Wednesday, May 16, 2012

A Case for Getting Out

This weekend I found myself at a very interesting forum conducted by MP for Pasir Ris Pungoll GRC, Dr Janil Puthucheary. The forum was focused on the issue of low-wage workers and the key question of the event was, “How much are you willing to pay?”

The general thrust of the discussion was thus – people agreed that there are groups in Singapore that work for what can only be called subsistence wages. Toilet cleaners for example, are paid on average, the princely sum of S$600 a month for a 6-day week. People agreed that they’d be willing to pay more to use a public toilet if it doubled the wages of the toilet cleaners. Then the question moved onto bus drivers. Dr Puthucheary then asked the ingenious question – “Would you pay more if it was guaranteed that the increase would go to the bus driver?” The two most prominent answers from the audience were ‘Depends if it’s a Singaporean or PRC bus driver”and“If the fair goes up to S $1.75 a journey, I’ll join the Worker’s Party (Singapore’s main opposition party).”

While it was heartening to be part in a lively discussion on the issue, I felt that everyone was skirting around the brontosaurus in the room – the role of the government. To be fair to the organizers of this event, they belonged to the Youth Wing of the ruling People’s Action Party. As such, it would have been hard for them to tackle the issue openly. However, if one seriously intends to get serious about tackling the issue of glaring inequality in Singapore, one must question the role of the government in the equation.

Generally speaking, setting wages is usually a question of how much an employer is willing to pay to get things done and how much an employee is willing to do for a certain amount of money. This is usually a case of a thesis meeting its antithesis to form a synthesis (In simple terms, two opposite’s crash into each other to create something new). Employers will generally want to pay as little as possible to get the most amount of work while employees will want the most wages while doing the least amount of work.

Somehow these opposing needs create a balance. It’s not a perfect balance. Market forces usually play the key role in deciding the value of wages. When there is a recession, employers don’t hire so those with jobs will sacrifice pay and perks just to keep their jobs. When there’s a boom and there is a lack of people to do the jobs created, then wages shoot up.

While everyone talks about market forces, most people forget that government plays a crucial role too. Firstly, the government sets the tone for the market through things like regulations. More importantly, the government has to play the crucial role in ensuring that the balance does not tip too far either way. Governments have to see that people get wages they can survive on (Think of Arab Spring where ordinary people took three jobs to survive) but at the same time, the government has to ensure that businesses can afford to hire people (Think of the UK in the 1970s when taxes were close to 100 percent of income – businesses could not make a profit). If you like, the government is the referee in the game.

Singapore’s government has a slight problem as a referee – namely the fact that the government is in fact the biggest owner of business in Singapore. The government owns the Government Investment Corporation of Singapore (GIC) and Temasek Holdings Pte Ltd. These entities were set up to manage the compulsory savings of the population and at a later stage budget surplus. The value of assets controlled by both these companies runs into the billions. The largest shareholder in the biggest companies listed on the stock exchange is Temasek Holdings.

In fairness to the Singapore Government, it’s kept a relatively hands off approach in the management of the large companies. The CEO’s of companies like DBS and SIA have gotten there on their merits as business people rather than government bureaucrats. State ownership has not handicapped SIA from becoming a world-class airline. DBS today hires senior people from international banks like Citibank to ensure they play as serious international players.

One can also argue that in the initial days of independence, this situation was necessary. Singapore did not have the people to run big corporations and the symbiosis between civil servants and people running large corporations was a way of sharing talent. You can argue that making civil servants spend a stint in corporations has helped to create a business friendly civil service. This in turn has been a powerful selling point in keeping the much needed foreign investment coming into the country.

A first rate bureaucracy has been one of Singapore’s strengths. The Singapore government machinery sounds like a private sector corporate machinery talking about things like efficiency and customer focus. This has been good for Singaporeans.

While all these arguments are compelling, they are losing their potency and starting to look like tiered and increasingly irrelevant arguments.

From the business perspective, it’s possible to argue that government ownership has actually held Singaporean businesses back. Of the large corporations, only SIA has a made a mark in its global industry. The reason is simple – this is an industry where the Singapore government’s protection is useless and the airline has had to face competition from global players. The other corporate giant to hold its own has been SingTel, which used its cash pile from its days of a monopoly to acquire overseas assets. Today, SingTel’s main source of revenue is from Optus, its Australian subsidiary.

