10 March 2011

ASEAN diplomacy, Singapore style!

Will East Timor be allowed to join ASEAN (the Association of Southeast Asian nations)?

Its application is sponsored by Indonesia, its former occupier. A few days ago, it appeared to be a done deal.

"We have visited all ASEAN countries and everyone has agreed politically that Timor can join," said Ramos-Horta.

That was then. Now, it seems the ASEAN members who have given East Timor's president assurances are backing away. The loudest dissenters, according to Barry Wan from The Straits Times, are a motley group consisting of Singapore, Cambodia, Laos, Vietnam, and Burma.

Their reasoning?

Singapore has been quite adamant that the prospective new member needs to prepare properly before it can join the bloc.

Cambodia, Laos, and Burma believe ASEAN cannot afford to accept a weak and poor nation as a member.

Vietnam believes accepting a weak nation will put ASEAN more firmly into the Chinese orbit.

In ASEAN, diplomacy is another name for international comedy.

Singapore's diplomats lobbied hard for the entry of the Indochinese nations into ASEAN in its last expansion, knowing full well that Cambodia, Laos, Burma, and Vietnam were not properly prepared to join the grouping.

Cambodia, Laos, and Burma certainly didn't object to their own membership applications despite being already preyed upon by the Chinese model of mercantile capitalism prior to them joining ASEAN.

As part of the new Indochinese membership of ASEAN, Vietnam's diplomats and politicians should already know that their neighbours (let's say Burma at the very least) report dutifully to Peking the proceedings of each ASEAN meeting they attend.

East Timor, as a Southeast Asian nation with oil reserves, will attract Chinese diplomacy, development, and political influence whether or not it joins ASEAN.

ASEAN diplomacy deconstructed

Being China's second banana in ASEAN, Singapore will not want to see ASEAN fall further under or more obviously into the Chinese orbit because it means having to compete with 10 other countries who also want to be China's second banana in the region.

Similarly, Cambodia, Laos, and Burma are aware that East Timor is an oil-producing upstart. As a new country that needs to build its infrastructure from scratch, East Timor is terra firma and fresh meat for investment and development funds. The three Indochinese nations do not want China to divert its ASEAN warchest (spent partially on building railroads to connect Peking to Indochina) to this new nation.

As Vietnam's diplomats and leaders are aware, being earmarked as a Chinese satellite doesn't mean co-option as a Chinese ally. Vietnam's China policy consists of resisting Chinese political influence in its ruling party and state organs, while accepting Chinese money. Their opposition to East Timor's membership is motivated by the fear that East Timor will better Vietnam on its own China policy.

Will East Timor be allowed to join ASEAN? Even its biggest detractors in ASEAN think it would do just fine in ASEAN!

08 March 2011

From civil service to political service

If the leaders of the People's Action Party have been more than truthful, their star recruits for the next election will feature senior civil servants such as the former chief of the army and other permanent secretaries, directors, and assistant directors from various ministries.

Prepare for their bundling into strong Group Representative Constituencies, where their ascension from civil service to political service political mastery will be accomplished on the coattails of popular ministers and senior ministers of state.

Prepare for the attempts to convince that these senior civil servants have earned their right to take charge of public policy, that they have exhibited the skills to lead Singapore as the fourth generation of PAP's leaders.

If you have read my previous post, you'll understand that like Wall Street and its increasingly well-educated financiers and their complicated toxic instruments, the Singapore civil service produces increasingly well-educated bureaucrats who have honed to an art the skill of producing improbable KPIs.

In the Singapore civil service, success is measured through how creatively its bureaucrats can create creatively skewed KPIs. The more educated and scholarly the civil servant, the darker his arts of creating such toxic instruments. This trend will continue as long as Singapore's bureaucracy continues employing expensive, highly educated scholars for fast track promotions.

To allow the continued ascension into heaven parliament of Singapore's senior civil servants is to reward their innovation of inventing KPIs and statistics that have less and less correlation to the base reality. In time (if not now), the map will bear no relation to the territory, the statistics will bear no relation to what they measure, the representation of Singapore will bear no relation to anything existing in Singapore.

Senior civil servants are a dead-end product of Singapore's meritocratic system. Do not expect solutions or initiatives from them. I strongly urge the electors to strongly reject PAP GRC slates that include recent senior civil servants.

06 March 2011

Wall Street Smarts

This was your comparative reading for the week:

Wall Street Smarts by Calvin Trillin
Smart Guys and Wall Street by Paul Krugman

As your readings for the week have been suspended for the duration of Singapore's Silly Season, this will be a presentation instead.

What makes a theory valid?

Calvin Trillin is a humorist, not an economist. The essay is a tall tale told by a fictitious man. Wall Street Smarts exists in the realm of fable, establishing timeless truths (or morals) from fabrications.

