The Singapore Commentator

William Mellor of Bloomberg News looks at Temasek Holdings — in particular, its performance under Ho Ching. Excerpt:

An investor meets her match
Since Ho became Temasek’s chief in 2002, the group’s returns have soared... “Historical returns in Temasek-linked companies have not been impressive,” says Prabodh Agarwal, CLSA’s Singapore-based head of research. That has changed, he says. “Temasek-linked companies are much better investment propositions than ever before.”

CLSA estimates that total returns to shareholders of Temasek’s publicly traded companies were 15 percent over two years and 33 percent in the year that ended in August, compared with a 1.6 percent decline during the decade that ended in August. Temasek...says its own returns on its entire portfolio...were 3 percent over 10 years, 8 percent over two years and 46 percent in the year that ended in March...

Ho’s plan to double Temasek’s presence in Asia outside of Japan and Singapore to 33 percent of its total investments from the current 16 percent may cost 24 billion Singapore dollars over 10 years, says Lim Jit Soon, head of Singapore research at Citigroup Global Markets. Greg Pau, S&P’s Singapore-based director of corporate ratings, says, “Any company going into unfamiliar territory typically pays a tuition fee.”

Alan Cockshaw, a director of CapitaLand, says that not expanding might be even riskier, particularly with a small domestic market such as Singapore’s...

One recent investment that soured was China Aviation Oil, which in November reported $550 million of losses from trading oil derivatives...

Temasek’s own companies stumble at times. “They’re very smart guys at Temasek, and you have some well-run companies in the stable, but you also have some not-so-great ones,” says Hugh Young, the Singapore-based managing director of Aberdeen Asset Management. Chartered Semiconductor Manufacturing, a Singapore and Nasdaq-listed company that has not made an annual profit since 2000, is one such example, Young says.

The government’s dominant role in running companies may also be to blame, says Linda Lim, a Singaporean who is professor of corporate strategy and international business at the University of Michigan in Ann Arbor.

“Temasek’s overall rates of return may have been dragged down by the kinds of things they invested in for national strategy rather than pure financial return,” Lim says. “The role of the state in business has become at best unnecessary and at worst dysfunctional.”

On a lighter note: Somebody seems to have confused Singapore’s CISCO with US network equipment provider Cisco Systems.

Singapore Nationalizes CISCO
CISCO is getting nationalized into a new company, wholly owned by the Singapore government. It’s true. And those CISCO uniforms will be changing as well, to a new design that won’t include the insignia of the Singapore police force...

“CISCO” happens to be the name of the auxiliary police force in Singapore, an organization established in 1972. This CISCO deals in bodyguards, armored cars, alarm systems, and the like -- not to be confused with the U.S.-based networking equipment provider, Cisco Systems Inc. Last summer, Singapore’s Ministry of Home Affairs announced plans to corporatize CISCO, freeing it of the restrictions placed on government agencies; the change in uniforms was announced yesterday.

A Cisco Systems spokeswoman says she’d never heard of CISCO and was initially taken aback upon seeing the story in the Singapore press. “I thought: My goodness, who is this?” she says. “I would think we would have come upon that group before.”...

That may be more likely if CISCO decides to follow in Temasek’s footsteps and expand overseas.

A recent survey by The Gallup Organization has provided clues as to why Singapore workers are not engaged in their work: Deficiencies in their leadership. Excerpt from a report in The Straits Times today.

WHY are Singaporean workers “bo chap”, or uninterested? For the answer, look no further than their bosses.

Employees who get no feedback, don’t see their best ideas implemented, and also do not get grooming to become the next generation of leadership, simply “disengage” from their jobs.

And that is what Singapore bosses and leaders need to fix — and fast, says the latest poll by The Gallup Organization, the Gallup Leadership Institute at the University of Nebraska and the Singapore Institute of Management...

Frankly, though, this shouldn’t be news to anyone who has been following the management scene in Singapore. It just hasn’t been given the same publicity in the local media as, say, “poor worker attitude” or “poor customer service”. It’s useful to remember, though, that the performance of the worker is often linked to the kind of leadership that he gets.

Singapore saw more innovative businesses being set up last year.

Singapore attracts more innovation-driven enterprises from a rich diversity of industries & geographies
Last year, 3,664 new high-tech businesses and companies were formed in Singapore, of which 624 were foreign. This high level of innovation-driven enterprise formation affirms Singapore's pro-enterprise environment.

However, Singapore also saw fewer babies being produced last year.

New record low of 36,900 babies born in 2004, but trend reversing
The number of babies born last year has hit a new historic low. According to the Health Ministry, there were 700 fewer babies born last year as compared to 2003.

I guess Singaporeans can only afford to do one or the other, but not both.

Andre Cheong, regional director of PSD Group, an international executive search organisation, had this to say in an article for the Recruit section of The Straits Times yesterday.

Before I came to work in executive search, I did not believe in the use of job descriptions. I used to think that job descriptions were dangerous because of their tendency to limit an employee’s work, responsibility, and most important, his imagination...

All this changed when I once had to handle a large project... I asked [three executives] to write single-page descriptions of what they were going to do... There were, to say the least, a significant number of overlapping issues, contradictory viewpoints... I could not help thinking about the chaos that would have ensued had I not asked for the job descriptions.

After resisting them early in my career, I have changed my opinion about job descriptions. I now think they are a useful way to:

Identify the number and degree of responsibilities

Agree on the priorities

Discover and resolve areas of conflict

Correct dangerous misconceptions

Establish specific goals, and

Set timelines

Any organisation that has more than a few employees is probably better off with having job descriptions for them. By delineating responsibilities among employees, job descriptions enhance two things that are important in business: accountability and predictability.

Bosses are often averse to job descriptions for their subordinates because they want the power to do what they deem fit. This is especially true for those “doer” types who are attracted to visions and don’t like constraints. For example, Cheong says he did not previously believe in the use of job descriptions because they limit an employee’s “imagination”; a person’s imagination is, of course, limitless.

But smart bosses also know that subordinates who are not unwilling to step out of their job descriptions are usually rule-oriented individuals who would also not be happy to work without one.

Yesterday, Prime Minister Lee Hsien Loong responded to the issues raised by MPs in Parliament recently.

Singapore govt gives $100m boost to help needy patients
Prime Minister Lee Hsien Loong has addressed the many concerns raised by MPs in Parliament over the past few days... Mr Lee also announced help measures in the form of a new job redesign programme for older workers — injecting $100 million into Medifund — and a $500 million ComCare Fund for the CDCs' social assistance programmes. As for engaging Singaporeans, Mr Lee said the government will devolve more power to the people...

According to The Straits Times, though, PM Lee has ruled out increasing social welfare benefits as requested by opposition member Low Thia Kiang. “Who’s going to pay the bill?” he asked.

Who, indeed?

Nominated MP Loo Choon Yong touched on economics in yesterday’s debate on the Presidential Address.

Singapore needs entrepreneurs of all types: big and small, low-tech as well as high-tech. Studies have shown that economies with greater entrepreneurship experience higher growth rates, greater job creation and less severe boom and bust economic cycles.

I agree with him. The Singapore government has tended to put more emphasis on big businesses and high-tech entrepreneurship. But small, low-tech businesses are also important.

Dr Loo’s statement that economies with greater entrepreneurship experience less severe boom and bust economic cycles also raises an interesting question: Does greater entrepreneurship lead to shallower economic cycles? Or do shallow economic cycles facilitate entrepreneurship? Or is there some other causal factor for both phenomena?

As far as I am aware, economies with higher proportions of output contributed by domestic consumption are more likely to experience shallower economic cycles. Export-oriented economies — like Singapore — have more pronounced boom-and-bust cycles.

It is a well-known fact that Singapore has one of the highest — if not the highest — savings rate in the world. The converse of that, of course, is that it has one of the lowest consumption rates in the world.

Both the export-oriented nature of Singapore’s economy and its high savings rate are direct products of government policy. Consider this excerpt from a report by Morgan Stanley economist Daniel Lian:

For a long time now, we have been arguing that Singapore’s domestic demand will remain structurally weak as a result of economic policy... [I]ts three-pronged economic strategy has always had an external spin... [T]he government builds up...the economy through leveraging on global demand.

The emphasis on high savings is the other side to this external orientation. Saving has been encouraged [and] used to feed global asset demand as excess national savings over domestic investment are channelled towards building what is now a vast external economy.

