A good economic system has many small businesses that compete in the market to offer good service at a transparent price. You can see many good examples in the retail trade, food and in hair dressing, tailoring and other personal services.
Large businesses are needed for manufacturing, but the distribution can be done through small retailers. This is the model for the sale of household and electronic products.
It should be possible for banking services to be operated by small banks who can serve the customers in the community for banking services. There is no need for each bank to develop an expensive computer system, as they can tap into a common system, similar to the arrangement where the Singapore Exchange provide a centralized service to the stockbrokers.
The argument that we need big banks to be able to afford the investment in computer system to operate efficiently is flawed. It has led to large banks increasing their profits to excessive levels, by charging high fees to customers, and also engaging in risky trading. We now have the situation of "too big to fail" when banks make big losses on their large bets - which has to happen from time to time. We need to make banks smaller, so that they can be subject to the discipline of the market. See http://www.cnbc.com//id/45307122
There is a similarity with the operations of large transport and telephone companies. There is a similar argument that they need to be large to afford the investment in the infrastructure. It is easy for these large businesses to abuse their pricing power to make big profits. A better approach is for the infrastructure to be developed and owned by the state and rented out to the service providers.
The current business model in many countries, including Singapore, favors big businesses, but it also leads to excessive profit margins for these businesses - leading to higher cost for consumers. We need to have a new economic and business model for the future.
Large businesses are needed for manufacturing, but the distribution can be done through small retailers. This is the model for the sale of household and electronic products.
It should be possible for banking services to be operated by small banks who can serve the customers in the community for banking services. There is no need for each bank to develop an expensive computer system, as they can tap into a common system, similar to the arrangement where the Singapore Exchange provide a centralized service to the stockbrokers.
The argument that we need big banks to be able to afford the investment in computer system to operate efficiently is flawed. It has led to large banks increasing their profits to excessive levels, by charging high fees to customers, and also engaging in risky trading. We now have the situation of "too big to fail" when banks make big losses on their large bets - which has to happen from time to time. We need to make banks smaller, so that they can be subject to the discipline of the market. See http://www.cnbc.com//id/45307122
There is a similarity with the operations of large transport and telephone companies. There is a similar argument that they need to be large to afford the investment in the infrastructure. It is easy for these large businesses to abuse their pricing power to make big profits. A better approach is for the infrastructure to be developed and owned by the state and rented out to the service providers.
The current business model in many countries, including Singapore, favors big businesses, but it also leads to excessive profit margins for these businesses - leading to higher cost for consumers. We need to have a new economic and business model for the future.
2 comments:
I agree. I still do not understand why POSB and OUB had to be taken over when they were doing well.
Singapore used to have a good model in the shape of the POSB. It provide basic banking services and offers a good deal to the public. I wished that POSB had been allowed to remain to serve the low and mid income earners.
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