Friday 14 November 2014

Ho Kwon Ping: The next 50 years of Singapore's economy

Singapore 'must get creative' on housing, income inequality
Ho Kwon Ping offers radical ideas on challenges facing economy
By Fiona Chan Senior Economics Correspondent, The Straits Times, 13 Nov 2014

HOUSING affordability and income inequality are two challenges facing Singapore's economy in the next 50 years, businessman Ho Kwon Ping said yesterday.

In a lecture that examined how the nation's economic strategy would need to evolve in the coming decades, Mr Ho offered some radical solutions for these bread- and-butter issues that have become political hot potatoes.

To keep home prices within the reach of Singaporeans, he proposed setting "sale price caps" for all new homes and doing away with the distinction between public and private housing.

The price caps would be decided by a redefined Housing Board, which would have given up its role as a developer and become a "national housing price regulator", said Mr Ho, in the second of five Institute of Policy Studies- Nathan lectures that he is giving on Singapore's public policy.

After setting the sale prices for homes on a land parcel, the HDB would auction the plot to private developers to build the homes.

This move would ensure housing affordability by allowing home prices to be directly pegged to the economy's health and income growth, said Mr Ho, who is also executive chairman of hospitality group Banyan Tree Holdings.

"We already have price regulation through HDB unilaterally setting the price of entry-level flats," he noted.

Extending this to private homes would improve the current system, in which the prices of public housing - where 85 per cent of Singaporeans live - are influenced by private home prices which, in turn, are determined to some extent by foreign demand, he said.

Mr Ho's proposal drew several questions from the 250 people at last night's lecture, with some questioning how it would dovetail with housing subsidies and whether the proposal was similar to the now-defunct Design, Build and Sell Scheme (DBSS). Mr Ho responded that the subsidies would be built into the HDB's price caps, and the proposal differed from DBSS as the HDB would not be selling the flats itself.

As for tackling income inequality, the erstwhile journalist and dissident had two proposals.

One was to give graduates of vocational and technical schools more industry experience and apprenticeships so that they can command similar starting salaries to those of university graduates.

The other was to set up a "more innovative immigration programme" to raise the quality of foreign workers here, many of whom are cheap and unskilled and depress salaries at the low end.

This could be done by converting the current "punitive" foreign worker levy into deferred savings, which can be withdrawn by the worker when he leaves Singapore.

This Central Provident Fund- like savings account would raise foreign workers' overall pay and attract higher-skilled talent, Mr Ho said. It would also help ensure good behaviour among these workers while they are in Singapore.

"The two-year 'use and discard' approach to foreign workers, besides being less than humane, is just simply bad economics," he added. It would be "far more productive" to invest in training foreign workers, giving them the incentive of a longer work residency here and top-ups to their savings accounts.

Such creative solutions to Singapore's land and labour issues, as well as to the problem of more competition from other global cities, will be needed as the nation deals with the biggest "known unknown" in the next 50 years: disruptive technological change, said Mr Ho.

His lecture yesterday, held at the National University of Singapore, followed his first talk last month on politics and governance in Singapore in the next 50 years.

He will give three more lectures - on demography and family, society and identity, and arts, culture and media - in his capacity as the first S R Nathan Fellow.


From a theoretical economic perspective, the logic for Malaysia and Singapore being one is utterly compelling, to the extent that the PAP (People's Action Party) leadership lobbied for merger (50 years ago).

The values that we have developed - as totally core to us - and what Malaysia has moved towards (since Separation), are so fundamentally different that I cannot possibly see it happening in 50 years' time...

Politically, I cannot for the life of me paint a scenario as to why any Singaporean would ever do it, and therefore the only way we would ever be reunited with Malaysia is if it's by physical coercion.


The relationship between the private sector and GLCs is not an unhealthy one, and I think the Government is doing its best to nurture SMEs (small and medium-sized enterprises).

Being an entrepreneur, I don't want to over-romanticise entrepreneurship and say that if you don't have the Singapore Airlines, the NOLs, the Singapore Technologies, we great entrepreneurs are going to go in there and be able to generate all the employment to keep our school leavers employed.

We definitely need GLCs with the guts and the willingness to suffer losses to go into new areas that your Singapore entrepreneurs will not go into.

Inclusive culture 'vital for attracting innovation'
By Melissa Tan, The Straits Times, 13 Nov 2014

A CULTURE that is inclusive and embraces diversity could stand a better chance of attracting innovative companies to Singapore than tax incentives might, businessman Ho Kwon Ping said yesterday.

He also wants Singapore to look at creating a new gauge of economic progress that takes into account factors such as eco-friendly measures that sustain the environment, but is not as "touchy-feely" as Bhutan's national happiness index.

Tourists may come to Singapore for its mega-attractions but "the people we really want - or in fact, need - to attract to Singapore to spearhead entrepreneurial innovation, come for different reasons", he said in a lecture on Singapore's business and economic landscape in the next 50 years.

It was his second of five Institute of Policy Studies-Nathan lectures on Singapore's public policy.

Mr Ho acknowledged that Singapore's clean, safe physical environment is important. "But beyond that, a culture of freedom, inclusion and diversity is very important - perhaps even more than tax incentives."

He cited studies that show cities in the United States with more theatres and art galleries tend to have more innovative companies.

One study noted that cities with an "actively pro-gay culture" were also found to have more high-tech start-ups and creative enterprises, he said.

Although it concluded that gay people tend to be disproportionately represented in these industries, other studies found that to be untrue, he added.

"The researchers found that many totally straight, decidedly geeky or nerdy people... often interpreted a pro-gay culture simply as a bellwether for tolerance.

"And the most innovative people... like to live in environments where diversity rather than conformity is the daily ethos."

Mr Ho also called on Singaporeans to create a single index of economic progress to serve as a "north star to let us all know whether we are doing well as a society". It would take into account factors such as human well-being and environmental sustainability.

He said: "There is a need to counter the complacency of affluence with a compelling vision for our young to aspire to, measured by more than per capita GDP or billionaires per square mile.

"In the debate as to what the final indicator should be, we would be able to understand a little bit more about what drives us as a society."

Bosses back idea on use of worker levies
Ploughing funds back to foreign workers benefits employers too, they say
By Amelia Tan, The Straits Times, 14 Nov 2014

EMPLOYERS have thrown their support behind businessman Ho Kwon Ping's idea to channel foreign worker levies into Central Provident Fund-like saving accounts.

Mr Ho suggested in a lecture on Tuesday that money in these accounts can be withdrawn when workers leave Singapore.

This will increase foreign workers' overall pay and help Singapore to attract higher-skilled talent, said the executive chairman of hospitality group Banyan Tree Holdings in the second of five Institute of Policy Studies-Nathan lectures he is giving.

Company bosses and business associations said ploughing back the levies to workers also benefits employers.

"Workers are encouraged to stay on in Singapore as they can grow their savings accounts. With more experienced workers, companies become more productive," said Mr Dominic Choy, director of projects at Hexacon Construction.

As of June, there were 980,800 foreign work permit holders in Singapore.

Foreign work pass holders do not get CPF.

The Singapore Business Federation (SBF) raised a similar idea of channelling levies into a fund for foreign workers during talks with the Manpower Ministry over the past year.

The fund can be used for training and other costs, such as when workers are repatriated or fall sick or are injured.

SBF's chief operating officer Victor Tay said levies should be used more effectively to ameliorate the higher costs to bosses. Currently, they go to the Consolidated Fund used to pay for the Government's operating expenditure.

"The objective of levies is to restrict the number of foreign workers by making it more costly to hire foreign workers or provide parity to local workers salaries. But the numbers have already come down because of stricter quotas," said Mr Tay.

"As business costs remain high and there is an absence of grants for foreign worker training, it is a win-win situation to use the levies to defray business costs. We can also upskill and motivate workers."

Dr Ho Nyok Yong, president of Singapore Contractors Association, also noted that the foreign worker quota scheme for the construction industry, which relies heavily on foreign labour, has already been tightened significantly.

"It is more important now to raise productivity of the foreign workforce through training," he said. This is where the levies can be used.

He suggested the levies could also be reduced since foreign worker numbers have already come down.