The untold tale here is that prior to acquiring Optus, SingTel tried to acquire assets in Hong Kong and Malaysia. The fact that SingTel’s main shareholder was the Singapore Government was the very reason why regulatory authorities stopped SingTel from taking over companies. Let’s face, telecommunications is a sensitive business and as friendly as Singapore’s government may be to other governments, there are few governments in the world that would allow their telecom companies to be bought over by what they view to be another government.

More worryingly is the fact that many of Singapore’s big corporations are only big at home. They have been protected from the laws of competition and have been allowed to grow flabby. Think of Singapore’s media industry. An element of competition was introduced. Both media houses lost a ton of money and the government allowed them to remonopolise. Everyone slapped their backs, happy that they had shown that the market was “Too Small for Competition.” Unfortunately they were too busy defending their turfs that they forgot about product innovation. While the media houses spent their energies sniping at each other’s product (think of the endless arguments on whether viewership or readership was more important,) the public found alternative news sources on the internet. Sure, the bloggers didn’t make money but they gained credibility at the expense of both print and media – enough for the Executive Vice-President of Marketing at Singapore Press Holdings (a former editor) to write an op-ed piece lamenting the fact that government ministers were choosing to use their Facebook accounts to make announcements instead of calling for an old fashioned press conference.

As the need to expand beyond Singapore’s shores grows, business and government need to relook their relationship. Business should have the freedom to act as businesses rather than as part of a government.

If the business case for the government to get out of business is compelling, the argument from a social policy perspective is becoming crucial.

Let’s go back to the fact that the government now has a problem with growing inequality. Let’s take the example of bus and train drivers, the group that Dr Puthucheary brought up.

Public transport is a potent issue. It’s used by most of population and so most of the population has an opinion about it. As far as the public is concerned, public transport has become worse and more expensive at the same time.

As far as most people are concerned, this situation has come about because the government allowed an influx of foreigners to enter the country but didn’t ensure that the nation’s infrastructure was prepared for this. Talk to any random person on the streets and they’ll tell you that busses and trains have become overcrowded (expect to wait for three trains to pass by during the early morning commute) as fares have increased. Both public transport operators SMRT and Comfort DelGro have been declaring record profits for shareholders for the last eight-years. Then, when the system started to experience breakdowns, the government stepped in and announced that it would finance more buses from the taxpayer’s fund. Erm, as most of us are concerned, we, the tax paying public are providing a subsidy to companies that are printing money from us.

It’s hard for the government to be seen to play the crucial role in situations like this. The public expects public transport to be affordable and of a high standard. The public transport operators are under pressure to deliver a service and profit to their shareholders. To deliver a profit for their shareholders, the operators, minimize spending on basic infrastructure like more buses and hiring less experienced drivers from elsewhere, thus adding to the downward push for blue collar labour.

A neutral government would be able to see that the situation is unsustainable and would be able to bring all parties together. It would be able to insist on certain delivery standards by the operators – yes, you can make a profit but you got to have no breakdowns within the year etc etc.

Unfortunately, the Singapore government isn’t a neutral referee. On one hand it has pressure from the public. On the other it has its own interest as a shareholder in the system. The CEO of a public transport operator deals with the government as both a regulator and a shareholder. The dual nature of the government’s role here produces an inborn conflict of interest. On one hand it needs to keep the public happy. On the other hand it wants to collect profits. Is anybody surprised that the government was quite content to allow the public transport operators to up fares and skimp on basic maintenance as long as not too many people complained and things ran. Let’s face it, nobody talked about buying more buses until things broke down.

Government must get back to basics and become a neutral referee rather than a shareholder with a vested interest in one side of the game. It’s only then that people will start believing that the government has its interest at heart and interested in looking after all parties.

Only when the government divest itself of its business interest will topics like “inclusive society” be more than just a hot talking point.

Friday, May 04, 2012

A Story of Wages

You have to thank the world’s socialist for bringing us a public holiday devoted to the idea that we should celebrate labour, more popularly known as the sweat we need to put into get our daily keep. This year’s Labour Day in Singapore has been particularly interesting because after years of trumpeting the importance of economic growth, we’ve now decided to focus on the issue of equality or to be more accurate inequality.

