Most of modernity is built upon solving coordination problems. As we coordinate on more things, we discover yet more things that requires coordination to work and as we work on them, we progress. This is a story of Singapore, its progress from Third World to First. It is not about having brilliant engineers or Nobel laureates though they can certainly contribute something to this issue.
In case you haven’t realise, there’s a lot of resources about how Singapore came to be the way it is, at least in terms of physical forms and our urban system. The Centre for Liveable Cities publishes their research, rich with anecdotes and experience from our early nation-builders. In there, you’d realise most of the work in terms of raising living standards, solving issues of water, sanitation, energy, housing, are not rocket science but making bold trade-offs.
Charlie Munger had gone to the extent of saying that China’s transition into the economy today is possible due to its ability to model and take from the learnings of Singapore’s nation-building. Of course he goes on to attribute it to Lee Kuan Yew. The real world is much more nuanced and it’d be important to study the historical context, the team surrounding our nation’s first Prime Minister and so on.
But suffice to say, coordination problems are intractable; and in our society today, we continue to struggle with them even as we already had great success dealing with much of them. As we progress, these coordination problems naturally becomes more tricky and the roadmap we used to have disappears because we’re now at the frontier of development with no one else’s experience to learn from.
The climate challenge of today is exactly a coordination challenge that the world face today. And unfortunately, the experiences we had as a small island nation offers very little ideas to the world about how to navigate the climate change issues. Not to mention the fact that Singapore itself is often under flak for having high per-capita carbon emissions – which is nothing but a feature of a statistical quirk of being a highly industrialised, small island economy.
When a country industrialises, it pulls workers from the farms and agricultural sector to a city or industrial core and draws upon some of the various economies to eventually drive some degree of prosperity. Such as the economies of scale, economies of agglomeration, and efficiencies coming from technical advancements whose costs are maintained by concentrating a lot of labour in a small space – a factory with a single line shaft for example.
The benefits of industrialisation and the surpluses of products do not naturally go towards the workers. As long as there’s influx of workers from the rural areas, wages are held down. And living conditions in cities were really bad. The means by which the masses gained affluence was usually not by the benevolence of the capitalist but the fact that government, industry associations and other influences pushed up labour standards and the bargaining power of labour. Public investments in infrastructure, education, healthcare helped to improve quality and sustainability of labour.
Jobs are ways to increase production; but they are also a means of distribution in the economy. Unfortunately, they are not always distributing the spoils of the economy in a sustainable way that helps us thrive. Because there will be a time when industrialisation and economies drive out labour in favour of capital. Imagine when goods can be produced purely by capital. Then employment no longer is a relevant metric; rather, ownership of capital determines ability to consume. Labour cease being a valuable factor of production.
More significantly, market economics tend not to provide a good way to distribute income (and by extension, wealth), even if it allocates limited or scarce resources well given most (but not all) context. Public economics helps to plug the gap; but we need more and better brains there to work out all the learnings we need outside a market-based dogma built over the decades of market triumphalism. The point of industrialisation we are at calls for a different paradigm towards jobs, production, consumption and distribution.
It is significant that Singapore has pushed through some of the more targeted policies to help with low wage labour and effectively try to set floors on wages for labour. The tricky thing about productivity is that it has always been computed as a residue and tend to ignore the relative bargaining power differences between wage and labour.
Research by Thomas Piketty has long shown that return on capital can be persistently greater than economic growth which is to say that what manifests itself as poor labour productivity can just be an overall phenomena of capital gaining upper hand in bargaining power in the market economy. History have shown that the best ways to deal with the resulting inequality is greater public investments, especially in the area of public infrastructure and education.
The state will be an important player in this and the overall systems of redistribution can take place at different levels in many different ways. But ultimately, these policies will have to be anchored on the question of what we are growing for, and whom we want our growth to serve. I think Singapore continues to be open as a city state to draw the right kind of capital and labour but we are now fine-tuning the balance across the relative bargaining power of capital and labour a bit more. Especially the domestic labour force.
On one hand the government should not really bother about what makes money because that is how innovation happens and introducing constraints on the way people can make money is stifling innovation. But on the other hand we already have tonnes of laws limiting ways people make money. For example through fraud, counterfeiting, extortion, etc.
