Category Archives: Life

The Economist recently ran an article on HDB and the public housing in Singapore. They are generally critical of government controls and the lack of liberty though they clearly admire the Singapore system. The one interesting criticism that I picked up however, seem to be quite an important perspective on the socio-political landscape in Singapore.

[E]xtremely high rates of home-ownership have helped make Singapore’s electorate unusually risk-averse.

While the example has to do with threats of upgrading projects being delayed or reordered – which I personally don’t think features that strongly in reality – I am reminded that reducing risky behaviours (which can ultimately manifest in the form of social unrest) was one of the reasons to push for home ownership. That one owns an asset gives one a stake is true. Of course, in the case of HDB, it is not the truest form of ownership but it got close enough and the ease of achieving ‘ownership’ compensates for all the strict controls in place.

As a matter of fact however, the housing policy and drive towards home-ownership does indeed having behavioural-modifying characteristics that transcends the socio-political landscape. It has affected the economy in that entrepreneurship by the lower strata of the society is curbed. Where regulations are strict and means of livelihoods needs to be officiated (eg. registering for a license, obtaining relevant approvals, renting a stall formally, etc.), the poor becomes ‘priced-out’, or ‘hassled-out’. Then comes the orthodoxy that getting ownership of a home is good combined with a rental market that is made hot by external capital, whatever capital one has left is ploughed into housing. The social leveller of entrepreneurship is hence restrained.

Education, which once was a bit more of a leveller, is close to losing its role. Once there were scholarship programmes to improve social mobility and give most students access to equal opportunities. But as learning becomes more vibrant with project work, the need to tap on resources and networks beyond the school, being from privileged backgrounds allows one to shine disproportionately. The growth of the tuition and supplementary education industry is a testament to the way financial muscle has made its way into disrupting education as a equaliser.

Risk-taking is important in the economy (not just for the lower strata but upper echelon as well) and even conservatism can be rightly channeled towards certain areas. This is where a new model of thinking about economics needs to find its champion in a city like Singapore where we’ve done well in being different in the globalised market economy.

Just musing.

Neil Irwin recently penned an article in New York Times’ Upshot blog which really made me think about the whole discipline and profession of economics though I must say that the article is as much about policymaking. Taking the perspective of policymakers then, is about what are the ‘evidence’ or research you can point to in order to justify your policy. The bulk of economic research especially in small-scale empirical-based policy evaluations actually works out the marginal effects of policy interventions and this gives policymakers the language and the tools to push through the interventions they hope to.

I have myself seen way too much policymaking at work and the influence of evidence goes as far as to justify rather than motivate a policy. Therefore, the role of disciplines like sociology or economics can only influence policymaking at any point of time through the ease by which these disciplines’ findings can help push through policy recommendations. Neil is right to say that:

If the White House Council of Social Advisers did exist, one of its great challenges would be to convert some of these findings into actual policy proposals that might help. Part of the ascendance of economics in the policy-making sphere comes from the fact that economists tend to spend more time looking at specific legislative or regulatory steps that could try to improve conditions.

And trying to solve social problems is a more complex undertaking than working to improve economic outcomes. It’s relatively clear how a change in tax policy or an adjustment to interest rates can make the economy grow faster or slower. It’s less obvious what, if anything, government can do to change forces that are driven by the human psyche.

But he concludes rather disappointingly by suggesting some vicious cycle at work and the onus is on government to ask for advice from the sociologist. I am from LSE, where there is a relatively strong culture of social activism in place with the school being founded on Fabian roots highlighting social justice. My training in economics at LSE grounds the systematic study of economics upon moving towards social justice rather than ‘mere’ prosperity. Overall, I think the UK does a whole lot better in incorporating a diversity of views in their policymaking – including a strong element of sociology. No one says it’s easy, but progress have been so starkly lacking in this area in America.

Singapore too, is at the cusp of change when it comes to thinking about policy. Budget 2017 came practically without any big surprise and isn’t anything more than honing our government’s belief in incrementalism. The expectations for more has created demand for greater social activism. The recent passion-filled speech in parliament by Nominated Member of Parliament (NMP) Kuik Shiao-Yin was both refreshing and courageous for its use of non-traditional indicators to justify policy actions and directions.

[youtube https://www.youtube.com/watch?v=eMDekDJOZLU&w=560&h=315]

The disappointing conservatism that suppresses great ideas and creates ‘missed opportunities’ will only serve to generate frustration in policymaking (even within the civil service) that seeks new means of justifying what we already know we must do. Not only that, peering into sociology and other disciplines (alongside its other indicators) will allow us to refine, enrich and better tune our initiatives to serve the target rather than someone else’s political or economic agenda.