However, migrant worker groups and economists were less convinced that channelling levies back to workers would lead to more getting retained and a higher-skilled workforce in the short-term.

Mr Alex Au, vice-president of Transient Workers Count Too, said the idea does not address underlying problems such as employers getting illegal kickbacks from employment agents to hire new workers.

Some employers also prefer to hire new workers who command lower pay.

"Economically vulnerable ones are much less likely to complain," he said.

To motivate employers to do better in staff retention, Mr Edlan Chua, boss of Chinese restaurant chain Paradise Group, suggested that the fund created with the levies is offered only to firms with low foreign worker turnover rate.

Nominated MP and UniSIM professor Randolph Tan disagreed with Mr Ho that transitioning to a higher-skilled workforce can be a quick and cost-free process.

"He (Mr Ho) believes the benefits can be achieved 'immediately and without an increase in cost to employers' by simply converting the role of the foreign worker levies. I do not think that it will occur immediately. With a rise in salaries, you need turnover before better skilled workers replace lower-skilled ones, so it should, in my opinion, be a process rather than a switch," said Prof Tan.

A statement from the Manpower Ministry said it noted Mr Ho Kwon Ping's proposal.

"We recognise the importance of raising the quality of the foreign workforce in Singapore as key to maintain Singapore's continued economic competitiveness. We will study the merits and feasibility of the proposal and how it best complements our overall manpower planning strategies," said MOM.

Housing price caps? Idea has limits: Experts
They cite quality control and resale market fluctuations as obstacles
By Yeo Sam Jo and Cheryl Ong, The Straits Times, 15 Nov 2014

PRICE caps on private homes might make housing more affordable in Singapore, but will not be entirely practical, say property experts, economists and an MP.

They were responding to businessman Ho Kwon Ping, who suggested in a lecture on Wednesday that the Housing Board redefine its role by introducing sales price caps on home units, and auctioning out land to private developers. This would render all housing developments private.

The S R Nathan Fellow and executive chairman of hospitality group Banyan Tree Holdings argued that this would ensure that home prices, pegged to income growth, stay within reach of Singaporeans. It would also erode the social divide between public and private housing.

But some are not convinced that his idea would work, citing quality control and resale market fluctuations as obstacles.

"Private developers have to improve their profit margins. With price caps, they might cut corners," said Mr Ku Swee Yong, chief executive of real estate agency Century 21.

Assistant Professor of Economics Walter Theseira at Nanyang Technological University agreed: "It will inevitably need strong intervention by the Government."

SLP International Property Consultants research head Nicholas Mak pointed out that such price caps might even lead to a demand and supply imbalance.

"HDB will need to look into a crystal ball to arrive at a price cap," he said, explaining that resale prices might fluctuate between a land auction and a property launch, affecting demand for the newly built homes.

"If the cap is too high, the developer may end up stuck with too many flats. If it's too low, people will be scrambling to buy underpriced flats," said Mr Mak.

Mr Liang Eng Hwa, deputy chairman of the Government Parliamentary Committee for National Development and an MP for Holland-Bukit Timah GRC, said it is debatable that price caps will guarantee affordability.

"What you do not want is for HDB to constantly second guess the price levels at which developers will come in," said Mr Liang, adding that HDB's current approach of pegging Build-To-Order (BTO) flat prices to the incomes of low- to middle-income households has its merits.

Many also felt that removing the distinction between public and private housing would be tough. Noted Prof Theseira: "We're a status-conscious society. People who want to distinguish themselves will still look for more expensive homes."

Some, however, saw potential in Mr Ho's proposal.

Said National University of Singapore economist Tilak Abeysinghe: "Price caps are workable. They could help control price bubbles that are driven by sentiments."

On the issue of quality control, Mr Donald Han, managing director of real estate consultancy Chestertons, said that it could be solved by creating a list of HDB-approved developers.

Mr Alan Cheong, senior director of research and consultancy at real estate service Savills Singapore, likened Mr Ho's idea to the tendering of public transport to private operators. Private developers could also create more interesting towns according to market demand, he added.

