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THE BIG IDEA

SocialPensions in SingaporeMukul Asher and Azad Bali recently published a paper in which they argued for a radical restructuring of Singapore’s system for financing retirement. Here, Azad Bali summarises the key ideas

Singapore is expected to experience rapid ageing of its population in the next two decades – since 1975, it has a below replacement

rate fertility. People more than 65 years old will increase from 0.46 million in 2010, to 1.4 million 2030, an increase of over 200 per cent in just two decades. Many will live till 85, or into their 90s. Therefore, old-age income security is increasingly becoming an important eco-nomic, social, and political issue.

Singapore’s pension system is based on two major premises. First, it is possible to finance retirement expenditure almost entirely by mandatory savings of households, which are micro-managed and intermediated by the state. Second, the pension system should focus on mitigating absolute rather than relative poverty. This is a system with many limitations in securing old-age income security.

1. Use CPF Assets more productively to provide old-age income securityOne of the main purposes of mandatory savings to finance retire-ment expenditure is that these savings would be intermediated through financial and capital markets and

ISSUE #20 Feb – May 2014 Raw Growth Making Real Impact? 150 Years of China’s MisfitRole of Public Policy Schools

p continued on page 6

Feb – May 2014 · 2

We can all feel that our world is undergoing a great transforma-

tion. It may even be a great metamor-phosis, akin to that of an egg becoming a chicken, a tadpole becoming a frog or

a caterpillar becoming a butterfly. In these three cases, we know what the result will be eventually. However, in the case of our

current great transformation, we have no clue what the result will be.

However, I believe that it is becoming increasingly clear what is the egg, the tadpole or caterpillar we are leaving behind in this great transformation. A quote from a recent article by Paul Krugman provides a clue. In a review of Thomas Piketty’s seminal work Capital in the 21st Century, Krugman says that the surveys of wealth distribution in the United States “have long pointed to a dramatic shift in the process of US economic growth, one that started around 1980. Before then, families at all levels saw their incomes grow more or less in tandem with the growth of the econ-omy as a whole. After 1980, however, the lion’s share of gains went to the top end of the income distribution, with families in the bot-tom half lagging far behind.”

The date of 1980 is significant. That was the year that Ronald Reagan became president. With Margaret Thatcher, he launched a major intellectual revolution which led many of us to believe that markets are right and governments are wrong. Reagan famously said that “government is not the solution to our problem; govern-ment is the problem”.

As part of this celebration of markets, we also welcomed inequality in the belief that growing inequality also encouraged economic growth. This was partially correct. I will never forget a story Dr. Montek Singh Ahluwahlia, India’s Deputy Chief Planner, told me. In the early 1990s, a group of Chinese economists came to New Delhi to brief Indian economists on their economic reform plans. When they finished their briefing, Dr. Ahluwahlia told them, somewhat hesitantly, that their economic reform plans would lead to growing inequality in communist China. The leading Chinese economist beamed and said, “We certainly hope so.” And there can be no doubt that China has experienced both significant economic growth and rising inequality since then. China’s Gini coefficient has risen from 0.29 in 1981 to 0.42 in 2009.

We have stopped celebrating rising inequality. We have also stopped believing that markets are the fount of wisdom and that governments are inherently flawed. Now the pendulum is swinging the other way. We now realise the important role that governments have to play. One of the countries that did not fall completely prey to the Reagan-Thatcher revolution was Singapore. In his lec-ture at our School on 17 April, Prof. Ha-Joon Chang noted that Singapore was one of the most pragmatic countries on the planet, trying out every theory of economics without becoming an intel-lectual prisoner of any one of them. He emphasised the importance of “cross-fertilising” different theories of economics instead of thinking of them as inherently opposed to one another.

In this great transformation that is taking place, it is clear that the role of schools of public policy will become even more impor-tant. We have to understand markets. We also have to develop good governance. Several articles in this issue discuss the new public policy challenges we face, including in the fields of pensions and social security. With this and future issues of Global-is-Asian, we hope to throw light on the great transformation taking place. We hope that it will also help to provide glimpses of the new world that is emerging. Kishore Mahbubani is Dean of the LKY School of Public Policy,

and author of The Great Convergence: Asia, the West, and

the Logic of One World.

Kishore Mahbubani

DEAN'S PROVOCATIONS

The GreatTransformation

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Raw Growth, Limited Impactby Melanie Chua

The rising trend of income inequality continues, even as Singapore’s real eco-

nomic growth remains impressive, making 3.5 per cent to 4 per cent for 2013. The aver-age growth rate is 1.25 per cent for devel-oped economies and 5 per cent for develop-ing economies, according to the IMF’s World Economic Outlook of October 2013. Jobs still outnumber demand and inflation has eased. However, Mukul Asher and Chang Yee Kwan point out that “the impact of raw growth on quality-of-life concerns is increasingly limited”*.

A report by the Singapore Department of Statistics published in 2013 found the unad-justed Gini coefficient for wage income stood at just under 0.46 after government transfers and taxes. This is likely to be higher if capital income, which is more unevenly distributed, is included.

Meanwhile, citizen concerns are growing across a range of social issues, including: relative poverty; access, equity and affordability in health care; and retirement income provision. Singaporeans also desire higher quality urban amenities, especially in public transport and recreation spaces, and meaningful participation in issues affect-ing them.

Subsequently, Singapore’s 2013 Budget introduced minor changes to income rebates for lower-income households and higher marginal tax rates on higher-valued properties. MediShield, the basic catastrophic health insurance scheme, will be revamped to a universal scheme, to be announced in 2015.

However, Asher and Kwan said these are unlikely to have sub-stantial impact on income inequalities. Key issues in the MediShield revamp will need to tackle the scope of coverage; increasing the share of insurance benefits as a percentage of total hospital bills and medical event costs under various probable conditions; premium schedules; and the nature of assistance to those unable to pay pre-miums. It will continue to run on commercial principles with higher premiums.

Asher and Kwan state what is needed is less “tinkering”, more substantive reforms in philosophies, policies and programmes. By continuing to resist defining a poverty line, policymakers risk

ignoring “a need to not only define such a line but to design policies addressing relative rather than absolute poverty”. The implica-tions are most stark in the area of retirement income security. The Central Provident Fund (CPF) system is based on direct-contribu-tions. This bears macroeconomic, longevity and inflation risks, and does little to combat relative poverty, even as it may alleviate abso-lute poverty.

Singapore’s location-based growth strat-egy depends on keeping the wage share of income below capital’s share at around 42 per cent of national income; relying heavily on foreign workers at both low- and high-skill levels; and valuing commercial concerns over

the provision of social amenities. Recent calls for public transport to be nationalised reflect this imbalance, including the bus riot of 2013 and what many has termed the “Little India riot” by foreign workers. Asher and Kwan cite these landmark incidents suggest that a shift towards greater fairness and distributive equity should be considered.

One way to do this is to initiate a social pension that is non-contributory and budget-financed. This means-tested basic social pension could work alongside the CPF system. Asher and Kwan estimates the cost is expected to be less than 2 per cent of GDP assuming benefit levels at 20 per cent of the annual median wage income with universal coverage. Fiscal surpluses averaging 6.2 per cent of GDP over 2000–13 suggest there is ample fiscal space avail-able for such an initiative.

They point out that this remains as the policymaker’s challenge, as “Singapore’s citizenry increasingly expects equitable as well as raw growth, and broad ranging welfare and public good provisions”.

Melanie Chua is editor and case researcher at the Case Study Unit,the LKY School. melaniechua@nus.edu.sg

By continuing to resist defining a poverty line, policymakers risk ignoring “a need to not only define such a line but to design policies addressing relative rather than absolute poverty”.

“

Mukul G. Asher is Professorial Fellow at the LKY School and Councillor at The Takshashila Institution. Chang Yee Kwan is Research Fellow at the LKY School. The article, “Singapore, still grow-ing strongly, resists social transfor- mation” was part of an East Asia Forum special feature series on 2013 in review and the year ahead.

Feb – May 2014 · 4

Shaping the discourse on arts, politics and culture

How did Singapore, starting with the ’90s, lay down policies to become the culturally vibrant and cosmopolitan country that it has evolved into today?The projection of soft power was systematically designed by the government to add another dimension to the value proposition of this country. It wanted to shed the dominant and somewhat boring image of the time of being just a safe, clean, green and efficient city to live in, and an attempt was made to sculpt a more creative and open face. This then really accelerated in the last 15 years, where the policy was geared at attracting not just foreign investors but also foreign talent. The arts and tourism were considered a great vehicle to achieve this transformation. We are also now actively trying to preserve our heritage and revive our cultural roots. Kenneth Paul Tan, Vice Dean (Academic Affairs)& Associate Professor, in an interview excerpt inLive Mint, 28 March 2014

How is the civil society space expanding in Singapore? There are many types of civil society structures in Singapore. One which is supported actively by the state like voluntary welfare and grassroots organisations who are offered a lot of space, staff and resources by the Government to do their work. On the other hand, Singapore also has a more independent civil society that is not dependent on the state for funding. They pursue interests that may be neglected by the state and they fill in the gaps and advocate for more attention in these areas. In the ’80s, for example, there were women’s groups, race and religion groups who were independent. More recently, there are groups that are advocating for migrant workers’ well-being and rights, and groups campaigning for economic equality and gay rights.

What is wonderful is that the artists are active across all these platforms and are the most sophisticated in terms of being effective influencers for change. One key point to note is that in Singapore, the civil society movement — unlike in countries like India — is a subtle one. On its part, the state has started to encourage this space, too, as it recognises that a constructive civil society can be an active partner for nation building. Kenneth Paul Tan, Vice Dean (Academic Affairs)& Associate Professor, in an interview excerpt in

Live Mint, 28 March 2014

Compete in the world? Yes, Indians can The gap between India’s potential and its actual performance is huge, perhaps the biggest of any country in the world. Sadly, few Indian leaders or policymakers seem to have understood the meaning of this comprehensive global data on the economic competitive abilities of Indians. If they did, India would become the top champion of more rapid globalisation. Instead, even though the evidence shows that Indians could benefit from globalisation’s acceleration, the government continues to put its foot on the brakes whenever globalisation is discussed. Kishore Mahbubani, Dean and Professor in the Practice of Public Policy, in Yale Global Online, 14 January 2014

Public transport: No. 1 in the world? Public transportation is a public good, not a private good. However, when Singapore was at the height of its infatuation with the Reagan-Thatcher intellectual revolution, we believed that the private sector was better at delivering some public goods than the public sector. This may explain several critical mistakes.

My friends in the civil service have

told me one of the biggest mistakes we made was to privatise the Public Works Department (PWD) and sell it off. In so doing, we lost both the engineering expertise and a storehouse of wisdom about the maintenance of public works. I hope that some day somebody will try to recreate the old PWD we used to have.

We have to deal with the "car" prob-lem. As I explained in my previous column, despite the many disincentives put in place to discourage car ownership and use, we have actually created an ecosystem which makes it more rational to drive a car than to take public transport. We now have to create a new ecosystem that discourages car owner-ship and use.

For a start, we should encourage new road experiments to change behaviour. In the year 2015, as part of our 50th anniver-sary celebration, we should exempt all taxis from paying Electronic Road Pricing (ERP) charges for one year. The goal of this social experiment is to see whether Singaporeans will make the rational decision to leave their cars at home and take taxis into the Central Business District to save on ERP charges.

At the same time, we will also discover whether this leads to a surge in the supply of taxis in the CBD. This increase in supply of taxis in the CBD could, over time, increase demand and use of taxis in the CBD.

I don't know whether this will happen. Nobody knows whether it will happen. This is why we have to try out bold experiments. The financial cost of giving taxis exemption from ERP charges will be peanuts compared to the benefits we will get if people leave their cars at home. Kishore Mahbubani, Dean and Professor in thePractice of Public Policy, in The Straits Times, 10 January 2014

End of road for Congress?The third and most important cause of Congress' horrendous state, though, is

Op-Eds

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Below is a recent cut of essays and commentary by our Faculty in the world media.

