Tan Kin Lian's Blog: Government regulations

Friday, February 12, 2010

Government regulations

Many people dislike government regulation and prefer to leave matters to be sorted out by the free market. This is the approach that has led to asset bubbles and the collapse of the global financial system. It is the government stimulus and financial support that have led to the restoration of confidence in the market. However, this government actions are only temporary props to the system. The underlying root of the problem has not been solved.

Some people like the free market as it provides opportunities for innovation and initiative. But it also provides opportunity for cheating and exploitation, which are the fastest and easiest ways to accumulate wealth (especially in an environment where enforcement of business ethics is lax).

To have a more fair and stable market, we need regulations. The regulations have to be of the right type and not the wrong type. The regulations should not be rigid and cannot solve all the problems, but they should be able to solve more problems than create them. Leaving the free market to solve the problem will not work, as the profit motive and vested interest will find ways to take advantage of the situation.

There is a need for the state to provide more of the social services required by the people, such as education, health care, security, infrastructure, transport, housing and old age pension. The state does not need to employ people to run these services, but they can be outsourced to the private sector - but the fees, charges and standard of service should be regulated.

The state needs to provide up to a basic standard and leave the space for the higher income to buy additional services from the private market. But the state benefits should form the benchmark to compare the services provided in the private market.

This is the approach adopted by many social democracies, such as those in Europe. They are able to provide a better quality of life for their people.

Tan Kin Lian

3 comments:

STG said...: I do agree with you on the need of minimal regulation or government intervention in creating a better system. Free market does has its failings. Similarly, a perfectly free market as described in Economics or Adam Smith style is not entirely practical. There are very rare examples of a completely free market.

Europe is always a good example of how Government Intervention can work. However, we have to really differentiate "standard of living" there and here. Taking the Scandinavian countries as examples, they are indeed ranked high up globally on excellent living standards and other metrics. However, their costs of living are very high. They pay above 20% VAT, above 40% income taxes and their income levels are rather leveled.
Income disparity is low, but that means a diamond shaped distribution. Many young families have to work as hard as their older generation as their system does not allow them much savings. There are drunkards, compulsory jobless and vagrants abusing the social welfare scheme. Their shops and malls are deserted at 8pm. Its never advised that it is safe to walk alone on streets after 10pm.

SG on the other hand has minimal social welfare net. Our costs of living is comparatively lower than the Europeans however, there are indiect taxes through cars, tobacco and other luxury stuff. However, in relativity, in terms of costs n benefit ratio, SG is not that far off.

I agree with your point of more Govt help and direct assistance to the lower income and less privileged in SG, however, it is dangerous to raise the social welfare net just for the sake of raising.

In view of Temasek's decision to launch a new HF of 5bio seeding money. Why not start a PE fund which solely focuses on seeding private companies that are less geared towards profit maximisation?; February 12, 2010 10:27 AM
Anonymous said...: STG, I think you have mis-read Mr Tan's idea, that there should be better and stronger (if not more) regulations to protect against the inherent weaknesses of free market systems.

This "free market" thinking is now a crutch mentality of the PAP govt, as it benefits them due to focus on higher GDP growth. The current system also benefits the top 30%. As for the other 70% it is a struggle. Good if they can make it. Too bad (lazy? incapable?) if they cannot.

The govt always says free market is the best as high GDP means more $$$ for govt and the richer to help the people (trickle down effect). But really? Then how come more are homeless, more cannot afford HDB, charities need to put on a show to get donations. Even if you donate 20% of your salary every month to social causes, you'll still be paying less tax than Europe countries. And yet I seriously doubt if you or anyone else is donating so much.

Let's face it, humans are naturally selfish and self-centred. Therefore the system needs to be tweaked such that people are dis-inclined to over indulge in such behaviour. Right now, Singapore's system over encourages selfish profit-making and hoarding of wealth, a you-win-means-I-lose mentality. Certain European countries maybe too encouraging of a free lunch mentality and not taking self-responsibility. We need to find a balanced approach.

By the way, I have much investments in S'pore companies, so rationally I should be supporting the status quo. Even if I know that S'pore cannot sustain with current system, the rot will take time and I can always migrate with my family to a better country. However such thinking is an example of the self-centred profit motive and vested interest encouraged by the system, and too bad for those not capable enough -- they should work harder or be more creative etc.; February 12, 2010 5:57 PM
STG said...: First, with all due respect to Mr Tan and all, I hate to reply and discuss in anonymity. To me, It is a sign of a lack of respect and insincerity.

Secondly, I believe in open and unbiased discussions where personal political, religious and social leanings do not constrain nor bridle a free dialogue.

Thirdly, I am not saying that we do not need regulation. The very fact, that I am posting in line with the rules and regulations drawn by Mr Tan shows my obesiance for regulation. My stand is rather clear. I do not believe in changing for the sake of changing per se. A change needs substantial reasoning and deep thinking. It is irresponsible to the masses to lobby and canvass for change without thinking about the potential aftermath or repercussions. Sometimes the grass looks greener on the other side, but behind the bank it might be a barren desert obsure from the well positioned. Sometimes, the change is really neccessary. Noone can guarantee anything, only time will tell.

Fifth, difference between democracy and autocracy is that Autocracy is already in power while democracy seeks to be so. As mentioned, if people are selfish by nature, regulation or not, selfish behaviour will only seek selfish ends. There will still be poverty and exploitation, only the degree varies. However, thats not our discussion here. We are discussing about how to alleviate poverty or income skewness.

After much thought, I think the idea of unemployment insurance is worth looking into. However, there is always the issue of fair pricing and such. Thus I think such an insurance scheme must not be managed on the normal capitalistic profit maximisation thinking. It should be a public good. That said, it is hard to seek an altruistic underwriter or attract good employees to work without much incentives. It is difficult to argue against the merits of Monetary Incentivisation.

While its easy to write and discuss in elegant prose sprouting a great sense of liberating altruisic stand, in reality how many how willing to stick out their neck? Pardon my bluntness, Mr Tan Kin Lian failed to garner the much needed signatures needed to persuade him to even contemplate seriously running in the political scene. How much can we, idle folks posting at leisure?

Nonetheless, wishing everyone good health and roaring success in the year of the Tiger.; February 14, 2010 11:15 PM