In Government spin zone

In the times we live, the quality of a first rate mind is to be able to identify spin. The only negative side effect is that in the process one gets labeled as cynical. What was once purely seen as creating an image to put a sheen on performance, has now degenerated into an orchestrated spin often to substitute performance.

The best way to do spin on a co-operating and conniving media is to use data. Since the art of spin was invented in the U.S. let’s start there:

The data dished out indicates that continuous claims for unemployment benefits dropped. The naive reader would be led to believe that job creation is happening and unemployment is declining. The reality however is that once continuous claims are made, the recipients drop out of the claims rolls. This is confirmed by my economist friend — Dr. Ananth in his column as well. So, the drop in unemployment claims has nothing to do with generating jobs. This disclaimer is not stated even in the fine print.

The US non-farm economy lost only 345,000 jobs in May though it was expected to lose 500,000. One just inflates the “expected” figures and when the real number comes it is seen as better than expected, notwithstanding the fact that even the real numbers are high.

The flurry of visits to China by important officials in the Obama administration goes beyond the apparent significance. The US Treasury Secretary’s visit and before that the U.S. Foreign Secretary’s visit reiterating their U.S. was committed to a strong U.S. dollar is laughable. This is crude spin at best.

The U.S. is the biggest debtor and China has no choice but to accumulate U.S. dollar assets and suffer erosion of value as its currency is pegged to the U.S. dollar. As long as U.S. outsources its manufacturing to China, and as long as vested interests dictate that China’s economy has to be export driven, a weak U.S. dollar serves both sides. The U.S. keeps asking China to revalue its currency is nothing but a meaningless side show. Another case of spin.

The reality is that job creation in the U.S. since 2000 has been very low, and yet to keep the economy expanding the interest rates were kept low which created the asset bubble. We saw the repercussions of the asset bubble. Despite the bubble and the meltdown, China didn’t seize the opportunity to build a domestic economy. It simply increased the export rebates and boosted manufacturing capacity. Making the shift from export driven economy (which helped China taste success) to a domestic economy is akin to making the step from a state led economy to a market led economy. The present Chinese ruling elite has chosen to postpone the inevitable.

So, to keep up with the fact that Governments are doing something and that the economy is recovering we are entering the “spin zone”. Markets have rallied sharply since March 2009 and this is often cited as saying that all the stimulus spending is working. President Obama’s stimulus may become the cause of another bubble.

However if there’s more transparency and if the governments follow the principles of Government 2.0, by sharing all data and empowering citizens, it would be hard pressed to reveal the truth and curtail the spin.

Investors like bubbles. Media, to be relevant loves them. And Governments these days are too willing to generate one. And did I say that getting firmly entrenched in the “spin zone” and expanding the zone is often the first step.

I would certainly like to hear about the other spins that the Government puts across.

Will Singapore learn the lessons from the financial crisis?

Just finished reading Daniel Gross’s book, Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation. It is available as an e-book too. It is a book that I recommend to all executives and civil servants who are responsible for developing policy and strategy because it is important to place emphasis on perception tools as much as we do for analytical tools. There are similarities between the actors in the dumb money operation and in the Singapore civil service.

Dan writes:

“The Dumb Money creed rested on four pillars: perpetually low interest rates, perpetually rising asset prices (especially for housing), borrowers of all types remaining perpetually current, and perpetually strong markets for debt. The high priests of this cult were the nation’s central bankers.

In 2007 and 2008, each of the pillars of Dumb Money began to crumble. The rules of physics still applied to finance. Interest rates, it turned out, could rise. Asset prices could, indeed, fall. Borrowers, having seen no income growth in a decade, fell behind on their debts. All of which helped cause the markets for securitizing debt and derivatives to break down”

The people who blew up the system weren’t anarchists. They were members of the club: central bankers and private-equity honchos, hedge-fund geniuses and Ph.D. economists, CEOs and investment bankers. And the (overwhelmingly legal) con they perpetuated on themselves, their colleagues, their shareholders and creditors, and, ultimately, on us taxpayers makes Madoff’s sins look like child’s play.”