Agreeing with Mr Ho that the HDB's role has to evolve, Mr Liang nonetheless was quick to stress: "One part of HDB's mission must remain unchanged: to take care of the housing needs of the poor and vulnerable."

Housing price caps not the way forward

MR HO Kwon Ping called for the HDB's role to evolve from that of a housing developer to that of a master land developer and price regulator ("The next 50 years of Singapore's economy", last Thursday).

Despite the high-minded intentions, having regulators set sales price caps, essentially price controls, is an economist's last resort and often worsens the situation. New York City's rent control regulation is a prime example.

Notwithstanding a housing shortage, enterprising private developers who cannot price their apartments above the mandated limit can get around it by either lowering the quality of their housing or charging various "miscellaneous fees" to offset the reduced prices.

In the first scenario, lower-quality housing tends to draw less affluent residents, affecting neighbourhood businesses in the process.

In the second scenario, regulators and developers might find themselves in a cat-and-mouse game of regulate-and-evade, wasting government resources.

The other question concerns secondary market participants.

Would the discrepancy between resale prices and primary regulated prices cause property "flipping", especially if the difference is wide? Or would the HDB's five-year minimum occupation period be expanded?

The sale, purchase and pricing of a residential unit are largely a contract between the buyer and the seller. Policies should facilitate the process, but not replace or distort it.

Alan Ng Zhi Yang
ST Forum, 19 Nov 2014

Drawbacks of changing HDB's role

BUSINESSMAN Ho Kwon Ping raised several big ideas regarding Singapore's economic strategy ("The next 50 years of Singapore's economy"; Thursday). His analyses were insightful and his recommendations were refreshing.

One of his more radical proposals was to change the role of the HDB from that of a public housing developer to one of a national housing price regulator, to facilitate housing affordability for Singaporeans. This carries with it many consequences, not all of which are favourable.

First, while the egalitarian bent of a housing price regulator may lead to better affordability for the masses, it will stifle the free market that has driven our economy so successfully.

The property sector has been thriving, providing satisfying careers for many technical and managerial professionals and spin-off businesses for other industries. It has brought vibrancy to our residential market and raised the quality of urban living to a level envied by many countries.

We probably should dread the downside of conformity and utilitarianism in the housing market, which is a distinct possibility if free-market competition is replaced by regulation.

Second, as the HDB has been able to meet the housing needs of 85 per cent of Singaporeans, there is in effect only 15 per cent of competitive space left for private housing.

It would be an unkind and unnecessary removal of this competitive space, resulting from blurring the distinction between public and private housing, not just for developers, who have a direct stake, but also for Singaporeans who aspire to own private housing. We should not add to the list of unfulfilled ambitions, which is a recipe for driving some Singaporeans to seek fulfilment elsewhere.

Lastly, regulation is a blunt instrument to rein in prices, and should be the last resort when all other options have failed.

I appreciate the need to maintain moderate increases in home prices to ensure affordability, and most of us would want to minimise the risk of a property bubble. However, property cooling measures introduced by the Government are seen to be working - albeit at a slow pace.

These measures have been well thought out and implemented, covering the need to dampen excessive investment gains by the rich and emphasising social responsibility by individuals. We should allow the measures to run their course before considering other radical solutions.

Yeoh Teng Kwong
ST Forum, 15 Nov 2014

The next 50 years of Singapore's economy
Ho Kwon Ping, the first Institute of Policy Studies S R Nathan Fellow for the Study of Singapore, delivered his second lecture last night. He discussed how the city state's economic strategy, based on the three Ls of location, land and labour, needs to change. Here is an excerpt from his speech.
The Straits Times, 13 Nov 2014

THE first L is Location. How do we maintain our competitiveness as Singapore's strategic location may decline?

I believe that the answer is in creating several critical ecosystems of business activity, as we are now doing. To create critical ecosystems which are so elaborately interrelated that they cannot be reconstructed by competitors; and are the result of continual incremental improvements over decades; and can stand their own in global competitiveness regardless of geography.

Let me highlight a few examples of such ecosystems.

