By Eric Tan Heng Chong
Today, government linked companies (GLCs) and statutory boards dominate many business segments. For many of these entities, their original social or national objectives may no longer hold true and are now replaced in most cases with the objective of profit maximisation for shareholders.
They have huge advantages due to their near market monopoly or implied government support. Their impact on the market place could lead or have led to increases in our cost of living. There is a pressing need to review these GLCs and stat boards.
Capital Land and Keppel Land are examples of GLCs, which dominate the retail commercial and office sector. Through their implied government support, banks and investors are willing to fund them cheaply, to beat their competitors. What is their national or social mission to justify their government ownership?
Similarly, Ascendas, the GLC successor to Jurong Town Corporation (JTC), and Mapletree, another GLC, dominate the industrial and commercial sector. In the past JTC was the main government vehicle to develop industrial and commercial estates. The thinking behind setting up JTC then was that the government must directly develop the industrial infrastructure and build factories efficiently to attract foreign investments and to help the local SMEs grow. The objective of these assets, built with public funds, was not to maximise profits.
Ascendas and Mapletree are now commercial entities whose mission is to maximise profits for shareholders. As market leaders, they tend to set the market rental prices for business parks office and factory space. In the absence of a competitive market for industrial properties, is this fair to the tenants?
A stat board like the Housing Development Board (HDB) controls 85% of the residential market and sets the market housing prices for the residential market. When HDB short the supply of flats in 2006, we saw the property boom from 2007 to 2013. When the market suffered an oversupply in the 2002, they held back the sale of thousands of flats and held them in their inventory. Only HDB can do it, as private developers cannot hold such a sizable inventory.
HDB with the government behind it prevented free market forces from functioning in the residential market. They may have good social reasons for doing so, but there is not enough transparent. Their decisions have a major impact on the prices of both public and private residential housing.
Clearly, HDB is a monopoly and must be regulated. The MND is responsible for regulating it, but it was only after GE 2011 that the government realised housing has become unaffordable and a change in strategy was needed.
However, the government may not be in the best position to regulate public property development as they may have conflicting interests. When the ruling People’s Action Party embarked on asset enhancing policies, their intentions and judgement were questioned by citizens. In the government's quest to enhance housing assets, it had allowed HDB flat prices to rise faster than the increase in our national household incomes. Housing then became unaffordable for the many when BTO and resale HDB flats prices went way above three times annual household income. Then they implemented the cooling measures to address their self-induced problem.
We could have avoided all that pain if we had an independent body which will ensure public housing be pegged to less than three times that of household incomes. At that price, a couple can repay their housing loan within the first 15 years of their working lives and then save for their retirement in the remaining 15 years of their working lives. An independent commission would have raise public awareness on this issue.
Another classic example of a system that needs an independent commission is public transport. The only two operators running the MRT are publicly listed companies bent on maximising profits for shareholders. The Land Transport Authority (LTA) and the Public Transport Council (PTC), which regulates them, are supposed to ensure they do not maximise profits.
If the parties are unrelated, the regulators can work in the best interest of the consumers. However, the operators are also GLCs, which means the regulators will have a conflict of interests, as they are related entities. It would appear that over the past few years, citizens have been of the view that the regulator had been soft on them. This has resulted in rising public transport fares and poor system maintenance.
Today we have many MRT breakdowns, and fares continue to rise despite lower fuel prices. It reflects a break down in the regulatory system. The current SMRT management is frantically trying to correct years of mismanagement in maintenance but LTA cannot come down hard on them. Furthermore, the government has injected a couple of billion dollars in buses to help these operators relieve the situation.
Again, we need an independent non-government commission to regulate them or task the government to recommend a new structure for our public transport system.
When the government entered business, we trust that government entities have a social purpose above maximising profits and enriching top management. However, in the age of paying market salaries to retain talent, we need some checks to protect public interest. Since many of these GLCs and stat boards have moved away from their original social mission, we need to take stock and review their purposes.
I propose that the President forms an antitrust independent Commission. This Commission should be made up of mostly leading members from the private sector, similar to the current President's Council. The Commission can also include government officials and top civil servants but the majority should come from business associations, chambers of commerce, and universities. It is the duty of the President to ensure that the Commission is independent.
Firstly, this Commission will conduct a review the portfolio of all the GLCs to determine the need for the government to continue to own these companies. For companies that no longer hold any strategic national purpose or social functions, the Commission should recommend to the government to divest their stakes in these companies. They should present their reports to Parliament for debate and Parliament must vote on their recommendations.
In this manner, the public and business associations can get involved in the debate and they can write on blogs or letters to the press to express their views. They can also request that their Members of Parliament represent their views in Parliament. This mechanism through Parliament will lead to a functioning democracy as well as a participative society.
After the first review, they should continue to review the portfolio on a five yearly basis. As the government exit from the market place, it will open up more opportunities for our SMEs to compete on a level playing field with these ex-GLCs and grow our local "timber". The consumer or citizens will benefit from the efficiencies of a functioning free market.
Secondly, this Commission will function as an antitrust agency, where they will conduct research on the market prices of the existing GLCs and stat boards left on the portfolio to ensure that there is fair-trading and pricing. In this way, we ensure that the government keep our cost of living low.
It would be naive, of course, to believe that the current Parliament would support the formation of such a Commission, given the bulk of incumbent voices. We would also need more opposition voices in Parliament to support and promote this proposal, and then provide another check on the Commission’s reviews and proposals.
Eric Tan was a career banker who held senior management positions in HSBC and the Royal Bank of Canada. He was also the former treasurer of the Workers’ Party and stood for elections in 2006 and 2011.