Wednesday, April 28, 2010

Comment moderation now enabled

I haven't blogged in ages, primarily because I've been hideously busy with stuff and also, seeing as how I haven't been consuming much local tripe content lately, there's been less grist for me to bitch write about.

Anyways, despite my blog having a low readership, comment spam has been popping up more and more often. So from here on, I'm enabling comment moderation where before there was none.

As to when I will blog again on something substantial, it will have to be when inspiration strikes. Sorry to disappoint, but fresh perspectives don't come too often.

Sunday, April 11, 2010

Why some visitors come to Singapore

Here's an excerpt from a book I read a while back, Poorly Made in China. Given the growing importance of China to the world, I had felt I needed to know more about doing business in the country, even if I actually am not in the business line. The unexpected finding was seeing how this explained some observations in Singapore. If you've ever wondered why visitors from places like Africa come to Singapore and buy massive amounts of goods from Mustafa or Sim Lim Square, here's the answer.

(If you want to know more about Poorly Made in China, click on the link on my Currently Reading list on the right.)

Excerpted from Poorly Made in China:

Why would a Chinese manufacturer willingly make a product for a dollar and sell it for only a dollar? Chinese manufacturers did not have the same concerns for covering their fixed costs as their counterparts in capitalist countries had. Could it be that this was all part of a long-term strategy and that “profit zero” was economically efficient?

Americans somehow imagined that Chinese factories existed to manufacture merchandise only for the United States, but this was not the view from China at all.

From China, the world appeared divided into two parts. One half of the world was made up of countries where intellectual property rights enjoyed wide protection. Because patents and trademarks were honored, there was, not coincidentally, a great deal of investment going on in the area of product design and marketing. Order sizes in this first market – which included the United States and Canada, as well as a number of Western European countries – tended to be larger. Chinese manufacturers favored importers from these economies, not so much because of their volume, but more for what they could lend in the way of design and marketing. Manufacturers gave considerable discounts in order to entice the first-market importers to place orders in China.

The other half of the world was made up of secondary economies where intellectual property was not well protected. In this second market, not coincidentally, investment in product design was low. China still wished to do business with this other half of the world because while their volumes were low and they did not provide much in the way of design, they tended to pay higher prices for goods out of China.

One of the features that characterized China’s export market in the first decade of the twenty-first century was the way in which it took advantage of being at the very center of the globalization phenomenon. China was at a crossroads of international trade, and importers were arriving, not just from places like the United States, but also from Latin America and the Middle East – economies where trademark and copyright were not observed. Manufacturers that produced products using unique, original designs provided by importers realized that they were perfectly positioned to take advantage of the situation by moving designs from one part of the world to the other, while earning a premium in the process. This was not customer segmentation, but an arbitrage opportunity.

The United States was one of the wealthiest economies in the world, and yet Americans paid less for their products than consumers did elsewhere. It was in fact one of the great ironies of the global economy. Products that retailed in the United States for only $1 in a U.S. dollar store could be found in the developing world selling for $2 or $3, and it was one reason why tourists from poorer economies took their trips to the United States as a shopping spree (just like in Singapore; my emphasis).

Many of the manufacturers with whom I worked realized about half their revenue from just one or two customers from this first market. These customers were either from the United States or Canada, or they were large customers from leading economies such as Japan, Germany, or France. The balance of their business was made up of anywhere from 50 to 100 smaller importers, and many of these were from the second market. First-market importers might generate no profit at all, and a manufacturer’s entire bottom line could, instead, derive solely from second-market customers.

An example in counterfeiting illustrates how some manufacturers took advantage of the arbitrage opportunity in an outright sense: A manufacturer accepts an order for 500,000 pieces from a first-market importer that produces a unique design. Rather than merely filling the order, the supplier keeps the machines running and its people working until it produces a total of 700,000 pieces. The original customer gets his order for a half-million pieces, and then the factory sells the surplus of 200,000 pieces at a considerable markup.

For manufacturers willing to engage in an illicit practice of this kind, it made sense to agree to produce the original order at close to cost. The margin that could be earned on surplus product in some categories easily exceeded 100 to 200 percent, and trying to earn a modest 10 percent profit on the original order might mean losing out to a competitor who would bid lower.

Intense competition was a major driving force in China, and any manufacturer that actually attempted to work out a profit margin for itself on an original order might find a competitor pricing the initial order at cost or sometimes below cost. The uniqueness of the product was what mattered most, and it had everything to do with how aggressively some factories quoted. Some of the smarter importers I have met, those who actually understood how the game worked in China, went out of their way to suggest that their product was unique – in other words, that they had something that might be counterfeited and sold through other channels.

