• Sun
  • Dec 28, 2014
  • Updated: 12:57am
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.



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Jake is not interested in logic, only in bashing Singapore as always. He takes pride in that. Sadly, his prejudice shows up his gibberish once again. He neither understands basic finance/forex, nor the X factors that make cities and economies tick. Coming from a so-called libertarian, that's fascinating. Does he think that New York, London and Zurich/Geneva have thrived by doing what others want and can do? Yet he feels the need to bash Singapore for delivering superior service and performance across many realms. He writes as if he has helped to turn an economy whose GDP was half Hong Kong's less than two decades into one that's ahead today. Jake's problem is that he does not have the grace to accept that Singapore has successfully defied his brand of unfettered free market capitalism with real results. The pen may be mightier than the sword according to some. In Jake's hands however, it has the knack for firing blanks - at least against Singapore. Bring on the vitriol please. It will just make him look the sucker and sore loser that he is. A journalist without any experience in running an economy having the gall to put down a "general" who continues to push Asia's only AAA-rated economy to new heights. Unlike some, Singaporeans do not pretend we know it all. We welcome foreign talent who can help raise our game. Why has the Lion City become a regional hub for so many MNCs? Here's a word of advice for Jake from a Singaporean. Silence can sometimes be very golden.
Great point about the fact that the Singapore ecy is technically at full employment. What the prime minister is doing now is basically fanning the flames of inflation and crowding out local spending and investments. The government seemed to have lost sight of the goal of pursuing GDP growth. That is to improve the quality of life for the locals. Now it seems like the pursuit of GDP growth is the goal itself.
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.
a city may be technically at full employment but does it mean that it's predestined to remain so in the future? Competition for investments and jobs are increasing across the region. let your guard down, good luck to you. The difference between Singapore and many of its neighbours is that it plans way ahead. It thrives on the art and science of the long-view as opposed to the reactionary short-terminism and opportunism that mark many politicians and policy makers across the region. That is the reason why it has stood out as a first-world oasis in what is still very much a Third world neighbourhood. As for Jake's gripe about Singapore welcoming billionaires, they are always welcome if they can add value to the economy and create jobs. Many people, including some tycoons in HK, poked fun at Singapore when it unveiled plans to allow casinos in the city. They say who will go to Singa-bore to gamble. Well, who's having the last laugh? In less than a year, the Lion City became the 2nd largest casino market in the Asia-Pacific region, and third biggest in the world, ahead of longstanding players such as Australia, South Korea, Malaysia, the Philippines and the rest. Now everyone is trying to copy the Singapore model of IRs, including gaming-centric Macau. Enough said.
What a basic error the article commits!
The foreign billionaire's demand for Singapore dollars and supply of US dollars should increase the value of Singapore dollar relative to US dollar and all other currencies (assuming, for a moment, that the singapore authorities do not intervene to nullify that gain).
The higher value of Singapore dollars should increase the net worth of anyone (likely most singaporeans) who are net owners of singapore dollars
"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.
How such a small place with no added value to the world apart from being an intermediary and cash laundering casino hub can command so much unwarranted attention is one of the great mysteries of the world....really what does Singapore add to the world that HK, Taiwan, or numerous other places cannot ? SIngapre is just too small to matter, and we should all spend more time reading about other places. Malaysia, Indonesia, Thailand, India, etc.... please.
Woah, the author simply forgot how the banking system works. Do you know where money, that banks give out to companies and people as loans, comes from?
It comes from deposits.
And the reason Singaporean loans and mortgages have some of the best conditions and lowest rates in the world is because there's a lot of money deposited in Singaporean banks.
So nobody has to spend anything to have an actual impact on the economy - depositing cash is great already. That's why low personal income taxation levels also have a positive impact on the economy - not only because people spend more, but primarily because there's more money in the banking system.
When a foreigner exchanges USD or any other currency to SGD and deposits them in a Singaporean bank - that money becomes readily available in the Singaporean banking system as a potential loan, mortgage or a financial investment of other sorts carried out by the local branch.
AFAIK required reserve in Singapore is at 3%, which means that from every 1,000SGD the banking system can create up to 33,000SGD in further loans,
So - each million has a potential of adding 33 million SGD (in reality it's less, since banks lend out less than all of their deposits - but that's to illustrate the effect).
The reality is most major urban centres are parasites; if the definition of parasite is consuming more resources than giving back something in return that is useful to another place; thus the relationship is more parasitic than symbiotic.
The food consumed by the urban population is grown/made elsewhere. The bread that you eat might be baked locally but the wheat/flour was from somewhere else, too.
The energy required to light up/warm up/cool down households and power everything else in the city and the power that lets me type this comment on an electronic device requires coal/natural gas from somewhere else.
The petrol to power cars are from somewhere else. Even the cars, trains, and planes are from some other place, too.
The clothes worn by the urban people are made somewhere else.
The sand, concrete, steel and other metals to build the infrastructure and houses of the urban population come from somewhere else, too. Increasingly, even the manpower to build the infrastructure is brought in temporarily from other places.
And in return most of these major urban centres give back is something that can't be touched physically anymore: capital. It used to be a touchable/tangible material maybe in the form of pieces of silver. But these days it is all in the form of bits of 0's and 1's in electronic form.
And this capital is poured to all the other places to continue the cycle of getting resources/produce from these place back into these urban centres.
"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?
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.
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.
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.
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.
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
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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