• Sun
  • Dec 21, 2014
  • Updated: 10:00am
Jake's View
PUBLISHED : Tuesday, 09 July, 2013, 12:00am
UPDATED : Tuesday, 09 July, 2013, 5:01am

Singapore's open door to billionaires shuts out logic

Brigadier general calls the shots but his top brass will struggle with his wonky economics

Indeed, if he [Lee Hsien Loong] could persuade another 10 billionaires to move to Singapore, he would, even if that led to higher income inequality "because they will bring business, they will bring opportunities, they will open new doors, they will create new jobs".

Straits Times interview
July 6

Brigadier general Lee Hsien Loong (Singapore army, ret.) may appear to some observers as being on a mission since being elected Prime Minister of Singapore.

Mission: Raise Singapore's gross domestic product per capita to the highest level to be seen anywhere within 10,000 miles. That'll learn 'em who has the right way of running things.

Plan of Attack: GDP per capita means money. Billionaires have money. Thus bring billionaires in. You have your orders, men. Zero-hour is now! Dismissed!

If only it were as simple as it is in the army.

But let's go through the story of the foreign billionaire (we shall assume that the brigadier general means US dollar billionaire) who has been attracted to park his money in the city state.

Our man cannot do anything directly with his billions in Singapore. The problem is that in Singapore one must pay for things with Singapore dollars and he has only US dollars.

But this is no big problem. Off to one of the big Singapore banks he goes and for starters gives it US$1 million, for which the bank in turn gives him S$1.25 million that he puts back on deposit with the bank.

He can now spend in Singapore to his heart's delight.

Notice, however, that this transaction has not increased the stock of Singapore dollars.

A Singapore bank now has a S$1.25 million liability to a foreign client whereas it previously had that S$1.25 million liability to a resident client. The money changed hands but did not grow in the process.

What we have here is a brigadier general who suffers from a very common misunderstanding of the workings of the balance of payments.

International money transfers do not increase the stock of money. If they did so we would be able to double the world's wealth overnight.

Everyone would be matched with a foreigner of equal wealth and each pair would swap wealth.

Do it again and we would triple the world's wealth. How convenient. I would very much like that kind of economics.

And, because the stock of money does not rise, the amount of business the money brings also does not necessarily rise.

Business is created when people spend money.

They may indeed spend more when a foreigner comes in, being encouraged by this sign of confidence in Singapore's economy.

Then again, they may spend less if they think the confidence is misplaced.

Either way, the fact that a foreigner has swapped US dollars for Singapore dollars does not have to mean there is more business in Singapore.

Ditto jobs. They are created, like business, when people spend money.

It makes little difference that the foreign holder of Singapore dollars may spend his money in different sectors of the economy than the previous resident holder of that money would do. It may create jobs in different sectors but is unlikely to affect the overall number of jobs.

With a Singapore unemployment rate of less than 2 per cent, which is probably as low as the figure can get, you have to wonder why the brigadier general is worried about jobs anyway.

And it surprises me that he thinks his people need foreign input in order to find opportunities and open doors. I was not aware that they are so deficient in initiative as not to be able to do it themselves.

But here is the truth of the matter.

Singapore's economy, like Hong Kong's, thrives because it is a parasite on neighbouring economies, doing what they do not want to do or, for various reasons of administrative incompetence, cannot yet do.

Singapore doesn't need immigrant billionaires. It feeds on them quite well outside its borders.

jake.vanderkamp@scmp.com

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This article is now closed to comments

johnyuan
While the world is seeing more birth of barons, the few billionaires is not equivalent to few billion of non-billionaires when come to strength in spending. The latter aggregately spend much more. That is to say, money is put back into circulation allowing everyone continue a means to live. Where are the mountains of cash and wealth that those billionaires have accumulated? Buffett and Gates want to give a big chunk away – they perhaps understand uncirculated money is dead money to maintain the well-being of a society. If we still want to depend on printed money and not bartering to exchange our needs and wants, we better keep the money circulate round and round.
whymak
michaelpietrusinski: I don't need anyone to agree with me on facts. It's nice that you recognize them.
Jake is a libertarian. For a change, he is now playing the part of a provocateur - using the word parasite to smoke out closet ideologues. I am sure he is playing you guys for fools after he smelled your pigheaded reactions to his Lee Shau Kee piece.
Many SCMP readers in this column hate communism and rich folks. They find HK SAR free market offensive and China's capitalism hateful. Economics presents them with inconvenient facts, for which they try to overcome by seizing this "parasite" slogan.
Everyone is entitled to his opinion, but not facts, reason and logic. This is exactly how Karl Marx failed. Instead of being enshrined in history for his contributions to production factors, he is forever vilified by Democracy cultists for his rabble rousing proletariat and capitalist division, which invites endless subjective value judgments even today.
Back to banking. Indeed, central banks cannot print money as described without curbs. BIS capital adequacy requirements must be observed by banking systems. For example, a risk adjusted bank portfolio must be backed by at least 4% first tier capital, due to be increased to 8%.
No OECD nation manages its national debt with “sound” economic principles optimizing between debt and consumption over a long horizon. The upshot is limit on ceiling of debt.
In a democracy, this is political suicide.
bluefirestorm
Hong Kong economy was less of a parasite when it had manufacturing. It was a formidable textile/garment manufacturer back in the 1970s.
Now most of the output/result of the economic activities of HK is of no use elsewhere. No doubt it produces "wealth", but it doesn't produce something of use to other places other than it makes Hong Kong economy capable of "buying more".
In the meantime, almost all of the basic needs are imported into Hong Kong.
johnyuan
In my primitive definition, parasites live off the fruit of other people’s labor. Among them, the financial sector the once major business is to provide timely capitals for growing food and making things has been taken more an interest instead in itself – money now can grow by itself incestuously creating surplus more efficiently.
pslhk
Vacation isn't for technicalities
But here's some "off the tub" musings
-
Can we compare the effectiveness of IRS, FRB, BIS, ...
that serve different purposes?
When IRS and FRB became too effective for national interest
USD sired eurodollar offshore, followed by NIF
and various debt / equity swappable instruments
off balance sheet opportunities
-
In mid 80s Luxemburg suddenly became a tourist attraction to bankers
when tax holidays were granted to listed instruments
-
Of the ten richest men in the UK
only one is a UK born British
Of course UK didn't become well-off because of rich immigrants
But it certainly has benefited enormously from them
Big ticket items are all booked in Nassau and Caymens
-
Perhaps Singapore can develop some of the infrastructure
that has helped UK to attract rich immigrants for mutual benefits
-
I haven't followed details of Basel 3
but I do remember Basel's 3 immigration checkpoints in the same building
depending on where one turns, one's leaving and entering a different jurisdiction
different customs, taxation, national interests, ...
-
National interest always trumps international regulations
BIS rules only those who know not how to find loopholes
-
That said, I must admit that I'm not up-to-date on banking development details
recently I'm quite surprised that some housing mortgages in the US are priced at Libor +
I've yet to find out why and how offshore dollar funding / rate has invaded the US
johnyuan
Take a good look at the shocking prolific acronyms that may not be even the latest collection according to the writer. They must all be relatives interacting with each other; incestuously I must say to create wealth and cash most efficiently at a split of a second. When money has a life unto itself, we see more thieves stealing money. Sometimes quite openly and corporately. Catching these thieves seems become necessary and can even build one’s career – public showing gratitude voted Rudolph Giuliani, an Attorney General after bagging Wall Street crooked financiers to become mayor of New York City – the center of the financial world where financial crimes litters. He was reelected again. Sure we consider these financiers crooked because they broke the law. What about those pocketing money within law but in limitless sum and into only a few hands all siphoning off capitals from growing a crop or building a factory? We all know the consequences – unemployment abounds among the growing number of money barons. The acronyms build life but take away life too. It is funny that I feel these Wall Street financiers and copies elsewhere are not capitalists. They are so anti capital just living off other people’s labor.

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