Sunday, July 12, 2020

I was wrong about GE2020.

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I like to celebrate being wrong. This is because in the financial markets, being right is overrated.

My training program has value because it is also a historical record about pretty epic mistakes we made as a class, from judging the Indian elections wrongly and missing out on a 40% gain and misreading SPH's pivot to nursing homes as an astute gamble instead of a horrible mistake.

First off, I totally misread GE2020 and failed to anticipate an upset in Seng Kang. I genuinely thought that PAP's attack on Raesah would polarise Chinese voters and nullify Jamus' star power.

Secondly, I actually told my students that PAP would win with a margin of over 70% because of flight to quality that happens in REIT and Bond markets in a recession. That was also an epic mistake.

That being said, even though I voted PAP at Holland-Bukit Timah,  I am fairly pleased with the outcome. PAP cannot be seen as a free ticket to a comfortable life in politics, politicians need to have skin in the game. After GE2020, each vote has to be won individually and the WP is not a party to be trifled with.

As an investor, I am more vested in what GE2020 mean for the financial markets.

We know that over the short term, the status quo can only be good for us capitalists. Over the long term, however, the results may shift further towards the left and we should see greater curbs on foreign labour over the net few years - not too bad if you are a Singapore employee, but if this kills local businesses and SME bosses, unemployment is going to become higher anyway.

I am particularly interested in the concept of labour income share which is the total compensation of workers divided by the GDP as alluded to by Jamus Lim during his debate with Vivian Balakrishnan. Jamus Lim argues that some sort of balance must be made.

Based on a quick google, labour income share has been declining in almost every single OECD country of late, which sorts of begs the question as to what Jamus would like to see if he's in charge of the economy.  A rapid decline in labour income share results in income inequality, so this can be an economist's way to silently giving a head nod to the ideas of Teo You Yenn.

So here's my prediction. During the election, WP is PAP-Lite.

After the defeat of Seng Kang, it is the PAP that will pivot towards becoming WP-lite.

PAP may have already figured out what Jamus wants for the Singapore economy and tilt Singapore in that direction before the opposition can start protesting for change. Furthermore, my speculation is that Jamus would like labour income share decline to be slowed or even reversed.

So all that remains is how to increase labour income share and how investors can brace themselves for this.

As I am no labour economist, I can only google for some answers and it turns out that there is an article that says that Malaysia's labour income share has been going up in 2005 !

I think the investment community would not like to hear about what Malaysia did to raise labour income share since 2005. One paper I googled said that labour share can increase when traditional sub-sectors and SMEs grow in importance.

So how the fuck can we do that in Singapore? I doubt that even th staunchest leftist in WP would want Singapore to emulate Malaysia.

I think attempts to grow labour income share may be the opposite of what Singapore has been doing for the past 50 years, we are still trying to make Singapore a great place for MNCs to set up business headquarters. We also want to see whether we can benefit from the shift in supply chains from China. I suspect even WP with its increasingly PMET profile would not want to torpedo our economic prosperity in an attempt to raise labour share.

But slowing the decline may still be feasible. This can start with more tax-breaks for SMEs and local businesses, even going as far as to give more government tenders to SMEs knowing that local capabilities may not be as strong as MNCs.

If we take the path of giving more support to SMEs using tax-payer monies, public servants will have to start playing God to decide which local firms to support. I can imagine allegations of unfairness will arise if the quality of product or delivery has to be subordinated to the SME status of the vendor. It will also create a mass of lobbying SME bosses - I know because a lot of them tried to befriend me when I joined an agency years ago! Done without the right compliance frameworks, we may even see more corruption in the future!

Even though I am hardly progressive, like many progressive voters I am eagerly awaiting WP's suggestions on how labour income share can be moderated in the next five years.

This idea will join part of the discussion of what we would like Singapore to be over the next five years.


Unknown said...

Not sure whether labour income share increased from 2013-2019 compared to 2006-2012.

But sure as hell real salaries rose a lot from 2013-2019 as compared to 2006-2012. So much so that increases in S'porean workers' salaries have far outstripped productivity in the last few years.

This was a result post-GE2011 whereby S-passes & later E-passes were quite severely curtailed. This is also seen in the frequent increases in minimum salary level for E-pass.

I suppose PAP will further tighten the S-pass & E-pass intakes.

For the lower income, there was the big boost to Workfare payouts. As well as the minimum income framework for certain industries.

Yeah, civil service may mandate tender awards to SME's, but it will likely be done in a format whereby respondents to tenders need to partner & profit-share with SME as a qualifying condition.

For much of the industries in S'pore, this ecosystem is already very established with almost all MNC's & GLC's here having supply-chain or process-chain partnerships with many local SME's.

It's just that most of the time, it's a very uneven partnership.

Rolf Suey said...

Hi, there, I think most Singaporeans are not exposed globally and we always compared ourselves to SEA countries. Yes, we are good, but there are countries who have small populations and no resources in the world who has mostly their own citizens working and increasing productivity. Just a few to named of who I have personal friends or colleagues... Denmark, Sweden, Finland, Netherlands etc.