Lessons from Singapore’s political economy

Marina Bay Financial Centre, Singapore

Marina Bay Financial Centre, Singapore

In his excellent TED talk, renowned inequality researcher Richard Wilkinson showed that of all OECD countries, Singapore had the worst inequality, ahead of Portugal, US, New Zealand, UK. Gini coefficients are the standard measure of income inequality. A score of 1 is the worst and 0 is the best. Because it is taken on the average not the median income, extremes of wealth will raise it.

I had always believed that Singapore was a model where there was little poverty and not much inequality. It is commonly cited as one of the more ‘georgist’ places in the world in terms of them shifting burdens on land, socialising its value and untaxing labour and capital.

But there are myths about the “Singaporean miracle”. In the absence of any constraint on the movement of global capital, any billionaire can set up residence and tap into the low tax regime. And they do. High net individuals and multinational corporations hide their wealth there. The tax benefits include a 20% top income tax, and a 17% top company tax. Even New Zealand has a billionaire living there – Richard Chandler.

We have insisted that both the land issue and money issue need to be addressed together, not separately, and Singapore is a clear example of what happens when you do one but not the other. The late Adrian Wrigley of the Systemic Fiscal Reform in Cambridge said, ‘If we just have resource taxes including land tax, where people pay for the privilege of monopolising their part of the commons, but have no monetary reform then money will concentrate with banks. Banks will row the economy between easy money and tight money causing booms and busts. They will put up interest rates for ‘riskier’ loans. They buy patents, radio spectrums, copyrights and trademarks.’ They bribe governments.

Whether Singapore, a country of 5.5 million, has done all this I don’t know, but it is a low tax regime and it certainly featured in the Panama Papers. It has even been labelled as a tax haven. For example, companies like TrustNet, now headquartered in Singapore, has branch offices in 16 other locations. It describes itself as a ‘one-stop shop,’ employing lawyers and accountants who help “high net worth” clients manage their money and business activities. The main product it sells is secrecy. It is easy to set up a company because only one shareholder and one director is needed. There is no need to disclose the beneficial owners of Singapore corporations to the authorities. Hopefully the international crackdown on tax sheltering will do something to change it, but given the nature of the tax regime in most countries, I can’t see much hope. They haven’t yet understood it is better to rely on land as a source of income, as land will not get up and walk away.

Big Australian mining companies have large workforces in Singapore. BHP has more staff there than its Melbourne headquarters. There are about 600 employees and 400 contractors in Singapore. Apart from being a marketing hub, it also has its business information systems based there. Rio Tinto employs more than 300 staff in Singapore. Companies such as Google, Apple, Microsoft, BHP Billiton and Rio Tinto have all admitted in hearings as part of the Senate inquiry into corporate tax avoidance that they are under audit by the ATO for their use of Singapore ‘marketing’ and ‘service’ hubs, where they route hundreds of millions of dollars of income.

So I wonder about Singapore. Could it be a perfect example of what Adrian warned? While 90% of the land is now government owned, the banks have too much power.

Singapore is not just banking hub, it is shadow banking hub. There are about 125 commercial banks in Singapore, only five of which are local. Although banks lend a lot of money into existence in Singapore and their loans go towards construction of capital, rather than simply bidding up the price of land (as we see in Auckland, for example), that is not all that banks do. They sell derivative contracts over the counter – bets on interest rates or other securities. Derivatives leverage up money creation up to 100 or more times. Trading in derivatives contracts happens round the clock. Singapore is a leading global commodities hub with 14,000 people employed and annual turnover of some US $1 trillion in the commodities sector.

The majority of people who live there find Singapore is an extremely attractive place to live and operate from. It is safe, clean, and green with superb infrastructure. The unemployment rate in Singapore is just 1.9% (June 2016), down from 6% in 1986. Bear in mind though, the definition ‘employed’ includes those employed part time, probably as little as an hour a week.