· Feb – May 2014 5

its inability to communicate a sense of decisiveness and leadership. It has cribbed and complained, mostly in media, but the fact is that voters have come to associate it with vacillation and weakness. The three key leaders of the party — Sonia, Rahul, and Manmohan — have spent 10 years signalling their discomfort with the power game. Modi and the most successful chief ministers, by contrast, have been rewarded for taking decisions and appearing strong. Voters simply don't care much that their regional leaders are bullying, self-aggrandising and intolerant as long as they lead. The most serious problem with Congress, though, is that it does not have leadership in the states, the real testing ground of Indian politics. This is fatal because no one from here onwards is likely to be prime minister if he or she has not run a state government successfully. The only Congress leader to move from state to national success was Narasimha Rao. Unfortunately for Congress, there are no Raos on the horizon. A Congress collapse is not good for India. We need a second national party, one with leftist leanings, in an era of wretched regional parties and a triumphalist right-wing party. The Grand Old Party of Indian politics must find a way back, for all our sakes.Kanti Bajpai, Vice Dean (Research) & Professor,in Times of India, 1 March 2014

It's droughts, not floods, Singapore should fear In our view, it is only a matter of time. Water was rationed here in 1961-3, 1971 and 1976 — in 1990, the PUB said it might have to start water-rationing but then the rains came. At the time, people protested, “we are not a developing country”, but that kind of men-tality has to disappear — there are certain problems that exist even if you have the water management systems and technology in place. It is important also that back then, there were fewer industries, thus requiring less water; today, the needs are greater. Domestic

consumption of water among Singaporeans is high — 152 litres per capita per day. Compare that to the fact that by 2015, cities like Hamburg and Barcelona hope to break through to sub-100 litres by 2015. Singapore’s goal to reduce consumption to 147 litres per person per day by 2020, and 140 litres by 2030, is not ambitious enough. To proceed further down the road to self-sufficiency by 2061, Singapore needs to reduce consumption through proper pricing.Currently, households pay one rate, S$1.17 per cubic metre (before GST), for the first block of 40 cubic metres; and S$1.40 beyond that. Why not break this down into the first 10 or 20 cubic metres instead — which is enough for many house-holds to survive on — and if you want to use more, you have to pay more.The problem is that dialogue on this issue is missing. So far, Singapore has justified water tariff increases (12 since 1965) only on the basis of cost recovery. Asit Biswas, Distinguished Visiting Professor andalso founder of the Third World Centre for Water Management in Mexico, and Cecilia Tortajada, President of the Third World Centre for WaterManagement, in Today, 18 March 2014

The maths of climate change Munich Re, one of the world’s largest insurance companies, collects data from all disasters. It reported that the number of extreme weather events and earthquakes in 2013 was nearly 40 per cent higher than the average of the last 30 years. In spite of these severe climatic events recorded in different parts of the world, it has not been easy to convince most politicians that plans should be made to mitigate such extreme events. Policymakers in many parts of the world appear reluctant to make significant investments to reduce the impact of such extreme events. The complexities of climate-change science often give a false sense of security both to politicians and the general public. Asit Biswas, Distinguished Visiting Professor and also founder of the Third World Centre for WaterManagement in Mexico, and Cecilia Tortajada,

President of the Third World Centre for WaterManagement, in The Straits Times,10 April 2014

Why GrabTaxi is giving Singapore’s largest taxi operator a run for its moneyComfort has leveraged its size to consolidate its market position. Having the largest fleet of taxis in Singapore means that commuters are more likely to book its taxis, and having more bookings makes it more attractive to drivers, who are charged a higher monthly rental rate of about S$10 (US$8) more than smaller operators. Apps like GrabTaxi and Easy Taxi are eroding this market power. According to my driver, the number of taxi drivers waiting to get a Comfort cab has dropped drastically, to the extent that Comfort is now offering its existing drivers a referral fee to introduce new drivers.

At this point, it is a foregone conclusion that taxi bookings will eventually be domi-nated by operator-independent services, whether it is GrabTaxi or another com-pany. For too long, Comfort has relied on its market dominance and has stagnated in improving its services. The usefulness of its electronic terminals (developed in the early 2000s by ST Electronics and running Windows CE) for bookings is probably at its end. The arrival of GrabTaxi has quickly shown how outdated parts of Comfort’s business model are. Seldom have I seen a market so quickly disrupted. To survive and thrive, Comfort needs to refocus on its core business, that of leasing cabs to drivers. It needs to compete on offering better rental rates to drivers, and on providing cabs that are more reliable than other operators’. This means, among other things, a reversal of its policy of hollowing out its maintenance crew, which has seen an inexorable replace-ment of experienced local mechanics with cheaper foreign labour, and which many drivers have complained about. Hawyee Auyong, Research Associate, in Tech in Asia,21 April 2014

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Feb – May 2014 · 6

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THE BIG IDEA

SocialPensions inSingapore?

increase both national savings and invest-ments, and ultimately result in high eco-nomic growth. Member balances, rep-resented by the assets of the Central Provident Fund (CPF) are held mostly in non-marketable government securities. In the 25-year period ending 2011, CPF Assets have grown only by 1.42 per cent annually in real terms (i.e. taking into account inflation). This is in sharp con-trast to annual real GDP growth of 7.9 per cent in the same time period. CPF Assets must be used more productively if they are to meaningfully provide old-age income security. 2. Pool risks There is limited risk-pooling or sharing of risks across the society to mitigate old-age poverty in Singapore. Without a system of risk-pooling, income and wealth inequali-ties present during the working-age are not only carried forward, but are accentu-ated during retirement. This is particularly relevant for women, who as a group have higher longevity but lower labour force participation and consequently lower bal-ances in their CPF accounts to finance their retirement. This is further aggravated when they have to buy an annuity on retire-ment, whose premium is based actuarially on commercial principles varying by age

and gender rather than on social insurance or solidarity principles. There is, therefore, a need for greater redistribution and risk-pooling in how retirement expenditure is financed.

3. Create social pensions A possible avenue to broaden social protection in Singapore is to explore the role of social pensions, benefits that are non-contributory and are financed by budgetary sources. However, most analysts immediately dismiss social pensions as an option, as they are considered prohibitively expensive. What would a social pension scheme in Singapore cost? Such calcula-tions are very difficult to do, however, are important as they inform policy debates and anchor expectations. Table 1 presents fiscal costs of a hypothetical, universal cov-erage social pension scheme on the follow-ing assumptions.

