Monday, November 19, 2012

Will new normal lead to different breed of leaders?

Nov 18, 2012
By Han Fook Kwang Managing Editor

Here's a surprising outcome of the recent leadership elections in the two most powerful countries in the world: While the results were not unexpected, the expectations of what the two leaders can achieve could not be more different.

After one of the most hotly contested campaigns, the consensus among pundits to Mr Barack Obama's re-election as United States president is that it will be more of the same in Washington. With the United States Congress controlled by the opposition Republican Party, political gridlock, which prevailed over much of his first term, will continue.

This is all the more likely given the conventional wisdom that second-term presidents are usually lame ducks in the hard-to-fathom American system because they cannot seek re-election.

On the other side of the globe, in one of the most secretive selection processes but which produced a most predictable result, the view among China experts is that incoming leader Xi Jinping has the opportunity to make changes which will determine whether China continues its heady progress towards becoming a developed country.

It cannot be status quo for him because nothing stands still in China - not when 1.3 billion people are on a relentless move to transform their lives.

The word I heard most often at a recent CapitaLand forum was "reform". Reform the corruption-riven system, the accountability of officials, the disparity in development between the coastal cities and the rural countryside and the widening income gap, and Mr Xi's China will succeed in becoming the largest economy in the world by 2020, according to some estimates.

Fail, and the Chinese juggernaut could skid out of control, with serious consequences for its people and the rest of the world. Indeed, Mr Xi referred to these issues in his first speech broadcast live on television. "To forge iron, one must be strong," he said.

There are such high expectations of him, yet he was not chosen by the vagaries of the "one man, one vote" system.

So how was he chosen?

One view that has gained prominence in recent times is that the Chinese system is highly meritocratic, selecting the best man in a rigorous process that would have eliminated many others along the way.

Both The New York Times and the Financial Times - not the friendliest newspapers towards China - carried pieces last week arguing that it was probably the most meritocratic system in the world, and right for such a vast country.

Writing in the FT, Professor Daniel Bell of Tsinghua University and Mr Eric Lee, a Shanghai-based venture capitalist, said: "The advantages of Chinese-style meritocracy are clear. Cadres are put through a gruelling process of talent selection and only those with an excellent performance record make it to the highest level. Instead of wasting time and energy campaigning for votes, leaders can seek to improve their knowledge and performance.

"The Chinese regime has developed the right formula for choosing political rulers that is consistent with China's culture and history and suitable to modern circumstances. It should be improved on the basis of this formula, not Western-style democracy."

Professor Zhang Weiwei of Fudan University put it this way in the NYT: "Nothing can better illustrate this meritocratic governance than the line-up of the next generation of Chinese leaders... Virtually all the candidates have served at least twice as a party secretary of a Chinese province or at similar managerial positions. It takes extraordinary talent and skills to govern a typical Chinese province, which is on average the size of four to five European states."

Two very different systems to choose leaders in the two countries with the most influence on the rest of the world.

For us in Singapore, we can only hope that chosen leaders will rule wisely. And ponder - among the many issues facing the country - whether the system here for throwing up and selecting leaders is the right one, given our history and culture.

But what exactly is the Singapore system?

Going by how it has been practised over the last 40 years, it has also been described as meritocratic, developed and honed by the ruling People's Action Party in its quest to find the best possible candidates to fill the Cabinet.

They have mainly come from top performers in the public sector, with the occasional but rare private sector addition, in their 30s and 40s but with no prior political experience. Those who make it after a stint as junior ministers go on to helm their own ministries.

In the present line-up, Mr Chan Chun Sing, Mr Lawrence Wong and Mr Tan Chuan-Jin, all from the public sector, are on track along this time-tested route to the top. Education Minister Heng Swee Keat, slightly older, was the exception when he was appointed to head a ministry immediately after the election.

Almost similar to the Chinese system? The key difference is that they first have to be elected by the people.

In the years before the 2011 General Election, this was almost a formality. Yes, they needed to contest elections but under the Group Representation Constituency system, and facing weak opposition parties, they were shoo-ins.

Under those circumstances, the Singapore system was as close to the Chinese system in claiming its meritocratic credentials, though not as competitive or rigorous.

But we are now into a new normal, and if the last GE is anything to go by, those shoo-in days might well be over. Voters' desire for more opposition, and the ability of the more successful opposition parties to attract better-qualified candidates, will make it harder for scholar-type candidates with no political experience to succeed.

If indeed this turns out to be the case, will the PAP talent pipeline dry up, as fewer successful people want to come forward and risk a political future fraught with uncertainty at the first hurdle?

Critics of the present system will argue that this is a good thing because it will require a different breed of candidate, not averse to the rough and tumble of politics. And that the old method of parachuting in careerists with no political flair or experience is what is wrong with the PAP's way and explains last year's backlash from voters.

They will argue that the ruling party needs to fix the way it recruits candidates, and select those who do not only excel at policy work but also connect with the people and can succeed in getting elected.

Being electable might in future become more important. After all, the most competent candidate is of no use to the party if he or she cannot win an election.

So, will Singapore see a change in the way leaders are thrown up? If indeed a new breed of leaders emerges as a result, different from the scholar-types of the past, what changes will they bring to Singapore's governance?

This will be uncharted territory, with far-reaching consequences for the future of this place.

Competent, committed and connected leaders - in the US, China or Singapore - matter to the highest degree. Get the right people elected, and there is a higher chance the right policies will follow.

Leadership selection is a much more fundamental issue, one more critical to Singapore's future than the tweaking of public policies such as housing or transport.

I hope these questions are being asked at the highest level.

The real China model: Not quite meritocracy
by Mark Elliot

Nov 16, 2012

In the ongoing discussion of so-called Western and Chinese models of political development, a number of commentators have recently drawn attention to China's "meritocratic" practices as deeply rooted political traditions that remain an effective vehicle for any citizen to rise to the very top of the country's leadership structure.

With "princelings" - sons of China's revolutionary heroes - making up a big part of the Communist Party's new Standing Committee, the case for meritocracy in China's current political system is tough to make, but I will leave this question to students of modern Chinese politics.

As a historian, however, I cannot let pass unchallenged the characterisation of premodern Chinese political culture as "meritocratic."


Political scientist and best-selling author Zhang Weiwei suggested that "the Communist Party of China may arguably be one of the world's most meritocratic institutions" ("Meritocracy versus democracy," Nov 12).

Whether in essays by political observers or in remarks by Communist Party leaders, references to "meritocracy" like Mr Zhang's inevitably call upon associations with China's fabled examination system, broadly instituted in the 7th century A D and liquidated only many centuries later, in 1905.

The popular perception of the examinations (called keju in Chinese) maintains that they served as an objective tool whereby all aspirants to public office were measured according to their ability to prove mastery of a substantial canon of classical texts, wherein was believed to lie the knowledge essential to good government.

Since (almost) any male was eligible to take the exams, the idea was that they regularly elevated top talent from across the country into the elite, injecting new ideas and blood into the body politic and ensuring an avenue upward for clever, ambitious individuals.

In this view, to which proponents of the "China model" like Mr Zhang evidently subscribe, up until a little more than a century ago, a young man with no connections could dream of becoming a powerful (and wealthy) minister if he only studied hard enough.

It is an admirable ideal. But how meritocratic was the examination system in its actual practice?


Over the last 20 years, research has shown that the keju was far from the "ladder of success" it was long widely reputed to be.

We know that during the Ming dynasty (1368-1644), for instance, merchants' sons were not allowed to take the examinations at all, and that in the Qing (1644-1911), as Mr Benjamin Elman, a scholar from Princeton University, has decisively shown, "the content of the civil service competition clearly excluded over 90 per cent of China's people from even the first step on the ladder to success."

In other words, to have any kind of reasonable shot at passing the exams, you needed to come from a family with an established tradition of classical literacy, meaning a family with money to buy books or close connections to another such family. Only 10 per cent of the population made that cut.

Furthermore, as a former student of mine, Mr Lawrence Zhang, persuasively argues in his dissertation, the number of Qing officials whose path to glory was facilitated by office purchase has been considerably underestimated. Not only did families from outside the "power elite" spend money to advance their sons in the competition, literati families themselves - long thought to have no need to sink to such tawdry schemes - used their money freely to game the system.

With the odds of making it all the way to the highest levels of the exams literally one in a million, who can blame them?

The fact is that a majority of elites in imperial China relied on means other than "merit" to succeed politically: They depended on family connections and material resources, much like political elites in Western societies.

Because so few people ever had any hope of passing the exams and yet so many still took part, the consensus today is that the main significance of the examination system was the reinforcement and reproduction of specific modes of elite discourse that served state needs on social, political and cultural levels.

Contrary to the claims of Mr Zhang and like-minded writers, it had little to do with scouring every village of the empire in the search for geniuses to recruit to court service.


That is not to say the system was totally ineffective. Then, as now, people of merit were indeed chosen for official service. It was just that most of them were not chosen in an especially meritocratic way, if by "meritocratic" we mean "judged superior according to an objective standard of ability" (like an examination of philosophical knowledge and literary skill).

Writers like Mr Zhang Weiwei may disagree with that understanding of meritocracy, since in Chinese they use the classical phrase xuanxian renneng, "selecting the wise and employing the capable" - hardly the same thing, I would suggest, since it says nothing about how selection happens.

It may well be that we are dealing with very different definitions of what constitutes "meritocracy" in the first place. Of course, among much of Chinese society before the 20th century the belief prevailed that "anyone could make it", and the state connived at this; but literary sources make it clear that only the naive clung to such a fantasy.

That present-day commentators still promote outmoded thinking regarding the imperial "meritocracy" demonstrates not only the long half-life of that ideology, but also the strong hold that the Chinese state continues to have over much of China's (and not only China's) intelligentsia.

That hold, rather than meritocracy, is a much better example of the way in which the effects of China's long history continue to be felt today.

Mark Elliott is a professor of Chinese and Inner Asian History at Harvard University.

See also: Westerners who laud a Chinese meritocracy continue to miss the point


Sunday, November 18, 2012

How to cool the HDB resale market

Nov 18, 2012

Require PRs who leave to sell their flats; make landlords pay levy and tax on rental income
By Chua Mui Hoong Opinion Editor

A property agent friend rang last week with two bits of news she wanted to discuss.

First, she said, the rental market is very weak. She had put up a Housing Board flat for rent and was shocked at how slow the response was. "Lots of foreigners are going home, they can't renew their passes," she explained.