Unlike New Zealand they don’t have a Universal Superannuation. Many of Singapore’s elderly didn’t save enough while working, but they live longer. Some were born when there was no access to education. What’s more, the Singapore language policy marginalised many of them only able to speak languages other than Mandarin and English. While the cultural norm of caring for the elderly seems to have almost vanished, the government still argues that children should take care of their parents. Many elderly are on the government allowance of $450 a month, reliant on charity for food and health care. Living in tiny apartments as small as 30 square metres, they clean tables at hawker centres, collect cardboard for money, scrub apartment blocks or slog in the hot sun as security guards. Security guards and cleaners are among the worst paid.

In response, there is now a plethora of government assistance, making for growing administrative costs of welfare, when it would have been so much better to have shared their land rents with all their citizens in the first place.

So Singapore can only stop its own rent from being stolen by the global elite; it can't stop the global elite from setting up shop there and stealing the rent of other places. Local rent-sharing can only raise the local floor. But Singapore doesn’t do enough rent-sharing, hasn’t controlled its banking industry and doesn’t exist in isolation from the global capitalist economy. Hence its inequality.

So maybe we’ve seen only part of the equation. Taking land into public ownership stops private landowners from pocketing land rent, but it doesn't restore the universal individual right to share the land value. The Singapore government has built great infrastructure and housed almost all its people, but it could easily share the remaining public money with its citizens. The Citizens Dividend enables everyone to collect rent, rather than just landowners. But without democratising the budgeting process, ordinary people are not receiving their fair share.

Singapore has the highest per capita of millionaires of any country. One in six households are millionaire households. The mobility of capital and people across borders means that the borders of the country are constantly being crossed. So it is no good just having one country in the world with land owned by the government while billions of dollars slosh around the globe every hour.

Billionaires can sit in Singapore and draw rent from land in the rest of the world. Aetas Global Markets provides funds for commodities projects. Many international firms are sited in Singapore. Global Capital firms like Knight Frank invest on behalf of what they call Ultra High Net Worth Individuals (UHNWI) in property round the world. Genesis Global Capital appears to choose cities in the early stage of a property boom in Brazil and Germany. The Strait Times reports in March 2016 that the financial services sector is a key driver of Singapore’s growth.

Henry George defined poverty as the ‘fear of want’, the ‘relentless hell waiting beneath civilized society’. He believed that removing this fear would not only help the poor, but transform our culture and society.

Former Singapore resident Zbigniew Dumienski said, ‘The only group that I would consider as poor are the old people with no children. When they worked they didn't have to contribute towards any retirement scheme (CPF) and might not have accumulated enough money to enjoy a peaceful retirement. This is why you often see old people selling tissues or cleaning tables in Singapore. They do receive some support from the state though, plus many of them own their apartments. In fact, I've met income-poor people who would choose to live in a tent/on the streets so that they can live off renting their apartment to other people.’

The situation of the 870,000 foreign workers (Feb 2016) in Singapore is contentious. Many immigrants like the safety and enjoy the food. While it is good if your employer is fair, it is not so good if you are exploited. There are construction workers from India, Bangladesh, China and Nepal and maids from the Philippines, Myanmar and Indonesia who earn much less than an average Singaporean. Some live in dormitory ghettos provided by the government. Migrant workers are not given basic protections such as a minimum wage, standardised working hours and a right to unionise, so this puts a downward pressure on wages, raising inequality. There are reports of maids being ripped off by recruiters, and sometimes being beaten or raped. Live-in nannies are often on 24/7 standby and earn $5 an hour. If they have their passports stolen by their employers they can’t go home. However many eventually earn enough to take back home and live a life with more choices. With 40% of Singapore's inhabitants being foreigners by 2013, immigration is increasingly becoming a big political issue.

So despite the hope of eliminating poverty, the ugly side of global capitalism is becoming increasingly apparent.

At last a good explanation for the rise of ISIS

Thank you, thank you Jim Tankersley of the Washington Post. You have finally answered the question about why people from the Middle East feel so bad about the west that they need to commit dastardly acts of terrorism.

I don't have friends who are experts on the Middle East's inequality and Piketty has spelt it out for us so well. Finally!

Your article should be read by everyone. You say the inequality is due to the concentration of oil wealth into a few countries with relatively little population. You draw attention to the oil monarchies controlling 60-70% of the wealth. It seems he is talking about Qatar, the United Arab Emirates, Kuwait, Saudi Arabia, Bahrain and Oman. They had 16% of the region's population in 2012 and almost 60% of its Gross Domestic Product.

