Geneva – 3-in-1 coffee, clumsy swans and Joseph Stiglitz

[Update II: Some points that I related from Joseph Stiglitz's address at the ILO Governing Body and others are captured in a recent Project Syndicate article of his, here.]

[Update: I edited some portions of this entry to make it sound better and to recount Prof Stiglitz's address more accurately, particularly at the second bullet point.]

I am typing this nursing some coffee (3-in-1 comfort coffee from Singapore – my mum’s great idea!) and listening to Stef Sun’s plaintive and demonstrative 我不难过 in my hotel room, which has just been chilled by the March Geneva night.  All is well in my part of the world.*

As I mentioned, I had the good fortune to hear Joseph Stiglitz speak about the global financial crisis a few days back.  About half an hour before he was due to speak, the assembly hall started to fill up, and the anticipation and noise built like a jet preparing for takeoff.  When the chair called the meeting to order with a bang of his gavel, no one could hear him.  He had to almost break the thing before anyone noticed.  I think this crisis is going to make economics a fad as a course of study and many economists rock stars. 

Prof Stiglitz

• made it clear that, far from being “decoupled”, the world’s economies were more integrated than ever.  This aspect of globalisation contributed to the pervasiveness of the crisis – for example, although catalysts of the economic crisis such as toxic mortgages and a philosophy of deregulation were centred in the US, this did not prevent countries with good monetary policies from suffering.  In addition, the interconnectedness and interdependence of the world’s economies meant that stimulus packages at the national level would leak i.e. flow outside national borders and that it would be more efficient to have a global stimulus package, coordinated by global decision making.  I suppose there is a sort of inevitability about this reasoning: if national economies cannot escape their impact on one another, then it follows that all the affected players have to sit together to work something out.  However, national and political interests being what they are, I can only see this happening at the pace of particularly clumsy swans.**
• described how he thought the crisis came about.  I’ll try to summarise it: As a result of the 1997 Asian financial crisis, during which the IMF lent money to many countries but only if they fulfilled onerous conditions based on sufficient reserves, many countries in this “class of 1997″ resolved to never again be in that position and therefore to build up their reserves.  This led to income not spent in these countries and resulted in a lack of aggregate global demand.  To Stiglitz, the unsustainability of the many bubbles and the lax regulations that abetted them were not a surprise – the lack of aggregate global demand meant that regulations had to be lax for economies, particularly the US economy, to continue growing.  (Here I must admit I would love to find out how one determines that aggregate global demand is lacking.  What would be considered adequate demand?  What indicator would one look at?)  To paraphrase Prof Stiglitz, if the global economy was based on American consumers, who made up the richest nation in the world, spending beyond their means, it was certainly flawed.  He continued to say that unless fundamental reform occurred, the world cannot return to sustainable economic growth.  To me, this is a little scary, because something like a country’s savings rate – the proportion of income that is saved by its consumers – is fostered over generations and would be difficult to change, i.e. it would be very difficult for the world to return to sustainable economic growth.  Or perhaps some sort of reform may mitigate the negative impact of over-high national savings rates?  Then a thought struck me (this was a surprise: it is not often I encounter violent thoughts – ok ok that’s a bad joke :p) – how are we defining sustainable economic growth?  Is not the natural state cyclical, with peaks and troughs?  Prof Stiglitz also noted that we have been measuring economic growth with GDP growth.  To assess economic growth, he said, we should look at how it benefited the individuals of the system.  In this regard, median income in the US – I suppose adjusted for inflation etc. – has not increased over the past 7 or 8 years.  So ideally, I take it, sustainable economic growth would involve growth in the common man’s median income.  (Wonder whether that metric has increased over the years for Singapore.)  And what does “sustainable” mean i.e. how long does the growth have to occur over?
• pointed out that the US’s brand of “capitalism” essentially meant socialising losses and privatising profits, the continuation of a system of perverse incentives that afforded no penalties for excessive risk taking.  If banks are too big to fail i.e. they will unfailingly get bailed out, as seems to be the case in the US, they are not going to worry about taking risks and failing, are they? 
• mentioned the concept of automatic economic stabilisers such as insurance and social protection – when the economy was weak, spending in these two areas traditionally went up and shored up the economy – and how the US had weakened theirs and therefore exacerbated the crisis. 
• noted that well-managed bankruptcies that entailed essentially financial reorganisation should be allowed to occur.
• demonstrated some quite appropriate gallows humour.  At the end of his address, when he clearly had more to say but had to cut himself short in view of the time, he remarked that the good news was that the crisis was going to go on for a while, so he’d have many opportunities to come back and talk to us all again :p

 I’ve only started to try to understand economics, so most of the above was new to me, and it is no exaggeration to say that I was quite captivated by the speech.  Because of my newness to this, I may well have miscommunicated some of the good professor’s remarks, so… well, just a little disclaimer :)

 *Not least because my beloved Reds just whipped their hated rivals in the football match of the season.