Looking back, the investors who believed the stories told by Madoff and Stanford—that they could deliver steady, positive, market-beating returns in any type of climate, despite the manifest failure of virtually every other money manager to do so—were obviously foolish. But our best financial minds also spun tales and theories with great assurance, making seemingly irrational and unprecedented activity seem completely sensible. And we bought them.”

So, Why do the best and brightest get it so wrong? One easy way to explain it is here.

The arrogance of power. Combine that with great wealth, quick progress, a group think syndrome, limited thinking style and big responsibility at a relatively immature age and you have a potent mix. It invariably leads to hubris. Hubris was typically responsible for the downfall of heroes in Greek tragedy.

In addition, people in positions of great power and/or wealth will often interact primarily with people like them, both at work and in their social life, most of whom share a similar world view. They start believing that they are the only ones who understand what is going on and what needs to be done. Everyone who disagrees with them is just plain wrong or worse downright stupid. When problems occur, they tend to circle the wagons and become even more isolated.

Now Singapore’s civil servants are intelligent people, but they have become ensconced in their ivory towers. There is too much group think and there is rarely a marketplace where ideas compete. Most Ministers and civil servants come from the same elitist institutions and often have a tendency to very much function like a club. I do not know how much debate happens during the cabinet meetings, but after observing Parliament proceedings closely I have rarely seen a good debate or alternate viewpoints being pursued.

More importantly, having seen civil servants and executives in Ministries and statutory boards interact, the “group think” syndrome just continues to strengthen because they don’t want to be left out of the club. Worse, any alternate view is interpreted as a challenge to the authority, not just to a point of view. Has kowtowing the superior become the SOP (standard operating procedure) or is it a “survive and grow” strategy or worse the natural default behavior? With so many Minsters and civil servants coming from the military side, I would not be surprised if compliance fetches a better premium than creativity.

The Singapore media has never had a track record of triggering new ideas or debating current ideas. It has always served to propagate official thinking and giving it a spin.

Now, can the top honcho always get it correct? And what’s the risk of his reading the situation wrong or coming up with the sub-optimal solution? I shudder to think.

If the financial crisis has one thing to teach the Singapore government and civil service, it is that systemic failures of massive proportions are possible. And the best and the brightest (in Singapore they are judged when they are 18 years old based predominantly by their school leaving scores) with their group think cannot be the fountainhead of wisdom.

Wisdom and government dominance have been strange bedfellows. And incompatible too.

What ails Singapore entrepreneurs?

I am not talking about the entrepreneur who sells red bun and starts yet another coffee shop. I am talking about technology entrepreneurs who create products, services, generate jobs and stimulate growth.

Singapore is probably the only country in the planet which has a Ministry of Entrepreneurship staffed by eminent and scholar Ministers. The first to head the Ministry in 2003 was Raymond Lim a Rhodes and a Colombo Plan scholar. Subsequently it was headed by Dr. Vivian Balakrishnan for a very short time before Lee Yi Shyan took over.

Despite such scholar Ministers, Singapore has had limited success as entrepreneurs and very less of technology and new media entrepreneurs. The Government has put in all kinds of incentives and generous funding.

My own assessment after having done some serious thinking is as follows:

• Few angel investors or Series A investors

• Start ups don’t collaborate and create partnership networks themselves

• Start ups don’t think global – they depend too much on the local market

• Big Singapore companies are not encouraging about start ups

• Start ups build business the traditional way – Not disrupting anyone

• They try to copy other successes blindly

• Clearly no game changing ambition

• Less idealistic, hence do not get the new business models.

• Excessive focus on making money quickly – No big picture or long term picture in mind

• Focus on sales, not on a compelling value proposition

• Start ups don’t even do simple, free marketing – blogs, viral marketing etc.

James Chan has some interesting observations and I would agree with all of them.

Does anyone have anything to add to this?

Isn’t is a paradox that we were once a nation of entrepreneurs? Our forefathers from China and India arrived here without any support with barely to survive and set up businesses. Even today the Chinese and Indians have successfully set up businesses not just in their own countries, but all over the world.

Where and how have we lost the spirit?

Why do smart people do stupid things?

This has always been intriguing. I always thought that it was perhaps the smart people do things on the spur of the moment. Courtesy my friend Shekhar Gupta, I understood that intelligence and rationality are different. Once one understand this concept, it is easy to understand why smart people can do stupid things.

Think of the mind as having 3 parts:

Autonomous mind that engages in problematic cognitive shortcuts or “Type-1″ processing. The mind jumps to the first available solution automatically and without any conscious control.

Algorithmic mind that engages in Type -2 processing — the slow laborious thinking, often leading to analysis paralysis.

Reflective mind that decides when to make do with the judgments of the autonomous mind and when to call the algorithmic mind.

The reflective mind determines how rational a person is. When and how one’s reflective mind springs into action is determined by a number of behavioral attributes including whether one is dogmatic, flexible, open minded and so so. Most importantly it also depends on whether one has fixed mindset or a growth mindset.

An inflexible mindset or a fixed mindset person has trouble assimilating new information and hence invariably ends up force fitting the problem to the solution that he has in his head. And then even though he is smart, he is lazy to find a better solution.

This article provides a succinct analysis. For a thought provoking analysis I strongly recommend reading Carol Dweck’s book. It is bound to influence any thinker. For a very entertaining yet thought provoking book that can significantly change your perspective, I recommend reading Dan Ariely’s book — Predictably irrational.

Have you known of any smart thinkers doing stupid things?

Government 2.0 — Empowering the people at the Malaysia NICT

I was an invited speaker at the Malaysia National ICT conference at Putrajaya, organized by MDEC between 9-11 June 2009. I was pretty impressed with the scale, size and involvement of everyone concerned.

My presentation slides can be viewed/downloaded here. My special thanks to Zern Liew, who really helped me with some of the visuals. He is a fantastic visual thinker and we tuned in well with each other.

I was also on the panel discussion moderated by Roslan Bakri Zarkaria of MDEC. He was energetic and mingled with the audience and thus kept the tempo high. I was equally impressed with the fellow panelists James Smith of futuregov who talked about teh research project on the perceptions, initiaties of Gov 2.0 in different parts of Asia. The other speaker Ashran spoke about Open Innovation which is increasingly gaining currency and it was wrapped up by Ashraf of Consoci talking about specific Malaysian initiatives.

I was equally impressed by Devan’s attempt of explaining the mash-ups where he talked about possible applications integrating the data on parks and incidence of dengue fever. He brought about the possibility so well that I hope the Government CIOs were listening. Just reinforced my point about data.gov which I mentioned in my talk. I was equally impressed with Joel Neoh of Youth Asia where he shared research data about the Malaysian youth expectations from the Government. Clearly it seems to me that the Malaysian youth is not apathetic to the workings of the Government. I wonder what would be the results if the survey was done in Singapore.

I got the impression that the MDEC is doing its best to seed initiatives and support efforts to usher in Web 2.0 models into the government. It is tough ushering in change; more so in a government set up. Malaysia has always taken a cautious approach towards deploying new technology or even making social interventions due to the nature of businesses there and the kind of social structure. It would be interesting to see how they are able to bring in openness, a culture of sharing and a more transparent pubic-private partnership.

One thing about Malaysians that has always impressed me is the quality of talent amongst the entrepreneurs and their strong commitment to Malaysia. Surprisingly most of them do not have a global vision and are content to stay within Malaysia. Given the opportunities that Malaysia itself provides, it is easy to understand.

But in this hyper-competitive and inter-connected world, is it a smart thing to be a walled garden?

While I was at the airport I bumped into a friend and he asked me a profound question: His question was: Isn’t an empowered people a threat to the government itself in Asia ? The perfect answer still eludes me.

Can Singapore do the makeover?

Many people have realized that the Singapore model of attracting MNCs to locate their operations here and use that as the base for expansion has run its course. The markets in China and India are big, complex and growing and cannot be run out of Singapore. Every MNC that I have known has a China strategy, a India strategy and most of the operations (factories, R&D centers, support centers) are all located there.

If that is reality why does sections in the civil services in Singapore and even politicians sing the old tune of attracting MNCs to Singapore? And in desperate attempt to get MNCs to start operations here and create jobs, they offer lots of incentives. Once the incentives have run their course, the MNCs pack their bags and go elsewhere.

Rob McDonald the incumbent CEO of Proctor and Gamble who is also on the IAC of the EDB has some clear homilies to offer. One, he is absolutely right when he says that the single minded pursuit of foreign investment (sometimes at the cost of local industry development) has ceased to be a winning proposition for growth. Labour costs have gone up and so has the cos tof doing business. Moreover other countries have become equally attractive.

Singapore’s R&D sector despite Government pumping in billions of dollars have not borne fruit. Though it is early to make conclusive judgment, trends seems to indicate that we have a long way to go. It is as easy to set up a R&D centre in Shanghai or Bangalore and may be more effective, given the availability of talent and cost. Mr. Ngiam’s article here also reinforces the view.

Singapore needs an urgent makeover. One key aspect is to reduce its dependence on MNCs, support more local companies, reduce the role of the GLCs and reduce business costs. It is not that Singapore doesn’t pursue initiatives here, but it has a strong preference for MNC courting.

What is interesting is that for the first time, the Straits Times actually carried the candid views of the International Advisory Committee of the EDB. Normally you see PR speak, but this time some truths and homilies have also come about.

Guess, things are changing.

Singapore’s research and development needs a major rethink

Amongst the few Singapore civil servants I hold in great esteem for their clarity, sense of purpose, courage to stand up for what is right, one of them is Ngiam Tong Dow. He was the Perm Sec of the Ministry of Finance and the PMO . During the last few years, he has written some excellent pieces on the Singapore policy making process, governance, current quality of civil servants and other topics.

I have always found his writings thought provoking as he judiciously blends the philosophical with the pragmatic. There is always some clear takeaways from his writings. I wish I could chat with him and pick his erudite mind for some of the public policy dilemma that I have not been able to understand or reconcile with.

Mr. Ngiam in his usual characteristic style hints that Singapore’s R&D sector needs a rethink. He doesn’t dwell much on it neither does he make any specific suggestions.

But as I see a lot ails the R&D sector, especially in the IT area which I understand well. Here’s the record: Despite having a IT R&D sector for close to 20 years, and having spent hundreds of millions of dollars, the R&D sector has produced nothing to be even remotely proud of. There was the ITI, the ISS, JSAIC, CWC, just to name a few. They all had grandiose visions, programs, and ample funding. Then they were merged, combined, they took on new names and yet after 20 years, not a single technology, product, process, framework or anything worthwhile which the industry could use has come out of the labs. It was always a small “r” and a big “D”, and even there, the results have been dismal.

It may be ironical that the 2 best private sector firms that Singapore produced — Creative and Hyflux did their own R&D outside Singapore — the former in the U.S. and the latter in China as Mr. Ngiam points out. I met the CTO of Creative a few years back and he smiled indulgently when the talk about Singapore R&D sector came up.

Yet the Government focuses on R&D and each year their budgets have gone up. It is sad that the metrics of R&D performance is still predominantly input driven and no one is accountable for the outputs.

The only thing that I would like to ask Mr. Ngiam is how long will the Ministry of Finance continue to be satisfied with input metrics in the R&D category and when will it look for active output metrics. If companies like 3M, Microsoft, DuPont, P&G as well as some of the university labs are moving towards zero based budgeting, output driven metrics and clear directions for R&D effort, why is Singapore Inc not emulating them?

For those interested, Mr. Ngiam’s entire article is reproduced below. It makes very interesting reading.

June 6, 2009

FINANCE MINISTRY’S 50TH YEAR

Building more world-class S’pore firms

By Ngiam Tong Dow

THE year 1959 was a fateful one for Singapore. It was granted self-government by the British after 140 years of colonial rule. Other than foreign affairs and defence, the new Singapore Government led by Mr Lee Kuan Yew was free to pursue its own social and economic policies.

Mr Lee chose Dr Goh Keng Swee, the only economist in his team, to be our first finance minister. The Ministry of Finance (MOF) was housed in Fullerton Building. The General Post Office occupied the ground floor; MOF occupied the second to fifth floors.

As MOF alumni, we can be proud of belonging to the pioneering team, led by the inspiring Dr Goh, our minister, and by the late Mr Hon Sui Sen, our permanent secretary. We worked our guts out to pull the economy out of stagnation.