Precisely because Finance Minister Heng Swee Keat isn’t known for being radical, we now know we need more Kuik Shiao-Yin in Parliament. At the working level, many more civil servants will need a courage greater than hers to stand up to political office holders and say ‘social trust’ is more important than ‘value-add’ and the sense of being supported by a society and community that cares is more than ‘jobs added or transformed’. Having experienced decades of ‘mere prosperity’, it would be silly to continue striving for it mindlessly. From here, let’s start thinking about the harder problems of a prosperous Singapore that strives for greater social justice.

*Note that all opinions in this article is personal and do not reflect the views of any organisations I serve in.

 

We are certainly less optimistic about the future nowadays than our parents’ generation. I was somewhat taken aback by our own Economic Development Board’s prevailing marketing about ‘future-proofing’ business, industry or even the economy. Of course, to ‘future-proof’ is to prevent obsolescence and typically used in the context of business. But in today’s climate, it is almost implying that the future can only turn more gloomy. In any case, obsolescence-prevention often isn’t about just doing one thing, or taking on a single strategy and being permanently on an execution phase of it. It requires an overhaul of our impression of the word ‘future-proof’ – in other words, it needs to embrace the future itself!

In Singapore, I sometimes wonder if it is the government that needs to future-proof and do so by embracing change, appreciating radical ideas, abandoning incrementalism, in times like that. And I think the marketplace of ideas is what helps future-proof our ecosystem. Letting the wrong kinds of businesses die and improving the quality of manpower and talents through refocusing the education system on mastery rather than grades – these are things that will future-proof ourselves. Hanging on to old systems, and old ideas, rehashing the same old paradigm even under new guise, does little to help one remain relevant. Someone had commented that the government is more strategic than tactical and as a matter of fact, it puts our leaders slightly out of touch with the geopolitical realities of today. Being open means we continue to be easily affected by the headwinds around us but if we don’t have a bag full of tactics to stay on the course of our strategy, how are we going to remain relevant?

The next bout of growth is going to come from a new source of value creation, it will take more than just extracting from our thin labour, capital and land factors. Land has been stretch so thin the market gravitated towards speculation at some point (notably involving foreign investors). Capital domestically seem to be composed more of short-term, foot-loose sort that is conservative and not capable of being channeled to where it might be needed. Labour is in a bad shape structurally and will take a lot of time become more robust, having built our former base from striving for optimality in sync with industry rather than being built for robustness. The sort of agencies that continue to try and ply these traditional inputs and stuck on old metrics, fostering variations of the old kinds of ‘investment’ is not going to ‘future-proof’ our nation.

Embracing the future takes an enlightened view of considering the power of international markets and their ability to be transformed through knowledge and innovation, adding on to the inputs which they already have in the markets. It involves being selective about where we want to place accumulated capital to soak up the labour and land resources to generate and pull back value into the economy. It takes a transformed view of thinking about what domestic labour really mean and how they serve as units to generate and capture value in the international markets. We need to go beyond thinking about creating good jobs – but to consider, how our people should have access to boardrooms as capital owners, how people can contribute their slice of connections, know-who, relationships and networks to further our ability to generate and capture value from the international markets. Traditional notions of employment and units of individual businesses needs to be discarded if possible. Our leaders are hopefully enlightened enough to see how to drive this forward using new vehicles and new tools, discarding old vehicles and irrelevant tricks in the process.

The whole notion of developing growth mindsets appears to be somewhat in vogue with Microsoft focusing on developing it in employees; and Harvard Business Review picking it up following on from something they have written about quite a bit recently, and in the past. This is something important for the Singapore’s education system to grapple with. We have had one or two generation of ‘productive’ workers who helped to bring the country from third world to first but unfortunately perhaps as a consequent of bad parenting, brought about new generations with extremely fixed mindset.

And this is why corporates are now taking over the responsibility of developing grit in their employees instead of this being a virtue that used to be developed through parenting and schools. In a recent article on Straits Times featuring an interview with our Minister for Education; he actually said:

Parents may have the best intentions, but imagine if this is aggregated over 10 years, until the child is 16 or 18. The child may not have had the necessary experiences to know how to bounce back from failure, a tenacious attitude to overcome obstacles and succeed in life. (Minister Ng Chee Meng, ST)

And this comes at a point where the country is facing some of the most difficult structural issues with our labour composition and manpower capabilities. We have come up with some pretty interesting measures, taking the form of Skillsfuture, which was praised by The Economist over a few articles captured in the recent Special Report on Lifelong Learning. But more effort will have to be made at the beginning of school and also as a culture of education to help students develop growth mindsets which will allow them to be more malleable in terms of their subsequent lifelong learning, and also better employees for any industry that we are going to develop in Singapore.