The second issue: prices of HDB resale flats. She is worried for her sons, and whether they can afford their own home. "Crazy," she said, referring to reports of the Queenstown flat that sold for $1million and the executive condominium unit reportedly fetching $1.6million. "Will the Government let this continue?"

Each year, about 30,000 couples get hitched. Assuming those aged 26 to 30 are waiting to get married, that's five cohorts of 30,000 couples worried about whether they can afford a flat, or 150,000 couples.

Since each couple has four parents, that's 600,000 Singaporean parents fretting over runaway housing prices.

No wonder the subject spawns plenty of chatter online and in the mainstream media and in coffee shops.

The worry is that soaring HDB resale flat prices will feed into higher prices for new subsidised flats, and put HDB housing beyond the reach of the average worker.

Why resale flat prices soar appears puzzling at first glance.

Basic economics tells us prices turn on demand and supply.

First, consider the demand side. Why is there such strong demand for HDB flats in a country with 90 per cent home ownership?

The answer lies in three words: newlyweds, foreigners and churn.

The first are young couples forming new households.

The second are permanent residents (PRs) allowed to buy HDB flats, who make up 20 per cent of recent HDB resale flat transactions.

The third refers to folks who have sold their own homes (either HDB or private property) for whatever reason and need a new place.

You can curb demand to cool prices. In fact, the Government has done so, by building more build-to-order flats to cater to newlyweds and some of the churners; and by requiring those who own private property in Singapore or overseas to sell their other properties if they buy an HDB flat.

But I think more effort needs to go into the supply side of the equation.

To do this, we need to understand why the supply of resale flats is so limited.

The number of resale flats sold has fallen over the years: from 39,320 in FY2009, to 30,061 in FY2010 and 24,331 in FY2011. That's a fall of 38 per cent in three years.

At the same time, the number of flats put up for sub-letting has increased: from 27,256 to 36,440 to 41,162 over the same three-year period to FY2011. That's a rise of 51 per cent.

Clearly, more HDB flat-owners who don't need their flats to live in are finding it more worthwhile to rent them out than sell them.


In part it is due to new restrictions being imposed on the purchase of resale flats, dissuading existing flat-owners from selling, for fear they can't buy an HDB resale flat in future.

If you own both private property and an HDB resale flat for example, you're unlikely to sell the latter. If you did, you'd find that current rules prevent you from purchasing an HDB resale flat in future unless you're prepared to sell off your private property too.

But the real answer to why folks want to rent out, not sell, their resale flat, lies in one word: Yield.

With good rental, it becomes attractive to rent out your HDB flat for an income stream, rather than sell it now for instant capital gains.

Would you sell your four-room flat for $400,000 now? Or hold on to it, get $2,200 a month or $26,400 in annual rental income for 10 years, and then sell it in 2022, by which time you hope the price goes up to $600,000?

It's a no-brainer. A steady income stream today, with possible capital appreciation tomorrow, gives every reason for HDB flat-owners to hang on to their money-making machine.

What works for an individual HDB landlord, however, may not be ideal for society as a whole.

If fewer resale flats come onto the market, prices will remain inflated, and all the cooling measures on the demand side won't be effective.

This is why I think there must be measures to boost the supply of resale flats too.

You can't mandate or force HDB flat-owners to sell their flats. That would be politically untenable and goes against the free market here.

But you can create incentives and disincentives to change the equation for HDB landlords.

The basic philosophy is to persuade folks who don't need an HDB flat to live in, to sell it.

First, permanent residents who own HDB flats. I am not in favour of banning PRs from buying HDB resale flats. After all, they live and work in Singapore and need affordable housing too.

But they must live in the flats. This means requiring them to sell their HDB flat when they leave Singapore. HDB has also introduced rules to limit the number of years PRs can sub-let their flats.

Second, make sure the rental income of HDB flat landlords is declared and taxed. Those who rent out their flats now need to declare this to the HDB, including stating the amount of rental.

HDB and the Inland Revenue Authority of Singapore must work seamlessly to ensure taxes are paid. This will increase the tax liability of those who already earn good incomes. If they are in the top income bracket, every 20 cents of their rental dollar go back to the taxman.

Third, on top of the usual tax on income, impose a special levy on HDB rental income for those who also own private property. There are about 33,000 of them, or 4 per cent of the total HDB stock.

The levy can be justified as a redistribution measure. After all, this group doesn't need a home to live in and are wealthy enough to afford private housing. Meanwhile, their younger or less wealthy compatriots are being priced out of the basic housing market.

The free market allows landlords to collect rental. The state then steps in to impose a levy to alter the equation for the landlord, to persuade him to give up his title and sell the property.

A levy of, say, 50 per cent can tilt the balance towards selling rather than renting. High-income private property owners making money from their HDB flats will have to pay 20 cents per dollar in tax, and another 50 cents in levy. They get to keep only 30 cents per dollar of rent.

Some will consider it worthwhile to hold on to their HDB flats anyway, perhaps because they want to retire in one, or give it to their children. At the margin, however, there will be a number who figure it makes better financial sense to sell their HDB flats now while the market is robust.

If more units come onto the market, prices will certainly adjust.

More pertinently, it sends a clear signal to Singaporeans that while HDB flats can appreciate in value, they should not be traded like a high-yield investment asset. A high tax on rental yield will send such a message sharply.

Is this a drastic measure? Not by any means.

It will hit only those who own both HDB flats and private property. It's less intrusive than outright bans or tighter ownership restrictions.

It's certainly less drastic than the Singapore Democratic Party (SDP) proposal to build a category of flats which can't be sold on the open market and can be priced lower. I applaud the SDP for its serious engagement on this issue and believe Singapore would be a richer society if opposition parties paid the same level of attention to policy proposals. But I belong to the category of those who don't think it's a good idea to deny lower-income households the opportunity to benefit from increases in value of their homes. There are other ways to help the bottom 40 per cent of households afford their own homes: build smaller flats, give more generous grants, offer interest-free loans.

In contrast, a levy on rental income from HDB flats is a fiscal measure that can be easily tweaked: If 50 per cent is not right, tweak it to 30, or 70. It hits the HDB landlord-investor right where it hurts most: his pocket. It can tilt the balance to make it less attractive for those who don't need a roof over their head to buy a resale flat.

Nor should there be concerns about a levy being passed on by landlords to tenants, inflating rental costs. As Singapore tightens the tap on foreign manpower, rental demand will soften in the years to come. It will become a tenants' market, and landlords won't be able to hold tenants to ransom.

[The problem in the resale market is that there is no cap on the COV. On the one hand, COV can be seen as an instrument for instant adjustment and response to the market to properly reflect the true costs and value of the property and the owner should have a right to this adjustment as the valuation may have lagged. However, how much lag or discrepancy can there be? Perhaps COV of up to 10% of the valuation of the flat can be allowed without any restrictions. However beyond 10%, every dollar of COV will be taxed as part of income of the seller.

And if the COV is higher than 20% of valuation, every dollar above 20% paid by the buyer must be matched with a dollar of tax to the govt to be paid by the buyer. i.e. 100% sales tax.

So if a flat is valued at $400,000, the seller may ask and receive up to $40,000 as COV tax free.

If the COV is $45,000, the seller will be taxed on the $5000 as income.

If the COV is $100,000, the first $40,000 will still be tax-free, but the seller will have to include $60,000 as part of his income to be taxed. The buyer in addition to the COV of $100,000 will also be required to pay the govt $20,000 for a total of $120,000, because $20k is above the 20%.

This effectively puts a loose "cap" of 20% of the valuation for COV, as beyond 20%, the buyer has to pay 100% tax.

Is this a possible solution or will it cause more problems?]

Saturday, November 17, 2012

Why drug kingpins avoid S'pore

Nov 16, 2012

Parliament on Wednesday amended the Misuse of Drugs Act. Under the new law, the death penalty will no longer be mandatory for drug trafficking under two specific conditions: First, if the trafficker only played the role of courier and had not been involved in other drug-related activities, and second, if the trafficker cooperated in a substantive way. Below is an edited extract of Law Minister K. Shanmugam's speech, in which he addressed issues and concerns raised by several MPs and NMPs.

MY OWN view is the starting position has to be that the courts should have discretion.

How then should we approach the question of death penalty for serious drug offences? If we focus only on the trafficker and ask if mercy ought to be shown, the answer must be "yes". No one can disagree with that.

(But) the correct question has to look at the context and raise the following issues:

1) What is the nature of the drug menace, the nature of the beast that we're dealing with?

2) What are the risks we face as a country, as a society from this risk; how do we deal with these risks; what has to be our approach; what happens if we completely remove the mandatory death penalty and (leave it to) the discretion of the courts?

Are we prepared for the trade-offs and the risks? The answer depends on the level of risks and costs to society that you're prepared to accept. Let me take you through some data.

First, drug users globally have gone up from 180 million to 210 million in the last 10 years.

Second, every year between 100,000 and 263,000 people die due to drugs, with the mean age of their deaths at mid-30s.

We hardly ever hear tears shed in public for these 200,000 who die. But we shed a lot of tears for everyone on the death row. Compassion is important, but context is also important.

The fight worldwide against drugs is being lost. Drug syndicates are sophisticated MNCs, well-financed, international networks, very smart people at the helm, making huge profits and with good access to people who can act as couriers.

Singapore is a highly attractive destination, with people who can pay for drugs; it's a transport and tourism hub. Half a million people come here every day, or 182 million every year. It's logical for Singapore to become a drug hub or a major trans-shipment centre.

What is the impact of drugs in Singapore even with all of our tight laws? About two-thirds of local prisoners are drug addicts, drug offenders. Eighty per cent, eight out of every 10 prisoners, have drug antecedents - that is, they may be in for something else but they have drug antecedents.

Consider the impact on offenders, families, victims, society. And the youth abusers in Singapore show a worrying trend.

We take comprehensive measures against both supply and demand; and it involves education, early intervention for young abusers, strict border controls, tough enforcement, tough drug rehabilitation for first- and second-time abusers, long-term imprisonment after the third time, and of course the Criminal Law (Temporary Provisions) Act against syndicate members where witnesses fear to testify, and tough punishment, caning, imprisonment, mandatory death penalty.

The mandatory death penalty is not, cannot be the only solution. It has got to be part of a comprehensive framework to deal with the situation.

The consequence of our approach is that we are one of the few countries where the drug menace has been fought reasonably successfully, and I emphasise reasonably because this is not a fight you can say you've won. And you can easily lose it.

