financial institutions, even those providing payment solutions probably should have limitations placed on their profits because ultimately, it is the real economy that they are trying to drive and allowing them to extract too much from the real economy can hinder the more fundamental process of capital allocation – which is what we are already seeing. Everyone needs to contribute to the real economy and finance in particular, has become the tail wagging the dog, in name of the pursuit of profit. That is a shame.

Character development in sports

Continuing my series of musings about the nexus of sports and life. Something more important than winning in the sports arena is that your character is being built. How do you measure the extent of character development? What am I thinking about exactly? And why does it matter?

You can’t measure character. It doesn’t mean it is not important but you just cannot measure it. In the film Les Choristes, the Maths teacher, Mr Mattieu, formed a choir believing it would help reform the badly behaving boys. And it did! But how do you measure it? What changed? Maybe the school grades, maybe the noisyness of the classroom, perhaps even their sense of aspirations. In sports, the players’ performance can be seen in their behaviour on the pitch or courts, as well as their scores, but perhaps also in their lives, the way they treat the people around the sport, and so on. Even how they treat their competitors and how they talk about them. Max Maeder, the Singaporean kite-foiling Olympic medalist, impressed everyone by giving kudos to his competitors after finishing third in his final race when asked to comment on the race.

So that’s what I’m thinking about. There’s something unmeasurable that we can achieve in sports and sporting culture. Are we going to invest into that as a nation? Do we care enough about our people’s lives and their mental fortitude, resilience in face of struggles, competition, and need to perform? Those are precisely what sports offers us an opportunity to train and build up. And so investing in sports is not just about shiny stadiums, sport science degree programmes but also providing athletes with sport psychologists, equipping athletes with the science involved in training, practice, self-care and so on.

An excerpt from Roger Federer’s commencement speech for the graduating class of 2024 at Darthmouth this summer:

In tennis, perfection is impossible… In the 1,526 singles matches I played in my career, I won almost 80% of those matches… Now, I have a question for all of you… what percentage of the POINTS do you think I won in those matches?

Only 54%.

In other words, even top-ranked tennis players win barely more than half of the points they play.

When you lose every second point, on average, you learn not to dwell on every shot.

He could be considered perhaps the most long-running, persistently successful individual athlete of our times, and the lessons he can draw from his experience are timeless. If we could have more of such models and examples to train, motivate, and encourage our next generation of Singaporeans – for their lives not just in sports but other aspects, won’t it be great?

Judging yourself

For some reason, despite not being particularly sporty or athletic, I’ve had the benefit of knowing good athletes and learning a lot from them about psychology, personal development, and mindsets. While not being involved in the sporting scene, I’ve come to recognise the many ways our attitudes or behaviours during sports can mirror some other aspects of our lives.

One of them shared a really good practice introduced by her coach in Australia. After each training, he would get the athletes to go down the line to describe how they thought they performed for the training and why. And he’d listen to them, and then tell them whether they are judging themselves accurately regarding the performance and reasons provided. Often, people could judge their own performance correctly, but they come up with the wrong explanation, which means they are not going to correct it properly. And the coach would then offer his thoughts. Compared to Asian coaches who typically just drops his feedback directly, this Australian coach was challenging because he required his athletes to develop their judgment of themselves.

I thought this practice is great because over time, the athletes are building up a stronger ability to judge their own performance and pinpoint why. That creates a strong ability to coach oneself and also develop the right approach towards improvement. Many aspects of sports is about psychology and even getting oneself to put in the effort to practice can be something psychological. By coaching this way, athletes can come to see sports as more than just about performance but learning about oneself and one’s body even more intimately.

This is important. In Asian societies, especially with strong examination cultures, we never learn to judge or discern our own performance in things nor develop that independent sense about our abilities. This is a shame because once you’re at work, you will need to form judgment about the quality of your own work before you make submissions, you’ll have to determine if coworkers are doing what you need them to do, and of course, you’ll need to do so on many different dimensions including the social performance aspect of things. We strengthen our mental resilience and fortitude when we can judge ourselves more objectively.

Paying for outcomes

As a consultant, we sometimes encounter clients who only want to pay for the outcome but not the inputs or the efforts. It is probably true that a client takes on the cost of the work and all of the risks when they are just paying someone for the efforts, but they do also get most if not all of the upside pertaining from the subsequent business success. Of course, the consultants get a track record or credential but that’s probably a win-win situation, not something you’d expect the consultant to be paying the client for.