The question is how? We could learn something from the research by Carol Dweck which she shares over a talk on TED:

Rewarding processes, endurance, encouraging grit, creating persistence will help students develop a growth mindset and this isn’t just about getting good grades. It clearly is about changing of attitudes and perspective towards the system, in fact any system. Singapore has become so established and settled in upon our structure that we have started taking a rather negative view of it – the rigidity, the bureaucracy and ‘that’s the way it is’ attitude. These all points to a fixed mindset populace. Education is our chance at changing the course of our country’s future, more so than merely instituting a lifelong learning system. Sal Khan has another great talk that is about operationalising education to develop growth mindsets as well (though he doesn’t put it that way).

In a time when the public service has to be rejuvenated with what is considered ‘maverick’ ideas, I personally think that investing in an overhaul of the education that develops growth mindsets would radically alter the course of our descent into mediocrity. If even entrepreneurs-to-be are asking the government to try and cushion them from risks and asking for protection from failure, then it is no longer a matter of economic policy. I’d vouch for our government’s commitment to doing more for the economy directly. Yet for the long term good of our economy and society, let us launch radically, practising more of a maverick approach towards our education system first before we ask these of the entire public service.

Chanced upon Simon Sinek’s episode on Tom Bilyeu’s Inside Quest – the Millennial Question segment and I decided to watch the full episode. Learnt loads and also went through both of Simon Sinek’s TED talk. I think when it comes to some of the themes related to leadership especially how emotional intelligence, just plain being human, Simon is really spot-on what people are looking out for and how they respond to genuine leadership.

[youtube https://www.youtube.com/watch?v=ldh8E6LCLhM]

I have been blessed by great teachers and parents who have helped to inculcate a growth mindset. One that I didn’t know I have until I started meeting people and getting to know several friends deeply. And more drastically, I realised that some of my cousins or even sibling do not always share that same sort of mindset. That this can be so radically different, I didn’t think much of until I chanced upon Bill’s article on Inc.

It is scary when I realise how those with fix mindset think of effort as a bad thing! Though I can appreciate or empathise with those who might think of failure as bad. Somehow, I appreciate the importance of viewing challenges as problems and I always thought these things came by chance! Nevertheless, there are still problem-solving types who flinch at the prospect of failure. These things build on each other; one who believes in nature more than nurture is forced to think that when they are bad at something they will not be able to change that. They would also thing that the need for more effort or tediousness of things is a signal to give up rather than try harder. This is a logical implication of believing that abilities and ‘talents’ are innate and not developed.

Through the article, I was reminded by how my Dad often exclaimed that I was good at such and such because I worked hard whilst he praised my sister saying that she is actually really much smarter than me. This actually got into me as a key belief. I noted that while I may never be able to be ‘genuinely smarter’ than my sister, I could still achieve more and do more. At the end of the day, the label for our identity falls away and the focus of our lives should be on what we actually do – not even what we achieve but simply, what we do.

In Chapter 16 of Rolf Dobelli’s ‘The Art of Thinking Clearly’, he talks about the emergence of ‘Chauffeur Knowledge’ – a term Charlie Munger used to differentiate it from ‘Real Knowledge’. Chauffeur knowledge is the sort of knowledge you need to put up a show: it may be to feign expertise, to engage in a conversation meant to impress or merely to deliver information to targeted audience. For example, the news anchor who goes on TV to deliver the news may not exactly know fully what he or she is saying in terms of the full implications of the news nor the exact circumstances leading up to the news. Or the taxi-driver who gives his assessment of the global economic situation based on anecdotal evidence from his experiences driving around New York.

Yet there is increasingly more insidious types whose chauffeur knowledge is difficult to tell apart from real knowledge. We want people with real knowledge about the economy, about policy implications, with a real sense of the politics out there to lead the country – not someone who pieces together random pieces of information out there on Fox News or CNN to formulate views on politics or economy. We need people with business acumen for a large organisation to be the CEO – not merely someone who can show and tell well in front of shareholders. The show and tell skills are useful but only to a certain extent; this phenomena of the rise of a chauffeur knowledge economy is a result of incentive super-response tendency (Chapter 18 of Dobelli’s book) and also Outcome Bias (Chapter 20, ibid).