GDP is assumed to grow in nominal terms between 5 and 6 per cent. No means

testing using income or assets to qualify for the social pensions are used in the estima-tion. Social pension benefits are restricted to citizens over the age of 65 years and provided on an individual basis. Further, the estimation does not take into account the administrative, or compliance costs of the social pension scheme.

The four columns have different benefit levels in terms of two widely used param-eters (wages and per capita GDP). Because the benefit levels are proportionate to wages or to per capita GDP, the benefits proposed enable the individual to share in the growth of the economy. The benefit level used (20 per cent and 30 per cent of median annual wages in Variants A and B, and 15 and 20 per cent of per capita GDP in Variants C and D, respectively) is based on interna-tional experiences.

The projections indicate that with the rising share of the population being over 65 years old, and with increasing wages and incomes, the fiscal cost will increase rapidly

Estimated Fiscal Cost (as share of GDP) of HypotheticalSocial Pensions in Singapore

2012

2015

2020

2025

2030

0.94

1.09

1.42

1.81

2.17

1.26

1.51

2.07

2.76

3.46

0.78(0.77 – 0.78)

0.90(0.86 – 0.93)

1.16(1.07 – 1.26)

1.47(1.28 – 1.67)

1.73(1.43 – 2.06)

1.16(1.15 – 1.18)

1.34(1.29 – 1.40)

1.75(1.60 – 1.90)

2.21(1.92 – 2.51)

2.60(2.15 – 3.09)

Variant A20% of

Median Annual Wage

Income

Year

Table 1

Variant B30% ofMedian

Annual WageIncome

BENEFIT LEVEL

Variant C15% of

Per Capita GDP

(Current Prices)

Variant D20% of

Per CapitaGDP

(Current Prices)

Sources: Asher, MG and AS Bali. 2014. “Singapore’s Pension System: Challenges and Reform Options” in B. Clements, F. Eich and S. Gupta (eds.) Equitable and Sustainable Pensions: Challenges and Experience. Washington DC: IMF

(continued from page 1)

· Feb – May 2014 7

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between 2012 and 2030. Thus, assuming the benefit level of 30 per cent of median annual wage, the fiscal cost will rise from 1.16 per cent of GDP in 2012 to 2.60 per cent by 2030. The range of costs projected in the brackets for Variants A and B is due to the differential assumption of the param-eters. The range widens over time because of the compounding effects of the two parameters.

It is important to reiterate that these estimates are based on many assumptions, and more rigorous simulation exercises are needed to project actuarially fiscal costs of social pensions; however, the relevant data for such exercises are not available easily.

The exact design of the social pension will have significant implications for the fis-cal outlay required to finance it. Eligibility through means or asset tests, benefit levels, claw back through taxes, and the extent to which partial pensions are to be paid are important policy considerations that require rigorous empirical scrutiny.

How are these proposed fiscal costs to be financed? Singapore, on average, has enjoyed structural fiscal surpluses over the past decade (Exhibit 2). This suggests that such reforms are not necessarily constrained by fiscal space or capacity. The structural budget surpluses can help finance pen-sion reforms, without serious reductions in expenditure on other government pri-orities, such as human resource develop-ment, health, and infrastructure. The main constraint on pension reforms is not fiscal, economic, institutional, or capacity related — it is the need to assign a higher prior-ity to reforming existing pension arrange-ments. Azad Bali is a PhD Candidate at the LKY School

-2

0

2

4

6

8

10

12

Overal Fiscal Balance as Share of GDP

7.1

11.9

6.5 7.39.3 8.7

6.96.0

-0.5

2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: International Financial Statistics

Feb – May 2014 · 8

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Can you give an example of research at the LKY School that is making a difference?

There are several excellent projects with policy implications in policy design, policy failure, public management, health and social security, regional economics, water management, sustainability, development, and Asian security. We have China-related research in virtually all these areas.

Beyond this, one key project is at the Centre on Asia and Globalisation on the development of Russia’s Far East. This is a huge territory with massive resources, and Russia, China, Japan, South Korea, Norway,

and Singapore are all involved, looking at what can be done to develop it in every-one’s interest.

The Asia Competitiveness Institute has also done some impressive work on a Competitiveness Index, compar-ing provincial level competitiveness. The Indonesia study has just come out, which the Indonesian government has been very interested in. The India and China studies have also just been released.

Finally, urbanisation is a huge emerg-ing trend in Asia. A group of researchers at the School are working on different angles , including an interesting project funded by the Microsoft Corporation on second-tier

cities and how they have become ICT, edu-cation, and potentially trade hubs going forward, and the implications of that for Southeast Asia.

These are just some of the very interest-ing things happening in the school.

Anne-Marie Slaughter recently said in a Washington Post arti-cle that “policy schools used to be much more about how to translate ideas into solutions to public problems”. Do you think policy schools remain relevant today, and what is the role of a policy school like ours in Asia?

As policymaking becomes more complex and issues

more vexatious, the role of public policy schools has

come under the spotlight. One dilemma is that pointed

out by Anne-Marie Slaughter, former dean of Princeton’s

Woodrow Wilson School of Public and International

Affairs and now president of the New America

Foundation. Scholars at policy schools “do extremely

important work,” she asserts, but often, “that’s not

work that policymakers read.” LKY School Vice Dean of

Research Kanti Prasad Bajpai weighs in.

The Role of Public Policy Schoolsby John Choo

· Feb – May 2014 9

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I think Slaughter is on to something. Having said that, if you look at the number of public policy schools opening in Asia, that’s an indication that people do think they’re important. It’s a market test, isn’t it? Clearly, something is brewing.

So what’s brewing? One is the realisa-tion that the public realm is important, that the market is not everything. It can’t solve everything - and it poses its own prob-lems. After 2008, that’s clear. One has to pay attention to the public realm and the role of the government. What else is public policy? It’s about how governments and other actors get together to solve collective problems.

Where I think Slaughter is right is that from a problem-solving view, there has been a movement towards a greater academic focus, with faculty seeking to publish in highly-rated journals and releas-ing books concerned with scholarly debates in policy studies. A balance is required. You can’t have good policy-oriented work with-out some fundamental conceptual, theoreti-cal, and empirical research. But you can’t also be stuck there and not produce real-time studies.