Aviation is one. Changi Airport and Singapore Airlines may decline in importance. But if we add to our early start as an aviation hub, global capability in aviation leasing, financing and insurance; if we have the top engine repair and maintenance facilities here manned by very skilled technicians; if we attract the most sophisticated avionics and small precision components manufacturers here; if we create a support environment of local small and medium-sized enterprises which can service the outsourced work of the MNCs that are here; and if we add to all that, cutting- edge research in our universities on the digital technologies related to aviation.

If we do all that, I think there will be at most one or two other global competitors to Singapore in this domain.

The same is true in the life sciences and for financial services.

This strategy that we have embarked on and are incrementally growing is good for another 50 years, but the purposeful, deliberate selection of specific industries as the winners of tomorrow is itself pretty risky. It requires a judicious balance between planning and market forces, and close collaboration between policymakers and industry. Another risk is the very expensive link between applied research and product development. Research funding cannot always have immediate commercial applications and yet funding cannot be open-ended; finding the right balance will again require clear, far-sighted but accurate judgement.

Finally, even if Singapore's geographic location becomes less strategic in a global context, the eventual creation of a genuine Asean Economic Community will finally create opportunities for our SMEs.

The second L: Land. I had identified two challenges: viability of manufacturing in the face of land shortages, and housing affordability.

On the first challenge, there is no evidence that manufacturing of high value, sophisticated products requires more space or labour than services. In fact, it may even be the other way round - the output per square metre of space or worker is probably multiple times higher in a life-sciences production plant than in a food court. The choice really is a false dichotomy if one chooses between services and manufacturing; it is between low and high value-added activities of any kind.

In the new economy with its customised, on-demand production such as 3D printing of as- needed components, there will almost be no distinction between services and manufacturing. Knowledge creation leading to product creation will be a seamless process: medical research leading to drug manufacturing on demand; or design and then production of nanotechnology components - these are just a few examples.

The second challenge of housing affordability is more intractable and perhaps requires a more radical approach. First, property prices should perhaps be more actively managed so that they match the growth rate of lifetime income or about 4-5 per cent per year. Second, in terms of pricing, the tail should not wag the dog - public housing prices should perhaps determine private housing prices, not the other way round.

Both of these suggestions point to one possible conclusion: that of a national housing price regulator. We already have price regulation through HDB unilaterally setting the price of entry-level flats.

One objective of a national housing price regulator would be to integrate and influence the pricing of the three housing markets - HDB entry level, HDB resale, and private housing, so that the whole market is not led by private housing, which in turn is led by foreign demand. Another goal would be to have prices strike a balance between housing as a utility - the goal of young, first- time owners; and housing as a wealth asset, a store of value - the goal of older owners or investors.

It may be timely for HDB to consider a gradual and phased exit over the next decades, from its role as housing developer in order to focus on a new dual role: first, as master land developer for entire new towns or districts, and second, as regulator of housing prices in these areas.

Its most important and sensitive function could be the setting of residential product sale-price caps for each land parcel, which in turn would then be auctioned off to private developers. The competition by private developers on detailed design, quality, features and so forth would ensure that market forces dictate, but within residential price ranges set by HDB. Not price ranges for land, but the price ranges for the final product, unit.

If we did that, all housing developments will then in fact be private, with a single master land developer selling parcels to private developers. There would be no more private versus public divide.

HDB estates will also be real towns, with housing of different price ranges so as to erode the social distinction that we still have and should not have in the next 50 years.

Finally, the third L: Labour.

One reason for Singapore's high income inequality is the high wage differential between different job vocations. Among all the developed or OECD (Organisation for Economic Cooperation and Development) economies, Singapore has the highest income differential between a doctor or lawyer on one hand, and a construction worker or retail assistant, on the other.

There are two reasons for this.

First, a large workforce of low-cost, low-skill foreign workers depresses the wages of everyone in that wage band, regardless of nationality. Second, our education system creates a large differential in starting salaries between the technical versus university graduates. There are two possible ways to address these causes of our problems.

First, we can perhaps devise a more innovative immigration programme where foreign workers are seen less as a necessary evil but more as one element, and a positive one, in an overall population strategy which does not distinguish so much between foreigner and Singaporean, but recognises their mutual dependency. Instead of just drastically curtailing their influx, the focus could be on finding ways to drastically increase their wages, skills and productivity. And very importantly, to provide economic incentives to create desired outcomes.

