Singapore's choice: Wealth creation or management?

Former permanent secretary Ngiam says many manage wealth but too few create it

By Yasmine Yahya, The Straits Times, 17 May 2012

Although Singapore is often held up as an example of economic success, it has produced an abundance of wealth managers but not enough wealth creators, said a former top civil servant.

Mr Ngiam Tong Dow, a former permanent secretary at several ministries including Finance and Trade and Industry, on Wednesday lamented the fact that Singapore graduates in law, accounting, economics and even medicine often vie for managerial jobs in banks, industry and Government.

Meanwhile, only a tiny few take the plunge to start their own companies, he noted in his speech to about 250 faculty members at the National University of Singapore's (NUS) School of Engineering.

He blamed this on Singapore's education system, which he said discourages children from questioning their parents and teachers and thus makes it harder for them to think creatively.

'As a permanent secretary in the Ministry of Trade and Industry, I was privileged to know some of our top business tycoons,' he said.

'The singular strength of these wealth creators is their ability to think outside the box. They spot opportunities where others only see obstacles.'

Aside from urging NUS to encourage originality of thought among its students, he also placed some responsibility on the Government's shoulders.

Over the next few decades, the Government should ask itself whether it wants to build an economy based more on wealth creation or wealth management: 'Should Singapore aim to be Jurong Island or Shenton Way?'

Jurong Island, he said, refers to manufacturing and technology - industries that create wealth. Shenton Way is home to banking and financial services - sectors that manage other people's wealth.

How the Government decides would influence its policymaking decisions, Mr Ngiam said.

He added that there is no national wealth creator in Singapore today.

'GIC (the Government of Singapore Investment Corporation) and Temasek are sovereign wealth managers for our national savings and reserves. They are not wealth creators.'

In answer to a question from a member of the audience, he said an economy built on wealth creation industries is a sturdier one.

'I believe that a job in technology has more multiplier effects than one in the service industry,' he said.

'Take banking or wealth management. There's no reason why people should come here to manage their funds. They could do it in the middle of the Indian Ocean with a computer. The barriers of entry are very low.'

It is also important that Singapore build up its knowledge economy, Mr Ngiam said.

'We have moved from labour intensity to skills intensity but our future has to be knowledge intensity.

'We have certain areas of knowledge which we can trade with the world. For instance, our public housing is a good example - we can help other countries, be their contractors and do public housing for them.'

Leaders in wealth creation

Ngiam Tong Dow on thinking outside the box, Singapore's education system and which path we should embark on, plus the ramifications

DURING my undergraduate years, to get away from dull prescribed texts, I read a comic strip Lil Ab-ner by the inimitable cartoonist Al Capp. He caricatured the lives of American hillbillies - the earthy, shrewd and funny folks who inhabit the Appalachian mountains.

General Bull-moose

I RECALL a character called General Bull-moose, who has a bull horn voice. Bull-moose was a caricature of General Motors, the great American corporation some say of all time.

The story goes that one morning he got up from bed feeling his age. He thought it was time for him to have an aide-de-camp (ADC) to assist him in doing the chores that he wished to delegate.

The HR department sent him three candidates to choose from. The first young man was an engineer. When asked what 1 and 1 added up to, he promptly said 2. The second young man who appeared before the general was an accountant. When asked the same question, he said: 'Sir 1, 1, looks like 11 to me.' The third young man stepped up and was at a loss for an answer. Instead he asked the general: 'Sir, what answer do you want?'

This young man was an economist!

An economist is a distant cousin of the lawyer. To an economist, a glass of water filled up halfway can be either half-full or half-empty, depending on how you interpret the data gathered from due diligence. The lawyer is a descendant from the Greek Sophist School of Philosophy. For a fee, he can argue that black is white or white is black. The word sophisticated is derived from the root word sophist.

Those who do not believe me should read QC opinions for opposing parties in court cases. Reading the same facts, counsel from both sides have the remarkable ability to convince the third- party reader that both are right.

Which of the three young men do you think the general selected to be his ADC?

Thinking outside the box

I BELIEVE that Singaporeans and Asians in general think within the box because of our didactic system of education. We are taught to respect our parents and our teachers, never to question them. In Jewish culture, the child is encouraged to ask questions of his teacher.

I understand that the role of external examiners at the National University of Singapore (NUS) is to validate that our students are up to the standards expected from questions set within the curriculum. They do not assess for originality of thought. If that were the case, how do we differentiate a First from an Upper Two degree award?

I had suggested to NUS that external examiners be asked to set two out of 10 questions outside the curriculum. This is to test whether our graduates are able to think outside the box.

I am told that at the California Institute of Technology (Caltech), Asian students normally top the first-year classes. But when it comes to the second and subsequent years, when students are tested on application of knowledge, their American classmates begin to overtake them.

Wealth creators versus wealth managers

AS A permanent secretary in the Ministry of Trade and Industry, I was privileged to know some of our top business tycoons. The singular strength of these wealth creators is their ability to think outside the box. They spot opportunities where others only see obstacles.