Drug kingpins avoid Singapore. There's no substantive production here. Couriers think twice before they try their luck. They try to keep below the threshold for capital punishment. We know this through intelligence.

Drug prices in Singapore - another market indicator - are comparatively high, purity levels comparatively low. Purity level is 4per cent, compared with Hong Kong's 57 per cent.

So when you debate the mandatory death penalty, look at it in this context: Why do drug kingpins avoid Singapore? Why is it difficult to get people to traffic drugs into Singapore?

Why is it traffickers often and deliberately keep below the limits for capital punishment? What will be the consequence of removing the mandatory death penalty?

Would there be more people willing to become couriers? And it's not difficult to get people in this region to become couriers: People who need money and drug abusers can be persuaded to become couriers. Not difficult.

Our stance on the death penalty is extremely well known: Traffickers face capital punishment. That sends a message and reduces the number of couriers.

You remove that fear, you remove that penalty, are we willing to take the risk of many more people becoming willing couriers?

In the context of drugs, the suggestion to give discretion to judges looks attractive. Of course, the approach is, maintain the death penalty for deterrence and allow for mercy in individual cases.

As I have said earlier, this is something that has concerned us deeply because, like the members, our preference would be to give more discretion to the courts, but we have looked at this carefully, discussed it with the agencies, the Attorney-General.

We discussed it with both Chief Justices Chan Sek Keong and Sundaresh Menon to see if it is possible to give more discretion. Their views were that if you want to give more discretion to the courts and if Parliament deems it necessary to make a drug offence punishable with the death penalty, it is preferable that the statutes set out as clearly as possible the circumstances under which the death penalty ought to be imposed.

And they have also said that while the courts will, of course, exercise any discretion in a principled and consistent manner, it is best that the legislature define in the clearest possible terms when the ultimate punishment is justified. So let us take it from there.

Think it through: How will we craft a legislative provision to give more discretion to the courts?

First, the quantum: 15g of diamorphine. Do we agree this is a serious threshold?

Once you agree on the threshold and if the elements of the offence are made out, then how would you have the court exercise discretion? On what basis?

Can we conceive of a discretionary sentencing approach that maintains the deterrent value of the death penalty across the whole spectrum of drug trafficking activities? With the best will in the world, I suggest it'll be difficult, if not impossible.

Consider age: Would you say youth? Young mothers? Impecuniosity? The trafficker was baited with love? Would you look at other family circumstances?

Set out the criteria and the drug lords will design the couriers in accordance with these criteria.

Trafficking is the crime. So while it is attractive in broad terms to talk about giving discretion, look at it in detail. How would it work? In murder, yes, you can look at it to see whether it's a crime of passion, you can look at the the individuals. How would you do it for drug trafficking in a way that does not affect the deterrent effect of the death penalty?

So be realistic and then post the question in realistic terms: Do you want de facto or at least substantial reduction in the deterrent value of the death penalty?

I'm not arguing that you cannot put that position forward, but at least then that will be a clearer, hard-headed approach, which analyses the real issue. Then, the question for members is: Is this a risk you're prepared to take in the context of the global and regional situation, and remove a key strategy in our fight against drugs?

And on couriers, there are many misconceptions. Let us be clear. They do this for money.

Let me now move onto cooperation, the question that has been raised by a number of members. On the first exception, that couriers who have substantively assisted the Central Narcotics Bureau (CNB) in disrupting drug trafficking activities could be spared capital punishment.

In looking at this, it seems to me that members may have asked themselves the question: "What can we do to help couriers avoid capital punishment?"

If that was the question, the solutions are very easy. The issue is not what can we do to help couriers avoid capital punishment. It is what can we do to enhance the effectiveness of the Act in a non-capricious and fair way, without affecting our underlying fight against drugs?

Discretionary sentencing for those who offer substantial assistance is the approach we have taken. For those who cannot offer substantive assistance, the position is as it is now.

Some members have asked: "Would it be better to say the courier has done his best, that he acted in good faith?"

The short answer is, it's not a realistic option because every courier, once primed, will seem to cooperate. We are dealing with an offence with a criminal organisation on the other side.

So if you say cooperate, your couriers will be primed with beautiful stories, mostly unverifiable, but on the face of it, they've cooperated. And the death penalty will then not be imposed, and you know what will happen to the deterrent value. Operational effectiveness will not be enhanced.

Will we be better off? We will be worse off.

As I started out, in these things, it's not as if there is one clear answer one way or the other. It is what we in this House consider to be important for our society and weighing the different approaches. But don't fool yourself that there are no trade-offs.

Mr Edwin Tong, Professor Eugene Tan, and Mr Desmond Lee said, are drug couriers in a position to provide substantive assistance? Fair point. Let me throw back the question. Assume the couriers are not able to help. What should be the penalty? That goes back to the fundamental question: Should there be the death penalty for couriers? That is the question you have to cross.

It is a difficult question but if you answer that and once you say yes to that, then you will see this change as making an exception to that position. Only those who qualify for the exception must be spared the death penalty.

On the second exception, on diminished responsibility, our view is that the law has been set out, genuine cases of mental disability are recognised, judgments have to be made, depending on the facts. And while genuine cases of mental disability would afford a defence, errors of judgment will not afford a defence. And the law is also capable of taking into account the progress of medical science in understanding mental conditions.

Let me conclude by making some broader points.

I have spoken several times about weighing the consequences in real terms before deciding what we do. Let's look at the situation of some real cases.

First, the case of Noinoi. In 2006, Mohd Ali Johari was charged for the murder of his two-year-old step-daughter, Noinoi. He admitted to slapping her, immersing her in water repeatedly. He was a father at 17, a marijuana smoker, cough syrup abuser, immature, deficient parent. He said he sometimes brought Noinoi home with him as he thought that she would help him avoid detection by CNB.

Look at "Nelly" and "Rose". Nelly (aged six) was placed under foster care after her mother, uncle and grandfather were arrested for drug consumption. She had been cared for by multiple caregivers and witnessed her mother taking drugs. Her sister, Rose, a newborn baby, was placed under foster care in 2010.

Look at "Ricky", nine years old, referred to MCYS in 2007 when his mother and stepfather were imprisoned for drug offences. Both had a long history of drug abuse. Father was also a drug abuser. Ricky was admitted to a children's home, where he was observed to have emotional issues and suicidal tendencies.

Last case I wanted to highlight. Girl, we call her "A", was arrested at the age of 16 for possession of meth. Drugs were given to her by her half-sister, now serving sentence for drug consumption, also by her mother's boyfriend.

Later, when her mother's boyfriend was incarcerated, she turned to her mother, who gave her heroin regularly. She has three half-brothers currently incarcerated for drug consumption. Five others arrested for consumption of drugs - friends of Girl A's mother - consumed drugs at her half-sister's residence. Total number of people involved in this group: 12.

We do need to show mercy and compassion to the traffickers but at the same time we also need to show mercy and compassion to the Noinois and the Roses and the Nellys and the Rickys of this world, and thousands of others like them. Young lives destroyed.

None of us really are there cheering for the death penalty or mandatory death penalty. It has to be a careful calibration of the risks that society faces and the punishments that can be imposed.

And if we go in any particular route, let's do it without hiding the truth from ourselves or by assuming that nothing else will change while we change certain penalties, except that if you change the penalties, there will be consequences.

Ask yourself whether we are prepared for the consequences, and if we honestly are prepared for the consequences, then we change.

I would suggest: Ask whether the changes we make, are they going to help the victims or are they going to hurt the victims? And firmness, clarity of purpose, and compassion to both the offenders as well as the victims.

Thursday, November 15, 2012

US election over... now comes the hard part

Nov 14, 2012
By Nayan Chanda For The Straits Times

A MEMORABLE moment of the long drawn-out United States presidential election campaign came in March when a Romney adviser explained how his candidate would switch gears once the primaries were over.

From the position of a severe conservative, he would become a moderate. "It is almost like an Etch A Sketch," he said, referring to a mechanical doodling toy. "You can kind of shake it up and restart all over again," he elucidated.

With the polling over, Etch A Sketch reveals itself as an apt metaphor for the entire election campaign. Issues such as outsourcing, abortion and petrol prices that long filled the debating stage can now be pushed to the background, revealing the more portentous issues that were inconvenient to raise earlier. The looming fiscal cliff faced by the government and the threat of global warming are two of such issues that the world waits to hear about from Washington.

Having shunned the divisive issue of global warming during the campaign, President Barack Obama raised it within hours of his victory. "We want our children to live in an America that isn't... threatened by the destructive power of a warming planet," he said.

While the campaign was on, with coal-mining constituencies in mind, Mr Mitt Romney loudly proclaimed his love for coal. Mr Obama timidly responded by affirming his support for clean coal. Even after the unprecedentedly large super storm Sandy that wrought disaster and interrupted the campaign, the candidates were mum.

But Sandy finally pushed even a mainstream publication such as Bloomberg Businessweek to drop its standard journalistic equivocation and run a cover proclaiming "It's Global Warming, Stupid".

Increasingly, many climate scientists are acknowledging the role of global warming in the frequency of mega disasters, even if these cannot be directly linked to climate change. Mr Obama's mention of the "destructive power of a warming planet" suggests that, shorn of the electoral constraints, he may be ready to call a spade a spade.

He has already taken some executive measures to curb emissions and promote cleaner energy. However, major steps to stem global warming and mitigate the anticipated ill-effects would require strong leadership and congressional legislation. It remains to be seen how much political capital Mr Obama is ready to spend to leave this legacy for "our children".

More urgent than leaving a legacy is to figure out what happens to the US economy and the world on Jan 1. During the election campaign, the question of how to avoid disastrous, across-the-board spending cuts and tax hikes that await on Dec 31 was avoided like the plague.

In the summer of last year, failing to reach an agreement on a solution, a bitterly divided Congress had kicked the can down to the post-election weeks. If, in the remaining six weeks, the Republicans and the Democrats cannot reach an agreement on how to bring down the mountain-high deficit, it would not only tip the US economy into recession but, as the International Monetary Fund warned, also have "large international spillovers".

The scrapping of tax cuts instituted by the Bush administration would raise revenue but hit the middle class hard.

Apart from the inability to compromise, the reason to put off the most vital decision for the country till the waning weeks of the year was perhaps the hope that the election would alter the power balance, making a deal possible.

But the election results offer a confusing message. The exit poll shows voters trust Mr Obama more than Mr Romney to protect the middle class, but believe the Republican candidate to be better equipped to manage the economy.