Why was there a financial crisis in 2008? Trillin tells a story instead, which Paul Krugman, winner of the Nobel Prize for Economics, endorses from his observation of graduate school and the financial service industry.

How do we measure the validity of a piece of qualitative research (or in this case, a qualitative essay)? Without recourse to charts and statistics, the idea expounded must be tested in terms of theoretical rigour, explanatory value (both in context and transferability), and credibility. The biggest test of whether a qualitative piece of reasoning is valid lies very much with its credibility - when deconstructed and restated in its barest axioms, would you be able to buy the explanation whether or not you agree with it?

Wall Street Smarts, restated

Why did the financial crisis of 2008 occur? One could point to the many economic explanations - overinvestment, market bubbles, toxic instruments. But why were overinvestment, market bubbles, and toxic instruments promoted? Why indeed were derivatives invented and then pushed the way they were?

Here, the economists have no answers because the question asks for an exogenous explanation for the crisis, which lies outside the boundaries of the economics discipline.

Trillin in effect proposes an explanation that turns the spotlight on the history of economics, the social anthropology of the finance industry, and the political economy of employment.

1. In the old days where finance was about selling actual industry, the financial services sector largely recruited from a hereditary class of bankers and financiers. Barriers to entry were not too high: a college education would have done it (plus either relatives or friends or classmates in the industry).

2. Owing to comparative lower prestige, the financial services sector did not attract the best, the brightest, the most ambitious, the most greedy.

3. The roots of the financial crises of the late 20th century and 2008 lie in the increase of prestige of the financial services sector, its attraction of the best and the brightest (etc.) graduates, and the increase in university tuition and student debt, and of course the balloon in executive pay in the financial sector compared to other sectors.

4. The last two factors create an industry fronted by innovative, ambitious, and greedy agents who were smart enough to invent complicated toxic instruments, fake products, massaged company accounts...

5. The financial crisis occurs because there is no longer any correlation between the healthy trade of toxic instruments and massaged numbers, and the health of the real economy.

Wall Street Smarts, Singapore civil service edition!

The next best test (other than the very subjective notion of 'credibility') is transferability. What other context, what other industry can we find a similar set of environmental factors?

We note that a post-independence strategy of the Singapore is its much-vaunted introduction of university graduates into its civil service. Gathering pace more in the late 1970s, the policy has morphed into the recruitment of scholars fast-tracked into senior posts and handpicked for politics by the ruling PAP.

Note the increasing salaries and bonuses for the civil service. Note the increasing salaries for MPs and ministers - which only began when the scholars started entering politics. Note the increasing reliance on complicated KPIs and statistics that no one can comprehend and therefore trust, note the trumpeting of dodgy rankings that somehow suggest Singapore is the best nation is this and that and the other. Note the anger from the ground about how far the trumpeted KPIs and rankings are divorced from the everyday reality and experience of normal Singaporeans.

Wall Street Smarts - not just a story that took place a long time ago in a country far, far away.

04 March 2011

Tharman Shammugaratnam's crowning clown moment

Economic illiterate or discombobulator?

Finance minister Tharman Shammugaratnam (PAP-Jurong) continues to perform his clown routine in parliament as he defends Singapore's budget for 2010.

Possible in light of strong criticism from the blogosphere, the minister admitted that yes, the GST is a regressive tax. However, it seems that is his knowledge of basic economics ends here. Tweaking the rate of the consumption tax will benefit higher income groups and foreigners more, he claims. Yes. That's what Shammugaratnam said -- reducing the rate of the GST will benefit the rich more because the bulk of the GST is collected from them.

Which part of regressive tax does finance minister Tharman Shammugaratnam not understand? Why will he not admit or acknowledge what any introductory econs text states baldly - that a consumption tax makes the poor pay a higher proportion of their income than the rich and that reducing the rate of a regressive tax will make the poor pay a lesser proportion?

Either finance minister Tharman Shammugaratnam is an economic illiterate and should be removed from his post forthwith, or the minister a glib discombobulator who thinks that Singaporean citizens and residents are economic illiterates and should be removed from his post forthwith.

Why Tharman Shammugaratnam will rather clown about than tell you the truth

In 2003, the GST was introduced to gradually replace income taxes, the complicated system of duties and levies, and corporate taxes as the main revenue source for the Singapore government.

The advantages? The global rich will be more likely to make Singapore their home or at least vacation home. Singapore, I suspect, has one of the world's more lenient tax regimes for the rich. Corporate taxes in Singapore are now the lowest in Asia, next to Hong Kong. Having to deal with less duties and levies lessens the red tape that corporations and entrepreneurs have to deal with.

