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The Question of Pay

By Kevin

The report by the Ministerial Salary Review Committee is out, and there is actually quite a substantial bit of adjustments proposed. Balancing the principles and objectives of ministerial salary is not easy. The salary have to perform multiple roles that often may not necessarily be reconcilable. It first have to be high enough to attract the necessary talent; it should have a fixed component to satisfy basic needs and variable component to incentivize efforts that would translate into effective policies that improves the lives of the people; finally, it has to satisfy the scrutiny of the voters (ie. it must not be obscenely high by the judgment of the public).

Well, looking at the data on growth of GDP in Singapore, it is unlikely that the introduction of pegging ministerial pay to the private sector had any impact on performance of the economy though one could employ counterfactuals and suggest that we could have done worst without it. There comes a layer of complexity when we ask ourselves whether the motivation of these politicians/technocrats lies in serving the nation or earning a fat paycheck. There is no hard and fast rule about salary guidelines to prevent corruption of those in power though we do have management theorist who suggests that as long as we pay enough to get the issue of money off the table, workers would be able to concentrate on doing their job well. Perhaps the fact that people are in politics is supposed to shed light on alternative motivations?

A potential solution we should explore is for the ministers to bid their positions by making a wage offer to the public and providing their full personal histories and work experience details for the public to screen. The public could vote for the ministers; the top 5 voted candidates will be considered but the minister will be selected based on their salary bids. The lowest bidding candidate will be the minister, but his actual pay will be the higher of, either a 10% discount on the second lowest bid in the top 5, or his own bid. Given the intelligence of the candidates politics should draw forth, such a complex system should be able to attract only the brightest and best while allowing them to take a salary that they (and the public have 'agreed').

That is, of course, a joke. But the spirit of the mechanism is that we want the candidates to bare their motivations to the public and force them to give us a picture of what drives them. Then we'll decide if it's worth it to pay them that offer rate, based on their qualifications and the position in question. This also allows ministers taking on more difficult portfolios to receive a higher pay. Cabinet reshufflings will also be implicitly 'approved' by the public in this way. Best of all, opposition MPs are allowed to put themselves up for ministerial positions and the result would have taken into account public scrutiny of their qualifications, the salary they are going to be paid and also their personal incentives to take on the job - they gave the salary bid themselves so no reason they are going to say, now that's not enough for me.

Knowing the incentives of our political leaders are important. Soon after the news about the salary review recommendations were out, Grace Fu's facebook page status was:

"When I made the decision to join politics in 2006, pay was not a key factor. Loss of privacy, public scrutiny on myself and my family and loss of personal time were. The disruption to my career was also an important consideration. I had some ground to believe that my family would not suffer a drastic change in the standard of living even though I experienced a drop in my income. So it is with this recent pay cut. If the balance is tilted further in the future, it will make it harder for any one considering political office."

It drew forth loads of comments. It reflects how little we know about the true motivations and incentives of our politicians or how unconcerned we are. I think Grace is being really frank and objective here; we should empathize with her position. It is something very human to say and we really shouldn't think of our leaders as heroes who can make all the sacrifices in the world to lead our country. The whole pay issue is a tricky one, but we need to work towards making it less thorny.

Perhaps in a Singapore where our expectations for the future prospects of the country is not so dependent on the government; and that all the institutions are merely support and guiding structures for the private sector to take the lead, then we could relieve our leaders' workload while simultaneously relieving the taxpayers' burden of financing our leaders' salary. And perhaps we should work towards that; and for our government to prevent a crisis where we fail to balance between the 3 principles of the minister pay I've defined earlier, we probably have to transit our political system to one that takes more of a backseat in determining the future of our nation.


Eurozone Crisis

By Kevin

BBC has a pretty interesting take on the Eurozone crisis and it explains how past information is often irrelevant in the market's considerations of matters; and of course, the short-sightedness of the market.


Happiness & Money

By Kevin

Does money bring happiness? Apparently for some, it may bring more misery; and this may be the case for the ultra, mighty rich who are basically not such happiness-efficient consumers of material wealth (ie. they already have so much material wealth that their riches can't buy the marginal stuff they desire). This is the finding of a paper published late last year, The Heterogeneous Effects of Income Changes on Happiness.

