Singapore's open door to billionaires shuts out logic
Brigadier general calls the shots but his top brass will struggle with his wonky economics
Jake van der Kamp
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
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.