In the LKY School, we have a good balance. There are colleagues doing more conceptual work, who turn their attention from time to time to problem-solving. And

the reverse is true as well.The school’s focus on Asia in the world

is also essential. Cutting across research here, the focus is Asia – how Asia fits within global norms and developments, but also how Asia is increasingly defining those same structures. That fits with Singapore. Singapore has been an active player in shaping arrangements and bringing ideas to bear, but it has also been open to receiving and adapting ideas in its own way. The LKY School, hopefully, is doing that, not just for Singapore, but for all Asia.

You’re writing a book on China-India relations. Can you tell us more?

Yes, Professor Huang Jing and I are work-ing on this book. At its core is the idea that this is a special relationship that could define the future for India, China, the rest of Asia, and the world. Current literature claims that these two countries are doomed to conflict, that two rising powers looking for a place in the sun cannot work together. We’re saying that the world has changed, their place in the world has changed, and the expectations of their people have changed. There’s a growing interdepend-ence between these two, and therefore a very good chance, and a very good reason, for them to collaborate.

Separately, we’re also working on a project with Dean Kishore Mahbubani on a grant from the Ministry of Education, which has brought together six Chinese and six Indian scholars to write about India-China relations in five to six different areas, including development, trade, investment, energy, environment, and water issues, amongst others.The second project will cover a range of issues that Jing and I are not able to address in our own book very deeply. There’s just so much you can put into one book!

Feb – May 2014 · 10

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In the field of International Relations (IR), there has been an effort to go beyond Eurocentric (US-dominated) perspective of IR by look-

ing at non-Western IR theory. Some 15 years ago, Chinese IR theory emerged with three distinctive threads - (1) Imported IR theories available in PRC; (2) Mainstream efforts building an ‘IR theory with Chinese characteristics’ ; and Budding movements to construct from ancient Chinese philosophy (origin). These disparate theorisation efforts are persuasively presented by Wang Gungwu in this book.

Given his extensive research of China and overseas Chinese, as well as his ability to read classical Chinese works, Wang was able to make broad-brushed yet historically-grounded generalisations of Chinese his-tory and their cultural (Confucian) dispositions, linking these to modern China. Simply put, China is torn between affirming the integrity of its history, with Sino-centric bias, and accepting world history in the Eurocentric (Westphalian) tradition as the norm.

As his first sentence elegantly puts it: ‘Old China lived on its past. New China uses it to serve the present.’ Confucian tradition ‘shaped a distinct Chinese worldview’. The Chinese World Order revolved around the concept of ‘All Changes Under Heaven’ (Tianxia 天下) , an inclusive concept that embraces the progressive rise of Chinese civilisa-tion (to seek improvement). This is manifested in Middle Kingdom/Central State (Zhongguo 中国) as a political order that served as a source of moral authority; and the Confucian-based hierarchical tributary sys-tem, based on rule by moral example, reciprocity and persuasion, and kept peace through the Confucian principle of Great Harmony-with-difference (he er bu tong 合而不同).

China: The Civilisational Misfit In 1861, however, China had to play by Western rules. It

acknowledged Western concepts of sovereignty and equality with the establishment of the prototype Foreign Office (Zongli Yamen 总理衙

门) and the use of international law in 1880. This structural effect of the Westphalian system prevented the

Chinese civilisation from drawing from its 2,500 years of traditional scholarship to contribute anything new except those within the fixed boundaries pre-set. Chinese ideas stressing moralistic, voluntaristic, familial and hierarchical understandings of power were irrelevant.

Chinese emphasis on legitimacy as indicated by each dynasty’s capacity to protect its borders and people from close-by enemies was irrelevant in the face of sovereignty, the new basis of IR. Chinese usage of the tributary system, to regulate trade and manage interstate relations with neighbouring states that yearn to learn from the morally superior Zhongguo (“middle kingdom”), was also irrelevant. Conclusion: Challenges AheadMoving ahead, ‘the stronger China becomes, the more fearful its neigh-bours. If accompanied by nationalism, China would find it difficult to convince its neighbours of its best intentions’. Indeed, in late Qing dynasty, tributary states included Korea, Ryukyu Kingdom (now Okinawa), Vietnam, Laos, Burma, Siam and Sulu; Taiwan, Macau andHong Kong were considered part of China carved out by colonial powers.

Hence, while Tibet, Taiwan and Xinjiang can be arguably viewed as domestic issues to keep the Chinese civilisation (Tianxia = modern mul-tinational state) intact, any hints of transgressions beyond will alert its neighbours. This is notwithstanding the over-used case of seven peaceful missions by Ming dynasty Zhenghe to reach the farther shores of the Indian Ocean and East African coast, without colonisation but merely a desire for the world to know of China’s majesty and moral superiority. China is in a state of constant renewal.

Wang noted that China had many revolutions (geming 革命) and used different parts of their heritage to reflect on progress and future directions; these include Deng Xiaoping’s pragmatism ; Mao Zedong’s ideological revolution; Sun Yat-sen’s nationalism and its ancient history of adaptation. The key challenge ahead is how to modernise China’s civilisation so that it would be attractive to non-Han people (especially Tibetans, Uighurs and Mongols). CCP’s 1986 resolution to build a ‘socialist spiritual civilisation’ is prob-lematic as it replaced an orthodoxy (Confucian state) ideology with another party-state ideology. Moreover, there is no agreement on the core values shared by Chinese of all classes and ethnicity. China is in urgent need of reinvention. Its approach will remain a rich source of inspiration, both to “serve the present’ and to shape the future of a “Chinese model” of international relations. Phua Chao Rong, Charles is a NUS Lee Kong Chian Graduate Scholar and PhD student at LKYSPP.

by Phua Chao Rong, Charles

Renewal: The Chinese State and the New Global History(Hong Kong: The Chinese University Press), 2013

By Wang Gungwu

The Clash of Civilisations: 150 Years of China’s Misfit in the Westphalian Order

· Feb – May 2014 11

11

Economics – But Not as You Know It

Melanie Chua is editor and case writer at the Case Study Unit. melaniechua@nus.edu.sg

Unlike what most economists would tell us, Dr. Ha-Joon Chang said, economics is not a “science” but a political argument. He

pointed out some of its limitations as it is practised today, suggest-ing ways to have it serve humanity better. The South Korean econo-mist and bestselling author was at the LKY School to give a talk based on his forthcoming book, “Economics: The User’s Guide”, written as an introduction to economics for the general public.

