• Sun
  • Oct 26, 2014
  • Updated: 1:05am
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

BIO

Jake van der Kamp is a native of the Netherlands, a Canadian citizen, and a longtime Hong Kong resident. He started as a South China Morning Post business reporter in 1978, soon made a career change to investment analyst and returned to the newspaper in 1998 as a financial columnist.
 

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

Share

For unlimited access to:

SCMP.com SCMP Tablet Edition SCMP Mobile Edition 10-year news archive
 
 

 

16

This article is now closed to comments

cheneghan
"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."
This is pretty much what all economies do, if you include doing what other countries cannot do for non-administrative reasons - like climate, workforce etc. This is what generates trade, making/growing/doing something cheaper somewhere and selling it, no?
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.
whymak
"The money changed hands but did not grow in the process." Unfortunately, it's wrong. I don't know why you slipped up on this.
S$1.25M ($1M) is deposited at Bank A. Suppose Singapore Monetary Authority reserve requirement is 10%, Bank A can now loan S1.125M to customer X while depositing S$0.125M, the remainder, at SMA. If X now pays a vendor Y S1.125M and Y deposits his receipt at Bank B, Bank B can loan S$1.0125M to client Z while depositing S$0.1125M into its reserve account at SMA. This process repeats ad infinitum until S$12.5 million has been created in the economy. Therefore, this capital inflow translates into 10-multiplier. In practice, money (M2) created by a fixed reserve is less than the theoretical one.
Hong Kong Monetary Authority is a currency board. Capital inflow denominated in US dollars deposited at our commercial banks could not be used to create money by the process described as above. To be able to loan this deposit to its customers in Hong Kong dollars, a bank must first tender the US dollars to HKMA in exchange for HK$. For each US$, the HK bank receives in return HK$7.80 and a certificate of indebtedness, with which the bearer will be guaranteed the payment of 1 US dollar when it returns HK$7.80 to HKMA.
A few SCMP readers, in particular one math illiterate who writes to your column, have been attacking me when I use numbers. Perhaps you can explain to them how to sum a geometric series to get the money multiplier.
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.
johnyuan
Jake is darn right to include Hong Kong as a parasite on neighboring economies. But doing so more than because of administrative incompetence in seeing far. Hong Kong’s parasitic economies are tightly controlled by a few citizens who are extraordinary willing and able to do what they do. Still, parasitic. 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. I am not making a moral judgment. I am more describing what parasites do in economy in fact everywhere. But government and people can always I hope be more competent to reward those who actually grow food and make things for all of us.

Pages

 
 
 
 
 

Login

SCMP.com Account

or