The high beta [i.e. volatile] nature of the Singapore economy is highly apparent. During the period 1997 to 2003, the upswing in the economy (1999 to 2000) was clearly tied to a sharp expansion in external demand, whereas the contractions (1998 and 2001) and periods of relative stagnation in the economy were tied to either a contraction or poor growth in external demand... In our view, Singapore is now the highest-beta economy in Asia in terms of its exposure to and dependence on global demand and its lack of domestic demand initiatives.

Now let’s consider the sectors that entrepreneurs tend to be attracted to. According to the Global Enterpreneurship Monitor (GEM) 2003 Global Report, 61 percent of new firms and start-ups were found in consumer oriented sectors.

Indeed, the GEM 2003 Singapore Report showed that 38.7 percent of new firms and start-ups in Singapore in 2002 were found in retail, hotel and restaurants, dropping to 25.8 percent in 2003 when Singapore suffered from Severe Acute Respiratory Syndrome. This was the sector with the highest level of entrepreneurial activity. In contrast, entrepreneurial activity in manufacturing was the lowest among the main sectors at 0.9 percent in 2002 and 6.1 percent in 2003.

The implication is clear: Entrepreneurial activity tends to be concentrated in sectors catering to domestic consumption. This raises the question of whether Singapore’s bias against consumption might have adversely affected entrepreneurial activity. Indeed, according to the GEM 2002 Global Report, the retail, hotel and restaurants sector took 50 percent of global entrepreneurial activity, a much higher proportion than in Singapore.

So is Singapore’s low consumption rate affecting Singapore’s entrepreneurial activity? Is it the reason that the team that compiled the Singapore Report concluded that “[r]elative to the other 30 GEM 2003 countries, Singapore had lower ratings for attributes related to entrepreneurial opportunities”?

There is another implication from the GEM 2002 Global Report. While 50 percent of overall entrepreneurial activity was in retail, hotel and restaurants, 58 percent of necessity-based entrepreneurial activity — that is, entrepreneurial activity undertaken by people who cannot find other work — is in this sector. In other words, those who are hit in a downturn and need to turn to self-employment or start their own businesses are even more likely to turn to consumption-oriented activities.

Singapore’s economic policy of favouring exports at the expense of domestic consumption may be accentuating its economic downturns, and offering relatively little by way of entrepreneurial alternatives to those adversely affected by such downturns.

Yesterday was the first day of parliamentary debate in Singapore. Two oft-debated issues caught my attention.

On the chronically unemployed, opposition member Low Thia Kiang, calling the New Singapore Shares and the Economic Restructuring Shares “a cup of water to douse a large fire”, asked for a “proper or systematic social safety net to protect the poor people, the workers”.

However, The Straits Times reported that Mr Seng Han Thong rebuked Mr Low for being critical but not providing any solutions himself. He pointed out instead the government’s efforts at job redesign and training.

And in reporting the debate, journalist Chua Mui Hoong of The Straits Times wrote that “Mr Low cavils when he accuses the President’s Address of not saying enough about the plight of the worker”, implying that Mr Low failed to acknowledge the government’s efforts on training and education.

To me, though, both Seng and Chua themselves may have missed the point. It is obvious that Mr Low is actually asking for more substantial welfare benefits to be provided by the government to the chronically unemployed. That is surely a plausible solution, even if one doesn’t agree that it is the best one.

And their apparent faith in training and job redesign is misplaced, in my opinion. Realistically, such schemes can only reduce the number of unemployed to a level that can be handled by other mechanisms. They cannot eliminate unemployment totally.

Which thus leads back to Low’s “social safety net”. It seems fair to me that parliament should debate what that safety net should comprise of, and not casually dismiss it. But a bit more on this later.

The other point that caught my attention was Mr Tan Soo Khoon’s regarding the basis for deciding on the introduction of the casino. Mr Tan suggested that in saying that the decision on the casino would depend on whether Singaporeans can be trusted to behave correctly, the government is being inconsistent, since in the case of the Central Provident Fund minimum sum requirement, the government has already determined that Singaporeans cannot be trusted with their own savings.