This dichotomy is reflected in the results. While Mr Obama won a decisive victory and the Democrats maintained their control of the Senate, the House of Representatives remains in the hands of the Republican Party.

Although chastened by the defeat of its presidential candidate and some radical Tea Party members, the Republican Party is not ready to compromise on its determination to prevent raising taxes on the rich. Buoyed by the Obama victory and poll results showing majority support for taxing the rich, the Democrats, for their part, are in no mood for compromise.

Had the election campaign not been an Etch A Sketch operation and allowed the candidates to openly debate the pros and cons of their positions to avoid a year-end disaster, America and the world would have been spared a cliffhanger.

The author is director of publications at the Yale Centre for the Study of Globalisation and editor of YaleGlobal Online.

Near-death experiences: A sign of life after death?

Nov 15, 2012
By Andy Ho Senior Writer

A NEW book, Proof Of Heaven (2012), made the cover of Newsweek recently.

The magazine's story, entitled Heaven Is Real, is all about a Harvard neurosurgeon who went to heaven while in a deep coma. Or so he says. One night in 2008, Dr Eben Alexander felt unwell, but by early morning he had become comatose. E. coli infection of the brain, a rarity in adults, had led the outside of his brain to be filled with pus. The brain shut down, whereupon the electroencephalogram (EEG) flatlined, showing no electrical activity.

After six days in a deep coma, even as his wife was discussing with doctors in the next room when to pull the plug, the brain-dead man suddenly woke up, tugged at the tubes and began talking. He related his experience of a "hyper-vivid and completely coherent odyssey" into another dimension while comatose, one with angels, music, beauty, love and flying on butterfly wings.

While a great yarn, it holds much in common with stories related by others who have had this "near-death experience" (NDE). In a 2001 Lancet study of 344 Dutch patients who were resuscitated after cardiac arrest, 18 per cent had had an NDE while clinically dead.

The NDE was first described by American psychiatrist Raymond Moody in Life After Life (1975). He noted 15 characteristic features such as euphoria, an out-of-body experience, going through a tunnel, rising into the heavens, encountering non-physical beings and departed loved ones, sensing a loving "Being of Light", a review of one's life and, finally, returning to the body.

In 2006, a University of Virginia (UVA) study noted that while NDE trippers were not particularly religious before the experience, it tended to cause a "spiritual transformation" so they became less afraid of death and convinced that love trumped material goods.

Critics insist that everything in the universe is grounded in material reality. So all mental processes can only come from chemical ones in the material brain. As there can be no consciousness without a functioning brain, there can't be life after death, they say.

When the heart stops, blood flow to and oxygen uptake by the brain drops to near zero within seconds, so higher brain functions stop. The EEG shows the brain's electrical activity slowing down within six to 10 seconds, then flat-lining within 10 to 20 seconds. Yet over 100 cases of NDEs occurring specifically during cardiac arrest when the EEG has flatlined have been reported in at least four published studies.

So how could a coherent, highly structured experience like this arise from a clinically dead brain?

Critics say, first, that the EEG is just picking up electrical activity in the outer part of the cerebral cortex (grey matter). So when it flatlines, the inner part of the brain could still be active.

However, the issue is not if there is activity at all but whether it is of the kind needed to produce these vivid trips. In particular, the hippocampus, the brain region which forms memories, is especially sensitive to oxygen deprivation, so there should be no memory of the NDE in the oxygen-starved brain. Thus, any putatively residual brain capacity undetected on EEG when the brain is oxygen-deprived doesn't suffice to explain the complex information processing that seems to be occurring within an NDE.

Secondly, critics say that NDEs don't actually occur while the brain is already shut down. Instead, they may be occurring just before it shuts down or just as it is coming out of a shutdown. However, most cardiac arrest patients, on recovering consciousness, are notably confused about or amnesic of the happenings just before and just after the arrest.

By contrast, NDEers commonly report having extra-clear minds during the trip, which are thus hyper-vivid. In a 2010 study, 75 per cent or more of NDEers described their minds during the trip as clearer, faster and more logical than usual. This suggests that complex cognition and memory formation occur during an NDE.

Finally, critics note that studies show sincere people who simply imagine a specific experience can form false memories. Indeed, Dr Moody's 15 features seem to recur in NDE accounts. His 1975 book, which sold 10 million copies, may well have subsequently coloured many an account/false memory.

But a 2006 study compared 24 NDE accounts collected before 1975 against 24 accounts collected after 1975. The latter were found to differ in only one of Moody's 15 features, reporting more often the tunnel phenomenon "which other research has suggested may not be integral to the experience". Thus NDEs may be more than false memories of or imaginative reconstructions by some people.

But why don't all clinically dead patients who are then successfully resuscitated report NDEs? A 2004 UVA study found that NDEers were more likely to have EEG features that resemble those found in epilepsy in the temporal lobes.

These are the parts of the brain at the temples which are active in religious experiences. Stimulating them experimentally can cause hallucinations, memory flashbacks and out-of-body sensations. Thus it may be that people with temporal lobes that function in a specific manner are more likely to have NDEs.

Bottom line: Do NDEs prove consciousness persists after death? Those who say "yes" think that the mind is more than just the brain, the twain being separable entities. Those who say "no" insist that the mind is just the brain. Yet both parties may be jumping the gun since how consciousness emerges from the physical brain - a conundrum that philosophers have dubbed "the hard problem" - is not known. If so, asking if consciousness can persist after death puts the cart before the horse. Whether heaven is real or not, the NDE isn't really proof either way.

Obama's nightmare

Nov 15, 2012

By thomas l. friedman

THE sex scandal engulfing two of America's top military and intelligence officers could not be coming at a worse time: The Middle East has never been more unstable and closer to multiple, interconnected explosions.

Virtually every American president since Dwight Eisenhower has had a Middle Eastern country that brought him grief. For Ike, it was Lebanon's civil war and Israel's Sinai invasion. For Lyndon Johnson, it was the 1967 Six-Day War. For Richard Nixon, it was the 1973 war. For Jimmy Carter, it was the Iranian Revolution. For Ronald Reagan, it was Lebanon. For George H.W. Bush, it was Iraq. For Bill Clinton, it was Al-Qaeda and Afghanistan. For George W. Bush, it was Iraq and Afghanistan. For Barack Obama's first term, it was Iran and Afghanistan, again.

And for Mr Obama's second term, I fear that it could be the full nightmare - all of them at once. The whole Middle East erupts in one giant sound and light show of civil wars, states collapsing and refugee dislocations, as the keystone of the entire region - Syria - gets pulled asunder and the disorder spills across the neighbourhood.

And you were worried about the "fiscal cliff".

Ever since the start of the Syrian uprising/civil war, I've cautioned that while Libya, Egypt, Yemen, Bahrain and Tunisia implode, Syria would explode if a political resolution was not found quickly. That is exactly what's happening.

The reason Syria explodes is because its borders are particularly artificial, and all its internal communities - Sunnis, Shi'ites, Alawites, Kurds, Druze and Christians - are linked to brethren in nearby countries and are trying to draw them in for help.

Also, Sunni-led Saudi Arabia is fighting a proxy war against Shi'ite-led Iran in Syria and in Bahrain, which is the base of the US Navy's Fifth Fleet. Bahrain witnessed a host of bombings last week as its Sunni-led regime stripped 31 Bahraini Shi'ite political activists of their citizenship. Meanwhile, someone in Syria has decided to start lobbing mortars at Israel. And, on Tuesday night, violent anti-government protests broke out across Jordan over petrol price increases.

What to do? I continue to believe that the best way to understand the real options - and they are grim - is by studying Iraq, which, like Syria, is made up largely of Sunnis, Shi'ites, Christians and Kurds. Why didn't Iraq explode outward like Syria after Saddam Hussein was removed? The answer: America.

For better and for worse, the United States in Iraq performed the geopolitical equivalent of falling on a grenade - that we triggered ourselves. That is, we pulled the pin, we pulled out Saddam, we set off a huge explosion in the form of a Shi'ite-Sunni contest for power.

Thousands of Iraqis were killed along with more than 4,700 American troops, but the presence of those US troops in and along Iraq's borders prevented the violence from spreading. The US invasion both triggered the civil war in Iraq and contained it at the same time.

After that Sunni-Shi'ite civil war burned itself out, the US brokered a fragile, imperfect power- sharing deal between Iraqi Shi'ites, Sunnis and Kurds. Then the US got out. It is not at all clear that their deal will survive the departure.

Still, the lesson is that if you're trying to topple one of these iron- fisted, multi-sectarian regimes, it really helps to have an outside power that can contain the explosions and mediate a new order. There is too little trust in these societies for them to do it on their own. Syria's civil war, though, was triggered by predominantly Sunni rebels trying to oust President Bashar al-Assad and his minority Alawite-Shi'ite regime.

There is no outside power willing to fall on the Syrian grenade and midwife a new order. So the fire rages uncontrolled; refugees are spilling out, and the Shi'ite- Sunni venom unleashed by the Syrian conflict is straining relations between these same communities in Iraq, Bahrain, Lebanon, Saudi Arabia, Turkey and Kuwait.

But Iraq teaches another lesson: Shi'ites and Sunnis are not fated to murder each other 24/7/365. Yes, their civil war dates to the 7th century. And, yes, when they started going after each other in Iraq, they did so with breathtaking chainsaw- nails-pounded-into-heads violence. There is nothing like a fight within the faith. Yet, once order was restored, Iraqi Shi'ites and Sunnis, many of whom have inter-married, were willing to work together and even run together in multi-sectarian parties in the 2009-2010 elections.

So the situation is not hopeless. I know American officials are tantalised by the idea of flipping Syria from the Iranian to the Western camp by toppling Mr Assad. That would make my day, too, but I'm sceptical it would end the conflict.

I fear that toppling Mr Assad, without a neutral third party inside Syria to referee a transition, could lead not only to permanent civil war in Syria but one that spreads around the region. It's a real long shot, but the US should keep trying to work with Russia - Syria's lawyer - to see if together a power-sharing deal can be brokered inside Syria, with a United Nations-led multinational force to oversee it.

Otherwise, this fire will rage on and spread, as the acid from the Shi'ite-Sunni conflict eats away at the bonds holding the Middle East together and standing between this region and chaos.


Wednesday, November 14, 2012

Jakarta's secular tussle with Islam

Nov 13, 2012
By John McBeth Senior Writer

DURING president Suharto's 32-year rule, Indonesians were constantly fed a seemingly indigestible diet of Pancasila, the five principles conceived during the struggle for independence which served as the philosophical bedrock of the future Indonesian state.

Foreign students, in particular, were taken aback at the way it occupied such a huge chunk of the curriculum at the country's command and staff college and other military institutions. Being able to "receive Pancasila in your heart", as the saying went, became something of a joke.

Not any more. In what may be a bid to win back social and political relevance, the mass Muslim organisation Nahdlatul Ulama has called for the reconsolidation of Pancasila to halt Indonesia's troubling slide into religious intolerance.

Last July, former vice-president Try Sutrisno, his fellow generals ranging from Wismoyo Arismunandar to Wiranto, former Supreme Court chief justice Bagir Manan and other retired senior officials signed a declaration urging all elements of society to return to the ways of Pancasila.

And earlier this month, armed forces chief Admiral Agus Suhartono, his service chiefs and majors from the 1999 and 2000 military academy classes held a panel discussion on "The Regeneration of Pancasila and its Relevance to the Future of the Defence Force".

The renewed focus on Pancasila is also shared among educationalists, worried that the loosening of its tenets has emboldened hard-line Islamic groups to resort to extreme violence against minorities and even civil society itself.

The education ministry will reintroduce a basic Pancasila class that was struck from the curriculum five years ago.

Much of the current discourse about Pancasila means different things to different people. In many cases, it doesn't touch on Islamic radicalism at all, but on the simple imperative of maintaining national unity and related concerns over the impact of globalisation and inequalities.

The military's panel discussion, for example, dwelt almost solely on Pancasila's "victory" over communism in 1965-66, a reaction to recent efforts to re-examine the bloody purge which claimed at least 500,000 lives.

After all, the keynote speaker was army chief of staff General Pramono Wibowo, the son of Lieutenant-General Sarwo Wibowo, considered the architect of the Indonesian Communist Party's destruction.

Mr Juwono Sudarsono, a minister of both defence and education in post-Suharto administrations, says the rejection of Pancasila as New Order dogma is not the issue when Islamic radicals perceive it to be overly serving the interests of Christians and minority business professionals.

"If you want to instill tolerance in society, you have to be able to address it in socio-economic terms," he points out. "Pancasila is seen to be too secular and too tolerant of market capitalism. Social and economic marginalisation among Muslims has been much more pronounced in the last eight to 10 years, especially among middle-class and lower middle-class workers."

Analysts like the International Crisis Group's Sidney Jones are in two minds about how it can be applied in any meaningful sense. "Pancasila 'worked' during Suharto's rule, not because of the power of the idea but because of the coercive apparatus that went with it," she argues.

"When Pancasila comes up in the context of being an ideological basis to counter religious intolerance, then it will only succeed if there's a much more concerted effort to teach and promote pluralism, and define the first and second 'sila' as such."

Promulgated by founding president Sukarno, those sila, or principles, call for a belief in one God and a "just and civilised humanity". The three others prescribe an adherence to national unity, democracy by consensus and social justice.

But over the last decade, and particularly since the influential Indonesian Council of Ulemas fatwa against pluralism in 2005, the opposition from the conservative Muslim community seems to ensure that resurrecting Pancasila will have little impact.

For that reason alone, there has to be a willingness to use the authority of the state again to push back against the idea of Islam as the only truth. Not in a coercive manner as in the past, but resolutely all the same.

It won't be easy, given the disturbing level of intolerance that has taken root among even mainstream Muslims. Democracy has allowed for a full flowering of Muslim beliefs and the re-emergence of a hard-line minority campaigning for an Islamic state.

But few if any Islamic or political leaders will speak out against that, or are willing to question why institutions like Bank Indonesia and the Supreme Court have their own elegant government-funded mosques which inexorably link Islam and the state.

Similarly, where is Pancasila applicable when Shi'ite Muslims are forced to convert to mainstream Sunnism, and Home Affairs Minister Gamawan Fauzi insists that human rights conform to local values? And when President Susilo Bambang Yudhoyono appears before the United Nations to defend draconian blasphemy laws?

Obama's next task: Divide the Republicans

Nov 13, 2012
LAST week, the US equity markets gave their verdict on the country's election, ending the week more than 2 per cent down from the start. The market's pessimism was clear: The probability rose on Tuesday night that the United States will go over the fiscal cliff. To put it another way, President Barack Obama's re-election sharply reduced the Republican appetite to avert a fiscal crisis. Which seems about right.

There are occasions in a nation's politics when the overhang of decisions can no longer be contained. In the case of America's governability, this is the key equation: There is no path back to a half-decently functioning Washington that does not involve either a dramatic change of heart by the Republicans, or, less unlikely, a deepening split within it. Steep as they are, the stakes go far higher than the impending fiscal cliff.

Should the GOP remain united in opposition to Mr Obama (who has a broadly centrist approach to America's economic challenges), the US will become cripplingly ungovernable. Look at California over the past generation.

Alternatively, should the Republican Party lose its iron discipline, and no longer reflexively act as a blocking minority in the Senate and a blocking majority in the House, events could turn out much better.

The difference between gridlock and a restored climate of pragmatism is stark. Were the GOP to continue to block everything Mr Obama proposes, America's relative decline will accelerate. Conversely, if enough were regularly to dissent from their party's suicide pact, all sorts of possibilities would open up. Think of immigration reform, a cleansing of America's byzantine tax system, upgrading of US infrastructure, and even action on global warming.

There can be little doubt this is also Mr Obama's prognosis. There are two reasons why his only realistic chance of success is to aim for a GOP split.

The first is the reaction of most Republicans to last Tuesday's defeat - a prospect that few, including Mr Mitt Romney, had entertained. Many have observed that the Republican party is in denial. Republican strategists blame the loss on everything from media bias to superstorm Sandy.

But the quandary runs far deeper than denial. Among the conservative Tea Party groups, Tuesday's vote only confirmed that the US is heading rapidly in the wrong direction. In their account, Mr Obama's Democrats have bribed enough of the undeserving poor with taxpayers' money to fall into their camp. As it happens, most of them are non-white. Influential radio host Rush Limbaugh fretted last week that "we are outnumbered".

Quoting Corinthians on her Facebook page, Ms Sarah Palin crystallised the belief that the election was a call to arms, rather than a moment for reassessment.

"We are persecuted, but not forsaken, struck down, but not destroyed," the 2008 vice-presidential nominee wrote. This is the nativist wing of the Republican Party. Having fielded in Mr Romney yet another Rino (Republican in name only), the party was punished for straying from its principles.

It is a view shared by other powerful strains in the party, including the anti-tax powerhouse led by Mr Grover Norquist. Last Friday, he said that any Republicans thinking of wavering on their anti-tax pledge would "be punished even for impure thoughts".

He cited two of the four Republicans in the bipartisan Senate "Gang of Eight", who are up for re-election in 2012, as "eminently primary-able" - vulnerable to conservative challenges.

The second thing going for a Republican split is there are also many who grasp the gravity of their party's direction. Washington journalist Ronald Brownstein captures the GOP's demographic reality with his 80:40 rule.

If Democrats win 80 per cent of the non-white vote and 40 per cent of the white vote, they are undefeatable. That is roughly what happened.

At the Republican convention in August, a clock showed the national debt. It should have kept demographic time.

In Texas, the bastion of today's Republican Party, the majority of schoolchildren are Hispanics. Each election, more will reach voting age. Some Republicans understand the import of this, among them probably Mr John Boehner, the Speaker (and figures such as former Florida governor Jeb Bush).

Mr Obama's goal will be to make it easier for Mr Boehner to argue for pragmatism within his party. But the US will first have to go over the cliff.

Mr Boehner faces his own speakership election in January. He will not wish to jeopardise his grip by compromising on taxes before then. After the expiry of all the Bush tax cuts on Jan1, he will be better placed to persuade some Republicans to vote for what would be packaged as a tax cut for 98 per cent of Americans - leaving the cause of the rich to another day. Thus, the US probably will go over the cliff. Whether, or how quickly, it will yo-yo back is harder to forecast.

As a Roman once said, the victor is not victor if the vanquished do not agree. Last week's outcome left Washington's division of spoils unaltered - House Republicans were returned to the majority.

Through brinkmanship and seduction, Mr Obama must try to persuade enough Republicans to accept reality and then act on it.

Whatever does happen, the next few months will offer gripping theatre. By February or March, we will be far wiser on the future of US governability.


Can Singapore adjust to a low-growth paradigm?

Nov 13, 2012

There are signs policymakers are looking more at qualitative aspects of growth, but this has its risks


THE past 10 months has been a difficult period for the Singapore economy.

Growth has slowed to a crawl, and the economy is expected to grow by just 1.5 per cent to 2.5 per cent for the whole year.

Manufacturing has been badly hit by the global economic condition, and electronics is facing one of its worst barren spells, contracting for the 18th straight month in September.

Next year, the central bank has warned that Singapore could grow below potential - which is between 3 per cent and 5 per cent - given the lingering uncertainties.

But the gloomy outlook has not quite elicited a strong response from policymakers to tackle the downturn.

Instead, they seem to have adopted a sanguine attitude towards slowing growth, which has surprised economists, who had been expecting a stronger policy response from the Government.

Acting Manpower Minister Tan Chuan-Jin's comments last month seem to indicate that the Government's attitude towards growth has shifted.

Speaking to The Straits Times in an interview, Mr Tan said that growth is not about numbers, but a means to an end.

"At the end of it, it's (about) how does it add up, really, to the bread-and-butter issues of the individual concerned, how does it add up to the society," said Mr Tan. He suggested that to generate enough income for people here, Singapore needs "good quality 3 per cent growth".

In a speech to economists in June, Prime Minister Lee Hsien Loong said that growth is still crucial to improving Singaporeans' lives. Still, he did acknowledge that growth is not everything: "I agree fully that material goals are not everything in life.

"But we are not going for growth at all costs, nor have we done so. Growth is not an end in itself, but a means to improve our lives and achieve many of our goals."

Flash back to five years ago, when then Minister Mentor Lee Kuan Yew stressed the primacy of growth when he addressed hundreds of young people at the heart of Orchard Road.

Urging young people to seize the opportunities ahead of them, he said Singapore's progress was possible because of strong economic growth. "Once you have growth, all problems can be managed. When you have no growth and you have unemployment and no jobs, then all problems become intractable," he said.

Has growth really become less important? Has a paradigm shift towards growth taken place?

Accepting slow growth?

BANK of America Merrill Lynch economist Chua Hak Bin thinks so, and considers it worrying.

