Uniquely Singapore - The Real Deal?

Intentially written BEFORE the budget is announced and discussed .....

As debate rages on about economic stimulus packages in this once-a-century occurence (in the words of the Toyota CEO) the government seems to be falling head over heels to appease the business sector.

A business friendly budget in the form of rebates and or subsidies for businesses to apparently keep jobs is the most vocal special interest group at this point in time. Let us re-visit the premises and scenarios for helping out businesses as opposed to giving cash (in kind or form) to the end consumer.

Following an earlier blog post - Uniquely Singapore Economic Theorizing posted on December 2 which brought up the 'cash-in-consumer-hand' viewpoint - Today actually carried a rebuttal of sorts by mass/free-casting the government standpoint that cash in the hands of consumers would ultimately flow out of the country. Therefore any economic stimulus meant to increase domestic demand would have net neglible or perhaps even negative impact as alluded to by the Today series of articles in early December. Hence the stronger argument for 'giving the cash to businesses' since this would in effect create or at least retain jobs for Singaporeans. A multi-faceted impact on policy this will be as Yoda might be wont to say.

Let's look at the official assumption. Cash is given to businesses ostensibly to keep jobs alive and perhaps keep jobs in Singapore but will this be the case with our current policy on foreign labour? Not that I have anything against foreign labour but if the premise of handing out a 'lifeline' to businesses is to retain jobs and this bill is footed by Singaporeans then by all counts Singaporeans should be allowed to get the first bite of this pie no?

Before we proceed let's do this PAP style by demolishing the opposition ad nauseum ad infinitum. An old and somewhat obnoxious argument that foreign talent creates jobs can now be safely put to rest when the argument turns to keeping local SMEs alive in these perilious times. Unless I am told that foreign talents, too, are running SMEs and thus making decision on job
creation or retention .... and what a day that would be ....

On Businesses

SMEs, as I am told are counting for quite a hefty chunk of employment in Singapore. Let's say 30% to play it down and keep it low. If help in the form of cash or finance in its various derivatives are granted to SMEs (or for that matter business entity local or otherwise) the taxpayers foot the bill regardless of affliation. A noble national gesture at retaining jobs and a poiltically high scoring motive that appears to cut across employers and employees alike. But what do SMEs do to generate revenue ultimately? Do they export or do they depend on the local market for revenue and thus profits?

The export driven approach: simply put, for now and the very near foreseeable future all exports are down. Result: SMEs close down and jobs are lost despite taxpayer monies being thrown at them?

The local consumption approach: If SMEs account for 30% of employment in Singapore and the civil sevice accounts for another, say, 30% of employment (leaving some 40% for MNCs and others including entrepreneurs) then there might be a chance for survival and prosperity since potentially greater then half the working population might be a market. The only hiccup here is that of course the cash is not in the hands of the consumers to begin with given wage freezes, hiring freezes and a bitterly cold environment for employees current and immediate future. With no cash in hand, combined with a credit crunch due to current bank credit policies there is a highly dampened local environment on which growth may be premised. Possible and likely a slow death for the SMEs relative to their export driven counterparts. The higher the proportion of employment by SMEs in this argument the slower the death since Sales and Marketing often predicts a rosy picture of market potential - which will probably not materialise due to the overall dampening of credit facilities.

MNCs are a different kettle of fish. Harder to fry they may be but they can still get well cooked in these times. CSR is likely to take a back seat - as we have seen from a precipitious drop in corporate donations according to massaganda reports - and both strategic and tactical decisions will come from HQ usually some half way around the world. Many MNCs are attempting to consolidate their cash positions and short to medium term cash outlays given the present circumstances of banks suddenly withdrawing credit lines and unilaterally skydiving credit ratings. Jobs will be lost here in any event over and above cash flowing out of Singapore. The balance of trade, though never really ever balanced, will skew even further and is likely to have a deletrious effect on monetary policy to the overall detriment of the consumer in Singapore. That translates into even higher costs of living since Singapore imports the entire QWERTY keyboard with auxilliary buttons.

Both SMEs and MNCs face similar issues in the dramatic tightening of credit lines in their various forms of LCs, ODs etc. Even firms, small and large, that have never been in bad debt have had their credit lines withdrawn. Goods are sitting in warehouses and docks around the world. Ships are sailing empty. Are government mandated release of credit facilities the way to go? The government has been trying to hasten this process by qualifying some percentage of loans as 'redeemable-from-us-if-bad' in an effort to locally turn around a crisis which began in galactic proportions from the other side of the world and premised upon neo-classical free market capitalistic theories and their derivatives. Possible? Yes, but the chance of success is a few atoms away from zero.

Another argument raised is for subsidies on business cost such as rent and utilities - in an attempt to keep jobs. Discussions held reveal that if subsidies were granted to business entities it would artificially keep some of the key root causes of these problems to begin with alive and well - ignobly. Diving in: subsidies are given to tennants of commercially held properties. This equates to establishing a price floor on real estate in our 'free market economy.' A no-no since we are not the US or the EU with vast tracts of potentially usable land remote as they may be. SMEs continue struggling with the more fundamental problems of low consumption while property owners make a continued and continuous killing on the back of the taxpayer. This argument is extendable to 'industrial sectors' that are further back in the overall supply chain. A clear distortion of the market with a net negative impact since real estate does not generate jobs on its own as an asset.

If businesses fold, they fold due to the lack of ability to attract revenues. By subsidising what appears to be close to the heart we will perpetuate the inflationary mythical reality of property prices never falling. Far more efficient, though messy, for some businesses to close out to a point where rental returns force real estate firms into liquidation, assets are sold at fire-sale prices and the cycle renews itself. If we still believe in this form of free market capitalism then the market should allocate resources throughout the entire extended and affliated supply chain, not policies and certainly not governments in this particular case where businesses are concerned.

These arguments so far centre only on the assumption that business STAY in Singapore. That businesses will move out to a lower cost centre in form or substance is a given since the business of business is to make profits. What this portends is that if subsidies are given to businesses to sustain the overall flawed assumptions on operations and profitability through the entire value chain then this current crisis will repeate itself in the future.

There are many more implications cutting across more policy sectors but let's move on, as those in power like to say.

On Employees & The Consumer

If cash is granted to the consumer the same arguments above apply. The saving grace in this argument is that consumers then decide where to put their money AND the consumers get to live another day. Business exist to 'serve' customers. Without customers business as an entity and activity is moot.

At least in this case, consumer cash in hand, the market is less distorted in accordance with prevailing and popular though flawed economic principles. Consumers ultimately will decide if SMEs are worth keeping alive (money stays somewhat in Singapore) or the real estate companies (as an example) dishing out stratospheric rent rates thus increasing both business cost and the cost of living.

Best of all, the PEOPLE start to realize that their decisions make an impact on the nation and ultimately themselves. A swifter kick in the posterior then all the mandatory 'national education' classes, Kindness and Courtesy Movements as forms of nation building put together!

AND PEOPLE will begin to truly realize how inflationary economics works. We can then decide as a PEOPLE if we want to continue in this fashion.

Our Reserves

Any discussion on hard times and subsidies of any form will draw out the inevitable call to utilise our relatively gargantuan reserves. I do not disagree but this is not the time to make this call.

Our reserves are invested (or divested if positioned cheekily) look absolutely fabulous on paper. The book values are great, some even spectacular. Wait for the FY 2009 Q2 or Q3 results to determine the real value if some of our investments are realized. We may not have enough cardiac specialists in Singapore and around the region then.

This is not a time for pointing out blunders which are 'costing' Singaporeans (will I ever see that money anyway?) an arm and a leg. It is a time for full transparency so that national decision making can be facilitated.

Since the pseudo democratic movement has started in MOE with schools and how many sessions each should have etc let's simply carry the movement on and into the MOF area.

.... to be continued ...