Book List Refreshed!

I have removed:

Reflections on the Revolution in Europe by Christopher Caldwell
The Corporation by Joel Bakan
Dear Mr Buffett by Janet Tavakoli
The Next 100 Years by George Friedman

I have added:

And Then There's This by Bill Wasik
Falling Behind by Robert H. Frank
Liquidated by Karen Ho
Constructing Singapore by Michael D. Barr

Sunday, April 4, 2010

Removing Trunk Services for Buses

The Second Minister for Transport in Singapore, Lim Hwee Hua, has remarked that long distance services for buses may be abolished in favor of a hub and spoke model.

I take public transport, and buses are my main mode of transportation. I like long distance services. The main reason for this is that the closest subway station to where I live is a 15 minute walk away (or a 7 minute bus ride, including waiting time). So taking the MRT is hardly a convenient option.

It helps also that I live in a smallish estate, where all the buses that serve us are long distance buses. We have at least 9 long distance bus services within a 5 minute walking radius. From where I stay in the Dover area, I can reach as far west as Boon Lay, as far north as Woodlands and as far east as Tanah Merah with just a single bus ride, no transfer hassle required. Notably, town (meaning Orchard) is accessible with just a quick 20 minute direct bus ride when traffic conditions are light.

Better yet, I generally don't have to put up with the crowds onboard MRT trains, and getting a seat is usually not a problem.

Which is all a very long-winded way of disclosing that I am in favor of the current system and not too enthused about a shift to the hub and spoke system. So take what I am going to write in the rest of this post with a grain of salt.

Do I think moving to the hub and spoke system is a bad idea? Not per se; it could improve the public transportation system as a whole. Shorter bus rides to a central transport depot, where the MRT is the preferred mode of travel, will certainly exhibit lower variability in transport time. And trains in general can run more on schedule than buses (although bus lanes help to ameliorate this weakness of motor transport).

Reducing the variability in journey time is an unalloyed "good thing". But what concerns me is that our public transportation system may not be completely set up for a hub and spoke system. Oh it's all very well for Lim Hwee Hua to talk about how "it is a way that most of the other cities which have successful public transport systems have survived on." But unless she is serious about investing in a profound overhaul in our current public transportation system, this change is going to risk looking like a token effort to assuage complaints about public transport, which could lead to a worsened situation for public transport.

If hub and spoke has worked for other cities, a reasonable question to ask is what characteristics of these other cities has allowed such a model to work.

From my own travels in other cities, I posit a few requirements for hub and spoke to work:

  1. A denser network of transport nodes. Frankly, our rail network is not dense enough. Urban city cores in most cities have denser rail networks. In London, for instance, it's frequently possible to step out of a tube station onto the street and literally see the next one a stone's throw away (e.g. the Charing Cross and Embankment stations). If we're going to rely primarily on MRT, we had better have more stations and stations that are more closely spaced together. Otherwise, people that live between hubs (like myself) will lose the benefit of long distance services but not gain the convenience of 'hubbing'.
  2. More trains running more frequently. Like, duh. If hub and spoke means funneling people onto already crowded MRT trains, we definitely need more trains running more frequently. Somehow, knowing the government's propensity for "efficiency", I sort of doubt that they would pre-emptively increase the frequency of trains dramatically to forestall complaints. It's more likely going to be a reactive, add just enough trains after the citizenry become vocal enough, approach.
  3. Express versus local services. Just about every large city I've been to that relies primarily on the subway has express and local subway services. If this is to be implemented, we need a massive public education campaign. Most Singaporeans would be unfamiliar with such a system. This, by the way, also requires more railway tracks and heavier investment in infrastructure (which I am not certain our current MRT network meets).
  4. Very, very frequent and regular intratown services. If the government wants a hub and spoke system, it had better not stinge on the spokes, or it's going to make a lot of people very unhappy. Not sure how this is going to work out for the bus companies; it sounds like a money losing business. That could generate problems.
  5. Ultra-high reliability. The flipside of increased efficiency in a system is often reduced resilience. Part of the strength of Berlin's transportation system is its diversity. If we're reducing diversity, the primary services of MRT have got to be extremely reliable. They can't just break down and cause millions in lost productivity. Since the renewed emphasis on productivity, stingeing on reliability would be a case of being penny wise pound foolish.
  6. Synchronized scheduling. This sounds like a no-brainer, but in a system with multiple transfers, you absolutely need synchronized scheduling. Otherwise, all the gains made in journey time will be offset by waiting time for transfers. What do I mean by sychronized scheduling? I mean trains leaving the station just a few minutes after buses release their passengers at central hubs. In an environment where we have one major bus company and one major rail company, coordination between the two for sychronized scheduling is going to be a bit more difficult than if one central authority was handling everything.
  7. Seamless connectivity. By and large, we already have this. A single public transportation system and network with a unified payment system. Bus interchanges colocated with MRT stations (and shopping malls and town centers). But it bears repeating here. Tokyo, for instance, is unusual in having more than one subway company.