He worries that the push to restructure the economy has become the predominant overwhelming objective, while other issues, such as buffering the economy from a downturn, have become secondary.

For instance, while there is a need to tighten the foreign manpower influx to wean companies off cheap labour and raise productivity, he wonders if the costs of such a policy are being ignored.

He calculated that if the policies were relaxed, Singapore could have grown at 3 per cent, about twice the rate now.

The stricter foreign labour regime has led to the Government having to forgo $1.1 billion of potential tax revenue, and 35,800 jobs were forgone as a result of the stricter labour policy, estimated Dr Chua.

"I worry that the Government has gone ideological on this front. There are ways to grow in an inclusive manner, without having to enforce a slowdown in growth," he said.

For instance, extra taxes from better growth could have gone into strengthening the country's social safety net, such as Workfare, he added.

Other analysts also think there has been a subtle but discernible shift in how the Government views growth, and the importance it attaches to growth numbers.

Part of this can be traced back to the so-called "new normal" in politics, brought on in the aftermath of the last general election.

PM Lee had then pledged to make right some of the grievances people had against the Government.

Chief among them was the growing number of foreign workers, who were being blamed for overcrowding on transport systems and expensive housing.

Since then, government leaders have repeatedly said that there will be no U-turn on foreign worker policies, even though many companies are crying out for help.

Another reason for the willingness to accept lower rates of growth is the realisation that Singapore simply cannot grow at the pace it used to.

A rate of 1.5 per cent this year might seem abysmal compared with the 14.8 per cent pace Singapore grew at in 2010. But given that Singapore is in a mature phase of growth, 1.5 per cent is actually not terrible.

In comparison, a mature economy such as Sweden has been growing at an average of 2.5 per cent a year for the past five years. Denmark's growth rate was just 2 per cent between 1970 and 1990.

It it clear that there are certain limits to growth in Singapore, says United Overseas Bank economist Suan Teck Kin. Some of the limits can be overcome by innovative engineering and urban planning, but the marginal social cost of adding a million people to the population will be high.

Externally, competition in the region is getting intense, so effortless growth is no longer the norm, he said.

"Look at how Malaysia, Thailand are all looking at Singapore and wanting to do the same things Singapore has done, like (developing) an efficient public service and building high-end manufacturing sectors like in drugs," he added.

"So the drive to grow has always been there. It's just that there are limits to how fast you can grow."

Slow but more inclusive?

ANOTHER fact: Even though Sweden and Denmark have grown at "slow" rates, these two countries also consistently rank as some of the best places in the world to live in. Social tensions are low and societies in these Nordic states are a lot more equal than those in other developed economies. Quality of education is also high, while social welfare nets are strong.

As Lee Kuan Yew School of Public Policy associate professor Hui Weng Tat noted, it is not a bad thing, as there is more focus on the type of growth rather than how fast Singapore grows.

"Government policies, especially in the past decade, have been aimed at maximising growth without due regard to the opportunity costs of doing so," he said.

"High growth therefore became an end, instead of the means to an end, which should rightly be the welfare of citizens."

How will the slowing growth story pan out?

If economic restructuring works, and Singapore is able to eke out the productivity gains needed to push the economy up to the next level of development, the outlook is good.

Less reliance on foreign workers will mean a stronger imperative for companies to use technology, work processes and innovation to drive growth. In turn, this could boost wages at the bottom, as employers are forced to turn away from a cheap source of labour.

As Mr Suan noted: "Eventually these sources of cheap labour will run dry, as countries like Bangladesh and China will require manpower to develop their own countries."

Some of the lifting of wages at the bottom is already being done by unions and the Government working together to raise wages for the lowest paid. For instance, cleaners' wages are expected to rise 23 per cent to $1,000, after unions, the Government and cleaning companies proposed a new pay structure for cleaners last month.

This way, even though growth is slower, it can be more inclusive.

But at $1,000 a month, cleaners' wages are still way below the median income of $3,249.

But such an approach - paying attention to qualitative aspects of growth rather than pure quantitative factors - is not without its risks.

Managing a complex entity such as Singapore's open economy is a very delicate task. Tweak one policy too much, and the economy could tilt irreversibly towards one direction.

DBS economist Irvin Seah noted there could be a risk that Singapore's manufacturers and companies will become uncompetitive due to the high manpower costs.

"You could get a major hollowing out. Such firms leave and are unlikely to return," he said.

There will also be the attendant pains associated with restructuring, such as elevated inflation.

Already inflation is likely to stay high, at between 3.5 per cent and 4.5 per cent next year. This level represents twice the historical rate seen in the past 30 years, and could last for some years.

Adjusting to this new reality of low growth is not going to be easy.

As Mr K. Shanmugam, Minister for Foreign Affairs and Law, recently pointed out, low growth could potentially mean fewer opportunities for young people and reduced dynamism in the economy.

Will there be enough good jobs in an economy that has a reduced dynamism? What will slow growth do to the values of properties, which Singaporeans rely on as a source of retirement income?

These are huge challenges that will need to be tackled as Singapore manages its transition into slow-growth territory.

Saturday, November 10, 2012

Why a two-party system is boon or bane to undergrads

Nov 10, 2012

The National University of Singapore Students' Political Association recently conducted an online poll of about 400 undergraduates to gauge the views of young people on political parties and policies after last year's watershed general election. Goh Chin Lian speaks to six of the association's officers about the poll results.They are president Valerie Ng, 21, vice-presidents Ow Yau Loong, 23, and Eugene Lee, 22, and management committee members Yan Wentao, 23, Elizabeth Cutter, 20, and Dominique Wang, 21.

Nearly two-thirds of those polled said a two-party system could be a boon or a bane, depending on the parties' performance. What do you make of this result?

Yau Loong: With a two-party system, we might witness something like in the US where although Obama won, it divided the American population into the left and the right. Our country can't afford to have this division.

Dominique: I think a two-party system will hamper the functioning of the country. I support reform for the People's Action Party - more national conversation, more discussion, more voices - because that's conducive for a small society.

Elizabeth: A lot of Singaporeans don't feel that the parties are entrenched on an ideological basis. Most Singaporeans still prefer to look at the results, the pragmatics, the policies - which is why they chose "boon or bane", because they want to see the results first.

Valerie: Most of our friends don't want a two-party system, but they still want the opposition around to keep track of the PAP, like what they are doing now. They are questioning the Government, helping to be a voice for us for things that we want to check on, but could not speak up on.

(With the opposition) to keep the PAP in check, hopefully it will be more consultative and listen to us more.


Don't rock the boat

Elizabeth: You have a very entrenched ruling party. All that the undergrads have grown up with is this system. If they are happy with the way things are, they are not going to seek to change the status quo because it's treated them well. They are in university now, doing all right. It's the people who feel it's unfair who want to change the status quo.

Eugene: They said "boon or bane" because Singaporeans don't know how a two-party system will pan out in Singapore. We didn't force them to say "desirable" or "undesirable", but it also reflects a certain maturity that they know that a two-party system could work both ways - good or bad for Singapore.

[However a Two-Party system may be inevitable. In a sense, the PAP gained an incredible advantage in the 60s when the opposition abandoned the polls and de facto presented Singapore with a dominant party system. But a Two-party system seems inevitable. There is no way that the PAP will be able to please everybody on every issue. Help families and singles are upset. Help businesses and employees ask, "what about us?" Give minorities a boost and the majority may well grumble silently. ]

Thursday, November 8, 2012

Cutting wages may not be the best way to save costs

Nov 08, 2012
By liu haoming for the straits times

Does a pay cut always reduce labour cost?

WHENEVER a firm faces financial difficulties, reducing labour cost is always one of the most frequently considered options. But does it always serve the purpose?

If an employer cares only about the amount of money paid to his employees, then the answer is obviously "yes". However, the answer is less straightforward if he cares about unit cost - or the cost of producing one unit of output.

The difference is largely because a salary cut generally has a negative effect on an employee's work effort. The essential question here is whether the cost savings accrued from a reduction in salary is large enough to compensate for the reduction in labour productivity.

Let's use a specific example. Consider a computer store that hires only one worker, Peter, and pays him a monthly salary of $2,700. He is happy with his current pay. On average, he sells 100 computers a month. The labour cost for each computer is $27.

Seeing that the business of selling computers is highly profitable, a rival firm opens a new store nearby. As a result of the increased competition, Peter can sell only 90 computers a month. The labour cost of selling one computer has increased to $30. As such, can Peter's boss benefit from cutting his monthly salary to $2,430 (90 computers multiplied by $27)?

If Peter can still sell 90 computers a month after the salary cut, then the cost of selling one computer will be reduced to its previous level of $27.

However, if Peter is unhappy about the salary cut, he will be less enthusiastic about his job. As a result, he might be able to sell only 60 computers a month. In this case, a salary cut actually increases the labour cost of selling one computer from $30 to $40.50.

To make things worse, an unhappy Peter might quit his job, and the salary cut makes his job search easier. This is because finding a job that pays more than $2,430 a month is much easier than finding one that pays more than $2,700. To fill the vacancy, his boss will have to spend extra time and money to look for a replacement.

For firms with many employees, a salary cut also puts them at the risk of losing their most productive employees, a phenomenon called "negative selection" in economics. This is because the most productive employees also have the best options waiting for them outside the firm.

Using salary cuts as a cost-saving device also hurts a firm's reputation, particularly in the information age, when bad news can spread quickly. Nobody wants to work for firms that tend to cut their employees' salaries. Therefore, firms with a bad reputation generally have to pay higher salaries than their competitors as and when they need to hire again.

In economics, "efficiency wage" theories analyse the impact of wages on labour productivity. While the theory sounds reasonable on paper, one might wonder whether it applies in the real world.

A textbook example of the efficiency wage theory can be found in the early success story of the Ford Motor Company.

In 1914, the Ford Motor Company reduced the length of its workday from nine to eight hours, and more than doubled the wage from US$2.34 to US$5 a day.

As a result of these changes, the turnover rate dropped from 370 per cent in 1913 to 16 per cent in 1915, the absenteeism rate fell to 2.5 per cent, productivity per worker increased between 40 per cent and 70 per cent, and profits rose by about 20 per cent.

[This may be an argument for minimum wages. Unless a statutory requirement for minimum wages nullifies the effect?]

In addition to increasing worker productivity and reducing labour turnover, paying a higher wage may also reduce a firm's monitoring cost.

It is not rare to see a manager monitoring two or three workers at the workplace. If these workers are paid higher salaries, extensive monitoring might become unnecessary.

This is because the higher the salaries, the higher the cost of losing their jobs. As long as workers know they might be caught and fired for shirking work, the higher pay could potentially prevent them from doing so. Consequently, salaries and the need for monitoring are negatively correlated. The savings from reduced monitoring could potentially exceed the increase in workers' salaries.

Moreover, since most people dislike being constantly monitored, a reduction in monitoring could have a direct positive effect on workers' productivity as well.

So when your business faces unusually strong headwinds in the future, rushing to cut your employees' salaries might not be the most effective way to save the boat. It might make more sense to raise them instead.

The writer is an associate professor of economics at the National University of Singapore.

Voting for hope and change: Part 2

Nov 08, 2012
By Thomas L. Friedman

IN OCTOBER 2010, Senator Mitch McConnell, the Republican leader, famously told The National Journal: "The single most important thing we want to achieve is for President Barack Obama to be a one-term president." And that's how he and his party acted.

Well, Mitch, how's that workin' out for ya? No one can know for sure what complex emotional chemistry tipped this election Mr Obama's way, but here's my guess: In the end, it came down to a majority of Americans believing that whatever his faults, Mr Obama was trying his hardest to fix what ails the country and that he had to do it with a Republican Party that, in its gut, did not want to meet him halfway but wanted him to fail - so that it could swoop in and pick up the pieces.

To this day, I find Mr McConnell's declaration appalling. Consider all the problems we have faced in this country over the last four years - from debt to adapting to globalisation to unemployment to the challenges of climate change to terrorism - and then roll over that statement: "The single most important thing we want to achieve is for President Barack Obama to be a one-term president."

That, in my view, is what made the difference. The GOP lost an election that, given the state of the economy, it should have won because of an excess of McConnell-like cynicism, a shortage of new ideas and an abundance of really bad ideas - about immigration, about climate, about how jobs are created and about abortion and other social issues.

It seems that many Americans went to the polls without much enthusiasm for either candidate, but, nevertheless, with a clear idea of whom they preferred. The majority seemed to be saying to Mr Obama: "You didn't get it all right the first time, but we're going to give you a second chance."

In a way, they voted for "hope and change" again. I don't think it was so much a ratification of health care or "Race to the Top" or any other Obama initiative. It was more a vote on his character: "We think you're trying. Now try even harder. Learn from your mistakes. Reach out to the other side, even if they slap away your hand, and focus like a laser on the economy, so those of us who voted for you today without much enthusiasm can feel good about this vote."

And that is why Mr Obama's victory is so devastating for the GOP. A country with nearly 8 per cent unemployment preferred to give the President a second chance rather than Mr Mitt Romney a first one. The Republican Party needs to have a real heart-to-heart talk with itself.

The GOP has lost two presidential elections in a row because it forced its candidate to run so far to the loony right to get through the primaries, dominated by its ultra-conservative base, that he could not get close enough back to the centre to carry the national election.

It is not enough for Republicans to tell their Democratic colleagues in private - as some do: "I wish I could help you, but our base is crazy." They need to have their own reformation.

The centre-right has got to have it out with the far-right, or it is going to be a minority party for a long time.

Many in the next generation of America know climate change is real, and they want to see something done to mitigate it. Many in the next generation of America will be of Hispanic origin and insist on humane immigration reform that gives a practical legal pathway to citizenship for illegal immigrants.

The next generation is going to need immigration of high-IQ risk-takers from India, China and Latin America if the United States is going to remain at the cutting edge of the information technology revolution and be able to afford the government we want.

Many in the next generation of America see gays and lesbians in their families, workplaces and Army barracks, and they don't want to deny them the marriage rights held by others. The GOP today is at war with too many in the next generation of America on all of these issues.

All that said, my prediction is that the biggest domestic issue in the next four years will be how we respond to changes in technology, globalisation and markets that have, in a very short space of time, made the decent-wage, middle-skilled job - the backbone of the middle class - increasingly obsolete. The only decent-wage jobs will be high- skilled ones.

The answer to that challenge will require a new level of political imagination - a combination of educational reforms and unprecedented collaboration between business, universities and government to change how workers are trained and empowered to keep learning.

It will require tax reforms and immigration reforms. America today desperately needs a centre- right GOP offering merit-based, market-based approaches to all these issues - and a willingness to meet the other side halfway.

The country is starved for practical, bipartisan cooperation, and it will reward politicians who deliver it and punish those who don't.

The votes have been counted. Mr Obama now needs to get to work to justify the second chance the country has given him, and the Republicans need to get to work understanding why that happened.


Wednesday, November 7, 2012

Cleanest fight in US history

Nov 07, 2012
By noah feldman

NOW that the candidates have left the hustings (whatever those are) behind, it can be said: This was the cleanest presidential campaign in recent memory, perhaps in American history.

Before you get exercised about Mr Mitt Romney's sketchy tax maths or President Barack Obama's attacks on Bain Capital Partners, take a deep breath and look at the evidence.

If Americans step outside their preferences for their own candidate, they will see a good, clean, hard fight - one focused overwhelmingly on the issues and informed by the fundamentally decent competitive impulses of the candidates. Both wanted very much to win, but neither was willing to ride dirty to get there.

Start with character. For the first time in decades, no candidate insinuated or allowed his supporters to insinuate that the other candidate was fundamentally fraudulent. There was no swiftboating and, other than mogul Donald Trump and a handful of other attention-seekers and fringe conspiracy-mongers, there were no "birthers" darkly hinting that one candidate was Manchurian.

Yes, Mr Obama pointed to Mr Romney's flip-flopping and suggested he had no core principles, but that was very different from alleging that Mr Romney had concocted his past out of whole cloth. Some pro-Romney ads depicted Mr Obama as a self-loving celebrity, but this was a legitimate line of attack against a president who received the Nobel Peace Prize just for showing up.

Then there's religion. Remember that issue? It's not only that neither candidate insisted God was on his side and his side only, in the way former president George W. Bush managed to suggest in two different elections. No, this was a race between the two most religiously outre candidates in United States history, offering nearly infinite opportunity for a faith war. Yet it never came.

Four years ago, commentators (myself included) wondered seriously whether the public would ever accept a Mormon president. Yet the Obama campaign did not emit even the most subtle hints about Mormonism's polygamist past or its outlying present beliefs and practices.

When was the last time you heard somebody talking about Mormon garments, an irrelevant topic that nonetheless came up repeatedly in the 2008 primaries? Nor was there any attempt to invoke the (non-canonical) White Horse Prophecy associated with Joseph Smith, which predicted that the US Constitution would someday be saved by a heroic "white horse" associated with the Church of Jesus Christ of Latter-day Saints.

Mr Romney deserves equal credit for saying exactly nothing about Mr Obama's former pastor Jeremiah Wright, an intellectual inheritor of black liberation theology.

Mr Romney also distanced himself from even subtle implications about President Barack Hussein Obama's Muslim family background or his childhood in Indonesia. He refused to tap into growing anti-Muslim sentiment in the heartland that can be seen in proposals for preposterous anti-sya-riah laws in several states.

A cynic could plausibly claim that religion was a potentially radioactive topic for both candidates, dismissing their discretion as nothing more than self-preservation. I don't buy it: Each side could reasonably have calculated that it had more to gain from subtle religious aspersions than it had to lose.

A much more probable explanation is that Mr Romney and Mr Obama, both buffeted in the past by illegitimate religious sentiments, were genuinely unwilling to use bigotry as a weapon. Besides, the combination of self-interest and principle is the base on which religious tolerance was built in the West. It is to be admired, not disparaged.

What about the White House's insistence that Mr Romney was lying about the President's record, or Mr Romney's displeasure that Mr Obama attributed to him the private sorrows of individuals who lost their jobs after Bain Capital acquired their employers?

The short answer is that such distortions are part of the altogether permissible political game of dramatic overstatement and policy imprecision.

Sure, Mr Romney wasn't exactly telling the truth when he accused Mr Obama of "apologising" to the world.

But it was true that Mr Obama came to office with the express strategy of reassuring America's allies that he wasn't MrBush, and that the swashbuckling, "time of our choosing" nightmare of foreign policy disasters was over. Any democratically elected politician in any country on Earth would be inclined to characterise this stance as "apologetic" to win votes.

A pro-Obama ad (not produced by the campaign) that told a heartbreaking story of a woman's fatal cancer after her husband lost his job in a Bain Capital firing was also not, strictly speaking, true. (It turned out that five years had elapsed, and that she had her own health insurance from a separate job until that job disappeared.) But the point of the ad was to suggest that a man who got rich acquiring firms and resizing them for resale was unlikely to feel sympathy for those who became unemployed as a result.

Show me a politician who would not take this approach against a private-equity millionaire, and I will show you a person who couldn't win an election for dog-catcher.

People in finance and private equity may feel offended by the ad, but that is because they aren't running for anything.

In the 1800 presidential election, John Adams' supporters said that Thomas Jefferson was an atheist who was having an affair with his slave, Sally Hemings. Of course, both of these charges were more or less true.

But that isn't the point: Mudslinging of the personal, character-assassination type is a long- standing and persistent feature of our electoral politics.

This time around, however, two basically decent men took the high road.

In this highly polarised, highly partisan moment in our political history, Americans should allow ourselves a moment to appreciate just how impressive this really was.

Well done, candidates. May the best man win.

The writer is a law professor at Harvard University and the author of Scorpions: The Battles And Triumphs Of FDR's Great Supreme Court Justices.


[Interesting and heartening perspective.]

Tuesday, November 6, 2012


Nov 03, 2012
Have we gone too far?

How big a price is Singapore paying for tightening the tap on foreign manpower? Insight reports on economic growth forgone, jobs lost and the potential outflow of business and investments.

By Robin Chan & Janice Heng

WHEN a North American company thought of starting an operation in Asia this year, Singapore was one of its top choices.

After being wooed by the Economic Development Board (EDB), it plumped for Singapore early this year.

To its horror, the Ministry of Manpower (MOM) rejected its application to bring in seven foreign executives on high-skilled Employment Passes (EPs).

It was only after the EDB stepped in and talked to the MOM that the company finally secured those seven passes.

For foreign firms which come to Singapore expecting a smooth run, such hiccups can come as a surprise.

After all, the city state ranks at the top for ease of doing business on various surveys. It is also consistently ranked as one of the most competitive economies in the world with easy access to labour.