Within those monarchies, Piketty says, a small slice or people controls most of the wealth while a large proportion, including women and refugees, are kept in a state of 'semi-slavery'.  Piketty's list starts with the first Gulf War, which resulted in allied forces returning oil 'to the emirs.' The wars that benefited only a select few have become what Piketty calls a 'powder keg for terrorism across the region'.

Tankersley writes 'Terrorism that is rooted in inequality is best fought economically.' Piketty says the region is the most unequal on the planet.

And Piketty says the Western nations largely have themselves to blame for terrorism as the west perpetuated the wars that worsened inequality. 'The countries in question are the regimes that are militarily and politically supported by the Western powers, all too happy to get some crumbs to fund their (soccer) clubs or sell them some weapons.'

It looks like this is what Piketty will be remembered for. The discussion is only just beginning.

Of course this brings us to searching for the real political solution, otherwise terrorism will persist for ever.

I am reminded of the first part of Silvio Gesell's wonderful 1906 book The Natural Economic Order. The part is called Free Land and he writes,' Free Land means that the earth is to be conceived as a globe on which there is no import or export of goods. Hence Free land also implies universal free trade and complete elimination of all tariff boundaries. National boundaries must become simply administrative boundaries, such as, for instance, the boundaries between separate cantons of Switzerland. From this description of Free Land it follows that such expressions as 'English coal, 'German potash', 'American oil and so forth can be understood only in a geographic sense. For everyone, no matter to what race he may belong, has the same right to English coal, German potash and American oil.'

Work this out, using the principle of sharing the rents from the earth's resources. Quite a challenge.


Letter to a budding politician concerned about inequality and climate change

Letter to Miriam Pierard, Miriam I listened to your radio interview with Wallace Chapman and I was very impressed.

Yes, the top issues of our time are climate change and inequality. You say you are concerned to find answers. Great news.

Gosh Miriam I have been looking to solutions to the environmental crisis for decades. I was a candidate for the Values Party in 1975. And we were saying in those days that the GDP wasn’t necessarily an indicator of progress, because we had noticed inequality then – and unemployment and deprivation. And it is still worshipped forty years later.

Late in 2012 we had a 40 year reunion of New Zealand Values Party activists. We reflected on progress and it was quite sobering. Inequality had got worse and the environment had deteriorated to the situation where our very habitat is threatened with climate change and all the storms, flood, drought and food insecurity it brings.

A year before that reunion I had helped co-found the New Economics Party. Whereas most of the Values Party seniors said they were frustrated within the Green Party, I said I wasn’t at all because I was actively engaged in finding solutions and believed I had come to understand two of the big solutions.

I know I have. The very money system we have is structured so that the money supply has to grow, debt has to grow and the economy has to grow. So when it comes to climate change talks, after all the dire warnings from increasingly alarmed scientists, we usually watch helplessly while official delegates back away, claiming that the economy mustn’t be harmed and economic growth cannot be jeopardised. “Balance” is the cry… and they come up with some puny version of what is needed.

The structural problem we have here is this. We have a monetary system where if the economy doesn’t grow, it collapses. That is how it is designed. You are damned if you do and damned if you don’t scenario. So it’s not a great choice – runaway climate change if we do nothing or economic collapse if we do something that will halt it.

So I had finally found the cause of the growth imperative. It was the money system whereby we allow banks to create money as interest bearing debt. The negative consequences would all follow. It had taken me till 2004 to realise this.

But finding the cause(s) of inequality? It has come to me in various forms over the last few years. But now it is crystal clear. The earth has a finite supply of land and natural resources – land, water, fish, electromagnetic spectrum and so on. We all can’t occupy the same piece of land. Some land is more valuable than other land. Land is given its value by the desirability of its surroundings. So those who claim monopoly use of the best land must compensate the others for the privilege. In other words pay a full rental on the land to the public purse and then let this revenue be shared with all, perhaps as a Citizens Dividend or for health and education and other government services. Add to this the rental on the monopoly use of fish stock, water, coal, oil, minerals and you get government revenue.