Mr Tan’s argument does not seem to be very logical to me, though. Just because the government has deemed that Singaporeans cannot be trusted with their retirement savings does not automatically mean that they cannot be trusted on gambling. They’re not exactly the same, and, as in the case of social welfare, it seems fair that the government should at least consider the possibility that Singaporeans have the requisite maturity with regards to gambling, or that perhaps the consequences may not be as dire as in the case of the CPF’s retirement funds should Singaporeans prove not to be so. After all, remember that in the case of the CPF, the government observed Singaporeans’ handling of their CPF money for several years before deciding to impose the minimum sum, and then to raise that minimum sum.

But Mr Tan also said something that suggests where the problem lies. He said that the casino debate is about “money versus values”.

Most people go into a debate with their own set of values. They then proceed to debate around those values. The values themselves — although they form the bases of their stands — remain inviolate and unexamined. When a debate is among like-minded people with similar values, a consensus can often be quickly achieved this way.

However, when the values held by the debaters differ markedly — as with Mr Low’s belief in social responsibility towards the unfortunate versus the Seng-Chua belief in self-reliance — the chance of a consensus becomes remote.

Unless, as appears to be the case in the casino debate, those values themselves are thrown open for debate. Unfortunately, when people’s much-cherished values are thrown into the pot to be debated, especially together with other base considerations like money, you can be sure that some people are going to be rather unhappy.

Singapore won the Tiger Cup football tournament yesterday.

Singapore win Tiger Cup with 2-1 win over Indonesia at National Stadium
The Lions have done it, winning the fifth edition of Tiger Cup after a 2-1 victory over Indonesia on Sunday at the National Stadium. In front of a packed home crowd at the stadium, the Lions roared to victory, taking the title convincingly after having won the first leg 3-1 in Indonesia...

Singapore, who scored first at Senayan, again opened accounts after Indra Sahdan beat two defenders and the Indonesian keeper in the 5th minute... Indra [was] brought down in the penalty box five minutes before the break. Agu Casmir coolly converting the spot kick to give Singapore their second goal for the night. [Indonesia’s] Kurniawan's hard work in the 76th minute ended with Eli Aiboy easily tapping in to pull one back for Indonesia...

Congratulations to the Singapore team for the achievement.

I think Singapore, though, should not get carried away with the victory. The standard of play yesterday wasn’t very inspiring. The ball spent too much time in the air and the players spent too much time on their backsides. The tackling was often clumsy, forcing the referee to show the card so often he must have felt like a dealer at a poker table.

The Lions may now be kings in Southeast Asia but they have a long way to go before they can rub shoulders with the best in Asia, much less the rest of the football world.

In the wake of recent crackdowns by the Monetary Authority of Singapore (MAS) on rebates and freebies being offered by banks to get around rules on housing loans, Ignatius Low complains in The Straits Times today that the MAS is a “party-pooper”.

[S]uch interventions by the MAS can deprive consumers of lower prices and greater choice — which are direct benefits brought about by competition between banks. Consumers are now paying less than ever before for their mortgages, as banks move to compete on not just interest rates, but also a whole variety of freebies and other perks. And they also have a wider range of options... So why stifle free competition that has been proven to benefit consumers?

He then goes on to answer his own question.

Sure, the banks pushed the envelope a bit. Sure, there are rules which must be observed. Sure, the MAS must have felt compelled to act to avert what it feared might be the beginnings of unbridled excesses in the property market.

Although housing prices in Singapore have come down considerably in the past few years, I am ambivalent about any measure taken to loosen credit control on housing purchases. The Business Times reported last month that more than 18,000 private residential homes remained vacant as at the end of September 2004. Borrowers who are taking advantage of the present low interest rates and other goodies offered by the banks may find — in a few years’ time — that they did not get a good deal after all.

If we accept that credit control serves a useful role in stabilising the economy and preventing both borrowers and lenders from overextending themselves, then I think we should allow it to work properly. Allowing banks to circumvent credit control regulation may do more harm than good.

Financial planner Leong Sze Hian wrote in to The Straits Times to suggest that concessionary rates for travel on public transport and cinema admission for the elderly be extended to peak hours. Excerpt:

I am reminded of a conversation I overhead between two elderly Singaporeans which went something like this: “Why are we being discriminated against in Singapore? To get bus or MRT travel concession, we have to wait for off-peak periods. And it is the same when it comes to cinemas.”

One obvious way to eliminate discrimination is to get rid of the concessionary rates. But I doubt that’s what Leong had in mind.

