Wednesday, 26 November 2014

GUTS 1: Moving towards Singapore 2.0. Part 1 Singapore Today

The Grand Unified Theory of Singapore (GUTS) today 
and what We need to move to SG 2.0

Part 1

A Grand Unified Theory of Singapore (GUTS) is probably a little grandiose, and there is probably some hyperbole in that. But it got your attention, I hope.

In any case, this is just the first "Unified Theory" (working hypothesis) of Singapore.

The GUTS 0.1 is intended to explain the problems of Singapore today and what might need to be done
to get to SG 2.0. Or maybe just GUTS 1.0.

In part 1, we do a brief stock-take of Singapore.

Part 1: Singapore Today

We hear of "the New Normal", or that politics in Singapore has become "normal", where voters are demanding accountability, explanation, consultation, and alternatives from their elected members of parliament. They no longer accept that the government knows best. Or even know what the voters want.

As the Government respond to new issues and problems for Singapore today, their better-received solutions are seen as catering to rising expectations and needs by some, and seen as populistic policies by others.

Populist policies in and of itself are not a problem. The problem arises more from the opportunity costs of populist measures. One commentary suggests that spending $750m to enhance the drainage system to ensure another flood on Orchard Road does not happen is a populist measure. Or is pandering to populists concerns. The damage from the floods in Orchard Road (June & July 2010) totaled $23m. If these floods occur yearly, it would take more than 30 years to justify or equal the cost of the enhanced drainage. In the meantime, the $750m would not be used for R&D into better water extraction technology, for example. In contrast, the budget on water technology R&D from 2006 to 2013 was $470m.

The other problem with populist policies is what the government has always cautioned against: the entitlement mentality. Certainly, if the people are used to subsidised fuel (like in Indonesia/Malaysia - until recently) or subsidised staples like sugar and cooking oil (in Malaysia), the reduction or retraction of such subsidies will not be well-received, and most likely will have repercussions politically.

But using one example or one class of example of populist policies to indict all populist policies is a mistake. Certainly, not all "populist" policies are created equal. Or are implemented equally. Or have equally deleterious effects on society and personal responsibility.

Universal, free or highly subsidised education might well be considered a populist policy, but we don't have a problem with it.


Most people would agree that education is an investment in people, in human development, which will pay off in better employability, better economic contribution, and a higher standard of living overall.

The point is that populist measures may serve short-term goals or long-term strategic goals. The former is short-sighted, reactive, and blindly panders to myopic political considerations. Populist measures that are shaped by strategic considerations while addressing long-term goals and assuaging short-term or populist concerns would be elegant, astute, well-conceived and well-received policies.

And that is something that the government needs to continue to (start to?) develop and pursue, in spite of, or perhaps even because of, the current political setbacks.

The Problems

If you have been listening to or reading the pronouncements of the government, you would be familiar with the litany of problems that Singapore faces today, in the near future, and in the inevitable far future.

An Ageing Population

The baby boomers are ageing and living longer. With their ageing comes a question (among other questions) of how to sustain support for them in their golden years. How to keep them comfortable? Without a state pension or similar welfare programme, the elderly and soon-to-be elderly can only depend on their savings, specifically their mandatory savings with the Central Provident Fund (CPF) and the hope that if they have children, that they raised them well on the value of filial piety, and that the children are successful enough to have a job that pays them well enough to support their elderly parents in their old age. Unfortunately, many (if not most) CPF members do not have enough savings. And quite a few do not have children. And those that do have children, their children are facing rising costs and other pressures. (See "sandwiched generation" below.)

The retired, newly-retired, and soon-to-retire were working in the 70s, 80s and 90s. Salaries then were relatively low, and though the CPF contribution rate hit a high of 40% in the early 80s (20% from the employer and employee each), wages then were relatively low. After wages rose, CPF rates fell. And most members used their CPF to pay for their HDB flats.

Add to that another problem of Singapore today: higher costs of living.

As a result, by the time they retired, most members did not have much in terms of savings for day to day expenditure which was increasing. Moreover, many were living longer, out-living their savings. Many, if not most, had their savings locked up in their flats.

