Tag Archives: economy

Age of mediocrity

Each leap forward by technology is accompanied by fears around humans becoming or being mediocre. And most fears are basically exaggerated versions of reality as it turns out. So indeed, mechanisation has reduced the need for physical human labour and it has made majority of mankind physically less able than our forefathers but we’ve also been healthier and lived longer lives.

With the rise of AI, there’s fear of depending on it and concerns in schools about teachers losing their jobs or students outsourcing their work to ChatGPT. Lousy journalists who had been churning out mediocre pieces of work can be now replaced by AI, customer service representatives that don’t know their stuff can be replaced by chatbots and so on. The problem isn’t really about chatbots or AIs, or quality of humans. It is the issue around industrialization specifying standards, creating processes and expecting humans to fit into that.

We should begin to see all of the roles we humans can take as something relatively temporarily. That does not mean we shouldn’t invest in our craft and up our skills but that does put into question where is the boundary between human and machine in the work that we do. Measured in a single dimension, machines and technology can always be optimised to eventually deliver better performance than humans. The issue isn’t human’s mediocrity because there are mediocre workers and they’ve long been easily replaceable. Seth Godin recently talked about the matter on his podcast through two episodes (here and here).

The fact that AI frees us up from having to do the basic, minimum kind of work should present an opportunity for all of us. It might threaten some of us, but only if we allow it to.

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.

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.

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.

Transition as an opportunity

I work with businesses daily and when we speak of transiting to the low-carbon economy, moving away from Oil & Gas assets, to new businesses that would accelerate the transition, the conversation could go both ways: (1) Show me the money; (2) There is no other way.

The motivation for green is hard to be sustained by pure profit motive because that tends to be more short term whereas longer term motivation is driven more by fundamentals.

If there isn’t money right now or that money doesn’t come, then those who claim that they are in green for the money won’t be able to stay on. Even if you have conviction that the money would come, it is almost certainly driven by a longer term, fundamental thesis. And this fundamental thesis, tends towards the “there is no other way”.

A balanced, and pragmatic view of this landscape requires us to recognise that the old incentives and structures need to be dismantled to push for the new but at the same time, we need to keep proving that the new works. After all, the oil & gas industry and technology had decades to build up to the scale they have today.

Small market

Singapore is a small market, everyone would say. Yet it imports and exports so much goods and services it would be considered an important market for different businesses. Take bunkering for example; it is the largest single point of sales for the refueling of vessels in the world.

So how do markets grow? What drives them? It depends on who are the customers, and what grows their numbers or their demand in the goods and services of the market. How do supply help to drive demand? Be it through advertising, increasing distribution and availability, etc.

On the other hand, we got to think about how markets shrink as well. How did the market for video or movie rental shrink in face of the growth of streaming? When would an original big market be considered small for the incumbent to start looking elsewhere?

Case on climate change

It’s almost surreal that the explanation of climate change, its far-reaching consequences and the warning of the lack of action as well as the foresight on the reluctance to switch from fossil fuels is so cogently made in 1985 before the US Congress.

And today, we still have what we have happening in the US. Meanwhile, other developing countries are massively adopting green energy, unlocking the opportunities and growth which comes from the energy transition.

The economic downsides of displacing the traditional, carbon-intensive activities were huge in 1985, but compared to the manner we allowed the activities to have expanded till today, humanity seemed like it’s dancing towards the edge of the cliff.

Value of a dollar from carbon business

The market values goods and services. And it also values the revenues generated from them. That’s what the capital markets are doing. What is interesting is that the capital markets have its own taste and preferences despite what we consider about rationality of businesses.

A dollar of revenues from unpopular industries can be treated as less than one from the ordinary industries. Just as the dollar of revenues from more popular industries can be seen as being more valuable.

At the moment, climate related businesses gets their chance in the limelight. And in the same vein, the coal businesses were being battered. Yet one can still consider all that rational considering the regulatory risks and issues around availability of feedstock to continue operating.

So is the value of a dollar from different businesses the same? Ultimately it is a question of what you think is the purpose of a business: to make money or to serve the customers.

Demand reductions

We perform a lot of demand forecasting for energy players and increasingly we need to forecast energy or fuel use for other industries. Often the players are thinking about greening their production, supply chain, etc. so we are forecasting how much fuel will be needed, or fleets of ship, volume of goods, amount of energy consumed.

In the climate transitioned world, we envision a greener version of our world when actually, it’ll be a different world altogether. It will not be the same as the one we are in today. For example, the energy content of hydrogen or green ammonia is a fraction of what we currently use as maritime fuel. If long-haul vessels are to switch fuel, they need more frequent refueling and bunkering activities will no longer be as concentrated as today. What will happen to Singapore as a bunkering hub?

Likewise, if companies are starting to be concerned about Scope 3 emissions, are we sure they would just pay more for green logistics? Won’t they procure more of their supplies locally? If we care about sustainability, will we not change our supply chains to switch out carbon-intensive materials.

The metrics around overall goods demand and where they come from will change fundamentally in a climate-transitioned world. ESG or climate is not just compliance, regulatory risk and reporting.