Singapore is a well-known economic success story. However, in recent years, it’s become a noticeably unequal society. One Nominated Member of Parliament went as far as to describe the situation in Singapore as having a small group who earn some of the highest wages in the world and pay some of the lowest cost for basic labour. A report by the Monetary Authority of Singapore, the nation’s central bank, pointed out that two-thirds of the population earns less than the national wage.

Working professionals in Singapore compare their salaries with peers in London and New York. Unskilled labourers compare wages with their peers in Dhaka and Manila. Actually, we’ve moved people from London and New York by giving them a premium on-top of what they were getting at home. At the other end of the social scale, we pay wages slightly higher than in Dhaka and Manila and then proceed to make cost so high that they were actually no better off than if they stayed at home. It doesn’t take an economics degree to realize that when it comes to wages, Singapore is both a first world and a third world country rolled into one.

Thanks to a prominent economics professor, this situation has come into the spotlight. The said professor has suggested that there needs to be a major wage and job restructuring where we jack up the pay of the low wage earners (S$1,500 a month and less) and freeze the pay of those earning high wages (above S$15,000 a month and more).

The government (filled by the world’s best paid politicians despite a recent pay cut) has gone on the war path. Minister after minister has come out to denounce the proposal. As far as the powers-that-be are concerned, you cannot have a raise in wages until there is a rise in productivity.

Having been a small businessman (glorified free-lancer) for the last decade, I’m in an interesting position to look at this issue.

On one hand it’s frustrating dealing when the people who pay you live under the impression that you don’t need to eat, sleep, bath or use the toilet and therefore have the superhuman ability to work for them for the sheer love of it. I’m sorry but what I do happens to be called work and I need money to survive. I do well enough for the people who pay me and I get frustrated when I’m told that I’m worth so many dollars less than what I’ve done. Now, if I can feel that way about bashing things out on a computer and making phone calls, I can imagine how many times people who do heavy lifting or running 12-hours a day must feel about the pay they get for the work they do. I hate it whenever people think they’re doing me a favour when I do work for them.

There is a flip side to this too. Just as I get frustrated with people who think they’re doing me a favour when they give me work, it’s equally frustrating to deal with people who think they’re doing me a favour when I give them work. I’m still traumatised by a bad hire I made for a two-day project a month ago. The so called hire decided that it was acceptable to throw a tantrum just as I needed to deal with a minister’s press secretary. This particular hire decided that it was acceptable to sms a mentor of mine and her brother to complain that she bored and being victimized.

What this particular hire forgot was the fact that I was paying her money and providing her with exposure to the highest profile group she had ever been exposed to. She blamed her behavior on constipation and I guess to be fair, her behavior improved with the clearing of her bowls.

So, where does this leave the wage debate? Well, I believe that people, who hire, need to be fair about the wages they pay. Just as the business needs task to be done well, people need to have enough money for them not to worry about how to pay their bills. A job is essentially a trade-off between the employer’s money and the employee’s time. Fairness in this trade isn’t an airy-fairy concept. It’s common sense. If you want to get an employee to give their all to you, you have to ensure that he or she has a wage that covers basic living expenses and to build a future.

Having said that, I don’t think government legislating things like a government mandated minimum wage won’t necessarily make things better. If I’m expected to pay high wages to people like my bad hire, I’d rather do things myself.

I also find the idea of keeping jobs for certain people of certain races or nationalities to be downright offensive. As a business, I take the risk and I need to manage my cost and talent to reap the necessary rewards. It is not the job of businesses to hire based on a government’s political needs nor is it the job of business to create social policy. Businesses should hire the people who are most hungry for the job because they’ll be best at it.

Funnily enough, the two examples that come to mind are from the military. In the US Army, it’s been found that Blacks tend to perform better than Whites. The American Army is the one place where you’re likely to see more blacks bossing whites around than in any other organization in the nation. The reason is simple, the average black soldier looks to the army as way up in life while the average White Soldier looks at the army as a dead end job.

The same is true in the British Army, where they found that you’re average Gurkha makes a better solider than your average British Squaddie. The average squaddie’s came from families where the army was a better than nothing job while the Gurkha’s saw service in the British Army as way up in life.

Neither the US or the UK is about to go through a reduction in recruiting less Blacks in favour of Whites or less Gurkha’s in favour of local Brits (though admittedly this may slow and stop thanks to the Maoist politicians in Nepal.) Part of the reason is culture. In the US there is a need to provide black people with good jobs and since the army does a good job of it, nobody will think of stopping the army from hiring blacks. In the UK the link with the Gurkha’s is historical and part and parcel of Britain’s place in the world.

However, there’s a more important underlying reason. Both armies believe in hiring the best people to fight wars. As such, the Blacks in the US Army have earned their place by merit as have the Gurkha’s in the UK.

What is true of the military should be true of business. Hire based purely on merit. Yes, Singaporeans are more expensive than say Filipinos and many other Asians. However, cost isn’t the only factor in deciding who to hire. Deal with any service industry in Singapore and you’ll find that if you get decent service, it’s from Filipinos. I remember the head of a prominent shoe shop chain telling me, “If I could, I’d sack all the Singaporeans and replace them with Filipinos. The Singaporeans are so grouchy they kill any incentive my customers have to buy. The Filipinos on the other hand manage to smile at work even when there’s a personal tragedy – they produce the work environment that I want.”

I remember my previous CO, Colonel Toh Boh Kwee’s line,” Nobody owes you a living.” It’s something people like my bad hire need to understand. Contrary to what many of Singapore’s alternative thinkers might think, foreigners are not there to screw Singaporeans. They cannot be blamed if they’re hungry and manage to work the “EQ” required in today’s market.

Let’s face it; we also live in a world of “outsourcing.” Technology has made it such that even you kicked out all the foreigners, many of the jobs would simply move to cheaper locations. Think of the call centres around the world. You can kick out the Indian entrepreneur who owns a call centre in your country. However, that particular Indian entrepreneur can simply relocate back to India and instead of having a situation where you had one or two jobs for the locals; you have a situation where there are NO jobs for the locals.

A compromise of sorts needs to be achieved. While I may not believe an enforced minimum wage would make things better, I think there should be guidelines of sorts as to what constitutes a reasonable salary and reasonable perks. Unfortunately in the Asian context, too many employers think of employees as cost and thus try to push wages to subsistence levels.

Employers need to understand that human assets are simply that – human and assets. People work to provide for their basic needs. People ‘go-all-out’ for things that will not only provide their basic needs but also help achieves aspirations. Blacks and Gurkha’s in the US and British Armies see their jobs as fulfilling aspirations and hence they work harder than their respective White and British counterparts.

It’s not just about money. If employers want to maximize the potential of their employees, they have to find ways to make people feel like they can achieve their aspirations by working for them. Both Google and 3M practice allow employees to devote 15 percent of their allotted work hours to personal projects. It’s no coincidence that these two companies are regarded as amongst the most innovative in the world.

Then there’s the fact that employees are customers too, especially if you work in the FMCG sector. Henry Ford paid his workers an unthinkably high US5 an hour back in the 1890s because he wanted his workers to buy his cars. If you look at things this way, the most reasonable wage to pay someone enough for them to be your customers. I remember having this argument with one of my early clients who sold top grade pillows – they were not paying me enough to be a customer (The GM of this company came up with a unique solution – he paid me in pillows, which I had to give up as part of my divorce settlement – I did get the Harry Potter book).

Having said that, I think employees need to be responsible for their own development. A job is not an entitlement and in this day and age of outsourcing and free people movement, you cannot expect your passport to give you a job. Organisations are focusing on being lean and looking to hire the best.

Personally, I think we need to look at the concept of a job as being an ‘exclusive’ to a particular company. You look at the average eight-hour day and you need to question how many of those hours are actually productive.

I think there is a situation where the employees are becoming more like ‘journeymen’ in the old ‘apprentice’ system. Once you have a skill of sorts, you should have the freedom to sell your hours accordingly and to the highest bidder. Businesses will only pay for hours where real work is done and people do not need to be dependent on a single entity for a living.

There are, of course, many issues at stake but it’s worth looking at what really needs to be done and what can be outsourced. The traditional job structure has many benefits and in many cases will remain as it is. However, as the nature of businesses changes, so does the nature of jobs. Outsourcing may kill traditional jobs but it provides a way of living to many and in balance that outweighs the cost. Rather than try and legislate it away, let’s see how we can maximize it.