Many were living in homes worth as much as half a million dollars, but had nothing in their bank, in their wallets, in their pockets, or in their hands.

With age, came health problems, and increasing medical expenses, special dietary considerations (with attendant costs) as well as other living expenses which were steadily rising in costs due to inflation, and other systemic issues.

[One such systemic issue is the price of hawker food. The prices are rising in part because of increased costs of the ingredients, but also because of rising costs of living, and the standard of living. Rent is often targeted as a factor, and it may be. Hawker stalls and coffee shops have a huge range in the rental costs. Some hawkers own their stalls. But on 30 year leases that will expire in the next few years. Currently, they are rent-free, but in a few years when their lease runs out, the high rental will hit them.

Other hawkers are on rent-controlled stalls and pay very low rent. Again, these are legacy cases and the low rent are "personal-to-holder". These rent-controlled stalls will cease when the current hawkers die or retire. Their low rents will not transfer to their heirs.

Most new hawkers bid for stalls on an open tender basis and this has led to high rents in popular locations. It is inevitable, that over time, rent will rise and so will costs for hawkers. The government has tried to ameliorate this by allowing non-market rental where rental below market or reserve price were allowed. But these stalls are generally in less popular areas. 

But rent is only part of the factor. The real issue is, who would want to be a hawker? Certainly not enough to maintain the culture of the hawker.]

There are two issues with the ageing population. On the one hand, their need is dire, and there is NO way their situation can be improved. Oh wait. There is one way: continue working. Which leads us to the second issue.

Those who are see retirees working in what should have been their golden years, at jobs which are demeaning, dirty, and possibly dangerous to a retiree with slower reflexes, all for a pay that barely provides for subsistence living are dismayed that what they are seeing may well be in their future.

Even if they are not fired up to improve the circumstances of the aged poor today, they are at least inspired to try to change this possible future for themselves.


Inflation is not all the same. Inflation in the present and the foreseeable future is not the same as inflation in the past. The 1970s inflation could be ascribed to price and supply control, specifically by the Oil cartel, OPEC. With cheap oil, transport was cheap the cost of transporting raw materials, food, and consumer goods was low, production costs were low and prices were reasonable. As oil prices rose because of deliberate manipulation by OPEC, the cost of producing goods, and transporting goods, including food to their final consumers rose. But that was a single cost factor. Inflation then, was more cost-driven - by the cost of fuel, petroleum, specifically.

The inflation today comes from what Thomas Friedman calls, a crowded earth, a more affluent earth, particularly China & India. There are 1.3 billion people in China who want a good life - a big house, air-conditioning, heating, meat in their diet regularly, good food, clean water, electricity at the flick of a switch, Internet access, a car, and consumer goods. They are buying up the rice, vegetables, fruits, meat, fuel, and other consumer goods and their demand is raising prices and creating inflation. They are even importing durians and mangosteen from this part of the world (Malaysia).

Demand-driven inflation, and low interest rate because of the US financial meltdown that led to a series of "quantitative easing" - or the US "printing money" - has made it counter-productive for retirees and would-be retirees to keep their money in the bank. Or in the CPF. Yet most investment vehicles are not without risk.

The best investment is in property, but the the wave of money sent towards property has raise the prices of private property, and in turn HDB resale property. While this has probably enriched and secured the retirement funds of the older Singaporeans, it has been at the expense of younger Singaporeans.

In trying to resolve this problem for the younger Singaporeans with various measures to curb rising property prices and HDB flat prices, the new policies have unnerved the older, retired, and retiring Singaporeans.

The point is, inflation is a different animal today. The biggest factor is demand from China - 1.3 billion people being plugged into the global economy - with a demand for goods, for food, for resources... Even for jobs, investment funds, and business. Any plans, solution, or strategies to deal with inflation (and the effects of inflation on SG) MUST take this into account.

Home ownership

If there is a quintessential Singapore dream it is to own an HDB flat.

No. Sorry. That is not the Singapore dream. That is the Singapore Expectation. Or the Singapore Right. The Singapore dream is either to to buy a) a car, b) a condo, or c) a landed property.

Or maybe retire early.

Or create the quintessential Singapore Dish that will put the creator on the culinary map.

But I digress.

The point is that home ownership is a key shared experience for most (90%?) Singaporeans. We are a nation of home-owners, and this is as much our expectation as it is our identity, and perhaps even our Right as a Singaporean.

Singaporeans have grown up expecting to own a piece of Singapore. It is after all the national policy to make all Singaporeans a stake-holder in Singapore, and the best way to do that was to actually give them a stake in Singapore, via home ownership. (One can never accuse the Singapore Government of not being literal enough.)

It was all well and good in the early years when prices were low and HDB could churn out basic flats to meet basic needs at basic costs.

Then the first generation of flat owners cashed in their chips, turned a huge profit because their flat were now in prime locations and commanded premium prices. The resale market was indirectly financing the retirement plans of these "baby boomers" generation.

The cynical has also charged that our housing policy is a Ponzi Scheme (or they moderate their charge by saying that it is LIKE a Ponzi Scheme. The early investors (flat buyers) came in cheap, but the late comers are financing the investment gains of the early investors.

This was not bad if you were an early investor, about to retire, and need some retirement funds. And in a sense the young were financing the retirement of the earlier generation. Much like the critique of welfare systems in the US, and UK.

The issue of Housing or Home Ownership is a complicated one. Firstly, it is an aspiration - we want to have one. Secondly, if we have one, we have been told it is an asset (it is not! Not really) and we treat it as an asset and want its value to appreciate. (Which means we want the next generation to buy it from us at a higher price!) Thirdly, we want it so much we literally mortgage our future to get it. Fourthly, when we retire, we get the next generation to mortgage their future to buy our flats which will finance our retirement. And the next generation is willing to do so, because they hope that when it is their turn, they can get the next generation to do the same for them. Fifthly, Home Ownership is more than just home ownership. Becoming a Home Owner changes you, constraints you, limits you.

Well, how about renting?

In most cities this would be a viable option. Not in Singapore. The problem is that mortgage installments can be financed by your CPF savings and contributions. Renting is out of pocket cash that eats into your discretionary income. In other words, there is an opportunity cost to renting that isn't incurred when you buy a flat or other property, because CPF money has no opportunity costs. Or rather the opportunity costs is so far in the future, most people discount it to insignificance. An easily affordable HDB flat is now an expectation, and as mentioned earlier, owning an HDB flat may well have become the Singaporeans' Right.

And Singaporeans have been "blackmailing" the government in the forum pages and on the internet to get their Right - "give us a flat or how do you expect us to a) get married, b) have kids, or c) have more than one kid?".

It's a trick of course. If you give them a flat, then they will demand a car, "it's impossible to move about in Singapore with 2 kids without a car. If you expect us to raise the TFR, you should give priority to couples with children."

TFR: Declining Birthrates

It is a phenomenon of modern urbanised society that as people are more educated, more urbanised, they tend to delay marriage and procreation. The problem is one of timing. The best child-bearing age of women coincides with the time they need to establish their career.

By then time they have established themselves, the opportunities may have slipped by them. And even if love and marriage is still possible, child-bearing after 35 has higher risks to the mother, as well as to the child.

Some German researchers had suggested a slightly different measure of birth rates. Instead of measuring TFR, they proposed a new approach of measuring "Cohort Fertility Rate" (CFR) which would account for women delaying birth. There are no CFR figures for Singapore, so we do not know if the CFR is showing some improvement in our birth rates. However, if women are delaying their first baby, then there is less time for more babies, and so overall there will be fewer babies anyway.

In other words, if our CFR is a little higher, it is but a consolation prize.

And even if TFR or CFR is 2.1, delayed child-bearing means a higher risk of birth defects. These are real concerns that older parents face and some will decide that the risk is too great.

A special needs child will need care for the rest of his or her life and with modern healthcare, they can readily expect to outlive their parents. Without a fall-back option, parents, responsible parents would not take the risk.

Our TFR is falling because 1) in an urban, modern society, children are all costs and expenses for the first 16 to 25 years of life; 2) women today delay childbirth and motherhood because of this (and other) considerations; 3) by the time they are financially ready/prepared for motherhood, the optimal window to have a child had closed - and they face higher risks of disabilities to the children; and 4) there is no way to mitigate those risks, and costs.