Incentive super-response tendency relates to people behaving hyper-rationally to incentives such that the behaviours are no longer in line with the original intent of the incentives. Managing such consequences is harder than it seems and it can generate a lot of unintended consequences. For example, the original intention of rewarding comrades bringing in dead rats in China during the times of rat infestation was distorted when people started breeding rats to kill in order to earn the reward. Likewise when CEOs are rewarded based on quarterly earnings results, they start being short-term and divest of strategic assets which may be making short-term losses. Worst still, such salaryman CEOs may even relinquish core capabilities that helps enhance returns on asset in favour of building up a larger base of income-generating asset base, without realising that those core capabilities are necessary to maintain and ensure returns on the asset.

It is not always malicious so to speak; and honestly, employees do not have perfect foresight on how their action impact on the organisation in long run. They could be counting on securing the short term benefits for the organisation since the longer term ‘strategic benefits’ may be uncertain. Or more significantly, they would not materialise as quickly nor in time for them to reap the benefits.

The combination of this two ills plaguing the modern world are making our corporate world, public service, non-profit and all kinds of organisations ripe for disruption. What new management innovations would rise up to challenge this state of affairs? Something to ponder over.

Solar Power have come a long way. Now that solar power tariffs have been bidded so low they are matching the cost of a natural gas plant, it is believed they are finally delivering real value. With feed-in tariffs that are above US$0.05/kWh, governments are losing money for every kWh of power generated by solar – or put it another way around, taxpayers or consumers are paying extra for electron movements that are no different from that generate via other means. Assuming that carbon trading and carbon taxes have been applied, solar power was, until recently, destroying value.

Yet solar panels have finally reached such a cost that electricity tariffs from solar power could match that of more conventional thermal power plants; so despite the ‘losses’ from the past, solar PV technology has finally reached the goalpost we had all intended for. Solar power however, provides a huge challenge for financing as its cashflows presents an interesting profile with negligible operational costs implying that the bulk of the costs in the lifecycle of the plant is upfront. This makes it extremely sensitive to estimated performance through its lifecycle, the lifespan of the panels as well as the cost of capital. I was surprised however, that this single kind of infrastructure project attracted so much private capital as highlighted by the McKinsey article.

The high feed-in tariffs and good returns must have played a part but investors ought to realise that the sustainability of high tariffs needs to be considered. With high tariffs being committed for technologies not proven and improving radically, there’s a real danger of governments failing to honour their tariff promises, thus compromising the returns expected of the older projects. Therefore, high returns ought to be viewed with some measure of skepticism in terms of the expected ‘actual returns’. With much lower solar panel costs and such competitive tariff bids coming up especially in the Middle East (partly due to good solar irradiance which means any solar panels deployed there are used more intensively), governments are tempted to simply renegotiate contracts – or just ignore them eventually.

So the fact that we’ve hit US$0.03/kWh for solar is great news – and the true value is finally beginning to be accrued by those who have fought long and hard to get solar panels up and doing good for the world and for man.

Lunchtime.

My boss got slightly philosophical for a bit and lamented that infrastructure developments follow not the pace of the fundamental demand for infrastructure but simply the fiscal plans of government. Traditionally, infrastructure belongs solely to the domain of the government. The vast amount of capital needed was typically only mobilised by governments in the days when economies were much more domestic and cross-border capital and investments were heavily channeled towards industrial output and real estate assets rather than infrastructure.

In fact, through the recent downturns, all the talks about infrastructure seem not to stem from the need for infrastructure to catch up with growth and development but for fiscal investments into infrastructure as a means of generating growth. Even Knowledge@Wharton wrote any article co-opting this viewpoint. Yet for most part, this is largely a kind of illusionary financial play – actual growth can only really be generated out of making fundamental, strategic investments that will support the growth of those areas that will boom when the demand uptick arrives.

Assuming this, is a downturn still a good timing for governments to do infrastructure or to invest in infrastructure? It critically depends on financing costs; and in a climate where governments have flushed the entire world with liquidity and max-ed out their monetary policies, financing costs have been artificially reduced for a while. Nevertheless, the fundamentals will still have to be matched: infrastructure projects that taps on cheap financing will ultimately need to have the proper guarantees and safeguards to the lenders in order to match the kind of returns profile of the appropriate lenders/investors.