The problem with more government – less freedom in economy

Economic Freedom word cloudBy Benedict Chong

The year 2015 will mark the 50th anniversary of Singapore’s independence. As a country, we have come a long way. Real GDP growth through to 2013 averaged 7.765% as Singapore was quickly catapulted into developed city status.

But despite the rapid growth experienced within a generation, a perennial question rings; why are individual rights secondary to State driven policies?

In Singapore, an arbitrary ‘national interest’ and a vaguely defined ‘common good’ usually take precedence over individual rights, usually resulting in diminished freedoms.

This three-part article will discuss how and why more government results in less freedom in three sectors of society; the economy, civil society and the political sphere.

To clarify, the term “more government” refers to any State driven policy that expands government activities and/or influence in the three sectors of society.

In the economy

The Singapore economy, according to the 2014 Index of Economic Freedom, is the second freest economy in the world, trailing only Hong Kong for top spot. At such a lofty position, Singapore ought to boost an exceptionally vibrant, diverse and dynamic economy.

Yet, in recent years, growth has stalled while labour productivity, using the State’s jargon, continues to languish. Cost of living continues to escalate while living standards have been dipping since peaking just before the turn of the century.

But while the lofty position of being the second freest economy in the world made headlines on The Straits Times, another index failed to even make it to print.

According to The Economist, Singapore made it to fifth on the Crony-Capitalism Index. Hong Kong again made pole position.

What is remarkable about these two indices is that they should theoretically operate inversely. That is, a high position on the Economic Freedom Index should result in a low position on the Crony-Capitalism Index and vice versa.

The hallmark of a free economy is an unfettered ability to enter and leave any industry. It is thus impossible for a crony-capitalist economy to be free. When special interests are involved and the State casts a large shadow over the economy with its rules and regulations, entrepreneurship is inevitably stifled. Competition is thus curbed, even if unintentionally.

singapore workersThe Singapore economic miracle – credit the people, not government

Much credit has been given to the PAP-led government of the 20th century for planning the Southeast Asian economic miracle in Singapore. Yet, a study of Singapore’s economic history would refute that notion.

For one, government-sanctioned policies are not wholly responsible for building the economy. Instead, the State taking a laissez-faire approach to the economy while the private sector operated led to the rapid economic growth seen in the 20th century.

The Singapore government in the 1960-70s was also financially stretched and had little resources to regulate the economy, focusing instead on the construction of basic infrastructures such as roads and electrical grids.

A cursory glance through parliamentary reports in early independence would indicate the State’s correct concern over infrastructure than economic regulations. The fact that CPF monies were possibly used to finance such investments is testament to an early PAP government with strained resources.

Ultimately, it was the people who made the Singapore economic phenomenon possible with their hard work and persistent attitude. Government was a mere platform then and yet we hear today how the PAP government continues to seize undue and unearned credit for the growth miracle of yesteryears only made possible by the people and now hindered by the State.

It was thus a free and largely unregulated economic environment that led to breakneck growth. All that had to be done was establish the rule of law, provide incorruptible government, build the basic infrastructure and then stay out of the way.

But as Singapore’s economy prospered, the State’s power grew unchecked and numerous regulations were enacted to ‘protect’ consumer and worker interests. While ostensibly seeming so, regulations very rarely stay true to their purpose and typically end up hurting the very people they were designed to protect.

In addition, calls for such ‘protection’ very rarely come from the consumer or worker themselves, but groups claiming to represent them. Just ask any retail investor if SIAS (Securities Investors Association) represents them and only dissent will be heard.

For example, and unbeknownst to many, a license is usually needed to conduct almost any business in Singapore, inclusive of selling tissue papers. Licenses result in bureaucratic red tapes that make it unprofitable for new entrants to operate while unfairly favoring entrenched interests. Examples of such industries include the telecommunications and transportation industries.

free market mazeAn uncompetitive telecommunications oligopoly

With all three major telecommunications companies practically subsidiaries of parent company Temasek Holdings, how is competition possible? To give a proper illustration, Temasek owns 56.5% of Starhub, 19.3% of MobileOne and 51.9% of Singtel.

Research has also shown that the mobile plans of all three communications industries are largely similar with the prices usually moving in a synchronized direction, a strange phenomenon for a purportedly competitive industry.

The pointlessness of regulations for taxi-booking applications

Recently, mobile applications such as Uber and EasyTaxi broke the implicit cartel amongst taxi companies by bringing both commuters and drivers (taxi and private) together independently.

Price signals sent by such applications resulted in increased efficiency as drivers flock to areas with higher fares, quickly equalizing costs with clear benefits to both producer and commuter.

As commuters pay lower prices, drivers deplete less fuel searching for passengers. The alternative is a harried passenger waiting along the roadside fruitlessly at 1130pm for a cab that isn’t forthcoming.

Needless to say, calls to regulate these applications quickly grew in volume. Of course, proposals for regulations did not originate from the commuter. Instead they come from organizations claiming to represent the consumer. Ever heard of regulatory capture?

The result is government declaring their intention to regulate third-party taxi booking applications. These applications have brought about immense convenience and efficiency to both commuters and taxi drivers. Yet, the State seeks to introduce stifling frameworks that hold no purpose other then to give the impression that it is in control.

taxi taxiIn mid-December 2014, a State-sponsored application [email protected] was even launched by LTA (Land Transport Authority) to track the number of taxis in the area. Although the application received rave reviews for sheer uselessness, a moment should also be taken to question the rationale for using public monies to compete with private companies.

Diminished freedom

The telecommunications and transportation industries are certainly not the only sectors exhibiting crony-capitalism.

So long as Temasek owns a stake in any particular company, they are unlikely to fail, if only due to takeovers and liquidity injections.

A system where profits are privatized and losses socialized can hardly protect liberty. Temasek led takeover bids for languishing companies such as STATS ChipPac, Neptune Orient Lines and Olam are also unlikely to foster any confidence in market capitalism, a bastion of freedom.

When the government is arrogated the power to pick winners and losers, everyone suffers – except of course the bolstered industry.

By limiting the choices that consumers have, freedom will inevitably diminish. Government involvement in the economy through rules and regulations and ownership stakes in ‘strategic’ industries inevitably reduce the liberties of individuals. Why?

Because rules and regulations such as licensing schemes require government agents to administer, State activities will expand. Such expansions are usually financed through taxes, which channels economic resources away from producers and consumers. More government can only result in fewer choices at higher prices for consumers.

With fewer choices, who can say they are free if it’s deciding between options cherry picked for them by the State?

Do also read the other two parts in this series: