Perspective Unlimited

Wednesday, March 28, 2007

Britain's Shining

This should be an uplifting post to distract the Singaporean blogosphere from the hoo-ha over pay increase for political leaders and civil servants. I was already in some kind of twilight zone when I wrote this post, caught between sleep deprivation of the past 48 hours and the adrenalin still rushing inside. But I was certain that this story was worth another few minutes of my sleep, and it would not be the same if I had waited another day to post this.

A Surprise and Lots of Anxiety

Sometime on Tuesday afternoon, in the middle of a conference in Nottingham University, I received a phone call from my wife Grace in London that the hospital was expecting an early delivery of our first child (a girl) due to some complications. Needless to say, I rushed to the train station to catch the first train back to London. As I had bought a restricted ticket to save on travelling cost, I was not supposed to be on this particular train, and a heavy fine was in fact waiting for me as the train pulled out from Nottingham station. But when I explained to the conductor that my wife was about to give birth in London, all she did was to smile at me and say, congratulations.

National Health Service

To spare the unnecessary details, Grace was checked into St Mary's hospital near Paddington. For those of you who do not already know, the National Health Service (NHS) in Britain is a taxpayer funded health service that provides healthcare free of charge. It is a colossal institution which employs, according to Wikipedia, 1.3 million people thereby making it the fourth largest employer in the world.

As an economist, I can only imagine the kind of waste, fraud, moral hazard and incentive problems that would naturally arise when any good or service, let alone one that is as important and yet ridden with information asymmetry as healthcare, is delivered free.

Every year, NHS lunges from crisis to crisis despite sucking up a vast amount of taxpayers' money. As we were waiting for the delivery, Grace and I had the chance to chat with a young English trainee doctor Hannah. This young doctor was obviously savvy enough to understand that NHS policies presented great financial stress for her country, but she was adamant that the ideal of universal healthcare provision was one that was worth fighting for.

Bleeding Heart Socialism

Take away my economist hat for the moment. As a patient and father-to-be, I begin to realise how wonderful a country Britain is. For all the problems facing Britain over the years, they have steadfastly held on to this uncompromising bleeding heart principle that everyone in this country should receive free healthcare as a fundamental human right. Since this is an unalienable human right, NHS coverage therefore extends even to all foreigners in this country. It is a case of principle over financial considerations to the point of what appears to be fiscal foolishness.

Grace and I are but foreigners in this country - we are neither citizens or permanent residents. We have no long term stake in this country. Yet, we were provided with what was in our opinion the best treatment money could not buy - a bunch of dedicated professionals* working to ensure the safe delivery of our child without us ever having to worry about the cost. As even the most complicated procedures would be free, it relieved us from any financial worries. In the time we have been in Britain, NHS has always taken care of us.

A Singaporean girl Elena Thia was born on the 28 March 2200 hours (British daylight saving time) at St Mary's hospital. Elena was truly born free, courtesy of Britain's generosity. For that, our small family would always remain grateful to this country.

*As far as I can remember: Two midwives, an English and an Ethopian. Anesthetists from India and Hong Kong. Doctors from Malaysia, Greece and UK. Nurses from Ghana. Talk about globalisation!

I am going to bed now . . .

Trivial Updates:

(1) Incidentally, the doctor who delivered Elena (pronounced as eh-LAYN-ah) was from Greece, her name - Eleni. They both share the same root name, which is Helen.

(2) Elena's birth was recorded at 2153 hours (DST), 28 March 2007. If she were born in Singapore, she would have the same birthday as her grandmother 29 March since Singapore is 7 hours ahead. Weight was 2480 grams. Go buy 4-D?

(3) Elena was registered as Elena Paul Thia on the 2 April 2007 at Westminster Council House at Marylebone. Paul is the name of the granddaddy (Grace's father).

Saturday, March 17, 2007

Reaction to Reactions to SM's Comments

When SM Goh made the remark about Singapore losing its top talent, there was the same predictable (over) reaction. Molly said we had sprung a leak. Aaron went about his favourite "we are not taking care of Singaporeans" lament. And worse, he seemed to imply that people were leaving because the government did not "take care" of them. The arguments were confused as much as they were confusing.

It is important to listen to what SM actually said objectively and rationally, instead of jumping to all the (wrong) conclusions and brandishing all kinds of pet theories. What SM said was that we were losing top talent - top talent are mobile and skilled people who have options galore. Is it therefore plausible to argue that these people are leaving because the government has not taken care of them? So, what kind of "care" are other governments providing that is so attractive to our talented Singaporeans? Is there a case to be made to give our top 0.5 per cent even more privileges to dissuade them from leaving?

