• About Us
    • Fact Checking Policy
    • Ownership & funding information
    • Volunteer
  • Subscribe
  • Letter submission
    • Submissions Policy
  • Contact Us
The Online Citizen Asia
  • Opinion
    • Editorial
    • Commentaries
    • Letters
    • Comments
  • Current Affairs
    • Singapore
    • Malaysia
    • Indonesia
    • China
    • ASEAN
    • Asia
    • International
  • Finance
    • Economics
    • Labour
    • Property
    • Business
  • Community
    • Arts & Culture
    • Consumer Watch
    • NGO
    • Lifestyle
    • Travel
  • Politics
    • Civil Society
    • Parliament
    • Transport
    • Education
    • Environment
    • Health
    • Housing
  • Law & Order
    • Legislation
    • Court Cases
No Result
View All Result
  • Opinion
    • Editorial
    • Commentaries
    • Letters
    • Comments
  • Current Affairs
    • Singapore
    • Malaysia
    • Indonesia
    • China
    • ASEAN
    • Asia
    • International
  • Finance
    • Economics
    • Labour
    • Property
    • Business
  • Community
    • Arts & Culture
    • Consumer Watch
    • NGO
    • Lifestyle
    • Travel
  • Politics
    • Civil Society
    • Parliament
    • Transport
    • Education
    • Environment
    • Health
    • Housing
  • Law & Order
    • Legislation
    • Court Cases
No Result
View All Result
The Online Citizen Asia
No Result
View All Result

Singapore sovereign wealth funds – Part 2: Anathema to a free market

by Howard Lee
04/08/2014
in Commentaries
Reading Time: 5 mins read
0

By Benedict Chong
“The government solution to a problem is usually as bad as the problem.” –  Milton Friedman
We have seen earlier that the lack of transparency in our sovereign wealth funds (SWFs) has led to an erosion of trust among citizens. The problem, however, is not entirely social; it is also economical. We also need to examine Singapore SWFs’ in relation to Singapore’s free-market ideal.
With deep pockets and the implicit backing of the government of Singapore, SWFs as entities are able to move markets both domestic and global. But should state-owned organisations still exist in a purportedly free market?
While GIC prides itself in having a large diversified global portfolio, 31% of Temasek’s portfolio comprise of stakeholdings in local corporations. A cursory glance over any major companies’ annual report would present Temasek Holdings or a Temasek-linked company as one of the top 20 largest shareholders.
The presence of such a deeply-pocketed shareholder may result in strategic and business malinvestment as SWFs brings along a false sense of security into the company. Credit ratings of such companies would be artificially enhanced, resulting in a prolonging of mistakes instead of forcing painful yet necessary restructuring through the will of free markets.
To give a couple of examples, a certain shipping line operates with perpetual overcapacity while a train company only started replacing track sleepers after an extended period of time and breakdowns.
The presence of Temasek and GIC in the local economy means that persistent government assurances that the state does not interfere in business decisions should be met with quick disbelief. Even if such interventions were not explicit, they are almost certainly implicit with majority ownership. Precedence would imply that no GLEs (Government-linked enterprises) would ever be left alone should financial disaster strike. Our SWFs would step in as sugar daddies offering public monies compensating for mistakes made.
Arguments for and against SWFs
There are numerous reasons and purported advantages ascribed to SWFs. An argument given by the Singapore government most recently was that SWFs allow the state to draw money from it in the event of an economic crisis or national disaster. This is analogous to any individual drawing down on his savings deposit to fund his living expenses in the event of unforeseen circumstances.
But if the state is merely saving up for national contingencies, is there a need for an SWF? Any textbook definition of an SWF would be one along of the lines of it being a state entity dedicated to growing the value of a given reserve. But is it the responsibility and prerogative of government to enhance its reserves indefinitely? And for what purpose?
Another possible argument favouring SWFs is that their presence boosts Singapore’s status as a financial hub. The operational existence of two huge asset funds locally was deemed necessary to provide the impetus for foreign fund managers to set up operations within the country.
However, there is little evidence to prove that offshore funds are being drawn into Singapore due to the presence of our SWFs. The hot monies that these funds bear typically enter countries with open and vibrant economies. For instance, Hong Kong is a financial centre yet operates no SWFs like Singapore’s. Hence, this establishes that SWFs play no role in drawing overseas funds.
In addition, how many “hubs” can Singapore realistically have? We are already being promoted as an educational hub, tourism hub, financial hub and trading hub, amongst other hubs. Is this really necessary or is the state pouring taxpayer’s money into diversification just for its sake? The defence for diversification is that should one sector weaken, others will prop up the economy in a selfless act of chivalry.
Unfortunately, such a rosy scenario has been invalidated and negated by the Financial Crisis of 2007. It is a well-documented myth. The near collapse of the financial sector brought down with it most other sectors. All contemporary economic sectors are henceforth proven to be intricately intertwined and diversification to reduce the risk of total collapse is but a pipe dream pursued by the state as a reason to interfere in the economy.
The true nature of SWFs
Every state has a strong tendency to interfere in the economy, potentially making decisions resulting in economic crises, blaming the free market for all their troubles and then declaring that such calamities make state intervention and direction more necessary than ever.  But such statements do not absolve governments from any blame, unless we can be certain that every company is free from state links – which is definitely not the case for SWFs.
SWFs, despite all the mythical and imagined advantages it supposedly offer, are tools for intervention in the economy. Any state organisation backed with an indirect power to tax will receive unfair advantages in the credit markets relative to private institutions. Is Singapore still a fair, free and entrepreneurial market, then? So long as the SWFs exist, it is not.
In fact, far from promoting a free market, SWF’s would in all likelihood encourage crony capitalism, which is defined as a capitalist system based on close relationships between businessmen and the state.  Instead of success being determined by a free market and the rule of law, the success of a business is dependent on the favouritism that is shown to it by the ruling government in the form of tax breaks, government grants and other incentives.
In Singapore, we read of specific sectors being given tax breaks for development. We see former scholar generals given leading posts in government-linked enterprises. We look up the list of the top 10 richest individuals in Singapore and see property developers and bankers with links to state tenders and charters filling the spaces.
With this system of implicit contracts between the state and large corporations, can Singapore still consider itself as economically free as stated by Fraser Institute and Heritage Foundation/Wall Street Journal in their reports?
Of course, the intentions of the government may have been good. But the road to hell is paved with good intentions. Attempting to assume that government can hold itself accountable and manageable will be akin to leaving a kid alone in the candy store. It just cannot happen. It is in the nature of unregulated government to expand its reach indefinitely.
For whatever advantages that Singapore’s SWFs were supposed to provide our nation, we see how its conflict with our supposedly free-market economy has done more harm than good. Questioning the need for SWFs, then, goes beyond what they can or cannot do for our pension funds. Indeed, it has become a question of the level of harm they have done to our economy.