But paying for effort, monitoring it and managing the risk continuously can sometimes be the only way to achieve success, rather than striking an agreement with someone whom you would only pay for success. You see, outcomes are often not a function of incentives, they are a function of effort, timing, chance and many things outside the agent’s control. By paying for success, you might not even be optimising the effort for success.

And that brings me to the payouts for Olympic medalists. A gold medalist for Singapore gets a payout of a million SGD, whereas an Australian gets a payout of $20k AUD, which is about $17.5k SGD at current market exchange rates. The point isn’t about whether that is a lot or little; and in any case, the Singapore government might say there are so many Aussie gold medalists that it would not be worthwhile paying them too much. The point is that Australia probably already spend a lot more money upfront in terms of public infrastructure for sports, supporting local sport teams, supporting talented coaches, and promoting a culture of sportsmanship. The ‘outcome’ of Olympic success is already ‘bought’ when they make those investments.

On the contrary, Singapore still thinks that sporting excellence and investing in sports is out of a desire to win. I think that’s a shame, because there are so many other great outcomes that comes from a strong sports culture. And I think the many years of ‘investing’ into Olympics thus far had been out of that desire to ‘buy outcomes’, which is probably why we are offering such a big payouts to the Olympic medalists for Singapore. It allows us not to spend taxpayers money if we don’t get the medal – but at what costs to our sporting culture?

If we are prepared to secure a gold medal, why not take 90% of that million dollars and spend it on something like paying coaches better so they can focus on coaching a one or two teams rather than two handfuls? And why not alter the education system so that civic values are also taught through sporting interactions? There are so many possibilities only if we are willing to put our minds to it, and think about the effort we want to pay for, rather than trying to buy an outcome.

SAF and fuel mandates

I wrote about the trickiness of cutting subsidies which raises the cost to various groups in the society. This is effectively changing the underlying dynamics of wealth transfer in the society. Another thing that could alter the dynamics is putting some kind of regulation into the system. This tends to be less controversial when people are in agreement that the regulation is necessary. For example, getting companies to increase climate disclosure or just improve packaging labels etc would raise prices for customers as companies need to bear these costs in order to comply.

One could argue the consumers benefit from those regulations so it is fair for them to pay the price. What about when passing environmental regulations? Essentially when you first pass them, it creates benefits for parties going beyond the consumers themselves. Take the case of putting pollution control regulations on a manufacturing plant; eventually the consumers of the product of that plant is paying the cost but the ones who benefit from the regulation are the ones living near the manufacturing plant. That is when you evoke the ‘polluter pays’ principle because in this case, you are regulating away a ‘cost’ that existed in the system rather than creating a new benefit.

That brings us to the issue of climate change and greenhouse gas emissions. I work in the field of energy transition and this is intimate linked to those problems. For one, my day job is focused on solving these issues. What I’m wondering, as the CORSIA regulations kick in to push aviation industry to decarbonise, is whether national governments will choose to spend time going out to set up agreement to enable carbon credit trade which involves corresponding adjustments, or put in fuel blending mandates for Sustainable Aviation Fuel (SAF) which can play a role in airlines meeting CORSIA obligations.

Setting up fuel blending mandates will cost the airlines, who will then pass on the cost to the passengers. And perhaps that will reduce the tourism to the country, or perhaps it could increase the cost of doing business and hence make it less attractive for inbound investments. All of that factor causes it to be unclear who is paying the cost for the environmentalism and whether it ends up hurting the country more. Fuel blending mandate could nevertheless bring about new manufacturing jobs and opportunities that offset the job losses. And at the same time, you might attract relevant, future ready technologies to be based in your country.

Looking at the situation now, it is unlikely for SAF or other green fuels to get into the market through a supply push. The fact is that without a proper, transparent and accepted carbon price, there is no incentive to use a greener fuel that would cost more expensive. And this are green fuel that still ends up emitting carbon dioxide albeit in the short-cycle and hence considered to have zero greenhouse warming potential. Government should take the stance that they will have to mandate the blending and then manage the impact of the costs later. In this case, the ‘polluter pays’ principle could be evoked as a foundation but then various other instruments and tools can be used to cushion the impact for various groups to continue achieving economic objectives.