Personally, I think it makes more sense for the public transport companies and cinemas to reduce the off-peak rates further rather than to extend the concessions to peak periods. Public transport in particular is already jam-packed during peak hours as it is. I’m not sure why we should encourage the elderly to join in the crush.

The Singapore Tourism Board wants more tourists to come — many more, in fact.

Singapore aims to double tourist arrivals in next decade
The Singapore Tourism Board has set bold targets for the next decade. It aims to triple tourism receipts to S$30 billion, double tourist arrivals to 17 million, and create 100,000 additional jobs in the tourism industry by 2015.

Today, The Straits Times reported that members of the industry say “all Singaporeans need to get in on the act”.

[E]veryone in the industry agrees on one thing: Singapore needs to brush up on its service. And that requires a change in mindset among Singaporeans...

President of the Singapore Retailers Association Jannie Tay said: “Singaporeans are ambitious and always seek high level positions, but what will be a greater need are entry level, hard-working front-line service staff... The local workforce, by and large, lacks the right attitude and aptitude to fill these jobs.”

Unless the people change their attitude, Mr Rajakumar [Chandra, the Little India Shopkeepers and Heritage Association’s honorary secretary] said, Singapore will have to resort to labour imports.

Labour imports would obviously negate one of the reasons for the Singapore Tourism Board’s plan.

The relatively poor quality of service staff in Singapore is well-known. But it’s not always the workers’ fault. Employers and customers (see a previous post on the latter) have roles to play in their performance. People in the service industry need to do more than just complain about workers’ attitude.

But part of the problem with a top-directed economy is that it often moves off in a direction before all the pieces are in place. In the early 1980s, the Singapore government wanted a higher value-added economy and so it forced up wages, but since Singaporeans couldn’t immediately become more productive, this only helped precipitate a recession in 1985. In the 1990s, it wanted to build up Singapore’s financial industry, but with regulatory oversight lacking, it only helped Nick Leeson bring down Barings Bank in 1995.

This is not to say that the moves were necessarily wrong. Only that when the government tries to move things by pulling people from the top, the experience can be quite hair-raising.

Maybe the Singapore Tourism Board should just be satisfied with the spillover traffic resulting from the tsunami disaster.

Singapore replaces Thailand after tsunami
Following a downturn in business in Southeast Asia, tours to Singapore during the post-tsunami period have increased by 20 to 30 percent, compared to the same time in the previous year, the Youth Daily reported today... “Instead of Thailand, Singapore is now the leader among the Southeast Asia tourist destinations. This provides a profitable opportunity for us,” according to several local famous travel agencies...

Hopefully, Singapore’s tourism industry can handle that.

An article in the Recruit section of The Straits Times today entitled “Leader or manager?” compared the differences between the two leadership/management styles and suggested the following:

Managing and leading are two different ways of organising people. A manager uses a formal and rational method to rule over workers while a leader uses passion and emotions to motivate them.

“Rule” over workers? How about rephrasing the paragraph this way:

Managing and leading are two different ways of organising people. A manager uses a formal and rational method to incentivise workers while a leader uses passion and emotions to manipulate them.

Okay, I’m being mischievous here. Anyway, the writer was trying to lead readers to the conclusion that leaders are superior to managers. To this end, the careful placement of emotionally-laden words can help bias the article in the desired direction.

Leadership means different things to different people. One common feature that most people see in those they perceive as leaders — as opposed to managers — is the ability to inspire others to achieve a desired goal.

Inspiration, however, influences people to varying degrees. Intuitive personality types tend to be influenced by it more. In positions of authority, they also tend to use it more.

Fact-oriented pragmatists tend to be relatively indifferent to emotion-based inspiration. In positions of authority, they tend to be managers rather than leaders and as subordinates, may even resist attempts at inspiring them with anything other than facts.

The bottom line is that the right style should be used in the right setting. One style is not necessarily superior to the other.

Despite having left Singapore, Steven McDermott’s blog continues to generate controversy among Singaporeans.

In a post dated 2 January, McDermott highlighted the lack of criticism in Singapore and cited the case of one of his students in Singapore who, when asked to think about a question, replied: “I didn't come here to think. I came here for you to think, then tell me what to think.”

The description of that incident generated a lot of comments to the blog, which led to another post on how the utilisation of power in Singapore has led to a situation where people lose their capacity for critical thinking.

