Global-is-Asian Issue #18

Solving the haze riddle

The Big Ideas of Mr Lee Kuan Yew

Upside Down

ISSUE #18 • Jul–Sep 2013

Despite being important, interesting, and widelyresearched, there is as yet no accepted general theory of collective action. In an upcoming book, Assistant Professor Eduardo Araral, winner of the 2013 Elinor Ostrom Award on Collective Governance of the Commons, points to a promising direction – the place of contracting cost in understanding the level of, and reasons for, cooperative action. costs – cost of agreeing, monitoring, enforcement, and making credible commitments – are low, we will observe the emergence, survival, dominance and stability of a population of what are “conditional co-operators”. This is an “if-then”, rational, self-interested model – cooperation is therefore less likely if contracting costs are perceived to be high. This model is a 3G model of collective action, and hence one step forward towards a general theory.

THE BIG IDEA

Towards a More General Theory of Collective Action

by Alisha Gill

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he standard top-down solution to collective action problems talks about an effective legal system that enforces contracts and regulations. The standard bottom-up solution is mutual trust. Araral, however, argues that a large number of cooperative actions are left unexplained by these two models. Instead, these actions

are better understood as the bilateral efforts of parties who think that they can achieve mutual benefits if they can devise cost-effective contracting mechanisms.

Hence, the world of rational egoists can make room for what appears to be unselfish acts, by looking at their beliefs about contracting costs. If contracting

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First and Second Generation Models The first-generation theories – Prisoner’s Dilemma, Public Goods Dilemma, and Tragedy of the Commons – have been helpful in modelling the fundamental structure of collective action problems.

The models, however, make unrealistic assumptions – namely, that agents cannot communicate, and when they can, talk is cheap; formal and informal institutions or norms, such as reciprocity, are inconsequential; the rational egoist is the only type of agent, and self-interested agents can only act in the collective interest if there are few of... p continued on page 3

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DEAN'S PROVOCATIONS

In the Same Boat

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he most pressing challenge that humanity faces today is the need to take collective action to manage the global commons. Indeed, the outcome of the 21st century will depend on our ability to recognise and deal Kishore Mahbubani with increasingly complex and numerous planetary issues.

In my new book, The Great Convergence, I use a simple boat metaphor to explain this point. Before the era of modern globalisation, when people lived discretely in more than 100 separate countries, humankind was like a flotilla of more than 100 separate boats. What the world then needed was a set of rules designed to ensure that these many boats did not collide and to facilitate their cooperation on the high seas, if, occasionally, they did. Despite some obvious failures, these rules succeeded in producing a relatively stable global order for more than 50 years.

Today, global circumstances have changed dramatically. The seven billion people who inhabit planet earth no longer live in more than 100 separate boats. Instead, they all live in 193 separate cabins on the same boat. But this boat has a problem. It has 193 captains and crews, each claiming exclusive responsibility for one cabin. However, no captain or crew takes care of the boat as a whole. None of us would sail into an ocean of rapidly changing currents and looming storms without a capable captain and crew at the helm of our boat. Yet the global policy community proposes to do exactly that: sail into the uncertain waters of the 21st century without a captain.

Clearly we are not ready to accept a “captain” of planet Earth in the form of a “global government”. Global government will not happen in our lifetime and in that of our children. However, we can strengthen institutions of “global governance”, especially the large body of multilateral institutions under the UN umbrella.

One of the dirty little secrets I expose in my book is that it has been the policy of Western developed countries to weaken, rather than strengthen, UN institutions. However, while some may think that this policy may have served Western interests in the past (and I argue that it never did), it certainly does not do 2

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so now. As a shrinking minority in the world’s population, it is in the interest of Western countries too, to strengthen multilateral institutions.

The good news here is that we can create a better world with a simple policy switch: to move from weakening UN bodies to strengthening them. In practical terms, this means giving more assured long-term funding to bodies like the World Health Organisation (to deal with the rising threat of pandemics) and the International Atomic Energy Agency (to help prevent further proliferation of nuclear weapons).

Even though the West claims that it believes in stronger and more effective leadership of UN organisations, it has often taken the opposite route in practice. A real test of Western policy in this area will surface in 2016. The next UN Secretary-General will come from Europe as a result of the well-established practice of regional rotation.

In the past, Europe has produced the best ever UN SecretaryGeneral, Dag HammarskjÖld from Sweden. He died in office on his way to negotiate a cease-fire and was awarded the Nobel Prize posthumously. But Europe also produced one of the worst, Kurt Waldheim, an Austrian, who covered up his Nazi past to take up the UN post. This will therefore be one of the key questions the world will face in 2016: will Europe put forward a candidate more like Hammarskjold or Waldheim? If it is the former, the capacity of our world to deal with problems of the global commons will be given a major boost. In short, we will sail into the 21st century with a strong rather than a weak “captain” as we deal with a rising tide of new global challenges.

Kishore Mahbubani is Dean of the LKY School of Public Policy, NUS, and author of The Great Convergence: Asia, the West, and the Logic of One World.

THE BIG IDEA

Towards a More General Theory of Collective Action (continued from page 1)

...them or if there is coercion or some other mechanism for eliciting cooperation. This is the “top down approach”.

The second-generation of theories by Nobel laureate, Elinor Ostrom, posits that the extent of cooperation is a function of generalised trust, reputation and reciprocity. Unlike the first generation of models, Ostrom’s model assumes that talk is not cheap; that beliefs and norms evolve and play important roles in the development of reciprocity and hence cooperation, and that structural variables – group size and heterogeneity, face to face communication, freedom of entry and exit – matter for the development of trust, reputation, reciprocity and thereby cooperation. This is the kinder, gentler bottom-up approach.

Towards a Contractual Model of Collective Action Araral argues that as a general theory of collective action, Ostrom’s model has several limitations.

First, the structural variables that Ostrom identifies as important to cooperation are, in fact contractual variables, that is, they affect the costs of agreeing, monitoring, enforcement, and of making credible commitments. For example, large heterogeneous groups affect the costs of agreeing, monitoring and making credible commitments.