Now the question is whether clickbaits that generate advertising revenue is fraud. Or bot accounts providing services to increase follower counts. Are they not fraud? Don’t they “counterfeit” the real followers? Can plant based proteins be sold as meats?
How about when you pay for a subcription but you didn’t use the service – can the payment demanded and collected be considered an extortion? After all, that sounds like the scammers along the streets of London handing out flowers and then harrassing you for a “donation” sure seem like extortion to us.
I think we should care about what makes money as a whole society and we should learn to scrutinise them. Because what makes money will happen and will become gradually industrialised if it can be. And it will concentrate wealth and resources in those who are doing it.
Today marks the 11th anniversary of the death of Dr Goh Keng Swee. People closer to me would be aware that he was a major influence to my choice of studying Economics, and particularly in the London School of Economics & Political Science. And he passed away about 4.5 months before I’d commence my BSc Economics at the LSE.
Ironically, I had in my youth, developed that aspiration to share the same spaces, breathe the foreign air and perhaps share in the magic of London city that Dr Goh had experienced so many years ago. It was a hope that I may come to share in a small slice of common academic pedigree and taste a bit of what went into his observations and thoughts in the days of nation-building in Singapore.
And I worked hard in my youth towards this aspiration. Eventually, I earned a scholarship from International Enterprise Singapore just a couple months shy of my matriculation. A year prior I had already secured my place in the LSE to be on exactly the programme Dr Goh did as part of his undergraduate days.
Even today, I continue to marvel at the mind that came up with Jurong Bird Park, GIC, CPF, EDB, National Service, Sentosa, Jurong Industrial Estate, the decision to continue the currency board system MAS manages, our export-oriented strategy. Lest I ascribe too much credit to him for the fruits of these ideas, I think it was also the time he lived in, the allies he had which helped to push through all of these and made the modern Singapore a reality.
But all those were early days of nation-hood; that nostalgia should only serve to motivate us to move forward. The context of our country both internally and externally have become much more complex – and we need to find a reason to progress that fits our current context and stage of development. A new narrative for the new generation is needed.
The ecosystem is a brilliant analogy for an industry. And that is where we need to recognise that everyone within the market are basically winners – not all of them win the same way just as not every specie or creature survive the same way in the economy.
You need small businesses and large ones; at any one time there will be some facing lots of survival pressures and others enjoying their spoils. There is nothing wrong with either and one cannot conclude much from a single snapshot. At the same time, it is really hard to tell what can be a winning strategy because success, like failure, is often temporary as long as it is not terminal.
Well people tend to think failure is the one that can be terminal but one needs then to develop good strategies for failing so they are not terminal but almost instructive. And as with natural ecosystems, a healthy industry has its births and deaths. Capital and talent needs to be churned around and get to experience different things in order for the overall industry to grow stronger.
We need to appreciate this different story about market capitalism that is less vicious, less about active competition, more about coping with environments and contexts. Less about winning individual battles but more about staying in the game to continue participating. That itself, is a win.
The world have been in chaos for a couple of decades now. It started barely 20 years after the end of World War I. It wasn’t just physical war but there was the Great Depression before that, the runaway inflation in some parts of the world, and the seeds of communism growing. And then even when WWII ended, we had a series of proxy wars during the Cold War period.
But nevertheless, problems starting being solved, people who were fatigued from the world wars, the tragic deaths realised it was important to unite in the right ways. The blueprint for a new world order became laid down in the centers of gravity of the world.
It was hard work but nevertheless, it was about getting on the right trajectory, the right bandwagon, and we’ll see double digits growth in things. Maintaining peace and stability gives rise to natural growth as investment in the longer term rose. Interest rates started falling without as much consequence on inflation, private investment into longer term assets soared, helped by the socialisation of longer term government borrowings, helped by imaginary sense of control investors have through the establishment of sovereign risk rating systems.
Incentives everywhere were getting more aligned towards pumping up GDP numbers, increasing political rhetoric about competition, and investing into the right places. The military-industrial complex took hold because it made sense to industrialise everything and create more wealth; though they were mostly distributed to the industrialists.
These are the conditions of the world that gave the world the Great Moderation, unprecedented growth and lifting of people our of poverty. It has also given us a growing climate change problem, a global economy that was resilient in some ways but more fragile in others.