The suggestion that fewer Singaporeans will leave when we have a generous welfare state is even more preposterous (this by the way is not an argument about welfare). If this argument was true, these very talented Singaporeans, the top 0.5 per cent, were going to New York and London with the intention of collecting more unemployment benefits. How convincing is this? As far as I can tell, those who really need social welfare might find re-settling to a western welfare state a rather difficult proposition.

Competition for Talent

Instead of meandering around for reasons that do not exist, why not just recognise the fact and stick to the simplest and most likely explanation. Talented and mobile people choose to work and live wherever they want, wherever that is most fulfilling and wherever the reward is the highest - the global cities like London and New York where a world of opportunities beckons. This is the whole idea behind cumulative causation - the best people move to locations where they can find the best jobs, and the best firms move to the locations where they can find the best people. Advantage begets advantage and soon enough, alpha locations emerge.

In a flattened world, it is not just Singapore that is laying out the red carpet. Every country competes to attract talent. The universities in UK/US provide generous scholarships and research grants to attract foreign students. Countries are copying one another in implementing high-skilled migration programmes to attract skilled professionals. As their operations become ever more globalised, multi-national companies post staff all across the globe with generous expatriation benefits - company paid housing, childcare and children education at international schools.

The net result is that the choices and opportunities for skilled professionals, including Singaporeans, have expanded tremendously over the past few years. Given the opportunities, people simply move to wherever best suits their lifestyle and career goals at different stages of their lives. It is not about quitting or staying anymore, it about being a global citizen in a flat world.

The Meaning of Being Global

The link between state welfare and emigration is a spurious one. The UK has a fairly generous welfare state, but 5.5 million Britons (10 per cent of its citizens) are living abroad. Many are young professionals seeking to enrich their experiences elsewhere, many are retirees trying to stretch their savings or live in sunnier places. The Foreign Office even had to warn Britons not to expect welfare to be so generous abroad. But overall, the population in UK continues to rise because of immigration.

To keep the best talent, Singaporeans included, Singapore has to competitive in providing the kind of opportunities, exposure and reward they get elsewhere. This it can only do by firmly plugging itself into the global economy. We cannot hope to fix the leak or will there be a need to. It is part of the process that some will come, some will stay, and some will leave. There is also a recognition that some talent churn may in fact be a healthy thing. This is one area where I think official thinking is ahead of many bloggers.

Tuesday, March 13, 2007

Some will be left behind

"As globalisation causes dispersion of activity, some countries will experience rapid growth while others will be left behind" - Anthony Venables.

Finally, the abridged version of Venables' article has been released. It is highly readable, written for the non-economist and does provide a good overview of the stakes in the development game. There is a longer version, presented to the Bank of Kansas in Jackson Hole, that provides further elaboration.

Sunday, March 11, 2007

The Job Fallacy and the Job Hyperbole

The idea that there is a fixed and limited number of jobs to go around, that when someone else gets a job there is one less opening for me, must be one of the biggest economic fallacies. Jobs are not like land, there is no fixed supply of it. Unlike what the Luddites believed, not even improving technology could destroy jobs. Even as technology makes some jobs redundant (such as the effects of computerisation), it creates jobs elsewhere (to write the software), jobs that are better paying and brainier to improve the standard of living. The same also applies to immigration - a job going to the foreigner would be one less to the local. Not only is it an economic fallacy, it sometimes breeds grievous xenophobia.

Equally, there is also a job hyperbole - that if there are more jobs created than there are workers, every one must be fine. Indeed, the economy may be booming with many new jobs created. But if you are stuck with the wrong skill set, your predicament is like "water water everywhere but not a drop to drink." While others feast, you are facing a famine. Even in an economic boom, different sectors adjust differently, structural unemployment is still possible. If you had taken the wise decision to read law five years ago, prospects are really bright as you start out in your career. If you had studied life sciences, you would be lucky to wash test-tubes.

I often give this advice to students - apply the theory of comparative advantage in making career choices. This is the king of kings when it comes to economic theories, the unchallenged and undisputed piece of economic wisdom for the last 200 years. Though it is used to explain international trade, it applies to career choices as well. The idea is that to maximise welfare, a country should produce what it is relatively good at, not necessarily what it is best at. The same applies to career choice - do not what you are best at, but do what you are relatively good at, compared to your peers.

So identify areas of Singapore's comparative advantage, and also your own relative strengths (take a long hard look at yourself), before making any decision on skill specialisation, a decision that is most likely irreversible. This will help prevent you from falling into the job fallacy, or be caught by the job hyperbole.

