Crisis management and public policy : Singapore's approach to economic resilience

This book is an annual effort by the economists from the Nanyang Technological University to provide analysis, interpretations and insights on contemporary economic issues affecting Singapore. In 2010, Singapore's economy is just recovering from the sharp economic downturn in 2008/09 caused by the Global Financial Crisis. The global economic outlook in the short and medium term remains uncertain and the risk of another economic or financial crisis remains high. Thus, one of the key themes of this book is to study economic crises and financial crises, and the policy measures that are available to manage them. Looking ahead, in order to ensure long term growth and prosperity for Singapore's economy, microeconomic policy adjustments and fine-tuning is still needed to build a competitive and resilient nation. Therefore, the second key theme of the book is to review several public policies in Singapore, such as competition, healthcare, training, free trade agreements, state capitalism and inequality. CONTENTS 6 FOREWORD 8 CONTRIBUTORS 10 PART 1 ECONOMIC CRISIS MANAGEMENT 18 Chapter 1 THE NATIONAL WAGES COUNCIL (NWC) AND MACROECONOMIC MANAGEMENT IN SINGAPORE 20 FIVE CRISES 20 NATIONAL WAGES COUNCIL 21 TRIPARTISM AND FLEXIBLE WAGE SYSTEM 22 INDUSTRIAL HARMONY 23 TRAINING AND RETRAINING 24 THE FIRST CRISIS 25 NWC RESPONSE 26 THE THIRD CRISIS 29 REFERENCES 33 APPENDIX 34 Chapter 2 UNPREPAREDNESS IN THE GREAT RECESSION 36 FISCAL FINANCE 37 DIFFERENT METHODS OF FINANCING DEFICITS 38 THE US METHOD OF DEFICIT FINANCING 39 FISCAL SPENDING 40 JAPAN AND USA COMPARISON 43 THE LEADING INDICATOR 44 THE FURTHER ROAD AHEAD 47 REFERENCES 47 APPENDICES 49 Appendix 1: Global Stock Market Indices % Change from 31 December 2008 (in US$ terms, 1 July 2009) 49 Appendix 2: Global Budget Balances % of GDP 2009 50 Appendix 3: Global Interest Rates (three-month latest) 51 Chapter 3 WHY ARE FINANCIAL CRISES SO COSTLY? 52 INTRODUCTION 52 BANKS AS FINANCIAL INTERMEDIARIES 54 BANK FAILURE AND BANK RUNS 56 BANKING CRISIS 58 IMPACT OF BANKING CRISIS ON ECONOMIC ACTIVITY 59 CURRENCY OR EXCHANGE-RATE CRISIS 61 CONCLUDING REMARKS 64 REFERENCES 66 Chapter 4 A CASE FOR SELECTIVE CAPITAL CONTROL 68 BALANCE OF PAYMENTS 69 Balance of Visible Trade 69 Balance of Invisible Trade 69 Current Account Balance 70 CAPITAL CONTROL ITEMS 71 CAPITAL CONTROL PREPAREDNESS 72 TWO MONEY VALUES 73 INTERNATIONAL GOLD STANDARD 73 GOLD EXCHANGE STANDARD 74 THE THREE CRISES 74 CAPITAL CONTROL AND GDP GROWTH 74 CHINA, INDIA, AND VIETNAM 75 USA AND CAPITAL CONTROL 76 FINANCIAL CENTRES 77 RESERVES AND SWAPS 78 FINAL JUDGEMENT 79 REFERENCES 79 PART 2 PUBLIC POLICIES AND OTHER ECONOMIC ISSUES 80 Chapter 5 COMPETITION POLICY AND LAW IN SINGAPORE 82 INTRODUCTION 82 COMPETITION LAW IN SINGAPORE 84 Scope of the Act 86 MAIN FEATURES OF SINGAPORE’S COMPETITION ACT 87 Anti-Competitive Agreements 87 Abuse of a Dominant Position 90 REGULATORY PHILOSOPHY 93 Focus on Anti-Competitive Behaviour with Appreciable Adverse Effect 94 Due Consideration Given to Whether Anti-Competitive Activity Generates NEB 94 Emphasis on Self-Assessment 94 Balancing Advocacy with Strict Enforcement 95 Independent Appeal Mechanism 96 Cross-Sectoral Cooperation 97 CONCLUSION 97 Chapter 6 HEALTHCARE: CONTAINING COST WITHOUT COMPROMISING QUALITY 98 INTRODUCTION 98 GOVERNMENT INTERVENTION IN THEORY AND PRACTICE 101 HEALTHCARE DELIVERY IN SINGAPORE 104 Restructuring of Government Hospitals 105 Polyclinics 110 Community Hospitals 111 Role of CPF and Healthcare Insurance 111 Role of Employers via Employee Medical Benefits 114 Government Medical Subsidies for the Poor 115 How Doctors and Hospitals are Assessed and Remunerated 117 E-Health Record System 118 Healthy Lifestyle 119 Economic Healthcare Strategy 120 CONCLUSION 122 REFERENCES 122 APPENDIX 1 124 Chapter 7 ECONOMICS OF TRAINING: MARKET FAILURE AND GOVERNMENT INTERVENTION 126 MARKET FAILURE 127 SOLVING THE PROBLEM OF MARKET FAILURE 129 THE SDF 131 TRAINING OF OLDER WORKERS IN THE INFORMAL SECTOR 132 TRAINING OF YOUTH WORKERS 132 INSTITUTE OF TECHNICAL EDUCATION, ITE 134 CONCLUSION 135 REFERENCES 136 Chapter 8 A REVIEW OF THE US-SINGAPORE FREE TRADE AGREEMENT 138 INTRODUCTION 138 RATIONALE AND DEVELOPMENT OF USSFTA 139 SINGAPORE-US FTA — FIVE YEARS ON 142 Trade in Goods and Services 142 Trade in Services 147 Investment 150 Intellectual Property Rights 152 CONCLUSION 153 REFERENCES 154 Chapter 9 STATE CAPITALISM IN SINGAPORE 156 INTRODUCTION 156 THE BEGINNING OF STATE CAPITALISM IN SINGAPORE 158 TEMASEK HOLDINGS — THE HOLDING COMPANY 161 CRITICISMS OF STATE CAPITALISM 163 Inefficiency of SOEs 163 Competition Between SOEs and POEs 164 EMPIRICAL STUDIES ON SOEs 165 Profitability and Efficiency 165 Market Valuation 166 Ease of Access to Credit 166 WHY DOES STATE CAPITALISM WORK IN SINGAPORE? 167 EVOLUTION OF GLCs IN SINGAPORE 169 Corporatisation, Privatisation, and Divestment 169 Regionalisation and Globalisation 172 NEW FACE OF STATE CAPITALISM 172 REFERENCES 174 Chapter 10 GROWTH, OPPORTUNITY, AND INEQUALITY: SOME EMPIRICS FROM SINGAPORE 178 INTRODUCTION 178 CAUSES OF INCOME INEQUALITY IN SINGAPORE 181 PAST STUDIES ON SOCIAL MOBILITY IN SINGAPORE 185 NEW EMPIRICS ON SINGAPORE 186 DEMAND AND SUPPLY OF SOCIAL MOBILITY 189 THEORETICAL IMPACT OF POLICIES AND TRENDS 190 Liberalisation of the Education Industry 191 Population Expansion via Skill-Biased Immigration 191 Damage of Family Disruption 192 CONCLUSION 193 REFERENCES 194 Chapter 11 ARE FINES COMPATIBLE WITH BUILDING A TRULY FINE COUNTRY? 196 THE NEOCLASSICAL VIEW: A FINE IS A PRICE, AND EVERYTHING HAS A PRICE 197 THE BEHAVIOURAL VIEW: A FINE IS A PRICE, BUT PRICES HAVE UNINTENDED EFFECTS ON BEHAVIOUR 199 THE SINGAPORE CONTEXT: COULD FINES ERODE THE SOCIAL BASIS FOR A FINE CITY? 204 CONCLUSION 211 REFERENCES 212 INDEX 214 This book is an annual effort by the economists from the Nanyang Technological University to provide analysis, interpretations and insights on contemporary economic issues affecting Singapore. In 2010, Singapore's economy was just recovering from the sharp economic downturn in 2008/09 caused by the Global Financial Crisis. The global economic outlook in the short and medium term remains uncertain and the risk of another economic or financial crisis remains high. Thus, one of the key themes of this book is to study economic crises and financial crises and the policy measures that are available to manage them. Looking ahead, in order to ensure long term growth and prosperity for Singapore's economy, microeconomic policy adjustments and fine-tuning is still needed to build a competitive and resilient nation. Therefore, the second key theme of the book is to review several public policies in Singapore. These are competition, healthcare, training, free trade agreements, state capitalism and inequality This book is an annual effort by the economists from the Nanyang Technological University to provide analysis, interpretations and insights on contemporary economic issues affecting Singapore.In 2010, Singapore's economy was just recovering from the sharp economic downturn in 2008/09 caused by the Global Financial Crisis. The global economic outlook in the short and medium term remained uncertain and the risk of another economic or financial crisis remains high. Thus, one of the key themes of this book is to study economic crises and financial crises, and the policy measures that are available to manage them.Looking ahead, in order to ensure long term growth and prosperity for Singapore's economy, microeconomic policy adjustments and fine-tuning is still needed to build a competitive and resilient nation. Therefore, the second key theme of the book is to review several public policies in Singapore, such as competition, healthcare, training, free trade agreements, state capitalism and inequality. Pt. I. Economic crisis management. ch. 1. The National Wages Council (NWC) and macroeconomic management in Singapore / Lim Chong Yah. ch. 2. Unpreparedness in the great recession / Lim Chong Yah and Sng Hui Ying. ch. 3. Why are financial crises so costly? / Tan Kim Heng. ch. 4. A case for selective capital control / Lim Chong Yah and Sarah Chan -- pt. 2. Public policies and other economic issues. ch. 5. Competition policy and law in Singapore / Lam Chuan Leong. ch. 6. Healthcare : containing cost without compromising quality / Linda Tan Hui Min and Chew Soon Beng. ch. 7. Economics of training : market failure and government intervention / Rosalind Chew. ch. 8. A review of the US-Singapore free trade agreement / Chee Yoke Heong and Chia Wai Mun. ch. 9. State capitalism in Singapore / Sng Hui Ying. ch. 10. Growth, opportunity, and inequality : some empirics from Singapore / Ho Kong Weng. ch. 11. Are fines compatible with building a truly fine country? / Walter Theseira and Tan Di Song "One of the key themes of this book is to study economic crises and financial crises, and the policy measures that are available to manage them. The second key theme of the book is to review several public policies in Singapore, such as competition, healthcare, training, free trade agreements, state capitalism and inequality."--Publisher's description. In 2010, Singapore's economy is just recovering from the sharp economic downturn in 2008/09 caused by the Global Financial Crisis. This book is an annual effort by the economists from the Nanyang Technological University to provide analysis, interpretations and insights on contemporary economic issues affecting Singapore.