Tuesday, 27 May 2014

Giving Singaporeans something they have never been able to afford - Failure

The Freedom to Fail.

Ask a Singaporean what is the quintessential, negative characteristic of a Singaporean, and being “kiasu” will likely be in the top ten list.

Kiasu – “scared to lose” or “scared to fail”.

There are lots of things Singaporeans are. Being risk-takers apparently is not high on the list. (That is why we only have one Sim Wong Hoo… and he hasn’t done anything of note since his Soundblaster.)

Why is this? A natural Singaporean characteristic?

Or a rational, reasoned, Singaporean response to our social environment? Our Social Compact? Our Social reality?

The other characteristic of Singaporeans is that we are a practical, pragmatic, and prudent people.

The Singapore Dream is to own our own HDB flat. No…wait! That is the Singapore Right. The Singapore Dream is to own their own private property. Preferably landed. With a continental car in the driveway.

Owning a HDB flat, is the Singaporean's Right!

However, home ownership stifles entrepreneurship. There is a study that found home ownership is negatively correlated to entrepreneurship.
“...purchasing a house reduces the likelihood of starting a business by 20-25%.”

This makes sense.

Buying a home is a major financial commitment and requires a steady income. A salaried job best ensures a steady income to service the mortgage. Embarking on a business enterprise is risky and is likely to put home ownership in jeopardy.

90% or more of Singaporeans are home owners. That means they are unlikely to be entrepreneurs when they are young and still servicing their mortgage, and unlikely to be entrepreneurs when they are old, tired, and drained of their energy, enthusiasm and passion, when their loan has been paid off.

In addition, the abhorrence of welfarism means that Singaporeans also need to save for medical crises, save for unexpected job/income loss, and save for all possible unforeseen catastrophes. In Singapore, it is Save to be Saved.

Did I say "abhorence of welfarism"? I meant near "absence of welfare".

Of course there is help for needy Singaporeans. We are not animals!

But the help is piecemeal, conditional, means-tested, tightly controlled to avoid the mere hint of an entitlement mentality.

The "help" is fragmented and fragmentary, dehumanising, degrading, and basically requires you to show that you are absolutely beyond hope before the government will help you. Well almost. Or it seems that way. Oh, wait. It is supposed the be help of the last resort.

But studies have found that people are not rational, systematic creatures. Faced with say, $20,000 in personal debt,  $300 due in utilities bill, $1,200 in rent, and no clothes to wear for a job interview, what would a person do if he had $50?

If you say buy some clothes for his job interview, you are a rational person with no experience being poor or  financially distressed.

The correct answer is, splurge on food and entertainment.

Sendhil Mullainathan and Eldar Shafir wrote about "Scarcity: Why having too little means so much" about the psychology of poverty and how the poverty is an emotional state, and how being poor systematically disadvantages the poor when making many decisions.

That's the academic explaination. Here's a first person account about the bad habits one picks up growing up poor. (Apologies about the pungent language.).

Many Singaporeans are feeling poor. Not the poverty that is the result of not having enough money to pay for basic necessities, but the poverty of choice, the poverty of security. The feeling that they are not Free to Fail. That they can't afford to fail. That their families depend on them NOT to fail. Because failure has a cascading effect. This is the "New Poor".

The average Singaporean is just one crisis, one catastrophe away from cascade failure.

Everything links to the family, in reference to the social compact on which the Family is the first line of help, and state help is the last resort.

All it takes is for an elderly parent to have a catastrophic medical event, say a stroke, or a fall leading to debilitation. Say, the daughter stays home to look after the invalid. To do so, she has to quit her job. And then the burden of the home mortgage falls upon her husband, and they had already maxed out their loan limit and tenure, so the husband has to make cash payments to the mortgage and this reduces the household discretionary income, which in turn may affect say the payment on the car, life insurance, enrichment classes or tuition for the children.

The crisis cascades, spills over from one arena of your life to another.

And because the average Singaporean has managed to walk his life on a tightrope, he is now precariously balanced and cannot risk failing.

How to make Singaporeans take more risk?

This is a trick question. The answer is, you can't.

If you start out by asking that question, you will fail to raise entrepreneurship or innovation.

The answer lies not in getting Singaporeans to be less risk-adverse - which would be a major attitudinal change for the population, but in lowering the risks for Singaporeans.

The average Singaporean has a lot of responsibilities. As the "New Poor", they cannot afford to take risks; they cannot afford to fail. And because they cannot afford failure, they will not start businesses (which have a high rate of failure).