But that story of one company's brush with a tighter foreign manpower regime - in place since 2009 - was one Mr Shanker Iyer shared, to illustrate the growing fears among foreign companies and even the larger multinational corporations (MNCs) about the policy's impact on their ability to plan ahead.

Mr Iyer is chairman of the Singapore International Chamber of Commerce (SICC), which represents more than 700 global companies based here. He says that as Singapore continues to tighten the tap on foreign workers, some firms are starting to think more carefully about what investments they want to sink here.

"MNCs with heavy investments look long-term. But with the changes in foreign worker policy, they are concerned with how exactly to look ahead," he says.

Since the start of the tighter regime in 2009, small and medium- sized enterprises (SMEs) have been loudest in their protests.

They have complained of rising costs and the difficulty in finding local workers to do low-skilled or service jobs.

But at an SME convention last week, Mr Phillip Overmyer, the chief executive of the SICC, upped the ante for Singapore by warning that even MNCs may have to invest elsewhere if the tightening continues with no end in sight.

The process of tightening was always going to be a painful one, hence the Government's emphasis on careful calibration.

But as the effect of manpower woes ripples across the economy, it is timely to ask how much more Singapore can afford to tighten the tap on foreigner inflows. And are the benefits of this policy commensurate with the costs in terms of lost competitiveness and economic growth?

Losing SMEs will be painful, as jobs and livelihoods are on the line, but the impact will be doubly hard, and perhaps irreparable, if a big, global firm decides to quit Singapore.

Looking elsewhere?

THE Government has reassured businesses that the foreign labour tap will not be turned off.

Yet it has also repeatedly said there will be "no U-turn" in its efforts to slow foreign labour growth. The aim is to spur companies to invest in raising productivity so that wages and economic growth can go up in a sustainable way.

The MNCs say their beef is not with these new stricter limits on foreign worker inflows, but the way in which the change in direction has been carried out. It has struck them as being piecemeal and unpredictable since its start three years ago.

The foreign workforce supply has been tightened in phases since mid-2009. Foreign worker levies have been raised and the criteria for S Passes and EPs made stricter.

Dependency ratio ceilings, or how many foreigners a company can hire for each local worker, have also been lowered across both manufacturing and services.

But still more measures have been added and have yet to kick in. This year, the income level for expatriates who want to bring in their dependants was raised from a monthly income of $2,800 to $4,000.

And in a recent interview with The Straits Times, Acting Manpower Minister Tan Chuan-Jin said that more measures to further limit the growth of S Pass holders here are in the works.

Says SICC's Mr Overmyer: "There is no clarity in the process of tightening. So an MNC will ask itself: Can I afford to set up this operation here, and then find out later that it doesn't work because I cannot get the people? These are issues that companies are looking at."

Cheap foreign labour aside, most of the impact seems to be at the level of middle-income foreign workers, who fall in the SPass or lower-level EP categories.

S Passes, for mid-level jobs such as technicians, are restricted to 20 per cent of a company's workforce. And a young graduate has to make at least $3,000 a month to qualify for an EP.

Recruitment firms say it is getting harder for foreign fresh graduates to secure employment here as a result. The change has also hit some senior hires at lower salary levels.

Mr Pan Zaixian, general manager at Singapore-based HR firm Kerry Consulting, says: "For junior roles, or salary-sensitive roles where the income is near the qualification limit for the work pass, there is no guarantee that they can get the pass."

The concerns are already forcing some companies to move operations out, such as those in manufacturing or research and development.

Smaller local and foreign firms have been some of the first to move. They are relocating, in some cases, to the Iskandar region in Johor, where land costs are significantly lower and there are no quotas on foreign workers.

They can operate from there and yet be close enough to their home bases in Singapore. A recent study by the Association of Small and Medium Enterprises found that almost 30 per cent are thinking of relocating due to the labour crunch.

Could MNCs soon follow suit?

Mr Manoj Vohra, director for Asia-Pacific at the Economist Intelligence Unit, warns that stricter limits on foreign manpower may cost Singapore its competitive advantage over its neighbours. "Singapore will have a lot of competition from other investment centres in the region, and so if it gives away its edge, then it raises questions over its long- term competitiveness," he says.

He believes that some MNCs may have slowed their growth here, or had their investments in new sectors impeded because of the policy tightening.

Dr Chua Hak Bin, economist at Bank of America Merrill Lynch, says: "The fear is that this could also lead to more knowledge- based, capital-intensive companies - which actually bring in good jobs for Singaporeans - choosing to set up shop, invest, and make large commitments elsewhere, if Singapore's foreign labour policy is not clear."

Among Singapore's rivals are Hong Kong, which also wants to be a hub for financial services and regional HQ offices, and the emerging Iskandar region, which has an abundance of cheap land for manufacturing and heavy industry.

Mr Iyer, who was at a recent dinner with representatives from Hong Kong, says they are eager to pounce on companies that no longer have the patience to wait out the uncertainty in Singapore.

"Hong Kong has zero issues with this. They told me it is to their benefit that this is happening," he says.

Mr Keith Martin, chief executive of Global Capital and Development, which is developing Iskandar's Medini business district, says the region can be a complementary, cost-effective solution for many MNCs and SMEs in Singapore.

He says: "Quite simply, Singapore cannot fully realise its growth targets without more affordable business space in close proximity."

MNCs, by virtue of their global nature, have the ability to move their operations to the most competitively advantageous countries.

And if MNCs leave Singapore or move their operations elsewhere, the consequences will not be confined to their direct employees. MNCs employ less than a third of Singapore's workforce. But they are important clients for many local SMEs, which not only provide jobs to many locals, but also generate half of gross domestic product (GDP).

A toll on growth

LAST week, Dr Chua issued a report that said Singapore's tight foreign labour policy could cost the economy 1.3 percentage points of growth this year.

By his calculations, if firms could hire all the workers they wanted, job growth would be 150,800 this year, up from an estimated 115,000.

This would add $4.2 billion to GDP. Growth would hit 3 per cent, rather than the 1.7 per cent average of the first three quarters. Another $1.1 billion in taxes would be collected - which could mean more for social spending.

Dr Chua says of his estimates: "It was intended to show that the policies do have real negative consequences which may outweigh the marginal benefits."

Coming at a time when Singapore is flirting with a recession and struggling to contain rising costs, he believes that the Government can afford to be more flexible in its tightening of foreign manpower.

But other economists believe Dr Chua may have over-estimated the impact. They are more sanguine, with Dr Tan Khay Boon, senior lecturer at SIM Global Education, saying "the current trade- off is a short-run situation".

"Labour productivity needs a long time to grow as workers need to be trained, technology takes time to be acquired and incorporated in the production process," he says.

If anything, a tight foreign labour policy is necessary to raise productivity - by incentivising companies to "move up the value chain", says Credit Suisse economist Michael Wan.

Their view is that growth lost now due to insufficient manpower may be a necessary sacrifice for productivity-driven growth in the future.

Government ministers have also moved to temper job growth expectations, with labour chief Lim Swee Say warning this week that "the days of strong job growth of 80,000, 100,000, 120,000 a year are not going to happen too often in the future", and more moderate job growth of 65,000 to 75,000 a year should be expected in the future.

Still, most experts doubt that a mass exodus of firms from Singapore is on the horizon. In the short term, the choices for MNCs that want to be in Asia are still fairly limited, they said.

"I don't think we necessarily need to be overly concerned," says Credit Suisse's Mr Wan. "Singapore is still pretty attractive as a hub."

Barclays economist Leong Wai Ho thinks the probability of MNC flight "is low at this stage, although it is rising" due to other issues such as rising business costs. "Many firms base themselves in Singapore for reasons other than costs - for good security, good connectivity, intellectual property rights protection and for the spectrum of skills available here. For this group, the probability of moving will be low," he adds.

American software company Red Hat says its strategy will remain the same in Singapore, where it has had its Asia-Pacific regional headquarters since 2000.

Mr Damien Wong, general manager for Asean at Red Hat, says: "There are reasons that we have put our regional HQ in Singapore. Those factors haven't changed. The fact is that the infrastructure is solid, things generally work well, and there is a stable environment. Those are still factors that hold true."

But he adds: "We won't rule out possibilities. We are still considering how the environment is changing and what suits the company best."

Asked whether the EDB was concerned Singapore would lose competitiveness and foreign investments, its assistant managing director Alvin Tan says the agency has received feedback from companies on the tight manpower situation and is monitoring it closely, but that "companies will have to make adjustments in the way they operate and manage their manpower pool".

"The Government's tightening of foreign worker controls since 2009 is a deliberate and planned approach towards steering the Singapore economy towards higher productivity-driven growth. Singapore still needs to rely on a complementary foreign workforce, but will continue to raise standards in terms of skills and quality," he says.

"Singapore continues to remain attractive to investors due to its strong economic fundamentals including a stable business environment and good connectivity to other markets in the region and around the world. We remain confident that companies with an active interest in tapping the growth of the pan-Asian market will continue to put Singapore on their radar screen."

Still, that Singapore can continue to maintain its competitiveness in the next decade and beyond is not a given, which is why it is imperative to raise productivity.

Dr Pasha Mahmood, a professor of strategy and Asian business at the Swiss IMD Business School, which publishes the yearly competitiveness rankings of economies, says that the only way forward is for Singapore to keep tightening its foreign workforce and to raise productivity.

But what if MNCs want to leave in the meantime?

What Singapore can do to stay attractive, he says, is to "keep the tax rates low, have good infrastructure, and educate people and equip them with the right skills to stay competitive".

As for how this may affect Singapore's standing in the rankings, he says that the annual report looks at more than 300 indicators of competitiveness, so foreign labour is unlikely to change the overall picture very much.

Mr Overmyer says what companies need is predictability.

"There needs to be a structure in place, so that companies know what is going to happen two or three years from now, or more," he says, adding: "Right now, EDB can't commit to anything."

He thinks more clarity may result from better coordination between the different government agencies and ministries.

But there may be a limit to how exact the Government can be, since it needs to take in political, social and economic factors in a situation that is fluid.

Mr Vohra says: "How do you balance the demands of the local population with growth and competitiveness? That is the tricky question. If a bunch of economists was making all these decisions, then it would be easy. But the political climate and a whole host of other factors have to be taken into account."

Says Dr Mahmood: "How high the foreign worker levies are may not even matter to businesses in the future because the make-up of industries will have changed and they no longer need those workers."

It would therefore be unwise for the Government to commit to a specific number or proportion, they argue.

For companies, their best bet may be to trust that the end goal of a restructured, highly productive and competitive economy will be worth the present muddling through.