Commentary

Let’s run Singapore like SGP Pte Ltd

Published: 10:04 PM, June 8, 2013
Updated: 11:10 AM, June 10, 2013
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Singapore has often been criticised as being run too much like an MNC: We are ruthlessly efficient, have an unhealthy focus on making money, and so on.

I am still not convinced that there is anything wrong with these attributes – our efficiency is a rare and valuable strength in a largely inefficient world, and I would posit that keeping a keen eye on the bottom line is crucial in ensuring we leave behind a legacy of unlimited opportunity, not debt, for our children.

This analogy has set me thinking, however. What if we tried something radical and really did run our country as we would a corporation?

There are some striking similarities between the two. Like citizens of a country, shareholders of a corporation get to vote; they elect a board of directors to act on their behalf (as we do our Members of Parliament), and C-level executives (like government Ministers) keep things running smoothly.

Like politicians, directors all have to be re-elected after a certain term and must therefore work to keep shareholders happy. The crucial difference, however, lies in the rights and responsibilities associated with being a “shareholder”.

CREATE VALUE FOR SHAREHOLDERS

Unlike a corporation, every citizen is limited to one share and one vote, neither of which can be sold or traded because unlike normal commodities, they are inalienable. Nonetheless, citizenship and shareholding are sufficiently similar that we might benefit by taking a more “market-based” approach to certain political issues. This is because the rigour of the corporate system helps create value for shareholders of a company in the same way that it might help improve life for citizens of a country.

Take, for instance, dividend policy. Most companies aim to pay out a certain percentage of profits each year, after setting cash aside to maintain existing infrastructure, invest for the future and provision for unforeseen contingencies.

Some even try to maintain a certain level of dividend by accumulating reserves during the good years, and dipping into them during the bad. This is generally good practice because it instils a kind of discipline in senior management that tends not to exist when one has a cash buffer to comfortably absorb any losses arising from mistakes.

Companies that hoard too much cash tend to spend it unwisely: Making value-destructive acquisitions or indulging in lavish corporate perks. Japanese companies have been serial offenders when it comes to such issues.

In Singapore, both Temasek and GIC have lost billions on ill-timed, over-priced investments in Merrill Lynch and UBS respectively. We have also wasted thousands of dollars on Herman Miller chairs and Brompton bikes when cheaper, more pragmatic alternatives were available.

Those who defend the decision to undertake the former unfortunate investments will argue that it was impossible to know how bad the then-unfolding financial crisis would turn out to be. However, in my view, it was a mistake to have even considered investing in such risky businesses to begin with. Sovereign wealth funds such as ours, whose primary duty is to protect (and then to grow) our national reserves, should never invest in companies they cannot understand, for example, investment banks with their lack of transparency, complex business models and hidden off-balance sheet liabilities.

Rather than running a persistent budget surplus (about S$2.5 billion projected this year, about S$4 billion last year), and adding to our already burgeoning coffers, we could aim for a balanced budget policy, and the billions would be better used funding a more regular and generous “dividend” at the end of each year. A couple of thousand dollars (rather than the several hundred we get from GST vouchers, Medisave top-ups and rebates presently) would mean a difference to the neediest in society, or help young families save up for a deposit on their first house.

The amount distributed would depend on certain factors such as our primary surplus the previous year and the returns generated from our sovereign wealth funds, in much the same way that corporate dividends are constrained by profitability.

PAY FOR A SHARE IN THE COMPANY

Another policy to consider is that of share issuance. In the typical listed company, the board of directors is allowed to issue a small number of shares at their discretion, but anything in excess of that typically requires shareholder approval.

This is because the introduction of a large number of new shares is potentially dilutive to value of existing shares and their voting power. I would argue that the same kind of prudence should be applied with regard to the naturalisation of foreign immigrants, the pace of which has become a source of concern in recent years, because the risks associated with dilution are valid.

I would even go so far as to propose that prospective citizens be required to pay for the privilege to become Singaporean, in the same way one should have to pay for newly issued shares in a company. The amount due would vary with factors such as age, qualifications, field of expertise, income and potential contribution to society (all of which we already screen for in our immigration process), but the purpose of such a payment would be to ensure that these newly inducted citizens are not free-riding off the wealth and goodwill accumulated by existing Singaporeans.

From a purely monetary point of view, the combined assets of our two main sovereign wealth funds total almost S$500 billion, which equates to around S$150,000 per citizen (PRs not included), and while we may never be able to monetise this ‘share’ we have in Singapore Pte Ltd, it still strikes me that we might be giving money away by naturalising citizens who do not add at least this much value to society either explicitly (by paying a “citizenship fee”) or implicitly (by bringing with them unique skills or expertise).

In my opinion, imposing a fee that more accurately reflects immigration’s costs to society, while adjusting for its potential benefits, would not only be fairer to existing Singaporeans, but as Nobel laureate Gary Becker argued, immigrants who are willing to pay a large entrance fee would automatically have “desirable characteristics”; they would likely be young, skilled, hardworking and unlikely to make use of welfare and benefits.

There are more parallels to be drawn and more ideas to be gleaned from the application of corporate principles to government policy.

The key point I would make is this: By treating our citizens more like shareholders in Singapore Pte Ltd, we effectively give everyone a more literal “stake” in the country, which means more even participation in the nation’s prosperity and, hopefully, a greater sense of community and re-enfranchisement.

An electorate that feels empowered and engaged is more likely to support potentially difficult policies that have longer-term benefits instead of deleterious populist policies that provide instant gratification – the latter is arguably what has brought economies such as Greece to its knees, and to avoid such a horrid fate, we should be more like an MNC, not less.

ABOUT THE AUTHOR:

Charles Tan Meah Yang is a Singaporean Investment Analyst currently working in London.

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