While 98% of people get a bit more satisfaction out of life (but not a lot) when their incomes rise, the remaining 2% are known as "frustrated achievers" — more money only makes them more unhappy, according to a team led by Leonardo Becchetti of the University of Rome Tor Vergata in Italy. Studying data on UK households, the researchers found that 70% of the frustrated achievers are female, and divorce is more common among this group than among the rest of the population.

Which brings me to the interesting idea explored in a public lecture in LSE last month; two professors 'debate' on the validity of using happiness as a measure of social progress rather than the 'traditional' indicators of income-measurements and development figures (mortality, access to services, nutrition, etc).

Indeed, happiness might often be relative and too often depends on context and circumstances. Our method of asking people if they are happy is as good as trying to measure the wealth of economy by randomly selecting people on the streets and then noting the amount of cash in their wallets. Too much of data relating to happiness is being missed out in the way it is captured now, making it difficult for happiness to be a measure of social progress though ideally, it actually serves as a good benchmark.


Feeling Statistics

By Kevin

Mankessim Market

Trading Commodities?

A couple of months back, I was in Ghana to work on a Microfinance Project under Global Brigades. It was an amazing experience to be working in one of the communities in Ghana, so closely with the locals in such a short time. There were the stuff you expected - lack of access to clean water, or electricity (mostly because of the expense rather than the lack of infrastructure in the case of Ghana). But there were also things I didn't quite expect - the widespread use of mobile phones, the fact that the young university students had Facebook accounts and how Akon and Rihanna were singers familiar to them.

It is also one of the first time I see so many kids at the same time, gathered together and so many young people around - this is when I realised that is what the first steps of development looks like. This is the point of time when access to medicine is improving, public health education more widespread and economic conditions were picking up following positive economic reforms. Indeed, it is when the population pyramid beginning to show marked effects of falling infant mortality (was 76 in 1990, fell to 47 in 2009) and child mortality (was 120 in 1990, fell to 69 in 2009) in the past 10 years. In Ghana, I actually felt what these statistics meant and saw for myself what it says about the lives of people.

Everyone I spoke to was optimistic about the future and the development of their country though some of the older ones were more skeptical about how much their lives would improve. The university students in particular were full of energy and ready to take the ideas they've picked up and use them out there at work if the opportunities come by. With so many youngsters and kids, teaching becomes an extremely important job and teachers are held in high esteem. The other important development statistics appear to be in favour of the country; literacy is climbing, and so is urban development. I can only hope that things continue to improve. Perhaps learning about the situation of countries through their statistics works only to the extent you can imagine the conditions of the people and the situation there. After a while, it just becomes something rather lifeless (just as I've experienced after researching through the key growth indicators of more than 10 European markets) - but be reminded of how those figures comes alive, and you'd probably appreciate them better.


Educating about Transport

By Kevin


Colourful Choices

As we all move forward in our personal development, we realise that including the citizens in policy decisions and complex issues that involves their personal welfare is important. I was really heartened to see Lui Tuck Yew takes his time to write Facebook notes that intelligently engages the public - the ones explaining the formula PTC used for manage the fares and also the issue on quality of service. It is important to show that while there may be some problems with the system, it can never be perfect and that we need to get together and work on it. Suggestions should come forth, without fear of being shot down even if they may be truly dull (I personally don't agree with public transport nationalization).

As Tim Harford said, we should acknowledge the complexity of the world and stop suffering from the God Complex - leaders who have the courage to say, "I've no idea if this works but information I gathered point this way; there's a chance we may fail but let's work together to try something else if that really happens."

Using moralistic arguments or trying too hard to stand by an action that have been taken usually produce flawed arguments that reduces a leader's credibility. Bear in mind that there's no end to issues of 'fairness'. Lim Boon Heng's statements cited in this article is such a grave disappointment. It's amazing how the reporter arranged the quotes to stay perfectly objective while surfacing the flaws of the argument made. Given the education levels of Singaporeans today, it seemed somewhat embarrassing that our leaders are trying to bullshit us this way:

"You know raising bus fares is unpopular," he said. "But if we cannot raise bus fares, how will that impact your fellow workers? I am sure you will understand that it is not fair if they cannot get wage increases."

"But their wage increase will be funded by fare increases, which adversely impact the public."


"But from the worker's perspective, when there are millions in profits, they want the employer to pay them better wages," Lim added.

"To them, millions of dollars in profits is a lot of money, and the commuting public feels fare increases are not justified."

