Wednesday, March 31, 2010

SDP Economic Forum 28 Mar 10-- Downright Disappointing

By Lee Wai Leong

SDP held its Economic Forum last Sunday at the former Allson Hotel.

I went with high hopes but left disappointed.

Their so-called proposals are flimsy and clearly not well-thought out, and they spent half the time taking digs at the PAP instead of elaborating on their proposals. Although the forum was meant to showcase SDP's alternative economics proposals, it degenerated to the usual criticisms of minister's salaries, calls for accountability for Temasek and GIC losses, lack of transparency in GIC and Temasek, barbs against the Lee family, etc.-- accompanied by the expected smirking and cheers from their regular attendees.


Notwithstanding the above, what they presented would be demolished by any Economics 101 student. Shows they just don't have the requisite economics expertise within the party.


Examples of the proposals:

Reduce URA/JTC rentals and lower the selling prices of HDB flats.

Minimum Wage

Scale back GLC's and MNC's

Provide more support to SME's

Allow workers to form independent trade unions

And the best one:

Pay 18 months of benefits on a sliding scale to ALL retrenched workers, although it was not clear who would foot the bill-- taxpayers or companies.

Why these proposals are not well-thought out
Simple logic tells us one cannot change one part of a system without upsetting the rest of it. So if the govt reduces URA/JTC rentals and HDB prices, what could possibly happen?

For rentals, either the tenants pocket the savings (ie they charge the sub-tenants the current rates and pocket the difference) or they pass it through. If the former, it won't really benefit the economy at large. If the latter, the rental market could collapse as businesses flock to cheap URA/JTC properties and desert commercial space. The rental index will crash overnight. Private landlords could then be driven into negative equity and foreclosures if they can't come up with cash flow.

Ditto lowering HDB prices. Either it creates a mad rush for new HDB flats (and for the chance to make a killing) or it depresses the prices of resale flats and likely drive resale flat owners into negative equity and foreclosures by banks.

The collapse in HDB prices will then spread to private property as buyers avoid condos and go for HDB.

Private property owners will then be sitting on negative equity and they will not be able to sell out. Market activity will be paralysed. Foreclosures may well follow and property prices will crash, hurting everyone.

Anyone who has done central banking would certainly understand the importance of price stability. One simply cannot administer price shocks to a system in equilibrium without causing massive repercussions. That's why every central bank in the world has as its mission to ensure price stability and economic growth with minimal inflation.

Did SDP ever think of that?

Like it or not, we are all stuck. Stuck with our mortgage, stuck with our valuations, stuck with our repayments.

If a market crash happens and people lose their homes thru foreclosures and others sink into negative equity due to lowered valuations, they have no choice but to accept it. But if the govt causes a spectacular property devaluation by selling new HDB flats at bargain basement prices, that govt is not going to last too long in power.

Much as we want, we can't wind back the clock and sell flats at 1980's prices any more.

Ditto reducing reliance on MNC's, scaling back GLC's, dismantling Temasek and nurturing SME's by taking away tax incentives from MNC's and using it to help SME's.

These are very laudable goals but they have massive repercussions and will cause much unemployment, significant adjustments and extensive structural changes before the goal can be achieved.

I estimate it'll take more than two terms of govt to even achieve half of these goals-- and that's assuming the disgruntled property owners and workers who are displaced as part of these sweeping changes do not vote the govt out before the grand plan can be carried out.

Did SDP think of that?

Minimum wage seems very popular among "opposition" parties these days, although I don't see how it can solve our problems (which is either (i) that Singaporean's wages, in real terms, are slipping or (ii) productivity in Singapore is decreasing).

For (i), the minimum wage applies only to the bottom rung of workers, so it really doesn't help the executives or managers. It won't arrest our continued slide in real wages, when compared to other countries.

For (ii), it's true that minimum wage may force bosses to find ways to increase efficiency and productivity. However, SDP presented stats to show Singaporeans work the longest hours among 12 countries surveyed by ILO. So the logical conclusion is that minimum wage will likely cause bosses to get staff to work longer hours or increase their job scope.

In other words, we could be back to square 1.

Did SDP think of that?

I don't think SDP or other parties really understand the rationale behind minimum wage. They were implemented by advanced countries not to tackle productivity problems, but because of workers' rights.

They came about because unions wanted to make sure their workers got a good deal.

Thus minimum wage is always implemented with limits on the no of working hours per week.

Without proposing such limits here, implementing minimum wage is useless.

But most importantly, don't be misled-- MW is to improve workers' welfare, it's not a productivity tool first and foremost.

Last-- some observations on the SDP leadership.

After 20 years, Dr Chee is still charismatic as ever, still as eloquent, still as much fire in the belly.

The same cannot be said of his team.

Mohd Jufrie looks so tired, as does Gandhari.

John Tan looks so mild-mannered.

Sylvester Lim looks so out of his depth. No wonder, the guy is not even 30.

But what is truly amazing about this party is their fighting spirit. Despite the crippling lawsuits, they have not given up.

That's the most important takeaway from this afternoon.

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