The Finance Ministry that Dr Goh established was not your traditional Treasury. Together with Mr Hon, he created the Economic Development Division to spearhead our economic development. The Economic Development Board (EDB) was set up as the operating arm of this division, tasked with finding jobs for the thousands of young students pouring out of our schools each year.

The EDB was given a grant of $100 million to get going. In return for the freedom to operate, its performance was continuously assessed. It was rated on outcomes more than outputs. The EDB chairman had to report annually the dollar value of the foreign direct investments committed to Singapore. He still does.

MOF’s fiscal policy has always been to stimulate growth through investment. As Permanent Secretary (Budget), I accorded higher priority to the development over the recurrent budget. The development budget invests for the future. In the early stages, the development budget was spent mainly on building infrastructure.

Over the last 50 years, we have seen Singapore’s budget priorities move from physical infrastructure to defence capability and now, education and training.

Though we are not totally free of ‘white elephant’ boo-boos, MOF’s track record in allocating scarce capital is good. Our current revenue was enough to pay for both operating as well as development expenditure. If the Government were a private corporation, we would have been able to finance all our capital expenditure without a cent of debt.

Was Singapore’s MOF more virtuous than our counterparts elsewhere? The fact of the matter is that we did what we did because we had no alternative. Without oil or other natural resources, budget surpluses and CPF savings were our only sources for accumulating reserves. Except in extremis, reserves are not intended to be spent on rainy days of the business cycle. The fundamental role of reserves is to serve as backing for our currency. A stable and convertible Singapore dollar is our lifeline to international trade on which our very survival depends.

In spite of the immense pressures exerted by the rest of Government on the MOF, I would be wary of dipping into our reserves to tide us over the troughs of business cycles. I remember the first global oil crisis of 1972. Mr Hon, by then Minister for Finance, refused to subsidise consumption. He thought it better for Singapore to swallow the medicine of inflation in one gulp. The cost of living index stabilised within 18 months.

MOF’s mission as guardian of the national budget will be more challenging in the future. For instance, before we can decide on how to allocate the research budget, we need to have some idea of the knowledge domains that Singapore has a more than even chance to compete in. Is it biotechnology, nano-engineering, solar energy or something else?

Spending on R&D in my view is too narrow a focus as a growth strategy. In any case, we do not have the breadth and depth of talent to compete successfully with the Americans, Europeans, Japanese, Russians, and in the near future, the Chinese and Indians.

We may be able to hire a few superstars to head our research institutions. But a Nobel laureate cannot work in isolation. He or she needs teams of young researchers to do the basic experiments. Young PhDs in China work for a fraction of the wages we pay our young dons at our two research universities. Ms Oliver Lum of Hyflux told me that the core membrane research work of her company was done at Hyflux laboratories in China.

Rather than pursuing high science whatever the cost, we may have to adopt a less lofty approach. We should ask ourselves: What are the knowledge domains we can excel in?

Singapore has a fair track record in building townships, industrial parks, container ports, submersible oil rigs, vocational and technical education and water treatment installations like Hyflux. As the example of Singapore Airlines shows, it is possible to build up a world-scale Singapore company on our own. SIA’s founding board had no foreign director or CEO.

The way forward for us is to have the guts to build another 25 world-scale ‘SIAs’ in the knowledge domains where we have a competitive advantage.

I learnt many lessons in economic policymaking from Dr Albert Winsemius, Singapore’s first Economic Adviser. The most valuable lesson he taught me was that you have to do the things that matter yourself.

After pulling ourselves up by our own bootstraps in the pioneering years, we now outsource the CEO jobs to foreign talent. The irony is that when trouble looms, the foreign CEO just dusts off the seat of his pants and walks away with his sign-off bonus negotiated when he first signed on.

I refuse to believe that the Singaporean has so lost confidence in himself.

The pyramids of Egypt were built by the Pharoahs’ Hebrew slaves. The Egyptian Pharoenic race is now lost in antiquity. The Jewish Hebrew nation continues to thrive.

Quo Vadis Singapore? The above is an excerpt of a speech Mr Ngiam, a former senior civil servant, delivered yesterday to mark the 50th anniversary of the Ministry of Finance.