**Yesterday was a particularly fine day – spring is certainly coming – and the three of us got some ice-cream and sat by the rocky shore of Lake Geneva to savour the weather.  Soon two swans swam over, and… I can’t describe how birds with as regal a bearing as swans could seem to beg – maybe it had something to do with a certain supplication of their sinuous necks – but these swans seemed to beg.  When they realised there were to be no handouts from us, the swans looked mildly baffled, then disappointed, though to be fair they seemed used to the latter and accepted it with good grace.  Then a gentlemen came to sit near us, bearing a bag of bread crumbs.  The swans noticed him and paddled toward him, not too slowly, and sure enough he started tossing out small handfuls of the stuff.  The swans were just starting to settle down for the meal when seagulls began to swarm all over them.  They were several times smaller than the swans and so agile that they seemed always to be first to the crumbs.  They would pick the crumbs off the water right next to the much bigger swans, which looked anything but graceful – sometimes the swans didn’t notice the food right next to them, sometimes they took so long to turn or to manoeuvre their necks that the crumbs were long gone by the time they did.  One unfortunate swan had a bread crumb land on its broad back, and I worried for what seemed like many minutes that its back would soon be the target of seagull divebomb attacks before it finally twisted its neck behind to snatch up the morsel.  The speed of these swans, I fear, is the pace at which global decision making on the economic crisis can realistically take place.  (Boy that was a long and winding road to explicate that metaphor eh? :p)

Singapore – more an economy than a nation or a state?

Two weeks ago, the politician who leads my ministry said something that has knocked itself around in my head since.

Because a considerable period has passed since then (two weeks are a considerable period for me :p), I can’t claim to be quoting this chap word for word – I do really need to stop being so lazy and start blogging more frequently – but I think I can communicate the gist fairly accurately.  What he said was, essentially, that Singapore needs to find ways (e.g. train workers so they’re more productive, ensure the workforce is flexible enough to weather upturns and downturns and stagnant non-turns) to be valuable to the rest of the world.

Now, I was in a rather belligerent mood at the time, and even though we’ve been brought up listening to the rhetoric that we can never rest on our laurels, we need to move forward, so that the world and its economy won’t bypass us as it could so easily do, my spiky (non-verbalised) response to the politician’s comment was: “Really?  If we think that way, it’s no wonder we are confused about our values and apathetic about the political process.  Because we are always worried about how valuable we are to others, we therefore neglect to build our own values.  The integrated resorts being a case in point.  The F1 race another.*  We are focused on being valuable to others, not bringing value to our citizens.”

Over the last couple of weeks, these issues have percolated in my head, and now it seems my thoughts have settled into some patterns that are fairly sensible.  Call them clear-eyed conclusions, or no-impact mental waffling, whatever – but I just thought I’d share some of that distillate.

“… it’s no wonder we are… apathetic about the political process.”  Rather than being a function of an economy driven by its value to others, I’ve come to think that political apathy is probably a result of having a policy-making class that sees itself as intelligent and responsible enough to take care of Singapore.  Indeed, one could argue that such an elite group of visionaries and planners would be silly to consult its citizens on important matters, as the consultation would likely entail lengthy education, cantankerous debate on issues it’s already thought through and quite possibly the same decision at the end of the consultation process.  The populace’s response to not having its opinions sought for a fairly long time was, quite naturally, apathy toward the political process.  Things have changed – more of us are more educated now, a direct result of our government’s work – and it’s clear that, far from being apathetic, new generations of citizens are eager to get involved in refining policies, or at the least in making their voices heard.  And I think policy-makers know that there is wisdom not only in its council of elders, but also in crowds, and that, moreover, having the crowds on their side can only help the implementation of their policies.

“Because we are always worried about how valuable we are to others, we therefore neglect to build our own values.”  I’ve come to think that the issue of values is a more complicated one.  Why are values important?  I’d say it’s because values allow a group of otherwise different folks to coalesce and share causes, whether you see values as abstract but real forces that build among and then meld members of a group that share experiences and memories, or as fraudulent but ultimately effective constructs of rhetoric and National Day bish-bosh.  If so, the next question is, would caring more about what makes us valuable to the world economy than what we can do for our citizens have an impact on our values as a nation?  Okay, that was confusing; let’s try it this way: Would governing us as an economy first, and a state second have an impact on our development as a nation?

My take is that, one of the reasons our values as a nation are superficial and relatively undefined (for many, our signature value is “kiasu-ism” – I mean, seriously, that’s the best we can do?) is that we – Singapore – see ourselves as an economy first and foremost.  If we occupy ourselves with how valuable we are to other countries, and we are very clear about this priority to our citizens, it is no wonder that they see themselves as cogs in the national wheel, mere digits in the “value added” ledger of the world economy, Singapore column.  Citizens may well feel that the state doesn’t care about them beyond their economic value, and it is then completely understandable that some see themselves as rats on wheels powering a relentless remorseless uncaring economic machine, and feel less rooted to Singapore as they otherwise might.

I guess my point is, I’m aware that there needs to be a balance between managing Singapore as an economy and as a nation-state, and I don’t think the current mainstream rhetoric, with its unabashed prioritisation of Singaporeans’ economic value, is the best way to build a nation.

There are difficult questions, of course.  For example, are we trying to build a nation, or just make sure everyone has a decent living, or the opportunity for one?  Doesn’t Singapore, small and un-blessed with natural resources as it is, need to prioritise being economically valuable to the rest of the world?  (Does Denmark or Switzerland do this?)  Don’t we need to be successful economically first before we can take care of our people?  Should we be frank in our communication to citizens about our priorities and their role in this, or should we use nicer-sounding words to communicate a similar message to ensure these same citizens are more engaged in our common goal?  And what is that goal: to give value to our citizens, or to be valuable to the rest of the world?  Which is the means, and which the end?

Gosh, I hope that made a bit of sense :p

*I’d heard that the organisers of the 2008 Formula 1 SingTel Singapore Grand Prix have been extremely pushy and unbending in their pursuit of revenue, to the extent that building tenants who have a good view of the street circuit are being faced with a dastardly choice: sell the space to the race organisers (or pay for the view), or have one of the particularly bright lights strung along the circuit shine into your office and ruin that view.  If this sort of crass thuggery is representative of behaviour we have to put up with to bring events like this into Singapore, then I would rather we neither put up nor bring in.