The downside? The progressive tax instruments that existed prior to 1993 have all been dismantled -- progressive income taxes, corporate taxes, and levies and duties to target the rich. Wealth is redistributed from the poor to the rich in Singapore's post-1993 tax system.

Tharman Shammugaratnam and the PAP will go down defending the GST in the short to medium run as a reform of the entire system will take time and planning. They will go down insisting that the regressive tax structure stay in place (and the poor receive strategic state handouts). They will if necessary play dumb on the regressive tax structure because it constitutes the main revenue source of the Singapore government.

They will attempt to tweak the system and preserve the GST for as long as they can, unless the electorate speaks loudly, unless citizens and residents complain loudly and often, unless bloggers continue to expose the PAP's faulty and discombobulating defense of an indefensible regressive tax.

A chief clown for the clown show?

Tharman Shammugaratnam is the finance minister of Singapore. Goh Chok Tong and Lee Hsien Loong were the finance ministers of Singapore before they became prime ministers themselves.

Tharman Shammugaratnam is unfit to be the finance minister of Singapore. He is either economically illiterate, or a glib discombobulator, or an insincere leader who cannot level with Singaporeans. Tharman Shammugaratnam is unfit to be the next prime minister of Singapore.

In the coming general election, I strongly urge the electors to strongly reject Tharman Shammugaratnam (PAP-Jurong) and deprive him of the opportunity to further damage the poor and the middle class.

01 March 2011

GST, inequality and regressive taxes: A Model Answer

Joseph Henry Greene is part of the Citibank team headed by Johan van Oenen that made Goh Keng Swee and Singapore its first billions, betting the US dollar against the British pound. The team subsequently recommended that Dr Goh develop Singapore as a finance hub servicing the "Asian dollar market".

Here is Joseph Henry Greene on the subject of the GST just when the consumption tax was about to be set in place:
This sales tax which is coming on is regressive. Why the government would have a sales tax – which is regressive – at a time like this? It won’t hurt the people at the moment but if there should be any trouble in the future, it’s going to make the disparity between the very wealthy and the average working class of Singapore... It will cause a strain and it will exacerbate.

(Economic development of Singapore, Interview with Joseph Henry Greene. National Archives, Oral History Centre. 1994)

Here is a member of the economic literati telling you the GST is a regressive tax. Listen to him instead of the PAP clown show.

The PAP clown show continues! (GST edition)

This is not your reading for the week. We are suspending your readings for this week and indeed for many months to come. That is because we are in Silly Season. Very Silly Season

The headlines say it all:
PAP MPs question who WP is trying to help
Cutting GST to tackle inflation would benefit rich more than poor, they say


PAP MPs on Monday hit back at Workers' Party chief Low Thia Khiang's broad-ranging attack on the Government's Budget. At least seven MPs from the ruling party stood up to disagree, as they questioned his call for GST cuts...

Mr Christopher de Souza (PAP-Holland Bukit Timah) and Prof Koo Tsai Kee (PAP-Tanjong Pagar) said that trimming GST would be more beneficial to the rich than to the poor

Said Mr de Souza: "High income earners, we know, consume more and therefore pay more GST."

In 2008, finance minister Tharman Shammugaratnam (PAP-Jurong) said that in absolute terms, the bottom 60% of earners here pay less than 25% of the total GST collected each year.

We can only come to one of two conclusions. Singapore is run by

1. A bunch of economic illiterates who don't bother to pick up any econs textbook, which will tell them a consumption tax (i.e. the GST) is a regressive tax.

2. A bunch of glib discombobulators who know that the GST is a regressive tax but refuse to acknowledge it as such. Instead, they work on the assumption that the electorate is composed of economic illiterates.

Finance minister Tharman Shammugaratnam will distract you by talking about absolute terms. He hopes you won't realise that no matter what the bottom 60% pay for their GST, they're still paying proportionately more out of their total income than the top 40%.

Christopher de Souza will distract you by saying the rich spend more and therefore pay more total GST. He hopes you won't realise that the rich spend a lower proportion of their income on consumption - and have a higher proportion of their income in savings - than the poor.

Prof Koo Tsai Kee will distract you by saying that the tax pool gets redistributed disproportionately to the lower income earners in the form of GST credits. He hopes you won't realise that he just conceded the inherent regressiveness of the tax, and that it requires annual government handouts (aka GST credits) to redress the balance or appear to redress it.

The PAP continues to run a clown show.

Whether they are economic illiterates or glib discombobulators, I recommend that the following current MPs be dropped from the PAP slate for the coming elections, and that if reselected to run, the electorate vote against such clowns:

Mr Christopher de Souza (PAP-Holland Bukit Timah)
Prof Koo Tsai Kee (PAP-Tanjong Pagar)
Tharman Shammugaratnam (PAP-Jurong)

Stupidity and disingenuity must never be rewarded.