For just US$7.50 a month, sign up as a subscriber on The Online Citizen Asia (and enjoy ads-free experience on our site) to support our mission to transform TOC into an alternative mainstream press.

Related Posts

LTA revises ERP rates up after latest review; Gantries reach as high as S$5 for 8:30am – 9:00am
Singapore

LTA revises ERP rates up after latest review; Gantries reach as high as S$5 for 8:30am – 9:00am

07/02/2023
Stern warnings was an “in-between” solution as CPIB lacks sufficient evidence to prosecute six former KOM executives for bribery, said Indranee Rajah
Parliament

Stern warnings was an “in-between” solution as CPIB lacks sufficient evidence to prosecute six former KOM executives for bribery, said Indranee Rajah

06/02/2023
19-year-old delivery rider in China covers 5km in 22 minutes to deliver antivenom to woman who had bitten by snake
China

19-year-old delivery rider in China covers 5km in 22 minutes to deliver antivenom to woman who had bitten by snake

06/02/2023
Why is Gautam Adani’s Indian empire in turmoil?
AFP

Adani shares dive again as Indian opposition stages demos

06/02/2023
Josephine Teo defends SPH Media Trust in Parliament on its circulation scandal; Commitment of S$900 million funding will still be made available
Singapore

Josephine Teo defends SPH Media Trust in Parliament on its circulation scandal; Commitment of S$900 million funding will still be made available

06/02/2023
Japanese-Canadian junior high school girl breaks national record with 3km in 9:02 mins
Japan

“I want my normal life back,” Sherry Drury withdraws from National Junior High School Tournament due to overheated public attention

