“I’m not a rich man – everything I make is reinvested in the Company.”

I remember my Dad and I once had a discussion about money. I was still at school and he wasn’t happy with how I was spending things. He made the point that despite the good things we had around us, he was not a rich man with infinite resources. Everything he had was reinvested into his business.

This conversation summed up the importance of money. While money is not everything, it plays a vital part in most of what we do. Money is not the root of all evil – it is the root of most things and business people, including the ones that are doing well, will always remind you that whatever surplus they earn has to be invested back into the business. Hans Hofer, the founder of Apa Guides once said that he only made money from his business when he sold his business and did other things.

I remembered these conversations and as I started freelancing in an industry where people are expected to work for foreign multinationals, I learnt two valuable lessons. The first lesson was the fact that money is power. The guys with the money will inevitably squeeze those without. The guy who has the advantage in a business negotiation is inevitably the guy with money in the bank. It is, as they say, easier to tell someone to f** off when you have enough money to worry about not having that job or project.  

The second lesson I learnt was that there was a clear difference in attitudes towards money between those working for someone else and those who were employed. Big ticket items like posh meals, fancy wines, swanky hotel rooms and business class tickets were inevitably bought by those on expense accounts. The self-employed, including the successful ones, tended to be a little more conservative with their spending. It is inevitably easier to spend someone else’s money.

These lessons I took from the world of business seem to apply to electoral politics. The winner of any given election is inevitably the party that has the resources to spend. American elections are particularly well known for this. Candidates need to raise hundreds of millions to get past the finish line.

It isn’t much different in the Westminster System, where its often said that elections are lost by governments rather than won by opposition parties. Singapore’s government, for example is pretty good at dishing out goodies before an election.

It has also has been particularly good at buying over potential opponents. Our scholarship system is designed to bring bright and potential trouble makers onside. Two of our more prominent ministers (Tharman Shanmugaratnam and Vivian Balakrishnan) are examples of two bright sparks, who had

However, Singapore’s ruling party has run into a few challenges recently. The first one is the fact that potential opponents in the opposition are increasingly financially independent like former Worker’s Party Member of Parliament, Chen Show Mao, who was a partner at David Polk & Wardwell, a law firm with over a billion in revenue. Telling someone they can afford a condominium in a few years of working for you just doesn’t quite have the same effect on a man who is already living in a condominium.

The second challenge comes from an attitude towards resources. At the end of the recent election, the Prime Minister announced that Mr. Pritam Singh, leader of the Worker’s Party would be given the title “Leader of the Opposition,” which would be recognized office in the apparatus of the state which comes with a salary and staff.

This is office is found in other Commonwealth Jurisdictions like the UK, Australia, New Zealand, Canada and India. However, in the Singapore context this was revolutionary in the sense that it was official recognition of “opposition” parties as a legitimate force. The cynics also argued that it was a sign of taming the Worker’s Party with an effective bribe.

However, Mr. Singh threw a wrench into the works by donating half of his salary increase. This announcement instantly brought him into the cross hairs of one of the ruling party’s most prominent trolls, Mr. Calvin Cheng, who complained that the Prime Minister’s donations didn’t get the good press that Mr. Singh’s was getting:

http://theindependent.sg/calvin-cheng-asks-why-pm-lee-doesnt-get-the-recognition-pritam-does-for-donating-half-his-lo-salary/

To make matters worse, Ms. Ho Ching, the Prime Minister’s wife, CEO of Temasek Holdings (Singapore’s Family Office), and the only person whose salary is a state secret joined in the fray:

https://www.asiaone.com/digital/ho-ching-and-calvin-cheng-take-pritam-singhs-donation-declaration-netizens-respond

Mr. Singh has clarified that he wasn’t giving away half his salary but half his salary increase:

https://www.straitstimes.com/politics/wp-chief-pritam-singh-clarifies-that-he-will-donate-half-his-salary-increase-not-half-his

Why are people associated with the ruling party getting upset by Mr. Singh’s donation? The obvious point would be that it doesn’t make them look good. The act of forgoing the salary increase (which is considerably less than the lowest paid political office holder) has started what the Malay Mail described as a potential charity war and made Mr. Singh look better than the ruling party office holders:

https://www.malaymail.com/news/opinion/2020/08/02/singapores-opposition-leader-launching-a-charity-war/1890250

The less noticed and talked about point is that Mr. Singh probably had no choice in donating his new salary increase. If you look carefully at what Mr. Singh has said he would donate to, you’d note that it is primarily towards grassroots causes in the areas that his party controls.

 

 

The Worker’s Party is playing a long-term game. Strategy is simple – win seats, keep taking care of constituents to stay elected and then challenge for seats when you have enough strength. Unfortunately for Mr. Singh, his options of executing that strategy are particularly limited in as much as the main source of funding comes from the government, which is controlled by the ruling party, which unashamedly works on the principle of delaying funding to wards that it does not control.

Hence, Mr. Singh has to find different ways of funding the programs that his constituents need. The donation of his salary increase can be seen in the same light as a small shop keeper investing a windfall back into the business.

It’s different for the ruling party in as much as it controls official purse strings. Ruling party members of parliament (MPs) can afford to behave like executives on a generous expense account because getting the money is simply a question of following official rules on accountability.

Someone who comes from a position where he does not have to find ways and means of creating a budget will not be able to understand the motives of someone who is operating in a system where he or she has to get creative about raising the money.

While it will be sometime before the Worker’s Party will be in a position to fight for the government, the lack of resources is inevitably good for it. Its MPs will be trained to think of their wards like microenterprises with limited resources. This mindset will produce people who should be able to come up with creative solutions to the more complex problems of the modern age.

Hopefully, a stronger opposition will also help improve efficiency in the government. One can only hope that the increase in dissenting voices will get ruling party MP’s to think more creatively in order to get things past parliament. In business, big conglomerates like General Electric have started to work on the principle that they need to behave like smaller enterprises. Hopefully the same will happen in politics.    

When David Became Goliath

Just received an op-ed from the New York Times in my email. The story is entitled “Tech Goliaths Act Like Davids,” and the main thrust of the story is that the tech giants like Google, Apple, Facebook, Uber and so on have become the corporate bullies that they once fought against. The story can be found at:

https://www.nytimes.com/2020/06/22/technology/big-tech-underdogs.html

If one studies history, one will notice that this isn’t a new story. History is filled with examples of young, vibrant revolutionaries who fought to overthrow an overbearing power and once they had succeeded, they proceeded to behave as the power that they overthrew.

As an ethnic Chinese, I think of Mao, who lead a peasant army to overthrow a corrupt regime that was oppressing the poor. However, once in power, the communist proceeded to enforce an iron grip on power and proved to be as nasty if not more so than the nationalist that they overthrew. There are other examples. In the Middle East, there’s the example of Naser who overthrew a corrupt and repressive monarchy, only to replace it with another form of dictatorship that has stifled progress.

I think of Singapore, the country that has been my home for the last two decades. We’ve been run by the same party since our independence in 1965. While the party has delivered prosperity and done well by the citizens for the most part, they’ve moved a long way, as in a very long way, from the party that was a plucky upstart fighting to rid us from the yoke of colonial rule and later race-based politics of the Malaysian Federation. The part that once wrote a national pledge of “Regardless of Race, Language or Religion,” now stresses the fact that “The population is not ready for a non-Chinese Prime Minister,” and delightfully uses every trick in the book to ensure that it wins more than 60 percent of available seats in parliament (it remains an achievement for our rag-tag opposition to contest let alone win seats).

Why is this the case? The answer is as simple as this fact – power is exceedingly addictive. The people who get power tend not to want to lose it. Young idealist who become revolutionaries to get rid of entrenched powers becoming the very entrenched powers that they overthrew. This remains true in business and politics.

Some systems have found a way to survive this. In America, the political system was designed to limit the damage a bad leader could do. Presidents have to share power with Congress and a Supreme Court and much of the power over citizens is devolved to local governments. Furthermore, Presidents are limited to two terms of four years. Thus, you only put up with an incompetent leader for eight years at the most and no individual has to chance to hang on for years until they get drunk and senile with power.

This system works in America because there’s a reverence to the constitution and laws and there’s a press to keep the powers that be on its toes. In places that don’t have this, there is a real danger that the man in charge can merely change the laws. China is a case in point. Prior to President Xi’s ascension, it was understood that a generation of leaders would step down after a decade. While China didn’t have elections, it had some form of leadership renewal. Unfortunately, this is no longer the case and one cannot assume that President Xi, may enjoy his power a little too much, even at the risk of the wealth that the Chinese people have grown used to.

The same is true in business. The story in dynamic economies is that of plucky start-ups with a bright idea or a new technology taking on and taking market share from established firms. The problem is that once the start-ups become big firms with deep pockets, the game no longer becomes about coming up with new products that delight consumers but about enhancing market share and getting consumers to continue buying what you’ve been selling them. As I was once told, “Big firms don’t innovate, they just buy small firms that do.”

While the dangers of minimal competition for businesses are less obvious than that for political leaders, they are non the less very present. Businesses that become too interested in their market position tend to forget that consumers can find and will find alternatives. I think of Singapore’s media scene, which could not accept competition and kept peddling the myth that Singapore was too small for media competition. The established media powers were so busy defending their turf that they failed to see people moving away from printed newspapers and terrestrial television. They even got the government onto their side in branding online media as “anti-establishment.” There was one small problem. Consumers stopped reading newspapers and the advertisers noticed. Singapore Press Holdings (SPH) has had to diversify into old folks’ homes to keep shareholders happy and more recently had to suffer the indignity of being kicked off the stock exchange index.

Successful big firms are the ones that find a way of growing big but keeping their units running like start up enterprises. Big law firms are trying to do that, working as a big unit in the centre for things like branding and HR policy but getting their respective practices to compete for business like sole proprietorships. In theory this should prevent the groups from becoming immune to market forces.

The other factor for businesses is law. Laws that prevent companies from becoming monopolies should be made stronger.

Let’s go back to tech as an example. Microsoft was once a start-up that had a clear goal of having a desktop on every desk running its software. It became a monopoly and defended it tooth and nail. Unfortunately, Microsoft was late into the internet and thus lost ground to Google. Microsoft has only become a dynamic player under its current CEO, Satya Nadella, who moved it away from defending its old business market.

Limits on power are not just good for consumers or voters. They are actually good for incumbents as it keeps them on their toes and forces people to innovate. The Goliaths of the day should remember that they had their best victories as Davids and trying to crush today’s Davids will only lead to them sharing the fate of Goliath.    

Good Riddance to an Anachronism

There’s only a day left to the end of Singapore’s circuit breaker and like much of the nation, I’m about to head back to the “normal” life of being in an office. The prospect of going back to an office like existence brings me back to a letter I submitted to the Today Newspaper, which they subsequently rejected.

The letter in question was a response to a commentary by the FT correspondent Lucy Kellaway, who had praised the concept of office and said that we would miss the office when it died. Ms. Kellaway’s commentary can be found at:

https://www.todayonline.com/commentary/covid-19-we-will-miss-office-if-it-dies-it-gives-work-meaning-workplace

I think Ms. Kellaway has hit the nail on the head in her description of offices as social places. Think about it, we spend at least a third of the day in an office and most of the people we probably spend more time with people in the office than we do with our families. Offices are great melting pots and I’m surprised that our social planners seem focused on creating the imaginary “kampong” (Malay for village) experience in housing estates when they should be focusing their efforts on offices. Offices are effectively social places masquerading as work places. My only joy at returning to the office is that I’ll have a reason to leave the house for a few hours each week.

However, with the exception of its social value, I don’t miss the office and I believe that far more can be achieved outside the office. Offices are generally bad for productivity both for the business and the individual.

I have had two stints working in an office and I’ve found that my happiest moments in both stints came from doing task that required me to be outside of an office, even if it was just for 15-minutes. Leaving the office was when I actually did productive and meaningful things. If one looks at the eight hours a day that one is obliged to spend in an office, one has to question how many of those hours are actually spent on doing productive things. Contrary to what you may be told about an office being a place to do work, the truth is that an office is often a place where people indulge in petty power plays and ego building.

The main case against offices is that they are often vanity projects and focus a corporation on paying for the vanity rather than actual work. I think of the common complaint that clients had against advertising agencies, which was they expected 50 cents on the dollar of advertising spend was wasted, they were just not sure which 50-cents was wasted. Big agencies are known for having big offices in the swanky parts of town. Advertising isn’t the only industry where the big players need big offices.

The need for offices, particularly the big ones has made landlords very rich. This is especially true in places like Hong Kong and Singapore, where land is scarce and the service economy is larger than in other parts of Asia. With the exception of Li-Ka-Shing who ventured into ports, telecoms, retail and technology, the great fortunes of Hong Kong and Singapore have predominantly been made from owning office space. Think of Lee Shau Kee of Hendersen Land in Hong Kong and the Ng and Kwek Families on Singapore.

Having worked in liquidations in Singapore in the last five-years, I did notice that the landlord was inevitably one of the largest creditors in most cases and the business that went down was inevitably paying rents that were forming a high percentage of the actual revenue.

Hopefully, the “home-based” work that was forced on us by Covid-19 will get businesses to question the high rents. Why do you need to pay millions a month for office space when the revenue is generated by people working from home? Hopefully land used for office space will be used for more productive things like residential property, hospitals and schools. One should also hope that the tycoons like Lee Shau Kee and the Ng’s of Far East would then focus their money in more productive technology industries.

The other issue that I have with offices is that they encourage tribalism. As was often discussed in anthropology, humans have a tendency to define their identity by finding opposites. In the old days, race and religion were the usual tools of forming identity. These days, its increasingly about profession and being in the right office.

While there is nothing wrong with being a working professional in itself, the problem with offices is that they give you a false sense of the wider world. They encourage you to sort yourself out according to profession (accountants, lawyers, architect, PR professional etc) or by department (finance, marketing, HR etc). You are obliged to spend the day with “your people,” which gives you a sense that your people are the only people around and that only function in a business is yours.

Lucy Kellaway talked of the great office romance, where people fell in love with the people they met at the office. I guess this is to be expected, that one meets a future mate from one’s immediate social circle. However, isn’t that the crux of the problem, that we only meet and mingle with the people from our industry and organization. This is a form of intellectual inbreeding, which like other forms of inbreeding is distinctly unhealthy.

Let’s not mourn the office and celebrate freedom from the right to inbreed with our own kind.  

Your Rich – We Have to Give You More

I’ve been spending a little less time on the blog and focusing more of my time on writing for the mainstream media in recent days. A part of shifting focus has been work-related. The other has been the fact that there are issues that need to be raised in a place where there’s going to be wide discussion.

The most prominent issue that has caught my attention and the attention of many in Singapore is the issue of foreign worker dormitories. The reason for this is simple, these are the places where the explosion in Covid-19 cases have been found and the government has decided to throw a lifeline to the dormitory operators by offering to foot the bill for the increased operational costs that the dormitory operators will have to face. More details on that story can be found at:

https://www.straitstimes.com/singapore/government-to-absorb-additional-operational-costs-for-dormitory-operators-during-circuit

While the stay-at-home orders and lockdowns on the dormitories has undoubtedly raised operational costs for the dormitory owners, one has to ask why the government has decided to step in as their proverbial sugar daddy. This is especially in a situation where the dormitory owners are in no danger of going bankrupt.

As matter of principle, I’m against subsidies from the government, whether its to individuals or corporations. Having grown up in the West, I saw how noble intentions ruined. Welfare, which was meant to help the poor ended up destroying the incentive to work. “Free” healthcare was often abused (think of the 18 months it takes to get an appointment with an orthodontist in the NHS) and then, there’s the well subsidized business of farming, which became very lucrative for farmers who realized that farming was not about crops or livestock but filling out forms.

I get why some subsidies exists. On a personal level, there are people who are basket cases that you can’t leave to rot (think of the problems they’ll cause as they rot). I think of Flesh Ball and her various men as an example. When it comes to businesses, there are times when a subsidy is necessary, especially when it involves bringing something to market that will have eventual social benefits. Renewable energies for example, were highly subsidized because they were expensive. However, those subsidies have paid off in that the cost of producing renewables are now competitive and it has provided the world with energy sources that don’t damage the environment.

Then there are exceptional circumstances where subsidies to businesses help provide social collapse. Subsidies to businesses in the current shut down of the global economy have helped keep people who might otherwise be unemployed in a job. The alternative is mass long-term unemployment, which in turn would mean social unrest.

So, the question is, does the dormitory operations industry justify giving a subsidy? I believe that the obvious answer is no.

Firstly, there is no benefit to the tax payer in doing so. Unlike renewable energy companies, they are producing anything that would add value to either people or the planet in the long run. They are merely putting people into a certain space and charging a fee for it.

Secondly, the dormitory operators are not in any danger of going bankrupt and throwing people out of work. While a breakdown of their number of employees is not available, a look at Centurion Corporation’s website would indicate that they are still hiring.

https://www.centurioncorp.com.sg/career-opportunities/

As mentioned in two letters to the Straits Times (including one by me), the dormitory owners are exceptionally profitable. Details can be found at:

https://www.straitstimes.com/forum/why-foot-the-bill-for-dorm-operators-that-have-profited-for-years; and

https://www.straitstimes.com/forum/forum-let-dormitory-operators-face-the-music-themselves

Numbers quoted in both letters were taken from Centurion Corporation’s financial website at (Being a listed company, Centurion Corporation has to publish its financial results):

https://centurion.listedcompany.com/financials.html

The letter by Mr. Cheng Shoong Tat got the board of the Centurion Corporation to scramble and they had to issue a “clarification” as to what their $103.78 million profit on revenue of $133.353 million meant. They’ve made a point that of that $103,78 million profit that they made includes a “one-time” net fair valuation gain of $66.3 million on investment properties and assets held for sale. The clarification also makes the point the worker dormitory business is just 65percent of their total. More details can be found at:

https://centurion.listedcompany.com/newsroom/20200518_205520_OU8_AKSMHTJUI645S6UQ.1.pdf

What does this mean in layman terms? Is the company saying that the $66 million in “fair-valuation” gains merely an accounting treatment rather than actual cash?

Even if you take the “clarification” at face value, Centurion’s profits are exceedingly healthy by any standards. If you take out the “one-time” net fair-valuation gain, the profits before tax would be $44.735 million (Gross Profit less expenses), which would mean profit margins of 33 percent (still very healthy by any standard) and if you less income tax, there’s still $37.522 million, which means a margin of 28 percent. Furthermore, the “one-time” net valuation gain is also in the financial results for 2018, which would suggest that the one-time gains are fairly consistent.

All these factors should not distract from the fact that Centurion Corporation is sitting on a cash pile of some $48 million (cash at bank).

Nobody is saying that Centurion Corporation and its brethren are not allowed to make profits. What is questioned is why the tax payer has to subsidise them when there is a situation where they are likely to make less. The point about going into business is that you take the risk and rewards accordingly. When times are good, you are entitled to your profits but when times are harsh, you take the losses. Other businesses have also taken hits. SIA, for example has had to lay off staff because the global airline industry has been badly hit. However, SIA provides jobs for many Singaporeans and actively promotes Singapore, something which the dormitory owners do not.

The most crucial point to the case against footing the bill is that many of the costs that are now being imposed on the dormitory owners are now being forced to take on, were costs that should have been factored in when the Foreign Employers Dormitories Act (“FEDA”) came into force in January 2016. This act essentially sets certain standards in the industry of providing accommodation for foreign workers and the fact that the government introduced this act would indicate that the government realized that it needed to have some oversight on the industry. More can be found at:

https://sso.agc.gov.sg/Act/FEDA2015

This leads to the fact that half of all dormitory owner’s flout licensing requirements on a yearly basis as the Minister of Manpower admitted to parliament:

https://www.straitstimes.com/politics/majority-of-dorm-operators-flout-licensing-conditions-each-year-says-josephine-teo

So, the question remains, why should the tax payer bail out a highly profitable and cash rich industry from failing to fulfill its legal obligations? What hold does this industry have over the tax payer that it can demand a right to be subsidized to correct its own failings. When was it my obligation as a tax payer to fund an industry’s right to make healthy profits.