Monday, 30 May 2011

Singapore: deregulating politics but what about the economy?

Many analysts blame the excesses of the Anglo-Saxon capitalist model for the recent global financial crisis. Surely, greed played a significant part in the stresses faced by the international financial system. At the height of the crisis, the future of the post-Bretton Woods capitalist system seemed gloomy.
More than two years after the crisis began, the financial hangover still hurts. Apparently, it takes more than a few aspirins to cure an alcoholic of many years.  
Euro zone nations have yet to satisfactorily resolve the Greek debt crisis. The problems associated with the remaining PIIGS, i.e. Portugal, Ireland, Italy and Spain, come to the fore from time to time. 
Source: Wikipedia
As for the US, each time the crisis seems relegated to the history books, a new event occurs to remind the world of its fragile state. Perpetually low interest rates suggest the economy is mired in a recessionary state. Additionally, US government indebtedness has reached proportions normally associated with Latin American debt defaulters of the 1980s.
To add insult to injury, rating agency Standard and Poor's has put the US 'AAA' credit rating on negative watch. China, the central banker for the US, is desperately seeking investments not denominated in US Dollars. China's purchases of US treasury bills have declined during the last several months.
Nevertheless, there are some benefits to unbridled capitalist greed. 'Creative destruction' is one of these benefits. Often 'creative destruction' requires corporations to jettison existing management to refocus on creating shareholder value.

Corporate managements often tend to behave like bureaucracies, i.e. to perpetuate their own longevity.
In the new 'post-Bretton Woods' world, activist hedge funds and institutional shareholders play a significant role in keeping management and shareholder interests aligned. Given the large shareholdings of such activist institutional investors, managements are challenged if their focus is distracted from creating shareholder value. No corporation, large or small, is immune from activist shareholders.
Recently, a particularly influential institutional investor turned his sights on Microsoft's senior management. Microsoft stock has significantly underperformed the broader US stock market for many years.
Singapore consistently ranks in the top three most competitive economies in the world. However, Singapore's capitalist way is as unique as its legal system. Like in politics, perhaps it is time for a shake-up within Singapore's sedate corporate environment.
Undoubtedly, Singapore's economy functions like a well oiled machine. However, the state's dominant position in important economic sectors leaves little room for shareholder activism as a means to create economic value. Institutional shareholders should be able to indulge in meaningful criticism of managements.
Shareholder activism is an extension of Singapore's traditional meritocratic process. It leads to greater economic efficiencies and grows the economic pie for all Singaporeans.
Singaporeans spoke loudly during the 2011 general elections to demand a greater say in the country's future. Singapore's future is a combination of politics and economics. Along with political liberalization, it is time for economic liberalization through reduced government participation in Singapore's economy. Policies to gradually lessen the influence of the state and government linked corporations in favour of greater participation from the private sector must be actively considered.

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Imran is a business and management consultant. Through his work at Deodar Advisors, Imran improves the profitability of small and medium sized businesses. He can be reached at imran@deodaradvisors.com.

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