Current immigration policy with its punitive foreign worker levy may be simply counterproductive. It raises the cost of employing them but does not reduce the demand, and furthermore attracts lower-skilled workers because the better-skilled prefer to go to countries where the take-home pay is higher.

The levy could instead be converted into each worker's deferred savings account - similar to a CPF - to be withdrawn upon his permanent repatriation so as to ensure good behaviour whilst in Singapore. Immediately and without an increase in cost to employers, the quality of foreign workers will go up since the higher-skilled will be attracted here. The conversion of levies into a CPF look-alike for foreign workers is also the most effective way to ensure voluntary repatriation after the long-term residency has expired.

We can sieve through this pool to find a pool of talent and you can even find a small minority who are self-motivated to attain measurably higher skills through training programmes and employer certification, and we reward them by longer-stay residency permits.

Those who aspire even further upwards to change their careers or become entrepreneurs, such as domestic helpers becoming nurses, or construction foremen becoming self-employed builders, can perhaps even find a pathway towards permanent residency and for some, eventual citizenship.

Second, perhaps education pathways can be re-designed to help reduce income inequality. Although much admired for its rigour, Singapore's rigid, linear pathways reflect the university bias of the Anglo-Saxon model. The starting salary of a Singapore university graduate is about 30-35 per cent higher than that of a polytechnic graduate, whilst in Europe the gap is only about 10-15 per cent. The gap is much bigger for an ITE graduate.

We can amend the technical school - meaning polytechnic - educational pathway so that their students graduate at the same age as university graduates, and have starting salaries closer to graduates.

This can be done with a longer industry attachment and genuine apprenticeship programmes which provide much deeper (and equitably paid) work experience and job knowledge. Industry involvement in apprenticeship and curriculum development is far higher in Europe than here.

Second, we can increase the intersecting pathways by which early entrants into vocational training can cross back into polytechnic or university streams. Today, the rarity of an ITE graduate making it to university justifies a news headline; this should become normal in future. For a very credential-based society, which characterises East Asian cultures, adding many more opportunities to attain credentials later in life through short, vocationally or professionally oriented courses, will also certainly help.

Our vocational and technical schools are recognised as best of class around the world. But our graduates do not receive sufficient status, which is reflected in their salaries.

Vocational guilds in Europe generate artisanal pride in and status for their members, by providing professional certification and self-regulation. In Singapore, however, this legally recognised authority to certify and regulate your own people is only reserved for the traditionally very elite professions such as law and medicine.

And my understanding anecdotally is that the power to regulate and certify their own people has been resisted by industry associations because the companies don't want them to be certified as professionals because they can practise on their own. I think the Government should relook this issue.

'Soft' suggestions

FINALLY, I would like to make two "soft" suggestions which would not normally be associated with "hard" economics.

But just as we talk about corporate culture, social culture or political culture, there is also an economic culture which shapes how people behave in an economy.

My first suggestion is that Singapore can take the lead, again over the next 50 years, in defining new and more holistic indices for economic progress, which take into account factors such as human well-being, environmental sustainability, and socio-cultural development. There is a need to counter the complacency of affluence with a compelling vision for our young to aspire towards, measured by more than per capita GDP or billionaires per square mile. In other words, even if others don't want to measure against their yardstick and our own circumstances.

My final suggestion is that inclusion, diversity and freedom of expression need to be proactively cultivated if we want to attract the best global talent for innovation in knowledge-based, creative industries, from artificial intelligence to biomechanics.

The most innovative people are generally very individualistic and even eccentric, and like to live in environments where diversity rather than conformity is the daily ethos.

The point here is that whilst tourists may come to Singapore for our mega-attractions, whether car races, casinos, or massive plant conservatories, the people we really want - indeed, need - to attract to Singapore to spearhead entrepreneurial innovation, come for different reasons. Our clean, safe, physical environment is of course important. But beyond that, a culture of freedom, inclusion and diversity is very important - perhaps even more than tax incentives.

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