Price increases symptomise the failure of our political system

May 22, 2003
Singapore Democrats

This post is at least a year old. Some of the links in this post may no longer work correctly.

Yawning Bread
September 2002
http://www.geocities.com/yawning_bread/yax-292.htm

In quick succession this year, the government and its related bodies announced price increases in bus fares, train fares, road tolls, parking fees, and now hospital charges. The public has also been put on notice that the Goods and Services Tax too will be raised next year to 5%, from 3% currently.

The loudest protests were over the smallest increase of the lot bus fares. This suggested that the criticisms weren’t just about money. More fundamental issues were involved, which I would like to explore in this essay.

In case you didn’t know, I should mention that despite the furore from the public and stiff questions in Parliament, no rollback of any of these price increases has resulted.

The immovability of the government has only reinforced the feeling in ordinary citizens that they are powerless.This disconnection between the government and the people is a major theme through the last few decades of Singapore’s political history. In the long term, it is going to be a severe liability for Singapore, but I won’t get into that here.

Here, I will look at what the recent arguments reveal about our government’s mindset.

Increases necessary to cover costs

Most price increases have been for specific services by quasi-government organisations, e.g. the Urban Redevelopment Authority and Jurong Town Corporation (for parking charges), the Land Transport Authority (for electronic road pricing), or by companies protected by government regulators (e.g. the bus operators).

The primary argument used has been that these organisations must pay their own way. The quasi-government bodies, e.g. the URA or the hospital corporations, may be non-profit, but the transport operators have to make a profit for their shareholders too. Very often the government’s argument stops just about there. They take it as inarguably right that these corporations must cover their costs through sensible pricing.

What more needs to be said? But, to oblige, there is another argument: Since the above is true, it is better to post small increases frequently, than big hikes infrequently. Big price jumps would be harder for people to digest. The fact that the government thinks the second argument is meaningful already shows insensitivity and self-absorption.

This argument about small frequent increases being better begs the question better for whom? It’s obvious that it’s better for the government, because small hikes rouse less opposition, and it’s easier to get people used to a small increase quickly, then proceed to another increase.

For the people, many small hikes, or one big hike, add up to the same thing. If anything, small frequent increases ease cost discomfort for these organisations too easily, leaving little incentive to control costs.
Our politicians and bureaucrats are confusing what’s good for them with what’s good for the public! This is a serious symptom of political failure.

Why are their costs such?

Coming back to the argument that it is inarguably right for each organisation to cover its costs, it begs the next question, why are their costs such?

Indeed, this question was raised in the bus fare debate. Commuters were quite aware of the spending on frills, e.g. fully-airconditioned bus terminals (the energy consumption!) and expensive plasma screens on buses and trains that show nothing worth paying attention to. Meanwhile commuters are packed like sardines because the bus or train frequency is too low, or they don’t run on time.

The government said they benchmark the operators’ costs against international standards, but no details were revealed. The opacity of the process is another symptom of political failure. The government has a belief that they are more intelligent, and more often right, than ordinary Singaporeans. They are reluctant to reveal details of their decision-making process, because people might use the information to challenge their supposed infallibility.

Trust us, they are wont to say, we know better than you. We benchmark these organisations’ costs before we approve their price increases.

Benchmarking HDB

Well, in an article in the Business Times on 17 September 2002, columnist Lee Han Shih compared the staff costs of the Housing & Development Board (the statutory board that builds public housing here) with City Developments Ltd. CityDev is a publicly-listed company that builds middle to upper class private condominiums, runs shopping centres and manages hotels.

Lee Han Shih pointed out that last year, CityDev paid out $531 million in wages to 14,337 employees which also included numerous foreigners in its worldwide hotel network. This averaged S$37,000 per employee.[1]

From the HDB’s annual report for the financial year 2001/2002, we see these figures:

FY 2001/2002

HDB itself
Total salaries[2]: S$ 474 million
Staff strength[3]: 8,092
$ per employee: S$ 58,600

HDB and its 3 subsidiaries
Total salaries[2]: S$ 534 million
Staff strength[3]: 9,727
$ per employee: S$ 54,900

FY 2000/2001

HDB itself
Total salaries[2]: S$ 456 million
Staff strength[3]: 8,246
$ per employee: S$ 55,300

HDB and its 3 subsidiaries
Total salaries[2]: S$ 514 million
Staff strength[3]: 9,681
$ per employee: S$ 53,100

CityDev, the private developer that builds middle and upper class homes and manages 4-star hotels, has a wage bill of $37,000 per employee. HDB, the public-service provider, has a wage bill 58% higher, at S$58,600 per employee.

And in the midst of a recession, with zero inflation, the per-employee figure went up 6% from S$55,300 the previous year, to S$58,600.

One wonders what internal benchmarking the government does. And by the way, the HDB has an unsold stock of about 17,000 flats, compared to an annual building rate, until the recession hit, of 25,000 to 30,000 flats. That is, they have 7 to 9 months’ inventory. They aren’t a fleet-flooted and efficient business either.

The evil of cost recovery

The government likes to justify financial independence for these quasi-governmental corporations by referring to commercial practices. But these corporations enjoy monopoly power to some extent.

The very mantra “cost recovery” is not commercial. Commercial enterprises cut their cloth to suit the customer. They rely on price signals to shape their products and internal operations. If McDonald’s feel they cannot get away with charging $9 for a super-deluxe burger, well, they won’t come up with a super-deluxe burger.

Our government bodies work in the exact reverse. They begin by setting “service standards” whether for buses or TV programming, or they decide what types and designs of flats to foist on the population. Not forgetting fancy lift lobbies, and landscaped gardens (that few ever use). Then they figure out how much these cost. Then they recover the cost.

In a truly competitive environment, you can’t simply charge what you wish to recover your cost. You have to maximise your internal efficiencies to live within the revenue the market allows you.

Excoriated about the heartless increase in bus fares, the Public Transport Council grudgingly agreed to allow new competition on selected bus routes. The public had argued that competition should benefit the consumer. Singapore’s largest operator of school buses said they would consider getting into the public bus business.

The PTC then issued a set of “safety standards” that, among many other stipulations, required the schoolbus operator to have buses with doors a minimum 1.2 metres wide. This meant the schoolbus operator could never use their existing fleet. They’d have to spend millions buying new buses to get a public bus licence. Not surprisingly, they gave up the idea, and with that, any hope of competition.

Wouldn’t there be some commuters quite happy with narrow-doored vehicles and no airconditioning, so long as fares are kept low?

The standards that are set are the problem. They are the key to costs [4]. But is there any public debate about what service or product standards we can live with? Is there any debate about the trade-off between standards and costs? None. Opacity again. The public are treated like they are too dimwitted to participate in such a debate. Meanwhile, the incumbent bus operators decide we all need plasma TV on every bus and train.

I am told that our public hospitals are directed by two boards: medical boards and management boards. Medical boards decide on approved treatment, and the new drugs and gizmos that are needed. Management boards then scramble to find the cash to buy all these fancy stuff. Which commercial business runs itself like that?

Ultimately a failure of our top-down political system

The fundamental problem is that we have a government that does not trust the people, cannot bear the indignity of having to consult commoners prior to policy formulation, and cannot accept the risk that in any public debate they may be proven less infallible than God.

With a mindset like this, the political disconnect will never disappear, never mind how many “Singapore 21” or “Remaking Singapore” exercises they launch to get public feedback. Feedback is only as useful as one’s readiness to listen, and to engage with the public. So ultimately, the cost increases are a symptom of a failure of our political system, a failure that leads to people saying they don’t have any role left in this polity.

Meanwhile in August this year, Prime Minister Goh Chok Tong challenged Singaporeans to consider whether they are “stayers” or “quitters”.

Footnotes

1. Lee Han Shih in his article made a comparison with HDB’s wage bill. However he made some computational errors which HDB pointed out in its reply. Despite the errors, the thrust of Lee’ commentary remained intact. However, for accuracy, I have not used Lee’s figures here. In this article, I have used the corrected figures, taken from HDB’s own annual report published on the web.

2. Includes CPF pension fund contributions, etc

3. Staff strength as at 31 March 2002 and 31 March 2001 respectively.

4. What standards should be set for public services is another complex issue, and I don’t think Singapore has always got it right. Another article on this soon…