We all have a choice whether to perpetuate these. Whether to make history, your story.
I’m writing this purely from a theoretical viewpoint, and perhaps it can feed into practice and application but I’ve no intention to address that in this post. From a supply-side perspective, there’s no single optimal point of production combinations. The production possibility frontier involves a continuous combination of possibilities that would be “optimal” from a technical efficiency and resource availability perspective.
In Economics, the optimal point of production is obtained by specifying some sort of aggregated utility function – in other words, asking the demand-side of the picture. Figuring out the demand and specifying it is just as important as thinking about how to produce because it helps determine what is to be produced.
Yet day in and out we seem to act as though the market is always calling the shots, pinning down our behaviours. A society that is caught up with trying to produce more and more, and scaling up without understanding the demand-side of the equation will only find itself in misery. We cannot always assume our demand function or aggregated utility to behave in the same way, to comply with the kind of assumptions made in the Economics discipline.
Singapore is a small island state. We have no natural resources besides our strategic geographical location, as well as our manpower. And therefore, most of the value that we can try to create comes from being able to drive productivity growth from our manpower. And productivity growth cannot be seen as isolated within industries or sectors, but rather, integrated as a cluster of activities.
The mistake of looking at construction sector, or cleaning sector and say that productivity growth is lagging behind that of financial sector is the fact that investment trends in these sectors are different and quality of labour may not be evenly distributed. More significantly, as a result of those conditions, the bargaining power of labour vis-a-vis capital is also much more imbalanced. This sort of productivity slowdown cannot be easily dealt with through skills training.
Think about the incentives from the capital-side of the equation. With little competition from international capital to compete in the domestic sector (due perhaps to limited size and scale of the market), the businesses will tend to use labour as a means to put off capital investment as that helps improve returns on existing capital stock at the expense of labour productivity. Once you factor the uncertainties around return on capital, that will start to appear as a sensible move.
If this is the case of underinvestment in capital, then how would skills training improve the situation? What is being encountered is a labour force that might be worn out from poor quality capital being deployed (poorly maintained machinery, version 1.0 of an equipment for which version 10 is already available, etc).
Then moving on to my point about productivity cluster. Should the cleaners of a bank earn more than the cleaners at the construction site? With outsourcing, competition being encouraged at every segment of the value chain, this probably would not happen anymore. But is this really a good outcome? Because there will always be industries that are growing faster and extracting more profits from their activities, the supporting activities should also be entitled to a share of that windfall. This helps to speed up the expansion of growing sectors in an economy. This sort of cluster helps facilitate more real trickle-down effects.
CNA had a great commentary piece about the tension between plastic use and modern life in Singapore. And yes, I agree with the conclusion that getting plastics out of most of our daily life is going to be pretty transformative. But honestly, we’ve done that before.
The reasons why older HDB flats have chutes in the individual flats is because in the kampong (ie. village) days, people used to just toss their waste out of their windows on to the streets or outside their houses. And if they had done that in high-rise public housing, that would have been unthinkable. So our flats built even as recent as 30 years ago still have chutes right beside the kitchen window for convenient waste disposal.
Then, when people expressed hygiene concerns about having a chute within the house, it made sense to have just one on each level for all the apartments to dispose their waste. All of these are issues of availability, not price signals. Someone somehow, using appropriate design-thinking measures, made the change and people have to adapt. This is what regulation is really about – they are issues of design rather than economics; because incentives are there to create outcomes we want and hope for. Yes, I’m trained as an economist, but no, discovering the marginal cost equal marginal benefit point is not really the goal of a society in long run.
And that’s why I advocate just dealing with the issue of availability of plastic bags – ban them progressively for different purposes, starting with some of the easier places like fashion shops (most of whom already use paper bags), then gadget shops, IT stores, followed by provision shops, convenience stores, then supermarket checkouts (not in terms of food packaging) and so on. Allow food to continue to be served in plastic bags for hygiene purposes but encourage bio-degradable substitutes. We can do this over a period of time – say, 1 year. And that’s good enough; prolonging it just makes it harder, and more painful. People are smart enough to find substitutes, and figure out other solutions. It’s not like they are not available – they just need some shoving to be adopted.