Second, as noted, a large number of cooperative actions are better explained as the bilateral efforts of parties who think that they can achieve mutual benefits if they can devise cost-effective contracting mechanisms. For example, in developing countries with low levels of generalised trust and weak rule of law, parties still manage to cooperate by devising cost-effective mechanisms for contracting. Likewise, in countries with high generalised levels of trust and strong rule of law, parties to a transaction still require the expertise of lawyers, accountants, arbitrators etc. to devise mechanisms to solve commitment problems.

A contracting theory of collective action overcomes several limitations of the first and second-generation models. For instance, unlike Ostrom’s model, the contracting model accounts for the economics of cooperation since it is explicitly concerned

with the cost effectiveness of governance mechanisms. A 3G theory will allow a more “general” appreciation, giving explanatory force to both bottom-up and top-down approaches.

Practical Implications: How to stop the Haze As the haze returns to Singapore, Araral’s contractual model is instructive because it suggests that one long-term policy solution for the Indonesian government is to reduce contracting costs.

To this end, Araral had suggested several approaches in a 2007 paper about the transnational haze.

First, Araral argued for the separation of the regulatory and development functions of Indonesian forestry ministry. This will reduce conflict of interest within the single ministry, which at the moment seeks both to enforce regulations, and ways to work around them to ensure economic development. A strong and independent forest regulatory agency, although prima facie increases the potential for conflict, would in fact work to minimise the costs of cooperation and enforcement.

Second, give incentives to farmers to stay and farm, rather than slash and burn. This requires large-scale investment programmes that include features such as: • Land tenure security for small farmers to encourage them to make long-term investments on their land instead of practising shifting cultivation; • Infrastructure and social services to stabilise settlement patterns and encourage farmers to settle; farmers should be linked to markets so that they have the incentive to invest in high-value crops instead of annual crops typical in shifting cultivation; and • Community-based reforestation, agroforestry and resource-access rights (titling and usufruct rights) in logged-over forests to reduce the incentives of farmers from burning these forests for shifting cultivation.

To be sure, collective action problems are likely to remain the key problems of organised societies. A general theory will not provide particular solutions, but it can give analytical tools and frames with which to regard and analyse such problems. · Jul–Sep 2013

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OPINION-EDITORIALS

Below is a recent selection of commentaries and op-eds by our faculty.

Pakistan's water shortage drips towards disaster Against the average of 75 per cent water usage for agriculture in the developing world, Pakistan uses nearly 90 per cent.

With barely 10 per cent left for drinking, household usage, sanitation and industrial purposes, no wonder that a third of the population does not have access to safe drinking water.

From within its usage for agriculture, two-thirds of water is wasted due to archaic agricultural practices, says Dr Qamar-uz-Zaman [head of Pakistan's metrological department, 1996-2010].

Since many influential landowners are also powerful politicians benefiting from the status quo, they resist all attempts to change – only to maintain some of the lowest productivity rates in the world, per unit of water and per unit of land.

Recovering only 24 per cent of its annual overhaul and maintenance (O&M) cost, Pakistan's canal water irrigation system is financially unsustainable.

The rest of the money for O&M comes in subsidies, disclosed a planning commission report. This low cost to the user breeds wastage and thus a national loss.

Pakistan's water scarcity threatens peace in the region. Instead of passing blame, Pakistan needs to look within to prevent waste and devise better management methods to reverse this looming crisis. The situation, if not tackled, will fan discord with India and exacerbate interprovincial disharmony in Pakistan.

Sajjad Ashraf, Adjunct Professor, in The National, 28 August 2013

China has need of well-run stateowned enterprises (While) reform is needed, there is a danger of throwing the baby out with the bathwater.

State-owned enterprises have historically played an important role in driving 4

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growth and development in emerging Asian economies; they have also been useful as a means through which governments provide goods and services to citizens. This should not be neglected.

Traditional institutional wisdom suggests that government should keep itself separate from business. However, China's state-owned enterprises and Singapore's government-linked companies have been the backbone of the nations' miraculous economic growth. In China, these enterprises contribute at least 30 per cent of gross domestic product growth while Singapore's government-linked companies are a major presence in its economy.

China's state-owned firms typically enjoy preferential treatment in terms of administrative approval and bank loans.

Although most firms report profits, totalling US$920 billion from 2001 to 2009, the state is saddled with a negative 1.47 per cent real average return on equity after accounting for US$1.19 trillion of subsidy and foregone costs.

As Beijing embarks on reform of its state enterprises, there are key lessons from Singapore. First, they need exposure to competitive market pressures. Second, their governance structures must change; they need to be run by professional managers. Further, executives' incentives need to be tied to the performance of the organisation.

Zhao Yajing and Woo Jun Jie, MPP and Phd candidates respectively at the LKY School, in South China Morning Post, 28 August 2013

Tackling haze: Learn from the Swedes The haze returned with a vengeance this year… But serious challenges prevent a quick resolution.

For one thing, the fires are caused by farmers who use the "slash and burn" method to clear land for oil palm, rubber and plantation forestry. Last year, Indonesia exported US$17.9 billion

(S$22.75 billion) worth of palm oil, and around five million Indonesians depend on this industry for a living.

Sweden documented, through extensive research, the damage wrought by acid rain to its economy and environment.

It then aggressively disseminated this information through scientific papers, the media, relevant inter-governmental fora, and through activist environmental nongovernmental organisations (NGOs). The problem was almost fully resolved by the early 1990s [since 1979, when a convention on long-range transboundary air pollution was adopted in Geneva].

In sharp contrast, Asean takes a "softly, softly" approach, in line with its non-intervention culture. In 2002, it adopted an agreement on Transboundary Haze that came into force in 2003. The pact requires parties to prevent burning of forests, and to provide information and mutual help. Indonesia, from where the haze originates, has not ratified the pact.

It will try again to get its Parliament to ratify it next year…

[Apart] from going after errant largescale farms producing palm oil, the main emphasis should be placed on influencing major buyers and pressuring them to buy only from the producers of sustainable palm oil. These companies are well known and many have already signed the UN Global Compact pledge which stipulates environmental responsibility. One commitment is that "activities on our yard should not cause harm to the environment of our neighbours".