SMRT posted net earnings of S$161.1 million for the financial year that ended this March, while SBS Transit had a net profit ofS$54.3 million for last year.

And what's wrong? There's no way to argue that fare hikes are for the transport workers. We all know that financial accounting puts down wages and salaries of workers of the firm as expenses in the income statement. Millions of dollars of profits are basically fares/revenues that did not go to the transport workers. Of course, they went to the people who contributed the capital and own the firm. Who is to guarantee that a fare hike would mean money is directed to the workers? If we want the wages of the workers to rise, why can't we reduce the profits of the owners instead? The last thing we need is the nationalization of public transport; what we need is perhaps better regulation. Perhaps PTC and NWC can work together, and negotiate both the fares and the wages?


Extra platform should be at Clementi and not Jurong East...

I could do a deeper analysis of SMRT and SBS Transit's patterns of cost and revenue and we could see profit margins have been constant or steadily increasing over the years. If it's been increasing, we can conclude that either the owners have exercised good cost control but refused to share some of the profit gains with the workers, or that hikes in fare so far have mainly been used to raise profit margins rather than to defray costs.

Let's use SMRT's figures as a demonstration: In 2007, fares rose 1.1%, FY2007 profit margins was 10.5%; in 2008, fares rose 0.7%, FY2008 profit margins was 13.5%; in 2009, fares fell by 4.6%, profit margins soared to 18.5% and then finally in 2010, fares were raised 0.5% and profit margins dipped a little to 18.2%. I'm not sure if my simplistic comparison of the time series of these figures distorts reality but I leave intelligent readers to arrive at their own conclusions. But I do want to remind readers that it is possible for fare reduction to invite more commuters, improve the green-ness of our economy, while providing that very profit boost that can be poured into investing for more capacity to reduce the overcrowding - perhaps already demonstrated by some figures I've presented.


The God Complex

By Kevin

Tim Harford delivered a wonderful talk at TED, on an issue I've long wanted to discuss and talk about. This is something I first learnt about from Origins of Wealth by Eric D Beinhocker several years ago. It is amazing how timeless this idea of trial and error would be.

Perhaps the most important part of Tim's talk was the last part, on the point of how obvious it is to us that trial and error underlies most of our important discoveries and approach to problem solving. Guided trials and learning from the error presents one of the most powerful means of design. We must, indeed come to this point of realisation that we should perhaps, no longer attempt - in our haste to simplify - to make kids believe that there's only 1 right answer to questions they encounter. The kind of struggle that we experience as we mature to accept that there's a need to hold multiple views and suspend judgment should have taught us that. But we wanted to shield our young ones from that suffering (and as a result, merely helped to postpone it) - one that turns out to be inevitable.


Economics of Disasters

By Kevin

I haven't exactly been following up with the disaster on Japan but then I recently stumbled upon Professor Hunter's video on the LSE Youtube Channel and I thought was really a wealth of insights she shared about Japan and the way disasters were handled by the society.

And while TEPCO fumbles along and more problems arises in the aftermath of the quakes. There was an acknowledgement of deep-seated governance problems in the country. And although the Economist appear skeptical about the impact of this disaster, I do think that this is an opportunity for the Japanese to correct any fundamental problems and be motivated to move on with greater zeal.


Jamie’s Dream School

By Kevin

Jamie Oliver

Dreaming Up Stuff

I don't really watch TV and I won't actually recommend it because of how it drains your time away slowly. But I found myself watching an episode of Jamie's Dream School and was immediately drawn to how inspiring it is. It is an incredible experiment about motivation, attitudes to life and trying to inject aspirations in the minds of our younger generation. The best part is that it's available free on Youtube.

You realise that often, sensibility and maturity follows from aspirations and that, I guess gives parents an answer to what you can do to motivate and drive your children. And for the rest of us, it teaches us about maximizing our potential. In the world today, we have to remind ourselves that our career, our work isn't something constant and unchanging through our life. And it is fine. The most important thing is to be able to manage the change, to know the direction you might be driving towards at any moment in time and make sure you follow through.


Predictions in Social Science

By Kevin


What might fail to happen...

There's many little ideas I got from LSE100 and my course in general here at the LSE but I haven't got the chance to explore them in-depth. I think one thing about tertiary education is that you are packing so much content within a short span of time there's really a severe lack of time and opportunity to ponder seriously over the issues that are introduced to us even when they are extremely important and significant. By the time exams ends and everything is over we're so anxious to enjoy ourselves we can't be bothered. For those who already think JC is like that, then university is a whole new level up. So I guess if you want to do more intellectual exploration you can either choose to be a PhD student, end up as a lecturer and part of academia or you can consider being an idler.