In the past, disabled children had short lives because of complications from their disabilities. With modern healthcare, disabled children are surviving to adulthood, and in many cases outliving their parents. These children depend on their parents, and when the parents pass away, their fate is uncertain.

Of course even with heightened risk of disabilities most babies, even to older mothers are normal and healthy. But the increase risks are a valid concern. Older women, older couples would be more assured, if there were some plan, some "safety net" for the care of their disabled child, when they pass away. Or even in their old age.

Healthcare and Ageing

Many of the aged will be independent and self-reliant and can live out their lives in the community, in familiar surroundings, with friend, neighbours, and family. However most Singaporeans do not have adequate savings in their CPF to finance their retirement, and perhaps their healthcare.

And, from the preceding segment, delayed births are increasing the number of children with special needs and these children are more likely to out-live their parents and their parents savings. Most will have medical or healthcare complications either early in life or throughout their life.

Singapore's healthcare is generally well-managed and there is very little in terms of waste, but this in turn lead many to suggest that the public healthcare budget is miserly. It is unfortunate and it is an exercise in communication that the government will need to undertake to explain that the healthcare budget is prudent. Unfortunately, it will probably fall on deaf ears, and they will be seen as being overly-defensive and hence probably hiding something.

The problem with healthcare is that it is possible to over-consume healthcare. Taking extraordinary measures to prolong life without a commensurate improvement in quality of life is entirely possible. For example, would it make sense for a 85 year old with multiple medical conditions (including dementia) to be given an expensive drug for osteoporosis?

But basic healthcare to cure when it is possible, to soothe when cure is not possible, and to ease the pain when it is terminal, should be provided at little or no costs. No one should be denied healthcare simply because of inability to pay, and I don't believe anyone has been. But certainly many people do worry about their medical bills especially those with chronic illnesses like diabetes, hypertension, and high cholesterol. Long-term medication takes a toll.

Without a Health Insurance scheme for their elderly parents and their children, or a child with special needs, the Sandwiched generation would find it very difficult to cope.

Which is probably why the Medishield Life will be introduced from end 2015.

Medishield Life is an important component for SG 2.0. It provides hospital insurance and chronic illness healthcare for life, and pre-existing illnesses are covered.

This would go some way towards helping the "Sandwiched Generation".

The Sandwiched Generation

"Sandwiched" sounds quite nice. Like you are between two soft, fluffy, pieces of bread.

The actuality is closer to being stuck between a rock and a hard place. Stuck with the (steadily rising) cost of their aged parents day-to-day expenses, care, and accommodation. Stuck with the care, education, and upbringing of your children. If you're "lucky" enough to get a flat or a private apartment, then you may also be stuck with a mortgage.

"Mortgage" from the French "Morte" meaning "death" and "age" to remind you that you will be paying off your flat until you are very old or very dead.

It is the feeling of being "stuck", of having no options, or having no fall-back position, of knowing that everything depends on you and that you CANNOT afford to fail -- that worries people, that bothers people, that terrifies people.

And it is that fear that leads to anger; that anger than leads to hate; and that hate that leads to... well not good things.

That feeling of helplessness, hopelessness, fearfulness translates to anger at those people who seem to have it good, who seem to have choices, who seem to have fall-back positions, parachutes, safety nets, who seem to not be stuck - the ministers with highly visible million dollar income, and the options that privilege and a high salary brings; the foreigners that have the freedom to quit Singapore if things get too difficult, their freedom from obligations like reservist and national service, and yet with all the options and privileges  that citizens enjoy.

Or so it seems to those caught between a rock and a hard place and with no escape, no safety net, and the weight of their world upon their shoulders and the pressure - no, the imperative - to succeed, and for whom failure is not an option.

It is that fear, that dread, that hard truth, that keeps them awake at night.

[Next...  What do Singaporeans want (or need)?

Singaporean want many things. They want cheap COE, affordable HDB flats, good schools for their children, and cheap hawker food, probably.

But what they need though, is peace of mind...]

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