06/02/2023
Subscribe
Connect withD
Login
I allow to create an account
When you login first time using a Social Login button, we collect your account public profile information shared by Social Login provider, based on your privacy settings. We also get your email address to automatically create an account for you in our website. Once your account is created, you'll be logged-in to this account.
DisagreeAgree
Notify of
Connect withD
I allow to create an account
When you login first time using a Social Login button, we collect your account public profile information shared by Social Login provider, based on your privacy settings. We also get your email address to automatically create an account for you in our website. Once your account is created, you'll be logged-in to this account.
DisagreeAgree
0 Comments
Inline Feedbacks
View all comments

Latest posts

LTA revises ERP rates up after latest review; Gantries reach as high as S$5 for 8:30am – 9:00am

LTA revises ERP rates up after latest review; Gantries reach as high as S$5 for 8:30am – 9:00am

07/02/2023
Stern warnings was an “in-between” solution as CPIB lacks sufficient evidence to prosecute six former KOM executives for bribery, said Indranee Rajah

Stern warnings was an “in-between” solution as CPIB lacks sufficient evidence to prosecute six former KOM executives for bribery, said Indranee Rajah

06/02/2023
19-year-old delivery rider in China covers 5km in 22 minutes to deliver antivenom to woman who had bitten by snake

19-year-old delivery rider in China covers 5km in 22 minutes to deliver antivenom to woman who had bitten by snake

06/02/2023
Why is Gautam Adani’s Indian empire in turmoil?

Adani shares dive again as Indian opposition stages demos

06/02/2023
Josephine Teo defends SPH Media Trust in Parliament on its circulation scandal; Commitment of S$900 million funding will still be made available

Josephine Teo defends SPH Media Trust in Parliament on its circulation scandal; Commitment of S$900 million funding will still be made available

06/02/2023
Japanese-Canadian junior high school girl breaks national record with 3km in 9:02 mins

“I want my normal life back,” Sherry Drury withdraws from National Junior High School Tournament due to overheated public attention

06/02/2023
FY2023 Budget Statement to be delivered by Lawrence Wong on 14 Feb, 3.30pm

FY2023 Budget Statement to be delivered by Lawrence Wong on 14 Feb, 3.30pm

06/02/2023

Scholar, lawmakers and journalist among Hong Kongers on trial

06/02/2023

Trending posts

Former Singaporean shares change of life in Australia with annual pay of S$80,000 as a plumber

Former Singaporean shares change of life in Australia with annual pay of S$80,000 as a plumber

by Yee Loon
30/01/2023
25

...

Cognizant India transfers staff to work in Singapore as recently as this year

Local IT grads can’t find jobs while engineers constantly transferred from India to work in SG under CECA

by Correspondent
05/02/2023
93

...

They have done a fine job of confusing us about the jobs situation

They have done a fine job of confusing us about the jobs situation

by Augustine Low
01/02/2023
47

...

Adani’s brother runs SG company and registers as director with local ID

Adani’s brother runs SG company and registers as director with local ID

by Correspondent
03/02/2023
26

...

No response from Josephine Teo on whether Mediacorp has been instructed to stop coverage of SMT circulation scandal

No response from Josephine Teo over alleged blackout of coverage by Mediacorp over SMT circulation scandal

by Terry Xu
06/02/2023
11

...

Excessively charging for an essential need, and calling it affordable because people still can pay for it?

by Terry Xu
31/01/2023
40

...

August 2014
M T W T F S S
 123
45678910
11121314151617
18192021222324
25262728293031
« Jul   Sep »

The Online Citizen is a regional online publication based in Taiwan and formerly Singapore’s longest-running independent online media platform.

Navigation

  • Editorial
  • Commentaries
  • Opinion
  • Politics
  • Community

Support

  • Contact Us
  • Letter submission
  • Membership subscription

Follow Us

  • Facebook
  • Twitter
  • YouTube
  • Instagram
  • Fact Checking Policy
  • Privacy Policy

© 2022 - 2023 The Online Citizen Asia

No Result
View All Result
  • Opinion
    • Editorial
    • Commentaries
    • Comments
  • Current Affairs
    • Malaysia
    • Indonesia
    • China
    • ASEAN
    • Asia
    • International
  • Finance
    • Economics
    • Labour
    • Property
    • Business
  • Community
    • Civil Society
    • Arts & Culture
    • Consumer Watch
    • NGO
  • Politics
    • Parliament
    • Transport
    • Education
    • Environment
    • Health
    • Housing
  • Law & Order
    • Legislation
    • Court Cases
  • Lifestyle
    • Travel
  • Subscribers login

© 2022 - 2023 The Online Citizen Asia

wpDiscuz