Wednesday, November 26, 2008

Rethink S'pore economic growth model, says don

The Straits Times (Singapore)

October 25, 2008 Saturday

Rethink S'pore economic growth model, says don

SINGAPORE should relook its economic growth model in an era of tighter government regulation and multilateral oversight that could evolve in the aftermath of the global financial crisis.

Professor Linda Lim from the Ross School of Business, University of Michigan, told the Singapore Economic Policy Conference yesterday that the growth model that has served Singapore may be out of place in a changed environment.

Prof Lim said the growth strategy - the 'EDB (Economic Development Board) model of give them a tax break and they will come' - has both tried to do too much and achieved too little in terms of delivering high and secure incomes and living standards.

'We've 40 years of savings and repressed consumption, so do we throw it at UBS and Citigroup and lose 60 per cent of the value, or do we use it for ourselves?' said Prof Lim, a Singaporean and a frequent contributor to The Straits Times.

Instead of letting the state make big bets on a few major, capital-intensive, projects dependent on foreign capital, labour and skills in which they have no intrinsic comparative advantage, it might be worthwhile to consider releasing capital and talent to local entrepreneurs, she said.

These people can innovate and create value in smaller but nimbler locally rooted enterprises, she added.

Prof Lim said that a national government, for example, should not use domestic savings to create employment disproportionately for foreigners simply in order to claim success in establishing a particular sector of its choosing that may not be validated by underlying market forces.

Singapore, she said, can become a 'global model' for environmentally-friendly buildings and lifestyle.

Other clusters of 'regionally integrated' economic activities might be in the creative fields of traditional and modern Asian and Western arts and culture.

Another cluster is social and health services in, for example, developing policies, systems, products and services for an ageing population, Prof Lim said.

'Don't think of yourself as an outpost of a declining empire, or a second Shanghai or a second Boston. Why not be a first Singapore?' she told the audience of economists and academics.


Copyright 2008 Singapore Press Holdings Limited All Rights Reserved

Struggle for Obama to fulfil economic vows

The Straits Times (Singapore)
November 18, 2008 Tuesday

Struggle for Obama to fulfil economic vows
BYLINE: Linda Lim

WE ARE entering an era when the adage 'all politics is local' will give way to the truth that 'all economics is global'. That transition is not going to be a comfortable one for Americans.

Specifically, they will find that paying for the profligacy of the past, and meeting the obligations of the future, will require a loss of political autonomy and the surrender of many cherished ideologies of both the left and the right - from tax cuts to trade protectionism.

In international economics, the main reason the United States is 'not just another country' is its ability to borrow from foreigners in its own currency. This is because the US dollar has been a reserve currency since World War II.

When countries like Brazil or Indonesia borrow from abroad, they borrow in foreign currencies, most commonly the US dollar. If they run persistent fiscal and current account deficits, their currencies will depreciate and the burden of their foreign debt will increase.

That does not happen to the US, which can make foreigners bear the currency risk of lending to it. If the dollar falls as a result of persistent US fiscal and current account deficits, it is foreign creditors, not Americans, who suffer, since Americans can pay their foreign debts in their own currency.

One reason the dollar depreciated for more than five years prior to this July is that foreigners became less and less willing to hold the currency. Once the current unwinding of dollar carry trades, repatriation of foreign capital to shore up domestic balance sheets and panic-driven 'flight to security' - all of which have temporarily strengthened the greenback - end, we will be back in weak-dollar territory.

A number of other factors make it unlikely that foreigners will treat the US as gently as they have in the past: A deep and long US recession will cause a loss of confidence in its financial markets; and those markets, as a result of recent excesses, are likely to enter a period of regulatory stranglehold that will crimp investment returns. Sovereign wealth funds that took a beating by prematurely buying shares in US financial institutions will also become more cautious.

China's government, for one, has been excoriated by bloggers at home for devoting the country's hard-earned savings to loss-incurring US investments. It will be politically difficult for Beijing to continue bailing out the US, especially if the incoming administration and Congress accuse it of 'currency manipulation'.

In addition, the East Asian economies with surpluses - China, Hong Kong, Japan, Singapore and South Korea - have rapidly-ageing populations and will in all probability reduce their savings rates.

For these and other reasons, US President-elect Barack Obama will not be able to fulfil his economic promises to the American people. Economists agree that immediate fiscal and mone

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tary stimulus will be required to fight the recession. But beyond that, Mr Obama's longer- term promises will be undeliverable.

The Obama administration will inherit a large budget deficit, greatly increased by all the financial crisis bailouts. The deficit for fiscal year 2008 will amount to at least US $800 billion (S $1.2 trillion) and next year's deficit may hit US $1.4 trillion. Besides the bailouts, government spending typically increases in a recession, as unemployment payments increase while tax revenues shrink.

There is no way that Mr Obama can raise enough tax revenues from the top 5 per cent of income-earners to cover all that he has promised to spend on job-creation, R&D, infrastructure, health care and education, while at the same time follow through with a so-called middle-income tax cut.

Raising taxes on corporations is also a non-starter in a recession, especially since US corporate taxes are already the second highest in the developed world (after Japan).

Mr Obama cannot borrow more from Americans. They will have little to lend from their falling incomes and declining wealth. And he probably will not be able to borrow more from foreigners, who have been funding much of the last quarter-century's budget deficits and high private consumption.