Dr. Chang said, “The predominant view in the profession is that there’s one way of doing economics. It’s basically to set up some mathematical model, the more complicated the better.” He noted that living beings are complex and economics should match it with an open pluralism.

His book advocates a return to fundamental issues in economics in the hope that it would address “how to think, not what to think”. One chapter introduces “real life numbers”, which he said is crucial to our ability to appreciate the subtlety and magnitude of changes and influences in our world. Numbers, often used as the corner-stones in economic arguments, are “manufactured”; their objectivity is based on theories and assumptions. He cited how gross domestic product, for example, excludes household and care work.

His book also examines production and work, long neglected in economics. He pointed out that standard economic theory defines

people primarily as consumers and view work as a “necessary evil”. Yet this “disutility” affects us in fundamental ways practically and psychologically in our daily lives. It directly impacts our identities. As a result of this neglect as to how work works, people feel less happy despite higher incomes. He said, “Unless work is taken seri-ously, any consideration of the welfare of society will be impaired.”

“It is difficult to change economic reality, sometimes due to active attempts of those who benefit from the status quo. The “one-dollar-one-vote” rule of the capitalist market (also) drastically con-strains those with less money to refuse undesirable options given to them.” Yet, he asserted, “The willingness to challenge is the founda-tion of democracy”.

On the evolving “happiness research”Monetary income doesn’t really measure how happy people are. We try to measure it to give some objectivity, but other research has found that at least for the richer countries, there is no correlation between monetary income and happiness. Einstein once said, “Not everything that counts can be measured, and not everything that is measured counts.” This is a huge problem, but there are ways to make it more plausible.

Key dynamic shifts to break the "economy’s cycle of myopia" It’s only been six years since we’ve had the biggest crash in living memory. The US stock market is 20 per cent higher than it was in 2007 although the US per capita income has not increased even by 2 per cent during the same period.

There is widespread agreement that 2007 was basically “bubble territory”. So we’re repeating the same mistake again and again. We haven’t reformed the incentive structures since the last crisis, so we will still play the same game. Unless the system is changed, for example, by increasing capital requirements of the banks and restricting use of financial derivatives, this will happen again.

The role of government and “real problems” economicsUnlike professional economists, governments have to deliver. Sometimes ideas have to die with people, but governments have to respond to (changing) realities. Singapore is an exception par excellence, but many all over the world have ruined their economy by being overly driven by ideology. Initially, by socialism, then, a pure free market. This also happened to Latin American countries in the 1990s.

Ha-Joon Chang at theLKY School to talk abouthis book Economics: e User’s Guide.

Feb – May 2014 · 12

12

I n today’s interconnected world, with easy access to social media, the formulation of public policy is not confined to elite poli-

cymakers. Various actors provide inputs at different policy stages. The relationship between these actors is a fertile area for scholarly research.

The study of collaboration, co-production and networks has been extensive in recent years. However, they have been studied in relative isolation from one another and there has been “little scholarly work that deliberately studies these concepts together”. Ora-orn Poocharoen of LKYSPP and Bernard Ting of CSC, in their article “Collaboration, Co-Production, Networks” (Public Management Review, 2013), aim to create a framework which incorporates all three fields of study in the context of public service delivery networks in Singapore.

Co-production is an idea that is commonly attributed to Elinor Ostrom’s (1973) study of the Chicago Police Force. This focuses on the relationship between individuals in the production, delivery and consumption of public service. Networks are “structures involv-ing multiple nodes – individuals, agencies, or organisations – with multiple linkages”. Learning is a critical aspect of a collaborative network. Learning can be “simply cognitive or include behavioural change. It can be collective or individual, and can be single or dou-ble looped”.

Poocharoen and Ting propose the combination of the “con-cepts of networks, collaboration, and co-production in a converged framework”. This converged framework provides the basis by which four public service delivery networks in Singapore are analysed and studied. The analysis aims to understand: “how policy context affects collaborations, how network processes and structures impact the network functions, which affect the co-production process, the key values of a network and ways to build it, key management skills and tasks to manage a network”.

Poocharoen and Ting used four networks with various goals and actors as case studies to understand this evolving form of policymaking in Singapore. The four networks are (1) the national family violence networking system (NFVNS); (2) com-munity action for the rehabilitation of ex-offenders (CARE); (3) the response, early assessment for community mental health (REACH); (4) community in bloom (CIB).

In analysing the four networks, close attention was paid to the actors involved. All four networks included government agencies, civic organisations and voluntary welfare organisations (VWOs). They observed three characteristics that affected collaborations within the networks. The first was the level of resource, primarily funding, dependency. It was observed that all government agen-cies were well funded. Many of the civic groups and VWOs that were part of the network were dependent on the Government for funding. For example in CARE, the two VWOs were heavily dependent on the National Council of Social Services (NCSS) for funding. This funding dependency would also lead to VWOs being reluctant to expand the network for fear of dilution of limited funds. This “dependency allows the Government to ensure goals between partners are always aligned”.

The second characteristic observed was the “level of goal con-gruence”. The level of goal congruence was observed to be a func-tion of duration of the relationship between the actors. Where goals were not necessarily congruent and gaps were observed, the Government was found to have intervened. In the example of the NFVNS, it was found that many VWOs did not have the neces-sary capacity to provide counselling to victims of domestic violence. The Government, through MCYS, stepped in to build capac-ity. This aided in ensuring the alignment of goals with that of the government.

The third observation was the existence of champions within the organisation who are willing to collaborate. The Singapore Government adopts a whole-of-government approach which ensures that “inter-agency coordination is emphasised and encour-aged”. CIB was started by a political leader who called on the National Parks Board (NParks) to “rethink how they work and stop doing things top-down”. It was also observed that leaders and “champions can also emerge from clients who have successfully co-produced the service”.

Singapore’s political sphere has been dominated by the People’s Action Party (PAP) since independence. The PAP has made it a central objective to create a competent civil service that is staffed by some of the nation’s most academically talented individuals. This has historically isolated the policymaking process to only the political and bureaucratic elites.