If we don’t charge a rent on the monopoly use of natural resources, the consequence is asset inequality and this leads to income inequality. You are always going to derive income from monopolising resources like land.

I had also realised this land issue must be solved at the same time as the money issue. When I was starting to understand the money system and advocating for money spent into existence without interest (the Reserve Bank issues its coins this way) it became clear that interest-free money would cause a rise in the price of property. That really meant a rise in the price of land. We would have a land bubble. (that is why economists wouldn’t ever agree to zero interest money; they knew the bubble consequences).

But the land bubbles only happen because freehold land originally meant land “free of rent”. Apart from a small amount as the land proportion of our rates, there is no price on the holding of land. We can see that in Auckland as speculators buy valuable sections or old houses, and sit on them while the area develops and the price rises. Without doing anything at all the land speculators get an unearned windfall gain. (And a Capital Gains Tax won’t solve it, but I won’t go into that now).

Those who have freehold land should pay the public a full rental. Any valuer will tell you they can work out the rental value of any piece of land, it’s easy. And it should be reviewed annually, otherwise there are unpleasant hikes upwards.

But is this another tax? No, it is a replacement tax. Since there is no logic in income tax because there is plenty of labour we should get rid of that. Labour and entrepreneurship are valuable and we should encourage them. GST is regressive and income tax illogical.

Now I won’t go on any more, except to say if you are seriously concerned about inequality and climate change I encourage you and your party to focus your energies on economics. Other wonderful results follow from understanding these two issues. It’s the money system. It’s the tax system.

Few economists can tell you much about how money is created and, as two economists from the IMF and three from the Bank of England have recently embarked on a campaign to teach the economics profession about bank created credit. They say the textbooks are wrong.

However politicians worth their salt will also be aware that it is political suicide to favour a third tax on land. People will protest they pay their rates and they pay their mortgage so why should they pay another? Quite right. Actually the bank is getting the money that rightfully belongs to government. It’s a challenge.

Look I don’t know how this could all be implemented without shocking the economy. I have worked out one solution. I am not sure it is right. But I do know that somehow, someone must be politically creative, politically determined and wise enough to win the public over and finally address climate change and inequality at the root. Nothing else will suffice. Artificial bandaid solutions can’t work because they don’t get to the root of the problem.

As a woman in her seventies addressing a clever young budding politician I wish you the very best and hope that you can help make a better world for my grandchildren. Meanwhile I will keep doing what I do.

Growing Inequality Caused by the Money System

Media Statement 23 November 2011

Growing Inequality Due to Money System

To narrow the gap between rich and poor we need to change the money system, according to the New Economics Party candidate for Wellington Central.

"If children are going hungry and poverty is increasing then it is time to consider that there might be something structurally wrong. There it is – it’s the way we create money.  It is created every time a bank makes a loan and they create the principle but not the interest. There isn't enough money in the system for everyone to pay off their debts at the same time."

"Each round someone loses. The ones that miss out have to go to the bank for another loan. There are always winners and losers. We won't close the gap until we change the money system."

"The system is dog eat dog and the poor end up net borrowers while the rich are net lenders," he said.

For further comment phone Laurence Boomert 027 258 8807


Money system transfers wealth from poor to rich

Here is a letter Laurence sent to the Dominion Post on 18 Nov, 2011

Dear Sir,

Congratulations on your initiative to research the gap between rich and poor in New Zealand. The fact that the richest 5% own more than double the bottom 50% comes as no surprise because we have a money system which systematically transfers wealth from the poor (who are net borrowers) to the rich (who are net lenders).

When credit is created by banks as interest-bearing debt one of the many horrible consequences is that the gap widens. The principle is created but the interest isn’t. So there is never enough money in the system at one time for everyone to pay off their debts, and the losers must borrow again. It’s like a game of musical chairs ­– with each new round there is a loser. And overall debt continually increases.

Equality will never arrive in the Age of Usury. Our party advocates benign multiple currencies, a means of exchange created interest-free as a public utility.

Laurence Boomert
Candidate for Wellington Central
New Economics Party