There is a lot of good stuff in the two posts which, unfortunately, sometimes get lost in the fixation over the remarks apparently made by the student.

Personally, I have long realised that you can’t always take what others say at face value. It is perfectly conceivable to me that the remarks made by McDermott’s student may have been such a case.

I can think of three reasons why what a person says may not reflect exactly what he or she actually thinks.

One is, of course, to mislead. This may involve outright lying. Or it may involve just the judicious omission of facts, obfuscation, the intentional use or misuse of innuendoes and so on. The intention to mislead can be conscious or subconscious.

The second is poor articulation. This can be the case when the person has poor language or communication skills. It can also be the case when a person is rushed into expressing himself. Which is one reason that, whenever I need an opinion or stand on something important which needs follow-through — as opposed to casual verbal jousting — I often prefer it to be given in writing. Writing gives a person a better opportunity — as well as an incentive — to think through what he says.

The third reason is humour. This includes any remark made to elicit a laugh. Here, I include glib remarks made by a person to appear smart.

The other pertinent point is one that several others have also raised: Even if the student’s statements reflect what she actually thinks, there may be a logical basis for it — she needed to find the most efficient and effective way to pass her exams. It does not necessarily mean that she is incapable of critical thinking.

Having said that, she is not my student. She was McDermott’s. He may know her better.

Whatever the case, I think that the underlying message that McDermott was trying to convey remains valid: Critical thinking is important and Singaporeans need to be mindful of the insidious capacity of those in power to erode it.

A reader commented on my previous post comparing the Social Security system in the United States with the CPF system in Singapore. I thought there were a few points which merits elaboration.

The reader wrote, “Like the US, our government is thinking of privatizing CPF”. But the similarity ends there.

If the Singapore government privatises the CPF, the impact would be relatively limited. But the impact of Social Security privatisation is large. Essentially, it would turn the system from one with an insurance component to one that is essentially a saving and investment vehicle, just like the CPF — which is precisely the shortcoming of Singapore’s system, in my opinion.

The reader also asks why I think the CPF is good at protecting what is already in the fund.

Well, the reasons are mainly those listed in Steven Schlosstein’s article, with the emphasis on the fact that the purposes for which funds from the CPF can be used are relatively limited.

The CPF is a vehicle for overall retirement planning. That includes investment. As an investment vehicle, it is inevitable that some risk be taken. In that context, the risk allowed by the CPF for investment is not generally excessive.

The reader did make the point that the CPF allowed Singaporeans to over-invest in property. Personally, though, I blame overall government housing policy rather than the CPF for the over-investment. In any case, the government appears to have learnt its lesson and modified the rules for property financing. I think we should judge the CPF based on its current rules rather than old ones.

Ultimately, I think that the problem with the CPF concept is that it requires individuals to rely largely on their own savings and investments. If they don’t save enough, they’ll have to invest more and earn better returns. But as the investment adage goes, to get better returns, you have to take more risks.

In other words, when you face the risk of under-saving, the only way that the CPF can help you compensate for it is by letting you take on more investment risk.

There’s a missing link somewhere. No prize to anyone who guesses what I think it is.

Which is better for funding workers’ retirement: The US Social Security system or Singapore’s Central Provident Fund (CPF) system?

An earlier post of mine points out the advantages of Social Security in mitigating risk. A commentary by Steven Schlosstein
in The Tullahoma News titled “Thinking about Social Security Singapore has some useful answers” points out the advantages of the CPF.

First, the problem with Social Security according to Schlosstein:

Social Security...relies on contributions from today’s workers to pay the benefits of yesterday’s retirees. And it works fine, as long as there are more people working than retiring. But...today, there are fewer workers paying into the pool to support the retirement claims of yesterday’s retirees. This is why your FICA taxes keep going up.

The Bush Administration is pushing for privatisation of Social Security through the creation of personal accounts to alleviate the increasing demands of Social Security.

Privatization advocates argue that personal retirement accounts, by investing in higher-yielding assets like equities, can provide a higher level of benefits to retirees than any government-administered system can. But opponents maintain that higher returns mean higher risks, and that the government should not let individual, last-resort retirement income be subject to the whims of the stock market.

And that’s where Singapore’s CPF comes in.