In today’s Singapore, it is argued that such concentration of policymaking power within a few hands is unpalatable for the electorate. From the four case studies it can be observed that the Government is making an attempt to shift away from a top-down approach. Despite these attempts, the actual independent involve-ment of NGOs is still not clear. The Government being the main source of funding and capacity building will certainly impact the level of autonomy exercised by the NGOs.

Networks inService Deliveryby Vignesh Louis Naidu

· Feb – May 2014 13

ASEAN’s Emerging CitiesTake Centre Stage

13

Much of Asia’s growth in the coming decades will be wit-nessed within ASEAN. Long considered a buffer and mid-

dleman between East and West, ASEAN lacks discussion on its capability as an economic and geopolitical player. Yet, its nominal GDP was $2.3 trillion in 2012, nearly double that of India’s.

Emerging cities in ASEAN will take centre stage in the region’s growth narrative, as how growth in ‘industrial revolu-tion’ Britain had relied mostly on its outlier cities. Leveraging on this increased awareness of emerging cities, the LKY School in conjunction with Oxfam organised the Asia Development Dialogue (ADD) ‘Building Resilience and Effective Governance of Emerging Cities’ on 7 and 8 April. Mayors and officials from over 30 cities were invited to Singapore along with experts and academ-ics to share their experiences and gain new insights.

Ora-orn Poocharoen, Assistant Professor at the LKY School and member of the ADD Advisory Committee said, “As Asia assumes a role of primacy in the global economy, emerging cities will be the engines of growth within the ASEAN region. Growth that is both equitable and sustainable can only be achieved through effective governance and resilience capacity building. The Asia Development Dialogue allows leaders of these cities to share best practices and brainstorm on solutions for shared problems.”

To invest in Bangkok, Jakarta, Manila and other capital cit-ies, a plethora of challenges including high rent, a limited market of suitably skilled but highly mobile labour, longer approval times and stiff competition from existing players will be faced. Many multinational organisations have already jumped on this emerg-ing cities bandwagon. In the Philippines, for example, the leading global providers of business process outsourcing (BPO) services have expanded their delivery centres in these emerging cities such as Davao and Iloilo. Global manufacturing companies have also established their factories and processing plants in these emerging cities.

Emerging cities are also the ideal incubators for local start-ups. Business owners can take advantage of lower rentals and reduced

wages. Businesses should look to grow out of emerging cities to capital cities and not vice versa. To ensure that these emerging cities provide business owners with the necessary eco-system to thrive, honest and effective governance is key.

As ASEAN undergoes its own wave of democratisation, decentralisation is a consequent by-product. This leads to greater autonomy for secondary cities but also creates increased opportuni-ties for corruption and usurping of power. It is necessary to ensure that capacity building is held in great importance by city officials. A city with independent and ‘clean’ organs of state is necessary to ensure sustainability and growth. Traditionally, ASEAN countries have focused on their primary cities and not paid sufficient atten-tion to capacity building in emerging cities. ASEAN should utilise existing networks such as the ASEAN University Network and ASEAN Foundation to provide expertise, training and support in capacity building to city officials.

Resources would also need to be invested by these cities in ensuring that their resilience capacity is built up. Tragically, many ASEAN nations are prone to natural disasters, the Boxing Day tsunami and Typhon Haiyan are just some of the more devastating examples. Despite great leaps in technology, disasters like these are almost impossible to prevent. Cities can only mitigate the damage inflicted.

Emerging cities can also effectively act as test beds for new and cutting edge technological innovations. It is logistically much easier for large technology companies to test and evaluate their products in emerging cities allowing them to be technological leaders within their respective countries. As ASEAN prepares to take its place on the global stage, its leaders should not be solely focused on the primary cities but also appreciate the importance of emerging cit-ies. Vignesh Louis Naidu is a research associate at the LKY School. He is alsothe project manager for the LKY School’s research study on emerging cities in ASEAN. McRhon Banderlipe is a senior executive at Executive Education. : sppvln@nus.edu.sg; sppbmris@nus.edu.sg

by Vignesh Louis Naidu, and McRhon Banderlipe

Feb – May 2014 · 14

14

Asian Perspectiveson the Ukraine Crisisby Yvonne Guo

What do Asians think about the crisis that is unfolding thou-sands of miles away in Ukraine? The answer was: whose

narrative do you believe? A panel of four professors – Kishore Mahbubani, Kanti Bajpai,

Huang Jing and Heng Yee Kuang – set out to provide some answers during the Dean’s Lecture Series on The Ukraine Crisis: Asia's Reactions, on 20 March 2014. The discussion highlighted many interesting – and often unexpected – insights both from the panellists and audience.

Dean Kishore Mahbubani opened the discussion by comment-ing that events in Russia had been perceived and expressed differ-ently in Russia and the West.

The Western narrative, which dominated the media, was clear: people rose up, got rid of a bad ruler, and the world should wel-come what happened in Ukraine.

The Russian narrative however, was quite different. At the end of the Cold War, the Russians had believed that NATO would not expand eastwards – and hence were shocked when NATO crept to Eastern Europe.

When Crimea fell to Western forces, their naval base and only

warm-water port was threatened. In an effort to hold back NATO at their doorstep, the Russians felt that they had to get back Crimea. He predicted that the Russians would go no further, and that after a few nominal sanctions, the West would accept Russia’s occupation of Crimea.

Huang Jing explained that in the context of the new relation-ship between Washington and Beijing and their mutual interests, China should have supported the US position and condemned Russian intervention.

However, China refused to do so for three reasons. First, China’s long-term principle was non-intervention in other coun-tries’ internal affairs. The United States had violated this principle by mobilising opposition against a democratically elected govern-ment and president. Second, China wanted to build a good rela-tionship with Russia for security, diplomatic and economic reasons, and also to gain Russia’s support.

Third, the West’s position was a clear case of double standards when compared to Kosovo in 2008, since Kosovo’s independence had been illegal and against international law, but the West had taken no action to present this. China’s abstention in the Security

(L-R) Heng Yee Kuang, Assistant Dean (Research), Kishore Mahbubani, Dean of the LKY School, Kanti Bajpai, Vice-Dean (Research), and Huang Jing, Director, Centre on Asia and Globalisation

· Feb – May 2014 15

Council, although ostensibly neutral, had been a sign of support to Russia. This was why Putin had thanked the Chinese people for their support.