Still, I find this idea we have been toying with, about social sciences, particularly helpful in understanding the inadequacy of knowledge and our inability to have a complete grasp of the world. In my personal blog, I briefly considered the complexity of social sciences and now I'm going to talk about the implication of this complexity on our ability to make predictions. Unlike the sciences, we don't have laws, we only have models (perhaps with the exception of Goodhart's Law, which implicitly suggests there can be no law in social sciences). And these models would break down under different circumstances. A model that is too robust tells us nothing we don't already know whereas a model that is fits well with a single set of conditions tells us nothing about everything else.

And models allows us to make predictions only to the extent the model continues to do a good job with describing reality. Yet the very knowledge of what's next may result in actions that changes reality and result in the break down of the model. And so to ask, why didn't we foresee the financial crisis is unfair because if we did, it would either have caused sufficient panic that it would have come earlier or that it would have alerted policy-makers enough to prevent it completely. Predictions in social science, in the words of my LSE100 lecturer, are 'inherently unstable'. If you predict there's going to be a run on XYZ bank 2 months down the road, and people believe you, then the bank run will be within the week. If people don't believe you, then there's not going to be any bank run unless new information comes in to affect the behaviours of the people. So you will be wrong anyways.

This is something familiar in Economics. When policy makers try and exploit the Phillips Curve relationship, the curve breaks down because the inflationary expectations of the people changes. And if policy makers ignores the relationship, there's a high chance it comes back again. Then they might be tempted to exploit it only to see it vanish again - and then history repeats itself. And because of all that, policy-making and social sciences are extremely nasty businesses.



By Kevin


The LSE Course. Indeed.

I'm not paid for this advertisement but in any case, as I'm closing to the end of the first half of my LSE100 course here in the London School of Economics & Political Science, I thought it'll be nice to talk about it and tell the world that there's such a course at university and the importance of the objectives driving the development of this course.

My life in London has been extremely busy, particularly this term, spanning 11 weeks (the last of which comes next week). This explains the severe lack of contribution to this website. But fret not, ERPZ will stay online not indefinitely but I'll try to maintain it as far as I can afford it. The plans for expansion of ERPZ have been stowed away for now given how busy the authors are. New materials are welcomed so any readers who are interested may fill up the contact form to get in touch with us.

LSE100 is sort of like the General Paper we have at A Levels but it goes to explore specific issues at much greater depth but then try to link this up between disciplines. What GP can at most accomplish is to synthesize topics and try to help us understand issues from a more general perspective. LSE100 tries to help you understand issues and topics from a variety of perspective, exploring the methodologies of research used in different discipline, their impact on the conducting research and how they view the world, as well as compare the 'academic' nuances that pervade each discipline.

I believe the methods which LSE100 uses to engage students will prove to be popular means of teaching and course design in the future. Framing modules into questions serves to exploit the intellectual curiosity of the student audience and though at the end of each module you realised you don't actually manage to answer the questions posed, you do discover the various thinking that academics go through in trying to work on these problems. At the same time, the special lectures that introduces students to various skills are particularly important as well, not only because they are intellectually stimulating but that they are useful beyond the course itself, in fact, useful beyond the university education and future work life.

At JC, I find that I am always able to reduce the course content into rather simple theories or opinions that will score well in exams. Often, I raise the complexity of arguments a little in a bid to impress, as you may have already realised from some of my writings. Yet I can assure you that at university, the sort of thinking required is going to be at an absolutely higher level. The essay I've to submit next week for this course totally got me wadding through serious complexity that was simply irreconcilable and at the end of the day I'm even thinking to myself, 'is this question of any relevance to anyone at all?' The answer turned out to be yes, and it is relevant but in such subtle ways that most ordinary academics would fail to realize until confronted with it.

And so for students who have done exceptionally well at the recent A Levels and have the chance to consider studying overseas as well as those who already know they will be spending their undergraduate years at the London School of Economics and Political Science, this might be an aspect of LSE life you might want to look forward to or think about before you actually come over. Please feel free to get in touch with me (once again, through the contact form) to learn more about studying and being a Singaporean here at the LSE!