Cutting subsidies

So having ranted incorrectly about energy subsidies, I saw this article about Malaysia and was reminded of this set of principles I suggested to one of the officials at the Single Buyer of Peninsular Malaysia while working with them on a project. These are ideas on how to move towards a regime where subsidies are reduced and does not apply to everyone:

1. Make them transparent: Start by making clear where there is a subsidy; even when there is a blanket subsidy, make sure that the amount of subsidy is clearly shown to those receiving the subsidy, and that the burden of the subsidy is properly attributed, reported, even publicly. Where price controls are used, the implicit subsidy needs to be made explicit.

2. Share a cross-section of the beneficiaries: Often, fuel subsidies are meant to help manage the cost of living for the lower income. But when it is implemented through price controls or blanket subsidies, it disproportionately benefits the largest energy users. By publicising who are the beneficiaries of the subsidy and how much who gets, you can start considering how to reduce the subsidy for select groups of beneficiary that will be impacted the least.

3. Reduce subsidy for beneficiaries not aligned with policy intents: unless the state policy intention is to benefit the fossil fuel industry, there are always some groups benefiting from a blanket subsidy whose profile doesn’t align with the target group you are trying to help.

4. Keep the subsidy only for groups targeted: once the policy intents are clearer and there is social consensus of who the target groups should be, the subsidies can be pared back to be given only to those who need them. This means that subsidies need to shift from producer-side towards consumer-side. This should be aided by improvements in technology, government data-collection, and new channels for disbursing benefits.

The truth is that economics of renewables have improved and could match fossil energy in some cases. Cutting subsidies for fossil fuel will not just help reduce the reliance on them but free up more government resources to accelerate the transition. We should not allow subsidies to stand in the way of the transition.

What stays the same

Interesting how just when I was thinking about pivot points for change, I chanced upon this Farnam Street article on Bezos and Buffett’s thinking on the impacts of the new on the financial markets. The focus is not so much what will change but what stays the same.

Governments around the world would benefit from the same way of approaching problems – not so much by considering what will change but rather, what is going to stay the same. It is more important to consider what are the new elements that can build upon the existing than to go wild with considering what could throw things off the current course (why, everything and anything, of course!)

Exploring sustainability

I first learnt about Hannah Ritchie‘s book, Not the end of the world, from Bill Gates. Guardian recently published another review of it as the book had just come into the market.

As Bill Gates pointed out, the interesting perspective that Hannah brings is that humans have not quite achieved the notion of ‘sustainability before. The UN notion of sustainability is “meeting the needs of the present without compromising the ability of future generations to meet their own needs”. We were not ‘more sustainable’ in the past as living standards were not great and life was pretty savage; ie. the needs of ‘the present’ wasn’t achieved in the past.

In a sense, it was as though nature had been too harsh to us and we somehow tried to survive that – mostly by ‘conquering’ and ‘reclaiming’ nature. Of course, that somehow begins to push the frontier of the planetary boundaries, and we end up breaching some of them. So the result is that the future needs become somewhat compromised.

Another important aspect of Hannah’s contribution to the book is to encourage people to look into the science and the facts. There had been so much bad press about palm oil and a very sustained assault by Western media on the crop that the productivity of the crop was overlooked. Turning to oilseed alternatives could result in more, rather than less deforestation and hence environmental destruction. Agriculture in the modern times for most part is more about taste and preferences as well as the sway that narratives have – as opposed to optimising agriculture for environment and the world.

Ultimately, we realise from Hannah’s fact-based approach that a lot of the challenges and problems do already have some kind of solution. It is all about adoption, and integrating new narratives in the way we live, and consider what is success for ourselves. Dietary choices are largely a matter of culture and what diet people aspire towards. People’s preferences can be shaped (and hence economics’ attempt at distinguishing exogenous variables from endogenous ones are somewhat moot).

For people to be more aware of the costs, and the challenges of the coordination problem, they must begin from this very fact-based approach that Hannah is leveraging in her optimistic storytelling about the history of human development. We may be struggling towards the solutions that we know (eg. putting a price on carbon and making people pay for it), but at the very least we can agree that this is how we need to move forward with and be aware of the costs and consequences. We need to get people to the bargaining table and work out who has how much to gain or lose. Without creating the transparency and acknowledging the financial, political costs, we end up being caught up in false arguments about technical solutions.