The Republic of Singapore dealt with a very similar issue about half a century ago when it created the Central Provident Fund, or CPF. It was created in 1955 as a “save-as-you-earn” program, rather than the “pay-as-you-go” scheme that characterizes our Social Security... [T]hese enforced savings were not funneled into a government-administered pool; the contributions went into individual accounts for each employee... CPF regulations prevent individual accounts from being invested in only one market segment or instrument... Privatization is not a wolf in sheep’s clothing, providing it includes, as the CPF does, adequate safeguards to protect prudence and defend diversification.

Schlosstein is correct: The CPF is good at protecting what is already in the fund (some would say too good). However, the CPF is not good at protecting the retiree from the risk of not having enough in the fund to begin with, something that Social Security is better at.

See also “Retirement risk” and “Planning for retirement”.

Singapore’s prime minister Lee Hsien Loong has visited the tsunami-hit areas. So has US secretary of state Colin Powell. Now let’s keep in mind the following report:

Time not on tsunami victims’ side as world launches new aid push
Foreign troops airdropped food and set up clean water supplies Monday as a massive aid effort took shape to help millions left homeless and hungry from Asia’s tsunami disaster, with the death toll creeping towards 150,000...

But aid workers believe many more people are isolated with no fresh water, food or access to medical care. The United Nations and aid groups warned that the threat of a major outbreak of disease such as cholera or diarrhoea could claim tens of thousands more lives.

A contingent of 42 US marines and the British frigate HMS Chatham arrived in Sri Lanka to prepare for military deployment in the island where more than 30,000 people have been confirmed dead. The help could not come soon enough as the first signs of disease began to appear among Sri Lanka’s displaced. Two refugees at a welfare center had chicken pox and were isolated to prevent an outbreak, police said. Flooding in eastern Sri Lanka has also raised fears of water-borne disease, government spokesman Tara de Mel said.

The UN has repeatedly expressed concern that some isolated survivors, particularly in Indonesia, may not receive aid for weeks until roads and bridges that were destroyed in the floods are rebuilt...

No doubt, rescue and aid personnel must have expended valuable time preparing for and briefing the national leaders on the on-going operations. One hopes that the time was well spent and not a distraction from more pressing tasks at hand.

In my previous post, I linked to a post by Brad DeLong that looked at rising risk to income in the US.

Today, I read a post by another Brad — Brad Setser — discussing social security and touching on the same income volatility brought up by his namesake. Much of the discussion has little relevance to Singapore. But I think the overview on social security in the US right at the end of his post provides a good comparison to the principle behind the Central Provident Fund in Singapore.

The fact that social security -- unlike many private pensions -- is fully portable limits the risk that lots of "job churn" and income volatility during an individual's working years will translate into limited retirement income. Social security's guaranteed income also protects against too much income volatility after an individual retires. Private pensions once were structured like social security -- they assured a guaranteed income. Not any more. You get just what you stuffed away in your defined contribution/ 401 (k). Some folks may do well (if you bought stocks in 1980s and sold them in 2000). Some folks not so well (Say if you bought the NASDAQ at 5000 ... ).

The fact that social security benefits are not correlated with the stock market -- or the bond/ housing markets for that matter -- is another one of the social security system's key virtues. Most retirees already have plenty of market risk from their private pensions. Social security both diversifies the sources of an individual's retirement income, and insures against a range of other risks: the risk an individual might make less than he or she hoped during their working life, the risk an individual may be disabled and unable to work, the risk an individual may invest their savings poorly (remember Enron employees with all their retirement assets in Enron stock?), the risk an individual might outlive their savings, etc.

The CPF, of course, gives Singaporeans only what they put into it through savings and investment. It is a system that encourages frugality, prudence and self-reliance on the part of the individual.

That Singaporeans also become risk-averse doesn’t seem surprising to me.

While the world is fixated on the aftermath of the Indian Ocean tsunami, it is probably useful to remember that most of us bear risks beyond those of natural disasters.

This post by Brad DeLong is US-oriented and probably politically motivated. Nevertheless, some of the stories here would be relevant to Singaporeans, especially the notion that “rising incomes have been accompanied by rising risk and hence the chance of rapid downward mobility has increased”.

But enough with the pessimism. Singapore’s economy did grow by 8.1 percent in 2004. Let’s look forward to a good year in 2005.

Happy New Year to all readers.