The last remaining way that the US government can pay for its expenditure is to print money, just like Latin American 'banana republics' used to do. The downside is that printing money will create inflation and further devalue the dollar, which in turn will discourage foreign investments. During a severe recession, when deflation is likely, you don't have to worry about inflation, but once the global economy recovers, it will become a serious limitation.

In a sharp reversal from the Bush administration's unilateralism, multilateral policy coordination - whether in trade, monetary policy, international investment, foreign policy or environmental policy - will constrain and define the Obama administration.

The US will no longer be able to 'go it alone'. It is in for a major transition from being 'the world's sole superpower' to being 'just another country', even if it remains primus inter pares. What does this mean for that mythical creature, the 'ordinary American'?

First, wars of choice - such as in Iraq - will no longer be possible. Not only did Iraq contribute to busting the US budget, but it also undermined US national security and moral authority.

Second, two decades of tax cuts and anti-government ideology, propagated by Republicans, are over. Even after the financial crisis eases, foreign borrowing will remain difficult, local borrowing is unlikely to replace it, and there will be more government regulation of markets.

Third, for households, the days of getting into debt to live beyond their means are over. Credit will become more costly because of increased regulation, reduced foreign borrowing, a massive wave of imminent baby-boomer retirements as well as more competition with government spending for scarcer domestic and foreign savings. Excess debt and consumption will give way to thrift, downsizing and energy conservation.

Fourth, attracting foreign direct investment - to help cover the budget deficit, rescue bankrupt corporations, lift depressed asset prices, fund new private- sector technological innovations - will require foreign-friendly policies. No more CNOOC-Unocal and Dubai Ports World fiascos.

It will be a long time - beyond his second term, if he wins one - before Mr Obama's many proposed spending and tax initiatives will bear fruit.

The writer, a Singaporean, is professor of strategy at the Ross School of Business, University of Michigan. Economic Watch is a weekly column rotated among Senior Writer Tion Kwa and guest columnists.

Copyright 2008 Singapore Press Holdings Limited All Rights Reserved

Is Singapore trying to excel in too many areas?

Business Times - 25 Oct 2008

Is Singapore trying to excel in too many areas?

WHY aspire to be a second Boston or second London and not a first-rate Singapore?

It's time - particularly during a global crisis - for Singapore to rethink its economic model and employ niche targeting right where it has unique strengths to become a world leader, rather than stay a follower in various sectors, an economist suggests.

While highly successful so far, Singapore's growth model - built on wooing multinationals to drive key sectors here - may not be sustainable in the changing environment, says Linda Lim, professor of strategy at the University of Michigan's Ross School of Business and director of its Center for South-east Asian Studies.

A Singaporean academic who has been in the US for some four decades, she was a speaker at the Singapore Economic Policy Conference yesterday.

In her view, the Singapore growth model has both tried to do too much - going against what theories such as comparative advantage and diminishing returns propose - and achieved too little in terms of delivering returns for Singaporeans relative to foreigners and foreign firms.

'Singapore cannot be internationally competitive and a world leader in semiconductors, life sciences, healthcare, education, financial services, creative industries and casino tourism, all at the same time,' she says in her paper for the conference.

Speaking to BT, Prof Lim said: 'Of course you can make an argument for doing 10 sectors instead of three; you say diversify. But if we do all, everyone becomes uncompetitive; all face rising costs as they compete with each other for scarce land and talent.'

Outlining her alternative strategic vision, she says that the starting point is to take stock of 'what you have, including your geographic location'.

Then look for a strategy of differentiation: 'What do you have, what can you do that nobody else can do? You want to develop a blockbuster drug? Any number of places in the world can do it. You have to look at what is specific about you.

' Perhaps it may be that if we want to have financial services, then we cannot have life sciences, integrated resorts. You have to make a choice, you cannot have everything. You choose the thing you can do better than anybody else.'

And one indicator of a 'market advantage', she says, is whether a country needs to provide 'inducements, or investment incentives, otherwise known as subsidies' to attract talent.

'If people are naturally coming here, that's fine.'

And not least, 'let the private sector do it', she says, suggesting that capital and talent be released to local entrepreneurs, to be allocated according to market forces. When and if private enterprise fails, it will take only small parts, rather than big chunks, of the economy down with it, she argues.

Singapore is particularly well-placed for a whole cluster of economic activities 'from finance to forestry and fisheries', Prof Lim says.

'Where are we? We're next to the biggest forests in the world. Why not be a carbon finance centre? People are doing this in San Francisco! They are doing Indonesian . . . avoiding deforestation . . . out of San Francisco! Why can't we do it from here?

'Why do we want to be a second Boston or second London? We want to be a first Singapore. There are already second, third and fourth Singapores all over the world - people are copying our strategy.'

Singapore could also be a centre of expertise in creative fields such as traditional and modern Asian arts and culture. Already, Singapore is the best place in the world to do South-east Asian studies, Prof Lim says.

Economic growth here has focussed on quantitative targets, but it may be time to look at the qualitative aspects such as its 'purpose' and nature.

'I'm saying, look at net value creation for citizens. 'People for growth' - growth as an end in itself - is not the same as 'growth for people', growth as a means toward greater welfare for people.'

Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.

Thursday, November 6, 2008

Thoughts on the global financial tsunami

The following video link was forwarded by an ACSian from a google video titled Global Imbalance - An Imminent Dollar Crisis

Tuesday, November 4, 2008

Worse than the Great Depression

Forwarded by an ACSian cohort with the following comment:
there are a few advocates of worse case scenarios out's one of them...
From the following url: