Wednesday, 16 June 2010

'Socializing' the state: turning Singapore into Greece

The Greek debt crisis is the final nail in the coffin for the modern welfare state. The crisis is also a clarion call for those who encourage the state to unreservedly expand the provision of social services in other countries, including Singapore.
Greece has all the trappings of a welfare state: generous pensions, socialized health care, rigid labour laws and high taxes. Of course, the high taxes are merely an inconvenience as few Greeks pay them anyway!
For many decades, Greeks have enjoyed a high standard of living. Since Greece joined the Eurozone, Greeks have even had the privilege of earning in a 'real' currency (not the Drachma)!
The after effects of an extensive (and expensive) Greek state social welfare infrastructure

Recently, as a result of the debt crisis, the Greeks have realized that most ancient Greek materialist philosophers (Aristotle and Democritus?) were: humans cannot create something out of nothing. Printing reams of paper money does not produce social miracles.
In the real world, nothing is free.
Not even the 'free gifts' Singaporeans are used to receiving from nicely dressed sales promoters at high-end department stores. Buy a perfume and get a 'free' bag along with it. Buy two perfumes and get a 'free' bottle of skin lotion.
Think about it – a shopper spends and they get something 'free' in return. Spend more and receive more 'free' stuff.
The 'free gifts' are discounts priced into the economics of each sale. If Gucci or Chanel were losing money on each sale they would stop the 'free' gifts, or at least reduce the value of the items.
Companies are not in the business of losing money. Corporations who consistently lose money disappear. They are taken over by more profitable companies, they merge or declare bankruptcy.
Countries are slightly different. Countries cannot be take-over targets or declare bankruptcy, at least not with the same ease as a corporation. But can nations deny the laws of the real world forever? Not really.
Nations disappear, reappear, have borders redrawn and, in extreme cases, are even taken over. The forces at work are much the same as for corporations: economics, money and wealth. (National military strength is predicated on economics, money and wealth.)

Wealthy states tend to better maintain satisfied populations. Satisfied populations of well governed states are less likely to cause social unrest. Money pays for good governance, e.g. through an efficient bureaucracy and equitable justice system.
In many ways, Singapore occupies a unique place among nations. The government is wealthy and has large amounts of accumulated capital (reserves) at its disposal, as evidenced by Temasek and GIC. Singapore has accumulated these savings by spending less than it earns through taxes in a typical financial year.
Arguably, either Singaporeans pay too much tax or Singaporeans do not receive enough in services from the government in return for those taxes.
Consider an individual who has earned 10,000 annually for forty years. During the same period she has spent 8,000 annually. Without taking into account any returns on her savings, she has accumulated 80,000 in forty years, enough to pay for ten years of 'bad times.'
Now Singapore is not an individual with a retirement age. Singapore does not have a finite life. Theoretically, Singapore will continue to receive tax revenue as long as it exists. In the course of a complete economic cycle, Singapore's budget will turn in an operating surplus (operating expenses are lower than operating revenue).
The government also earns considerable revenue from the various government owned commercial businesses, including Singapore Press Holdings, SMRT, Singapore Airlines, SATS and so on (the list is long!). It is also fair to assume that the highly paid minds at GIC and Temasek obtain an above market rate of return on Singaporean savings.
Hence, the assumption that Singapore can afford to spend more money on its citizens. The state can afford to socialize some health services, house the homeless, increase interest rates on CPF savings or increase many other subsidies for the population.
Alternately, the government can ease the burden on Singaporeans by reducing taxes. Clearly, the Greek example illustrates the perils of going down the welfare state road.

Government spending tends to take a life of its own, fed by the bureaucracies which control the purse strings. Taking away popular entitlements is never an easy task.
History teaches us that defying the laws of nature is not possible for individuals, at least not over a long period of time. So why should large collections of individuals, i.e. nations, be exempt from these same laws of nature? They are not.
At a time when many 'wealthy' nations are attempting to roll back 'free' health care and generous pensions, the lack of an inefficient and potentially unaffordable welfare state infrastructure in Singapore is a blessing.

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