Asit Biswas, Distinguished Visiting Professor, and Cecilia Tortajada, President of the Third World Centre for Water Management, Mexico, in the Straits Times, 23 August 2013

Biggest success may lie in nurturing habit to speak up, listen [If ] it seeks to engage the silent majority while visibly excluding the so-called vocal minority, the OSC runs the risk

of becoming an ideological instrument of the political establishment. Given the sharpened critical sensibilities of the public today, this will not go unmissed. In the worst case, it will lead, at the end of the year-long process, to cynicism, political divisiveness, and an erosion of public trust and social capital.

[What] we really need, beyond organising a mechanism for collective decisionmaking, is to enrich the quality of public life, impoverished by decades of political paternalism and the kind of political apathy that is said to have resulted from material success and affluence.

To do this, we need to create new spaces, practices and even rituals for public engagement and citizen activity – spaces that are non-intimidating, authentic to the diverse groups of Singaporeans, whose identities and interests are increasingly complex, and motivated as much by citizens themselves as they are by centralised committees.

Instituting the habit of public participation and nurturing the skills to do this well are, in my view, a more important contribution of the OSC than recording the aspirations that will feature in the final report. The enrichment of public life helps us build social capital. With more social capital, we can better build on Singapore’s successes and transcend the worst forms of polarisation and the excesses of populism.

Kenneth Paul Tan, Associate Professor and Vice-Dean (Academic Affairs), in Today, 14 August 2013

Asia and the middle-income trap The middle-income trap is also as much about politics as it is about economics.

Second-generation reforms are politically more sensitive than first-generation reforms, for they get closer to the heart of vested interests and political systems.

That is why factor-market deregulation

generally lags far behind product-market liberalisation. …For low-income and low middleincome countries, the challenge is to insert themselves into labour-intensive segments of GVCs (trade and global value chains), particularly in manufacturing. This is a proven recipe for fast catch-up growth. It applies to South Asia, the poorer ASEAN countries and the interior provinces of China. Highincome and high middle-income countries need to specialise in more capital-, knowledge- and skill-intensive segments of GVCs, in manufacturing and increasingly in services.

Razeen Sally, Visiting Associate Professor, in the Daily FT, 2 August 2013

Stalemate in Afghanistan talks: Uncertainty looms The Taliban know that the US’ need for an orderly withdrawal by end 2014 compels Washington to negotiate with them. The Taliban’s approach, therefore, is to completely disregard Karzai – the weakest player in the peace process. That makes him irrelevant but the very process of Doha negotiations, if it takes off, will eventually lead to his irrelevance. (…)

With daring Taliban activity even inside Kabul’s Red Zone, Kabul’s structures are creaking. “Once American troops are withdrawn, the existing government will collapse,” says William Polk a veteran US foreign policy commentator.

People associated with the current regime are attempting to get their families out and consequently property prices are falling in Kabul, confirms Tinko Weibezahl the head of Kabul office of Konrad Adenauer Foundation.

Much of the Western world fails to appreciate that in a country where no foreign invasion has ever been able to hold, the Taliban represent resistance to attempts to westernise a society strongly

rooted in its culture and traditions. By firing up yearning for freedom they have maintained a psychological grip over the Afghan population.

Sajjad Ashraf, Adjunct Professor, in the Eurasia Review, 19 July 2013

Honoring South Africa's father A sentiment I am certain is echoed within each and every person is that the lives of struggle icons like Mahatma Ghandi, Martin Luther King, Steve Biko, Oliver Tambo or Mandela himself are motivating because they often tell a story of humble beginnings ultimately leading to immeasurable greatness. A story of struggle, pain and a life full of compromise and yet never losing focus on the bigger picture, one bigger than self.

Mandela once said, “Education is the most powerful weapon which you can use to change the world.” To people like me, coming from humble beginnings, with no money to afford quality education and where few gave us a chance, Madiba’s words gave us the reason to desire to be educated, to be more than a product of our circumstances, because he made us believe that education is our only ticket to making a significant difference in the society.

Moshisi Lehlongwane, MPP Alumni, in the Rappler, 4 August 2013

On India’s recent price hike for dry natural gas (We) all know that the upstream public sector companies are milked by the government through ad hoc burdens such as funding under-recoveries. Hence, the real beneficiaries will be private gas producers unless the government also announces policies that place the same burdens on upstream private and public sector companies. But that would defeat the real purpose of the price increase (…)

Surya P. Sethi, Adjunct Professor, in The Hindu, 1 July 2013.

· Jul–Sep 2013

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BOOK REVIEW

On the Upside of Down:

Review of Alfredo Toro Hardy’s The World Turned Upside Down

by Woo Jun Jie

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he rise of China has left an indelible mark on the world. Even as opportunities for greater cooperation among developing nations emerge, there will be costs in the adjustment to the new distribution of global power. In his new book The World Turned Upside Down, Venezuelan Ambassador to Singapore Alfredo Toro Hardy makes an intriguing observation – that the “Arc of History is bending to the emerging economies of the South” and the World has been turned “upside down” with the emergence of China.

In geopolitical terms, the growing integration between China and Latin America at the expense of the developed West, power is shifting from the North to the South. This is a process that has its origins in the reform and opening up of China’s economy in the late 1970s. Yet, the road ahead for China and other emerging economies will not be easy. The process of development has been accompanied by growing pains such as poverty, social inequality, and environmental issues.

With China’s rise bringing forth both challenges and opportunities, the LKY School has been integral in providing cutting-edge policy research and analysis on the rise of China. In particular, it has focused on the rise of China vis-a-vis the rise of other powers such as India and the preponderance of existing powers like the US. A key insight arising from the School’s work

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is that China-India cooperation is possible despite conflicting interests and geopolitical realities. In particular, growing interdependency between China and India can foster greater cooperation and stability.

Sino-Indian relations thus represent the most successful South-South cooperation of our times, and it is an issue which the LKY School has committed itself to studying, whether in the Centre on Asia and Globalisation’s (CAG) research on ‘China-India Relations: Cooperation between the Two Asian Giants’ or the faculty’s China-related research, which spans a whole range of policy issues including health sector reforms (M. Ramesh and Wu Xun), public administration research (Wu Xun), security and diplomatic relations (Huang Jing), economic policy and reform (Chan Kang and Gu Qingyang), fertility and saving rates (Chen Jie, Yvonne).