Friday, April 2, 2010

A rising tide lifts all boats?

The PM recently rubbished income inequality as being of little importance.

There is an excellent book for those who wonder why people like myself are deeply concerned with income inequality and why it matters to modern society - Falling Behind: How Income Inequality Harms the Middle Class, by Robert H. Frank.

Very briefly, Frank argues that there are two kinds of goods, positional, and non-positional, and rising inequality forces people to devote more resources to purchasing positional goods, neglecting the non-positional, and leading to a loss of social welfare across the whole of society.

What are positional goods? They are goods for which the relative rank of what the consumer consumes has importance.

There are lots of good examples in Singapore. Education for instance. A university degree is practically a requirement now for a person to make a decent living. 30 years ago, it wasn't. The reference point for education has shifted upwards so that most people view a university degree as a necessity. Hence the deep unhappiness whenever tutition costs are raised. Housing is another. Oh, we're not talking about luxurious condos or bungalows. But consider this, it is common wisdom in Singapore that because of the 1 km proximity rule, housing that is nearby to "good" schools is considerably more expensive than comparable housing located elsewhere. Clearly, not all HDB flats are built equal. And getting, or rather, not getting, the "best" HDB flats could literally seal the fate of your kids.

And for a more pan-national perspective, we can consider defense spending as the ultimate positional good. To illustrate this, let's rework what the mainstream media article wrote:  "Worried about low defense spending? What's important is not the absolute gap between Singapore and Malaysia/Indonesia, but whether Singapore's defense spending is moving up."

Does that statement sound absurd? Of course it does. What matters is how much more we are spending than our neighbors, not how much we are spending in aggregate.

Positional goods are real; concern with the positional nature of goods should not be dismissed or belittled or deemed irrational. Context matters. And it isn't simply just a matter of keeping up with the Joneses or about the politics of envy. It's just that rising inequality raises community standards of what is deemed normative in the community.

So how does rising inequality hurt Singaporeans? 

Singaporeans today are spending more on a whole range of positional goods, to their own detriment. It is akin to a positional goods arms race: We are spending more on housing (got to be close to those good schools!), on raising children (think tuition, enrichment classes, childcare), on education (both for our kids and ourselves - retraining, reskilling, postgraduate degrees), and even, basely, on consumer goods.

Think of it this way, at a job interview, who gets hired? The best candidate of course. But all candidates being equal, would you rather hire the guy dressed in the sharp Zegna suit or the typical guy in shirt and slacks? Never mind that the Zegna guy is a trust fund baby and can well afford his threads. The next job interview, everyone shows up in a Zegna suit. Problem is, every other candidate put the suit on their credit card, resulting in four-figure debt.

That's how income inequality hurts the middle class. Rising income inequality stretches the boundaries of what are considered normative, because the rich invariably purchase the things that give them a leg up in whatever they're doing. This isn't about envy, it's about how people try to keep up in order to achieve things that are really important. Jobs, schools, kids' futures, a better quality of life for the family.

In Falling Behind, which speaks specifically to an American audience, Frank lists the ways middle class folks use to "afford" to keep up. The list isn't pretty. They are: working longer hours (to which I would add increasing prevalence of dual income households), reduced savings (that certainly sounds familiar: CPF accounts emptied by housing anyone?), increased indebtedness (ditto), longer commutes (yes, yes, yes), growing sleep deprivation (maybe, maybe not) and public service cutbacks (not so much here).

I would add another way that is more uniquely Singaporean. Fewer kids. Rising income inequality means fewer kids, as Singaporeans marshall their resources to pin their hopes on just one or two offspring.  The last I checked, encouraging Singaporeans to have more kids was a government priority. Income inequality isn't important...really?