Kanti Bajpai discussed Indian official statements with regard to the Ukraine crisis. Although the first reaction in the Indian press had been supportive, the language used by India’s Foreign Minister, Shivshankar Menon, was nuanced, “There are legitimate Russian and other interests,” he had said.

India made two other key points: first, India sought a peaceful resolution and was the first major power to come out against sanc-tions; second, India would support a Ukranian resolution stressing territorial integrity but not a resolution condemning Russia.

Bajpai noted, however, that India was uncomfortable with the situation. Because India had territorial problems with Pakistan (over Kashmir) and China, India was uncomfortable with the idea that Russia had taken over Crimean territory because 98 per cent of ethnic Russians wanted to join Russia. It was surprising, there-fore, that India would come out pro-Russian.

However, there were many reasons why India did so. Russia was India’s biggest arms supplier, supplying 70 per cent of its weap-ons. Moreover, India had its eye on Russia’s huge energy sup-plies. Finally, India’s growing unhappiness with the United States also played a role. India’s nuclear deal with the US had gone sour; this was compounded with difficulties over a range of issues - with regard to Afghanistan and Pakistan, American complaints with Indian trade and investment policies, and even America’s shabby treatment of an Indian diplomat accused of mistreating her housekeeper.

Heng Yee Kuang discussed Japan’s reaction to the crisis. He pointed out that Prime Minister Shinzo Abe was caught between his traditional G7 partners and Russia, which he termed “the only bright spot in Japan’s neighbouring diplomacy”.

Abe had held bilateral talks with Putin five times since tak-ing office and was optimistic about his chances of signing a peace treaty with Russia. Abe had also attended the Sochi Olympic Games despite boycotts from many Western countries. Russia and Japan had just launched talks on defence and security relations. This was in sharp contrast to the cold relationships Abe had with South Korean and Chinese leaders.

Thus, the Ukraine crisis had come at a bad time for Japan. Because it opted to go along with its G7 partners and impose sanc-tions on Russia, Tokyo froze all talks on trade, military and invest-ment with Russia. The Japanese industrial minister did not attend a recent Russo-Japanese investment forum because of the Ukraine issue, and the Japanese foreign minister declared, “We cannot over-look Russia’s attempt to change the status quo by force” - the same

language Japan had used to oppose China’s position in the South China Sea. Japan feared that China might mimic Russia’s actions. Japan’s basic position was its insistence on upholding the rule of law in international relations, rather than supporting a power-based order.

When Mahbubani asked the audience whether they supported the position of Russia or the West, an overwhelming number of participants raised their hands in support of Russia.

However, questions were raised surrounding the wisdom of Russia’s strategy, which Huang called a “rash” decision. Bajpai sug-gested that the decision to intervene in Crimea might have been taken impulsively, due to Russia’s “sense of victimhood” and “infe-riority complex”.

Similarly, Heng argued that the Ukraine crisis provided a good case study for “decision-making under crisis”. Huang argued that Russia might be forced to look towards China and India as a result, and declared that the crisis was a “godsend” for China.

Mahbubani, however, argued that the West had pushed Russia into a corner that gave it no option. The discussion ended with the panellists discussing Margaret McMillan’s controversial argument: a century on from 1914, when a small crisis in an obscure part of Europe had led to WW1, dark clouds still hung over the region. Although Mahbubani was quick to argue that the present situa-tion was different, the historical comparison left the audience with much food for thought on the changing perceptions of sovereignty and power in a world connected on so many levels. Yvonne Guo is a PhD Candidate at the LKY School.

15

Asia needs leaders who can cham-pion its growth through challenges

that straddle the social, political, economic and cultural arenas. Driven by this vision, The Asia Foundation created the Asia Development Fellows Program, where highly qualified and young professionals across Asia will have the opportunity to strengthen their adaptive leadership skills that can be creative and transformative, and acquire more knowledge of the region’s critical development issues.

For its inaugural batch, 10 accom-plished and inspiring fellows were selected from over 600 applicants in 18 countries where The Asia Foundation holds exist-ing programmes. They represent nine Asian countries: China, Indonesia, Mongolia, Myanmar, Nepal, Philippines, Thailand, Timor-Leste and Vietnam. These fellows were directors, executives, social entrepre-neurs, journalists and researchers from the public, private and non-profit sectors.

The fellowship kicked off with a four-day Leadership Training Programme at the LKY School from 5 to 8 April 2014. The programme focused on developing the fellows’ leadership strategies in a world that is volatile, complex and ambiguous. An authentic and adaptive leadership is needed to manage change, engage diversity, and reflect emotional intelligence, amidst new trends such as social entrepreneurship, social media and social impact and innova-tion. The lead faculty for this programme Mr. Philip Merry, Chief Executive Officer

of the Global Leadership Academy, holds more than 30 years’ experience as a global leadership speaker/consultant.

In his opening remarks, Mr. Donald Low, Associate Dean (Research and Executive Education) at the LKY School of Public Policy mentioned that in the case of Singapore, different types of leaders were needed in order for the country to thrive. As society becomes more complex, leaders today need to be more resilient, dynamic and responsive amidst myriad changes,

differing opinions and increasingly complex social and political values.

A networking lunch saw the fellows join some 15 LKY School graduate stu-dents. The session allowed an exchange of both the fellows’ and students’ perspectives on the different development challenges in Asia and on what kinds of leaders can help propel inclusive growth in the region.

One participant commented that the programme gave a better understand-ing of the individuals’ unique strengths and weaknesses, and understanding dif-ferences in leadership qualities allows for one’s self-improvement in their journey to become better leaders. Another partici-pant remarked that her interaction with the LKY School students was valuable in this programme.

Subscribe to at http://lkyspp.sg/subscribe-to-GIA

Leadership Strategies in a Volatile World: The Inaugural Asia Development Fellows Program

McRhon Banderlipe, Hidayat Hamim and Chin Kai Liare from the LKY School Executive Education.: sppbmris@nus.edu.sg, hidayat.h@nus.edu.sg, and sppckl@nus.edu.sg.

As part of their fellowship, the Asia Development Fellows also partici-pated in a workshop hosted by the Manila Office of The Asia Foundation on Asian Development (9-13 April), in Manila, Philippines. A two-week lead-ership dialogue and exchange will fol-low in September, in San Francisco and Washington D.C., USA.