Insights drawn from studying China-India relations are no doubt invaluable to the study of cooperation between China and other emerging markets such as Latin America, with ChinaIndia relations representing the axis around which all other South-South cooperation will coalesce.

A World Turned Upside Down As Hardy has noted in his book, a key consequence of China’s rise is that “the pendulum of economic influence in Latin America is swinging from the United States to China” (p. 144).

With emerging economies such as China and Latin America becoming increasingly integrated, Hardy expects China to displace the US as the largest trade destination for Latin America in the near future. While such a view is not new in existing analyses of China’s rise, Hardy displays a deep understanding of the nuances in China’s expanding influence that have thus far eluded other analysts.

Specifically, China’s economic partnership with Latin American is inherently complex and imbued with considerations of costs and benefits. While commodity-importing “Mexicantype” economies dependent on trade with developed nations face increasing costs of Chinese competition, commodity-exporting “Brazilian-type” economies that are less dependent on developed nations stand to gain from greater access to Chinese markets.

Economic integration between China and Latin America is also evolving to include cooperation across various areas within both

economic and political spheres. Chinese investment and financing to Latin America is rapidly expanding in both scale and scope, while closer Sino-Latin American ties have allowed China to flex some of its soft power capabilities.

However, this complexity in Sino-Latin American relations poses significant challenges for Latin American nations as well. In particular, Latin American industries face a precipitous decline as a result of direct competition from Chinese exports. China’s increasing share of exports to developed countries such as the US come at the expense of a decline in exports to these same countries by Latin American firms. Furthermore, Chinese exports also pose stiff competition to Latin American firms in domestic markets.

The influx of cheaper Chinese imports has resulted in a decline in Latin American manufacturing business for domestic markets.

Given these challenges, a reinvention of Latin American economies is required. Hardy suggests that this can be done either by regional economic integration to protect existing industries or moving up the value chain into higher value-added industries through the development of human capital, infrastructure, and exportable services.

And turning what could be a competitive threat into a strategic advantage, this economic reinvention can be significantly aided by China’s presence in the region, in terms of greater Chinese investments, access to Chinese markets, joint ventures and opportunities for technological transfers between Chinese and Latin American firms.

In sum, Hardy has provided a rigorous analysis of how China’s rise is fostering an increasingly integrated Global South.

What may be lacking in Hardy’s book is a Western perspective, as he does not mention how the West should respond to China’s rise and increasing integration with Latin America. But perhaps, that is his intent. Reading his book here, situated at the heart of rising Asia, one finds that the World is, in fact, on the upside of down.

Woo Jun Jie is a PhD candidate at the LKY School with research interests in financial sector policy and regional trade.

· Jul–Sep 2013

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SINGAPORE FOCUS

Policy-Making through a Resilience Lens How can countries prepare for shocks in a complex, volatile and politically contested world? Donald Low, Wu Wei Neng and Alisha Gill examine the role of resilience thinking and its implications for policy-making.

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he resilience of a country is like that of a complex adaptive system such as an ecological biome. Ecosystems with a diverse, highly interconnected range of species are more robust and recover more quickly from external shocks than a monoculture plantation with only one dominant species.

In the similar vein, the resilience of an economy or society is critically dependent on its diversity and adaptive capacity. Given this, policy makers should move from a dominantly “vulnerability perspective” which currently informs policy-making in Singapore to include a “resilience perspective”.

Their ideas were presented at the inaugural Social Resilience Conference “Researching Social Resilience”, organised by the Centre of Excellence for National Security (CENS) of the S. Rajaratnam School of International Studies (RSIS). The conference, which took place in August, looked at recent research on social cohesion and resilience, and its policy implications.

The “vulnerability” approach is premised on the belief that Singapore is fragile, faces serious existential threats, and requires extensive government management and social engineering to mitigate or avoid the risks the country faces. A “resilience” perspective emphasises the growth of diverse capabilities, skill sets and options in government. Adopting this latter perspective suggests that the country has more policy alternatives than the Government has tended to present.

The authors use the lens of resilience to analyse the principles of policy design and implementation in Singapore since its independence in 1965. On the economic front, they suggest that Singapore is quite resilient to sudden shocks and externally-induced volatility. This is largely the result of its strong fiscal reserves position, built up through fiscal discipline and the accumulation of structural surpluses over the decades, and the Government’s ability to take decisive policy action in times of crisis. These factors enabled the quick implementation of the S$20.5 billion Resilience Package in response to the 2008-9 global financial crisis.

To improve economic resilience, Low et al. argue that policy makers must pay attention to the diversity and quality of GDP growth, not just its level. They should also create more spaces

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for the entrepreneurial intelligence of small- and medium-sized companies to complement top-down industrial planning that has largely favoured investments by multinational companies, while staying plugged-in to global flows of capital, trade and talent.

The resilience perspective also suggests that a society founded on the principles of meritocracy and self-reliance is inherently unstable because, among other things, both accentuate inequalities. Rising income inequality and social distance undermine cohesion and trust, and reduce social mixing and inter-generational mobility. This does not mean that meritocracy and selfreliance should be jettisoned as principles of governance, but a more nuanced and balanced approach is necessary to bolster social resilience.

In particular, Singapore should go beyond means-tested social assistance to improve risk-pooling through more universal safety nets such as unemployment insurance, a basic pension system and comprehensive insurance for long-term care. Policies must also reflect a plurality of views by drawing upon the diverse and distributed knowledge in society. For instance, open policy deliberations can expose both citizens and policy makers to a broader range of views, and improve cohesion and trust.

Underpinning all this must be a compassionate meritocracy that recognises broader definitions of success while protecting and providing for those who lag behind.

At the same time, building national resilience has trade-offs, since spare resources and backup capabilities are, by definition, not fully utilised under normal conditions. The results achieved with a resilience perspective may be less than maximum efficiency, although it may, in fact and over the long term, be the most optimal.

Crucially, the authors also do not advocate a laissez faire approach by governments. There are necessary roles for the state in regulating and legitimising market outcomes, correcting market failures, and ensuring diversity and resilience. In this context, the widespread application of resilience thinking to public policy can generate widespread benefits for Singapore.

Donald Low is Associate Dean (Executive Education and Research); and Wu Wei Neng and Alisha Gill are researchers at the Case Study Unit, LKY School.