Most people will not even start families! Because starting a family is also risky, especially when couples are delaying marriage, and delaying children, and the older the mother, the higher the risks of birth defects.

Hence the low TFR.

Baby bonus is all well and good, but if you have a Downs Syndrome child or some other medical issues with your child, the baby bonus isn't going to be much help.

Say the chances of a baby born with a medical issue to a mother above 35 years old is say 1 in 100. Couples who are older than 35 will consider the risk and may decide that 1 in 100 is just too risky. So 100 couples may decide NOT to have a child and there are 100 fewer children. Of which only 1 would have had a medical issue. And Singapore's birth rate continues to fall.

What if the government provides for (or insures for) the children's medical care? And provides other programmes and services if the child has special needs?

[April 2016 comment: Medishield Life now covers children from birth, so this is a universal medical insurance that should cover children born with disabilities or diseases. ]

If we take care of children with medical issues or special needs, older parents will be relieved of at least one worry and maybe, just maybe, we can raise the TFR. Is one child with special needs worth the 99 other births that we will have? And 99 is a conservative estimate. (One figure I've seen is a mother at 35 has a 1 in 178 chance of a Downs Syndrome child. This risk rises to 1 in 8 for a mother at 48. One in 100 is an estimate and considers ALL possible genetic and other birth defects).

And there is no moral hazard. No parent will deliberately delay starting a family just to raise the chances of having a child with special needs and take advantage of the generousity of the Singapore government in providing medical and special needs programme for their child. No parent would hope to have a child with special needs just to live off the state.

For entrepreneurs the situation is reversed. Nine in ten start-ups fail. The question then is, do we want to encourage start-ups and are we willing to pay the price to encourage start-ups knowing that 90% of them will fail.

Well, if we keep focusing on the 90% failures, we would never pay attention to the 10% that succeed, that go on to grow and be established nationally, regionally, and maybe eventually, globally.  But that is the long shot. The majority of entrepreneurs may just want to start a small business doing what they love or are passionate about. It may not contribute greatly to the economy, but it will mean that Singaporeans will feel that they have a better chance to pursue their dreams.

BUT, a lot of them will fail.

So how do we minimise the risk for entrepreneurs?

Unemployment insurance, perhaps? [Link added in April 2016]

Some entrepreneurs never work for others, and go straight into their passion, But many may have started out as a "salary man" (or woman), save their wages, then resign to pursue their passion or dreams.

In Canada and other countries with unemployment insurance, UI is not seen as social welfare as the employees have to pay into UI for a minimum period and then draw on UI up to a cap. It is only when UI is exhausted that additional unemployment benefits are seen as welfare.

The other problem is home ownership.

If the entrepreneur has a mortgage, business failure could also mean losing his home, and a roof over his family's head.

Should we discourage home ownership?

No. We're too invested in the home ownership society. Any attempt to reverse this will be catastrophic.

But the housing option in Singapore is rather limited. Entrepreneurs elsewhere tend to rent instead of committing to home ownership. They would rather invest in their business.

The solution may be to develop the housing rental market, or find some way to make rent less painful, and more plentiful. This would offer entrepreneurs an affordable rental option instead of attempting home ownership.

But, the system is set up to promote home ownership. You can use your CPF to pay your mortgage, but you can't use your CPF to pay your rent.

I hesitate to suggest allowing CPF for rental housing from HDB, as CPF is already being used for too many schemes. And HDB already has their hands full trying to meet buyers' demand, let alone dealing with rising rental demand. Also, entrepreneurs may not have that much CPF to use anyway (they may not have worked very long to build up much of a CPF anyway. So allowing CPF to be used for rent may not help that much anyway.)

But the success of our home ownership programme has become a liability. Unless the lack of entrepreneurs in Singapore is not considered a liability.

The solution may be to provide affordable rental housing so Singaporeans can safely afford to take risks, and to try to start their own business. They will fail. It is inevitable. But not all of them and not all the time. More importantly, some will succeed.

[A version of this was sent to ST Opinion for their Big Idea series. That was about a month ago. There was no reply, so I am putting this on my blog.]

[Jan 22 2015 update. Related story - about building a "Fail fast, Learn faster" culture instead of a "Fail Safe" culture. ]

[April 2016 update: See edits/comments inserted in the main article. We now have MediShield Life which covers a Singaporean from birth. So that means (I believe) that babies born with medical or health problems are taken care of. Unemployment Insurance has been raised before, many times, and I think while it is not going to come about in the next 2 years, maybe it will be in say 5 years. I am hopeful. Housing is huge, and reversing that will take a long time, if it is not impossible.]

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