[Endnote: Also, seek to understand whether the sector has 'deep' comparative advantage (hard to dislodge), or only fleeting advantage (other countries can catch up easily). Furthermore, if one enters a sector with high wages due to protection, one also has to prepare for the day it is liberalised.]

Thursday, March 08, 2007

Immigration and Happiness - what is the link?

I recently suggested that from the perspective of economic geography, attracting more immigrants and foreign talent to Singapore is a good thing. All of us will benefit in one way or another. Many Singaporeans suffering from competition with foreign talent will no doubt disagree with me. Yet, it is difficult to see just how much job competition immigration poses - the labour market has been tight in the past few years, wages are rising, and the resident unemployment rate, which stands at 3.6 per cent, is not particularly high considering a part of it might simply be attributed to job frictions.

Keeping Up with the Jones

In another discussion on Singaporeangle, I actually made the following claim: Singaporeans are unhappy with foreign talent because they feel that their own socio-economic standing may be threatened. This is not a wholly original idea. Professor Lord Layard, another LSE luminary, has spent years finding out what are the factors that actually make people happy. It turns out that research after research suggest that people's happiness is derived from relative, not from absolute income. In other words, people compare and benchmark themselves against one another.

A Singaporean student used to top his class, but more bright students from all over the world begin to arrive at his school. He gets the chance to work and learn from these new students, but alas, his class position has fallen quite a few notches. He no longer wins prizes at quizzes. The teacher has also diverted her attention to the brighter students. Even though his overall experience is enriched, he feels poorer and less happy. He begins to suspect whether he would be better off if all these new arrivals had never come at all.

Trickling Down, Slowly

The Department of Statistics recently published this highly interesting report. Table 4 really captured my attention. We have known for some time of the growing income divide, which many people have attributed to globalisation. What was most interesting about Table 4 was that it showed the trickle down effect in two distinct dimensions. First, the people in the upper deciles saw greater increases in their income. Second, they also saw their incomes increase earlier in the economic cycle. It takes the people in the lower deciles 3-4 years into the economic expansion before they begin to feel the positive effects.

Socio-Economic Tradeoff

Herein lies the dilemma. What happens in the classroom is a microcosm of what is happening in Singapore. The sensible immigration policy is to try to attract people with skills, that is, not those at the lower deciles. However, no matter where one puts the entry cutoff level, some native Singaporeans will inevitably be below this cutoff. Their relative position in society is eroded in the process. The more foreign talent we attract to drive our economic growth, the faster the erosion of social standing for the lower deciles. Of course, the higher you are in the social hierarchy, the less threatened you are (as suggested by Table 4). In fact, a large pool of immigrants may actually improve your relative position. Our happiness or emotional response towards immigrants is therefore a highly primitive one.

On one hand, we clamour for greater access to foreign domestic help and the reduction of the maid levy. Some estimates put the number of maids in Singapore at 150,000 (that is 1 in every 30 persons on this small island, close to the population of Ang Mo Kio) but no one seems unduly concerned. Having someone else do the housework is the ultimate middle class status symbol in Singapore.

On the other hand, we feel deeply resentful when the CEO/CFO job goes to a foreign guy, when our jobs become less secure as a result of foreign talent immigration, or when their children compete with ours in school for prizes and scholarships.

Not that any of these are surprising. No matter how well one disguises the various arguments against immigration, I suspect the emotional trigger postulated by Lord Layard is at work deep down inside all of us - we like immigration only when it improves our relative position in society, doesn't matter if we are all better in absolute terms.

Globalisation and Inequality Between Nations

However, there is one missing piece in Lord Layard's analysis - the effects of globalisation. Without the foreign students, the Singaporean boy would continue to top his class. But those bright foreign students will simply go elsewhere if Singapore does not welcome them. And from wherever they are located, they will continue to compete with Singaporean students in one way or another within the same global marketplace. Firms simply move to places with easy access to factors of production, and in the process create an agglomeration force that make them stick to that location.

Globalisation therefore not only has the potential to increase inequality within nations, it also has the potential to increase inequality between nations as research by the spatial economists show. Shutting out or placing too much constraints on the entry of talent may preserve the relative socio-economic positions of Singaporeans, but it would also make it difficult for Singapore to maintain its position in the league of nations.

This also highlights an intricate tradeoff between the policy maker and the average Singaporean. The policy maker rightly cares about the league of nations. The heartlander only cares about the league of neighbours. To get the average Singaporean to focus on the big league and not the small one will be a key challenge.