THE GIA LECTURE

Emotions + Enlightenment = Growth + Innovation The secret to economic development is not a technocratic matter of mastering facts and figures but a thorny process of harnessing emotions and enlightenment, along with a fierce will to execute. These factors are driving the dizzying rise of some Asian economies, with total factor productivity (TFP).

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ixty years ago, amid the Singapore, which is not endowed Korean War, Asia was with natural resources, has burdened with intense always considered human capiconflicts, poverty, and tal as the most valuable resource pessimism; no one could for its development. Investing imagine how prosperous in housing was one of the best Vu Minh Khuong and optimistic about the ways to invest in this strategic future the region would be asset. Second, Singapore’s leaders today. and government believed that by providing So I throw up this puzzle: “What will good and affordable housing to ordinary happen in the next 60 years? What will people, the country strengthens the loyalty happen in 2073?” In Asia now, we are still of its citizens. Third, by proactively develin the phase of “catch up” growth – many oping public housing, Singapore enhances of the less developed countries in this the efficiency and effectiveness of its develregion are in a hurry to accelerate their opment process, especially given its scarcity economic growth. For policy makers from in land and the complexity in its ethnic these countries, it is a matter of learning make-up. from successful experiences.

I believe national development But why countries do certain things depends on two drivers – emotion and is more important than how and what enlightenment. Emotion refers to the they do. people’s aspirations, anxieties and sense of Take Singapore’s success in public responsibility. The latter, especially applies housing for example. Government offito leaders. Enlightenment comes from cials from many countries have come freedom from ideology and dogmatism, to Singapore to learn about this experihaving an open mindset, and the hunger ence. However, they usually look at what for learning.

Singapore has been doing without seekSo these are like a bird’s wings; if they ing to understand why. It’s a common are strong, they give the power to soar. mistake – people who come here to learn Both are a must for the development of a tend to look only at the things they can nation to take-off just like Japan during see – the infrastructure, the projects. But the Meiji Restoration and the four Asian if you learn why and how – the ideas, the tigers – South Korea, Taiwan, Hong Kong things unseen – the learning is more proand Singapore, in the past five decades. ductive, more in-depth and vigorous.

For Singapore’s future, I have no doubt It is important to identify and appreabout the strength of its enlightenment ciate the “why” factors in many of wing. However, I believe, the country’s Singapore’s policy successes. For example, future success will also depend a lot on its Singapore’s investments in public housability to strengthen its emotional driver. ing were driven by three reasons. First, Due to the driving forces of the

emotion and enlightenment, economic growth in successful Asian economies was driven not only by intensive capital formation, but was also sustained by reasonable total factor productivity (TFP) growth over extended periods. TFP is the part of GDP growth that is not due to mere additions of inputs of capital and labour. TFP growth explains why “the whole is greater than the sum of its parts”: it arises from technological progress, efficiency gains and all the positive, intangible externalities of education, a skilled workforce, and other productivity effects.

As a country becomes more advanced, its growth is driven increasingly by TFP growth. This trend has been observed prominently in the past two decades in the four tiger economies, especially South Korea and Taiwan. The share of TFP in GDP growth increased from 46.1 per cent in 1990-2000 to 54 per cent in 2000-2010 for Korea; while these two figures were, respectively, 28.4 per cent and 50.2 per cent for Taiwan, 7 per cent and 58.2 per cent for Hong Kong, and 1.7 per cent and 15.2 per cent for Singapore.

It should be noted that Singapore was the fastest-growing economy among the four tiger economies in both 1990-2000 and 2000-2010.

Singapore has been very good in learning through all the four key channels of organisational learning: competency acquisition, benchmarking against the best, experimentation, and continuous improvement. This is a major source of Singapore’s success in the past and has helped Singapore earn admiration around the world. This is the strength that Singapore should leverage even more vigorously in time to come in transforming the economy towards more innovation and knowledge-based structures.

Vu Minh Khuong is Assistant Professor at the LKY School.

· Jul–Sep 2013

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Rule of Law

Former Deputy Prime Minister S Jayakumar and former Chief Justice Chan Sek Keong

by Woo Jun Jie

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hile Singapore is well-known for its strict and robust legal system, critics have also questioned the transparency and autonomy of its courts.

Yet amidst these mixed Former DPM S Jayakumar views of Singapore’s legal system, it is an undeniable fact that the rule of law has been central to Singapore’s post-independence success. And at the core of Singapore’s rule of law is former Prime Minister Mr Lee Kuan Yew. What is Mr Lee’s conception of rule of law as a statesman and lawyer, and how did this factor into Singapore’s governance and success?

Having served as Deputy Prime Minister and prior to that, Minister for Foreign Affairs, Home Affairs, Law and Labour, Professor S. Jayakumar gave a detailed overview of Mr Lee’s rule of law that was peppered with personal anecdotes based on his experience in government.

Issues of race and religion proved particularly important, given that Mr Lee had set out to differentiate Singapore neighbours by establishing a rule of law that ensured non-discrimination of minorities.

The law provided for a tough stance on those who disrupted racial or religious harmony.

Professor Jayakumar also noted that Mr Lee often went beyond laws to ensure racial equality, citing an instance whereby Mr Lee took a transport minister to task for a lack of racial diversity in a Singapore Airlines flight crew which he had personally encountered. The rule of law was also critical in the international realm, given that Singapore’s survival was contingent upon international law and third party adjudication over conflicts.

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Professor Jayakumar also dispelled views of Mr Lee’s dictatorial style in cabinet as well as the perceived bias of judges in Mr Lee’s favour during libel suits. In reality, Mr Lee is Former CJ Chan Sek Keong “intellectually honest” in his willingness to listen to cogent arguments that made sense.

Former Chief Justice Mr Chan Sek Keong said that fundamentally, Mr Lee believed that the rule of law was meant to serve the needs of society and at the same time reflect reality.

Mr Chan noted that “laws are made by people”, and that Singapore’s success has been based on a willingness to adjust the legal framework to international demands and the domestic situation.

On criticisms of Mr Lee’s rule of law, he noted that much of these criticisms were based on a bias towards liberal democratic ideas. Furthermore, Mr Lee’s rule of law has been widely seen as a serious competitor to the liberal democratic version of the rule of law in the global marketplace of ideas. Such criticisms steeped in the liberal democratic tradition do not do justice to Mr Lee’s focus on societal needs, national security, and social stability. In other words, Mr Lee’s formulation of the rule of law is based on“integrity of purpose” that requires law to serve the good of society.

The question and answer session also showed that Mr Lee’s approach to the rule of law is one that was attuned to societal needs and realities. This continues to permeate Singapore’s rule of law, with Professor Jayakumar noting Mr Lee’s “fundamental ideas of the rule of law are deeply ingrained, and that is good for Singapore”.

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The Role of the State

Janadas Devan, Director IPS and Seng Han Thong, MP Ang Mo Kio GRC

by Melanie Chua

W

hile developing nations seek to emulate Singapore’s success in areas such as public housing, infrastructure and healthcare, Janadas Devan, Director of the Institute Janadas Devan of Policy Studies, said that statecraft is above simple technique or “assemblage”.

Instead, resources, talent and values need to be in place foremost.

The ruling People’s Action Party took years to establish its governance and legitimacy, he said, arguing that “soul-craft cannot be indistinguishable from state-craft”. He believed it was a singular quality of Lee and his generation that was pivotal to building and sustaining a state.

“Without the spirit and emotion displayed in Lee Kuan Yew’s public life, the absence of which would have accounted for nothing,” he said, “Instead of a nanny or an East Asian caricature, a more apt image (for Lee) would be that of a constant gardener… The garden is indistinguishable from the gardener.”

This was shown when the PAP won the polls in 1959, winning 43 of the 51 seats. He said of the critical victory, “It was not about the ideas, but that the government was on their side.”

These formative years formed “fortuitous triangle” as the nation-state was finding its legs after being displaced from Malaysia and becoming independent. He called this a “necessary courage.”

“Nobody believed Singapore was viable as a state, not the British, not the Malayans, not the PAP leadership… Before you can have ideas for the state, there needs be a prior decision: this is who we are, this is what we believe, and here is where we’ll make a stand.”

Another important decision taken by Mr Lee that was to shape the Singapore state was the promotion of English as the lingua franca, as well as the

decision for the population to be bilingual. Mr Seng Han Thong, a journalist for over 21 years with the Chinese Press of Singapore Press holdings, noted this was a sensitive and emotional MP Seng Han Thong topic that Mr Lee chose to tackle in the early years.

“Language was on the PAP agenda from the very first day. Its founding manifesto in 1954 emphasised the inclusion of all four languages, English, Malay, Chinese and Tamil,” he said.

Mr Lee believed that the education system should produce students conversant in at least two of the main languages, though even he could not master both equally. Mr Seng recounted Mr Lee’s personal story of learning Mandarin, which, he quoted, instilled a “sense of belonging to a culture, gives selfconfidence and self-respect.”

However, bilingualism had a rocky start in schools.

Less than a fifth of Primary One students were making it to Secondary Four with passes in both English and Mandarin. By the late 1970s, then Prime Minister Lee felt that the one-size-fit-all approach did not work. He suggested Mandarin replace the dialect languages, and in 1979, the Speak Mandarin Campaign (SMC) was launched. Many saw this as a suppression of dialects, and caused unhappiness in many quarters.

He said Lee believed that undertaking another language promoted understanding of a different culture and hence saw learning as “a window for the mind”.

Mr Seng recalled how “Speak Mandarin” lunches were organised for ministers at the Istana.

“The conversation would be entirely in Mandarin, to force ministers to discuss current affairs and politics in Mandarin, overcome psychological barrier and to form a habit. It was a “bumpy” journey, (but) Mr Lee was a true architect of Singapore’s bilingual policy,” he said. · Jul–Sep 2013 11

Geopolitics

Ambassadors-at-Large Bilahari Kausikan and Chan Heng Chee

by Jan Seifert

T

he panel on geopolitics stood out as the only one dealing with non-domestic issues among the conference four panels.

However, as the speakers point out, Bilahari Kausikan the distinction between domestic and foreign policy has always been a thin line for Lee Kuan Yew. For Professor Chan Heng Chee, acting based on the interdependency of the domestic and the foreign was one of most important ideas in LKY’s thinking on Singapore. Domestic policy success in terms of economic and social progress was a precondition for Singapore to be taken seriously on the world stage.

Both speakers credited Mr Lee for his clearly-articulated principles on Singapore’s foreign policy, which established very early during his premiership in 1965, at time where small nations were a rarity in the membership of the United Nations.

Framed as a trenchant a “survival strategy for small states”, Professor Chan said that first, there was “protective shield” of multi-culturalism and multi-racialism as a national ideology. This guards against foreign exploitation of power or ideological interests. Second, there was a broad concept of making Singapore relevant so that world powers would engage with it, and at the least, not harm it. Third, the small city-state needs to stay in a position where it has “overwhelming power” on its side – if or when it might need it.

Mr Kausikan admits there is no easy concept that defines Mr Lee’s approach. “An international relations theorist would no doubt call Mr Lee a realist. But no simplistic label can do justice to the eclectic complexity of his approach towards international relations and geopolitics,” he said.

While Mr Lee was an idealist who was prepared to risk his life for his beliefs, he was also a pragmatic man who did what was practical at a point in time, rather than wait for ideal conditions.

“Mr Lee's 'big idea' was Singapore. On that he always thought big: Singapore as we know it today would not otherwise exist.”

These principles for survival were not merely lip service but 12 Jul–Sep 2013

were evident in Mr Lee’s political decisions. In defiance of the strongest pressures from large states, Singapore remained unwavering in its determination to defend Chan Heng Chee its sovereignty and national interests.

As Mr Kausikan said, Mr Lee has “hammered” into the Foreign Ministry that they were not in the diplomatic service “to be nice” but to safeguard the interests of Singapore.

Both speakers alluded to a number of instances in which Mr Lee stood firm to maintain the Singaporean interests against other powerful countries or strong public opinion. One such episode was pursuing capital punishment following the MacDonald House bombing by two Indonesian marines in 1965 – despite the explicit request for release by Indonesia’s president Sukarno. LKY needed to maintain the integrity of Singapore. However, he later symbolically placed flowers on the graves of the marines. At other instances he would not, like in 1994, give in to US complaints against the caning of a US citizen who vandalised in Singapore.