Abating the easy stuff

Electrification is often easy in many cases. It is just about changing appliances. Of course, it is also about lifestyle and way of life. I personally still prefer to cook over a gas stove. But I won’t stop cooking without one; I’ve used various electric stoves before as well and didn’t face any major issues.

I’ve lived in house that had gas heating and also one with electrical heating. Regardless, the level of thermal comfort tends to be a trade-off between use of energy and insulation rather than necessarily the equipment for heating though the efficiency of the appliances would play a part. Going on to bigger things, there’s the electrification of transport. For most part, this can be based off just taking public trains or trams instead of driving. It can also involve using electric bikes. Of course finally, there’s the transition to electric cars.

None of these really do reduce emissions in and of themselves assuming no particular changes in energy efficiency of the basic fuel used. It is the energy source that matters. Electrification must be paired with switching power generation to renewable sources such as wind, solar, hydropower and so on. It is meaningless to have electric vehicles on the road and heating of homes with heat pumps when you are generating the power. The challenge of the energy transition is that many things are taking place together and people are not able to really keep track of how much emissions are going to be or might be. Therefore, the direction and rate of change is perhaps more significant to give a sense of how much change can or will happen.

Abatement of emissions through increasing power generation through renewable energy combined with electrification remains the simplest and most effective way to decarbonise our economies. However, the complexity lies in the fact that power prices affects the economy broadly and in many countries, they are subsidised at least for some sectors of the economy. By increasing the demand for power through electrification, the plans for subsidies for certain sectors might be affected. If supply is not increasing fast enough, power prices may increase in a way that reduces the competitiveness of other sectors and the economy as a whole. At the same time, there is also a risk that renewable power supply that is coming online is much more expensive, leading the overall electricity prices to increase anyways even if the supply is keeping up with demand.

Governments are afraid of adversely affecting the power prices as it has very broad sweeping economic consequences. Additionally, power transmission and distribution investments will also have to accelerate to cope with the increased demand and supply for power. Unlike the older set of infrastructure invested over time and much longer ago, we are looking at a huge ramp-up during a short period which means the infrastructure cost will have to be passed on to customers during an intense period of change. So while electrification combined with renewable power generation is the easiest pathway to decarbonise, there are systematic and political challenges around the distribution of the cost of energy transition to consider. Overall, the players who are electrifying some of the previous energy uses actually pass on parts of their cost of transition to the overall system as their participation in the market raises the cost of power for everyone.

For the typical electricity consumer, they would expect their share of the energy transition cost to be converting their load to be drawn from renewable energy sources. However, they now have to pay a share of the heightened infrastructure cost from the increased load, as well as the increased energy cost due to competition for renewable electricity. These complexities are slowing down a process that needs to happen much more quickly.

EV charging incentives

For a long time, EV charging infrastructure has been seen as something in the domain of public goods and should be driven by the government. The challenge on the government side is the question of whether it makes sense for them to invest ahead of EV adoption. Investors are nervous about it because EV chargers seem to them like something, which can pop up pretty much anywhere, and there’s no ‘moat’ to support stable revenues even if they serve as an infrastructure practically. Without proper government-regulated structure, it is difficult for investors to put capital into infrastructure in a place where there’s going to be limited utilisation.

Contrast this with petrol kiosk franchises – they are well-established and have demonstrable cash flow, with strong support from the oil & gas companies backing them. Electricity companies are sometimes backing EV charging point networks in order to increase electricity retail but the truth is that electricity distribution works on an entirely different business model from fuel distribution. A lot of investors believe that the petrol kiosks will themselves be the best location for very fast or ultra-fast chargers (usually 10-20 minutes for a full charge). The other fast chargers (1.5-4 hours for a full charge) will likely be in destinations like shopping malls or other commercial buildings.

Yet EV charging infrastructure is so important as a basis to increase EV uptake which the energy transition desperately needs. Electrification of energy needs from transport enables an easier decarbonisation as we can focus on renewable energy in the power sector while transport and other sectors just have to focus on electrification (which of course, can be quite a pain for some sectors – that’s for another day). So how do we increase and improve EV charging infrastructure? Where can we align the incentives? What role should the government play, if at all? And what if it becomes an extremely profitable business down the line?