Let me illustrate with some examples. Mr Robert Kuok and his fellow Carpenter Street rice and sugar merchants saw me at Fullerton Building around 1963 with a proposal to develop a five-star luxury hotel on Orange Grove Road.

Though our visitor numbers then were only around 400,000, he told me that those who could travel would be those who would pay for luxury accommodation. He would therefore build a luxury, not a budget, hotel.

It was a piece of contrarian thinking outside the box. Paradoxically, with an expected 18 million visitor arrivals today, we need to offer more budget rather than five-star hotels.

Mr Robin Loh from Indonesia, who started life in Singapore as a taxi driver, went on to establish a shipyard to repair supply vessels. I was surprised one morning to read in The Straits Times that he had an order from a PRC company to build two oil rigs.

Knowing that his yard had never built oil rigs before, I rang him to ask how he was going to execute his order. He was irritated by my scepticism, telling me that as a businessman he gets the order first and then figure out how to execute it.

Robin Shipyard built the two rigs successfully, hiring an American naval architect to design them. The shipyard subsequently moved its operations to China.

One day I asked Mr Teo Soo Chuan, a leading rice merchant, what the ideal political climate for doing business was. He said the political temperature should be lukewarm, neither too hot nor too cold. He explained that if Indonesia was too hot, Singapore would be scalded by the ensuing chaos. If it was too cold (efficient), there would be no place for us.

I was appointed EDB chairman in early 1975. My first public duty was to organise the ceremony for the signing of a joint venture agreement between Sumitomo Chemicals of Japan and the Singapore Finance Ministry to establish a 500,000-ton petrochemical cracker on Pulau Ayer Merbau.

Without natural gas, Singapore was an unlikely place to locate a petrochemical plant. There was no lack of sceptics and naysayers, including The Straits Times, which ran a series of articles pouring cold water on EDB's dream of a heavy industry.

Our partner Sumitomo told us that the lack of natural gas was not an impediment. The plant could crack naphtha, a byproduct of petroleum, refining into ethylene gas to serve as feedstock for the downstream plants producing plastics and other final products.

For a capital-intensive project with a long gestation period, political stability and good governance are more crucial for success than availability of natural gas. Sumitomo's Japanese competitor Mitsui, building its petrochemical project at about the same time in Iran, abandoned its project when the Iran-Iraq war broke out. This gave Petrochemical Corporation of Singapore the opportunity to pull ahead.

Finally, I would like to acknowledge the contribution of Dr Goh Keng Swee to wealth creation. As Defence Minister, he established Sheng-Li Holdings (now known as Singapore Technologies) to build up our defence industries.

Under his leadership, ST Engineering used the process of reverse engineering to refurbish fighter aircraft and later build battle tanks and other equipment to a stage where we can compete with international defence companies in global markets.

Wealth of knowledge

MORE valuable than cost savings from producing our own arms is the knowledge accumulated by doing things ourselves.

Since Dr Goh retired from Government in 1986, there has been no one to replace him as our wealth creator. GIC and Temasek are sovereign wealth managers for our national savings and reserves. They are not wealth creators.

So I conclude with the question: Should Singapore aim to be Jurong Island or Shenton Way?

The direction we set will have a deep impact on our political, economic, educational and labour policies.

What these policies are will have to be thought through by the Ministry of Finance and the Ministry of Trade and Industry, two ministries which I had served for the greater part of my 40-year civil service career.

This is an edited text of the speech which Mr Ngiam gave at the Institute of Engineering Leadership  (IEL) of NUS Engineering Faculty on Wednesday.

WEALTH CREATION V WEALTH MANAGEMENT

It's not a zero-sum game

FORMER permanent secretary Ngiam Tong Dow expressed concerns that our economy has shifted emphasis from wealth creation to wealth management ('Singapore's choice: Wealth creation or management?'; last Thursday).

However, he did not give a clear definition of wealth creation industries, or what is 'wealth creation' in the first place.

He also gave the impression that only manufacturing is creating wealth, and that banking and financial services just manage wealth and do not create it.

These may be debatable.

What about the transport, telecommunications, retail trade, hotel, education, media and health-care industries? Don't these create wealth as well?

Workers in these industries make profits for the companies besides getting their wages. Aren't these profits and wages forms of 'wealth' that people can spend or save?

Also, the definitions of 'goods' and 'services' are blurred these days.

For example, is the production of concerts or television dramas a product or service? What about producing cooked food from raw materials in a restaurant?

All these years, the manufacturing sector has accounted for about a quarter share in our economy.

This ratio did not drop in the past decade, despite the relocation of many labour-intensive factories to other countries.

The contribution of the financial services sector has risen from 2000 to 2010.

It is difficult to say whether this was the result of people moving from Jurong Island to Shenton Way, to use Mr Ngiam's analogy.

The good growth of financial services could be a self-sustaining one and not necessarily at the expense of other industries.

Regardless of the definition of wealth creation, Mr Ngiam has a point: We need to bolster our entrepreneurship and technological skills.

I also agree with him that an economy built on wealth creation is a sturdier one - but we should give due recognition to wealth creation in non-manufacturing industries as well.

Ng Ya Ken

ST Forum, 21 May 2012