Long before the most current focus on the tense and competitive relationship between the US and China came to dominate global relations, Mr Lee had been working intensely with leaders of the two countries.

Mr Lee, who only learned Chinese in his 30s, would eventually convince China’s Deng Xiaoping to stop supporting Maoist insurgencies across South East Asia. During all his time, Lee attempted to maintain equidistance to China and the US. Many even argue that LKY has served as an important translator between leaders of the two countries who have had so little understanding of each other at important times.

“Lee Kuan Yew has made many efforts to help the West understand China; equally, he has sought to explain the United States in all its contradictions to the Chinese. Mr Lee was sometimes speaking for one side, at other times for the other. Singapore’s foreign policy is best served by ensuring that views going in the wrong direction do not go unchecked,” she said.

Governance and Implementation

Peter Ho, the former Head of Civil Service and Yong Ying-I, Permanent Secretary, Public Service Division

by Alisha Gill

T

he Singapore Public Service’s technocratic excellence, emphasis on succession and renewal, ethos of frugality and value-for-money, integrity and sense Peter Ho of stewardship, owe to the personal values of Mr Lee Kuan Yew. While lauding these values, the two speakers also examined their impact on the civil service critically. Overturning the usual image of Singapore as a city with long-term, carefully considered plans, Mr Ho said that, under then PM Lee, “Many big leaps forward ha[d] been nothing more than acts of faith.”

He said, “He seemed to us like a force of nature. He was the leader of the pack, the alpha male; we counted ourselves fortunate to have someone like him in charge. Whether such moments were just acts of bravado, or moments of great foresight – I guess only he will know.”

But by word and deed, Mr Lee forged the spirit, the ethos and the attitude of the civil service. While outlining a grand vision, small details also received former Prime Minister’s personal attention.

Mr Ho related how the former PM discovered faulty light switches in the government’s bungalows and demanded that all light switches be tested every morning. He cautioned that if a switch should fail to work in his presence, “somebody is going to be in for a real tough time because I do not want sloppiness”.

The technocratic excellence that the Singapore Public Service is famous for is a function of Mr Lee’s demand for high standards. Crucially, Mr Lee himself continually demonstrated that he could meet these high standards, and hence was not expecting from others any more than he was personally prepared to give. Ho noted that Mr Lee had a considered view on anything that mattered to him and to Singapore.

Consequently, civil servants working for him had to be as

sharp as him. They had to be thorough in their research, and compelling in the arguments. Short cuts, intellectually lazy arguments, and a disregard for alternative points Yong Ying-I of views, were not tolerated. Mr Lee would “sniff out these weaknesses”.

Mr Ho said, “This culture of analytical rigour and openness to idea and balanced by realism infuses the political leadership as much as it does the civil service. It demands high quality thinking and solid work that defines the government to this day.”

Miss Yong made a self-confessed controversial point – that the public service has been able to build up a “technocratically excellent, world-class professional public service because we have been significantly insulated from politics in Singapore.”

While conceding that there were disadvantages of such a system, the dampening of adversarial politics gave the civil service the “space and the time to focus on the long-term; to build capabilities that over time created this technocratic excellence.”

With these capabilities, it was clear that Singapore’s success is not merely due to “talented ministers”. “Rather, it is a whole generation of talented teachers, policemen, immigration masters, doctors.”

But how did one man persuade so many to his cause to build a better Singapore, to institutionalise his personal values into the systems and processes of an organisation as large as the public service, and to believe that these values can endure demographic and political changes?

Miss Yong offers an answer: Mr Lee is a conviction politician.

“A superb persuader and mobiliser who persuaded the civil service to also begin to believe that what Mr Lee was fighting for, was their fight as well because they could take it on. There was a huge team working for Singapore,” she said. · Jul–Sep 2013 13

Eduardo Araral and the late Ronald Coase

Ronald Coase and His Big Ideas

by Eduardo Araral

R

onald Coase recently passed away at the age of 102. I have had the privilege of knowing him personally as an alumni and faculty of the Coase Institute and as a visiting fellow at the George Stigler Center on Political Economy at the University of Chicago in 2006 and 2007 respectively. On both occasions, I have had the privilege of having lunch with him during which time he gave me several pieces of advice. First, he said, “Look around you. There’s gold everywhere.” Second, he said, “If you want to study a horse, go out in the barn. Don’t be a blackboard economist.” Third, “if you torture the data long enough, it would soon confess.” I have since been passing on these pieces of advice to my PhD students.

Coase received the Nobel Prize in Economics in 1991 “for his discovery and clarification of the significance of transaction costs and property rights for the institutional structure and functioning of the economy.” Coase’s two big ideas - the nature of the firm and the problem of social cost - have significant implications for public policy.

First, Coase showed policy makers that there are alternatives to taxes and regulation in mitigating the problem of social cost. The conventional thinking then was that taxes and regulation should be used in cases of negative externalities. Coase argued that when transaction costs are low, property rights are easily measured and transferable, private bargaining among

14 Jul–Sep 2013

parties would be a more efficient solution. This idea - the Coase Theorem - led to the emergence of tradable emissions permit as a key policy tool by governments to deal with problems of pollution including global warming.

Second, Coase influenced the way governments thought about how to regulate the use of scarce resources like radio wave spectrum. In the late 1950s, the US Federal Communications Commission would assign radio spectrum for specific purposes for a small fee on a permanent basis. Coase argued that this is not efficient. He suggested that the spectrum should “be treated like any other property to be auctioned off to the highest bidder and allowing the bidder to use it however they chose and even sell or trade it, much like land.” This idea has important implications today for mobile information and communications technology revolution.

Third, Coase helped transform the way people think about law and economics. He argued and showed that judges should be mindful of the efficiency implications of their rulings. Along with his colleagues in Chicago, he reminded regulators about the costs of regulation and their unintended consequences. His work in this area has had significant implications in the development of antitrust regulations.

Fourth, Coase’s ideas on transaction costs and the nature of the firm have important implications in the reform of public

CASE STUDIES

bureaucracies. This is especially in the case of developing and emerging economies that have long been under a command and control regime. Long before contracting out of government services became fashionable, Coase had already thought about their efficiency implications. Long before the idea of measuring the costs of doing business and competitiveness became fashionable, Coase and his students such as 2009 Nobel Prize Winner Oliver Williamson were already laying the foundations of the theory of transaction costs.

During one of our luncheon conversations, Coase asked me, “Why does General Electric have 200,000 employees and not 100,000 or 300,000.” I smiled. I said transaction costs.

Coase asked, “What kind of transaction?”. I explained that for an industrial giant such as GE, which very much depends on research and development, its size can also be explained by the tragedy of the anti-commons. To produce a hi-tech product, thousands of patents are needed. Alas, these patents are owned by hundreds of owners who have the incentive to hold out, hoping for the highest bid. Therein lies the tragedy. I argued that GE wants to minimise the transaction costs involving the tragedy of the anti-commons. Coase smiled back.

Finally, the Coase Theorem has practical implications in finding creative solutions to the haze problem in Singapore and Indonesia. Many solutions have been put forward and none of them appear to be working. According to the Coasian solution, if Singapore wants to minimise the haze, it can bargain with and buy out the rights of Indonesia (government, farmers, plantation owners) from burning peatlands for palm oil concessions.

Peatlands produce half of haze emissions from Sumatra because they burn longer than the slash and burn methods of farmers.

Peatlands can be demarcated on the ground and enforcement of the agreement can be jointly monitored with satellites and compensation tied to the extent to which they are not burned down.

The problem should not be framed as one between Indonesia and Singapore but rather more broadly as part of efforts to reduce carbon emissions under the on-going REDD+ experiment in Indonesia. In this experiment, Norway compensates Indonesia for avoiding deforestation. The REDD experiment itself has its intellectual origins in the work of Coase on tradable property rights.

In its tribute to Coase, The Economist noted, “The job of clever people is to ask difficult questions. The job of very clever people is to ask deceptively simple questions.” The Economist called him “one of the giants.” And a humble one too. He said his ideas were “commonsensical.”

Eduardo Araral is Assistant Professor at the LKY School. He is also the recipient of 10 international awards and recognitions including the Fulbright PhD scholarship, a US National Science Foundation Grant and fellowship awards from the research centers of three Nobel Prize Winners: Ostrom, Stigler and Coase. His work on the costs and benefits of investments in collective has been cited by the World Bank to justify a US2.36 billion national poverty alleviation programme in the Philippines.

Hard Choices in the New Normal:

New Teaching Cases

by Alisha Gill

T

he Lee Kuan Yew School of Public Policy is embarking on a series of 12 cases about policy making in Singapore, which will be completed in a year.

Singapore is entering into a pluralistic and contested political scene. Because of this new climate, as well as its increasing population and the stresses on current infrastruture, policy-making in Singapore has become more complex and any trade-offs between efficiency and equity have become more difficult to manage under the mutual gains (“win-win”) model of the past.

As a result, there has been a palpable increase in public scrutiny, debate, and challenges to existing policies in housing, health care, education, transport, infrastructure-planning and immigration.

This collection of case studies therefore serves two objectives.

The first is descriptive. It captures the growing complexity in policy-making, and consequently the hard choices confronting not just Singapore’s policy makers, but also Singaporeans. The case studies therefore do not prescribe solutions but describes the constraints and considerations, and the path dependencies that have been created by past policy decisions.

The cases allow readers to draw their own conclusions on what optimal policy resembles in the new normal – if indeed such a policy is possible.

The second is normative. The case studies aim to contribute to more informed debate on public policies. For policy-making by deliberation to be effective, the public needs to have easy access to the salient information about key policy areas in Singapore, which these case studies will provide.

The cases range from issues in healthcare financing, long-term planning, monetisation of housing assets, to exploration of urban spaces such as hawker centres.

Donald Low, Associate Dean (Executive Education and Research), oversees the team of case writers. The full list of cases can be found at http://lkyspp.sg/13hrpjA

· Jul–Sep 2013 15

EXECUTIVE EDUCATION

Innovations in the Electronic Payments Space In collaboration with the LKY School, Visa developed a three-day programme for senior policy makers from Southeast Asia on innovations in the electronic payments space. Participants included officers from ASEAN Finance ministries, regulatory authorities, central and national banks. Executive Education spoke with Dr. John Barry, Head of Public Policy and Government Affairs, APCEMEA for Visa Inc. on best practices in e-payments.

How important are electronic payment systems What are the biggest benefits of public-private in Asia? collaboration in the area you work?

Economic payment systems are a key compoThe benefit of any partnership is that the whole is nent of economic opportunity and integration. greater than the sum of its parts. This is true with They enable a safe and secure way for making paysuccessful public-private collaborations. Visa brings ments domestically and across borders when people more than 50 years of expertise in the payments John Barry travel and they promote commerce and economic industry, along with our global reach and investment development. in technology and innovation to share with the public Myanmar, for example, was traditionally a completely cashsector partners who have the contacts and provide an enabling based society. This meant international travelers had to bring environment for development. These positively impact areas large amounts of cash with them. The impact electronic paysuch as tourism and financial inclusion. ments is incredible. In less than one year, Visa has managed to establish partnerships with eight local banks, build out an ATM What do you hope to achieve with this course at LKY network of more than 180 ATMs and establish more than 500 School? points of sale. This enables local businesses to expand their conWe firmly believe that the most effective and efficient public sumer base and increase their revenues. policies are based on knowledge and an active ongoing dialogue Today, there are approximately two million people in between the public and private sector. The LKY School is a leadMyanmar with formal bank accounts. With a population of ing public policy institution in Asia with exceptional experience more than 60 million people, the impact that a mobile payment having worked with more than 10,000 public sector leaders. We solution could include much more of the population and provide see this as an effective platform for enabling collaboration and greater efficiency to the overall economy. sharing knowledge across nations for regulators.

In our next issue sdf

Kenneth Paul Tan, Vice Dean (Academic Affairs) & Associate Professor, was a committee member of the Our Singapore Conversation, a large and nation-wide consultation exercise on the future of Singapore. He will reflect on the effectiveness of this latest exercise in the Singapore government's ongoing efforts at public engagement.

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