This morning's Straits Times carried a number of reports about the recent G20 Economic Crisis Summit. They have big problems to resolve and no clear solution may easily emerge. But it seems clear in people's minds at least that the current crisis was due a large part to to self interests perpetuated to the extreme, and the failure of that self interest and free market to adequately regulate the financial system. French President Nicolas Sarkozy aptly called it ..."the death of laissez-faire capitalism".
For a long time, this laissez-faire was attractive because it fed the greed and voracious appetites of the capitalist institutions. In recent times it also had consderable appeal to Governments struggling with ballooning budgets. Thus laissez-faire fitted in very well with the idea that governments had to shrink to survive. The regulatory roles of governments were therefore pruned off and hived off into the private sector as vague forms of self regulation. Somehow self interests were seen to be able to take over the government's role in regulating the environment they operated in. Cries of 'caveat emptor' meant the public was on its own. Look out for yourself!
I think the Singapore government took big steps to move down this road as well, when they began 'freeing up' the regulatory environment, and shrinking the size of government. Mantras about 'regulating with a light touch' and 'risk based approaches' are all codified expressions pointing to the shrinking regulatory roles of government. Regulatory authorities, which correctly should be well supported, independent units, are combined with, and often fuctionally subordinated to promotional entities.
The recent melamine fiasco was very much a public health mirror of the financial crisis. Like the financial crisis, it resulted fundamentally from a breakdown as a result of lax and ineffective government regulation. The AVA (Agro-Food & Vet Authority) had proudly proclaimed they operated through this now infamous 'risk based approach' paradigm. Now seeing how the AVA is struggling to contain the situation, the public should question if such laissez-faire continues to be tenable.
But it is unfair to just point the finger at AVA. The MAS (Monetary Authority of Singapore) had also been regulating with a light touch. And if you go to the HSA (Health Sciences Authority) website you will find at least 2 departments there, proudly laying claim to having a 'risk based approach'. Essentially, 'do less, earn more, ... and everyone look out for yourself.' HSA scares me a little, I might add....I mean, ....can regulation of medicines afford to be laissez-faire?
Now that lassiez-faire has been officially proounced dead, dare we hope the government will invest a bit more and provide us better regulatory service?
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Six Years
12 years ago
9 comments:
Everyone n his uncle have been asking the Govt to govern with a lighter touch, to stop being a nannie, to behave as "mother knows best" -- for at least 10 years, if not longer. Vocal singaporeans have been advocating for more freedom to think and act for themselves, in line with citizens elsewhere. Ok, so we've got it, starting with the liberalising of use of CPF money, for all sorts of stuff. Sori lah, I don't sympathise with those who ask to have more freedom and options to choose for themselves, if they choose wrongly or get conned. U see, S'poreans can't have their cake and eat it.Y don't they say they didn't understand about the investment products when they were being sold like hot cake? Y say so now, that things have gone wrong? If we ask for greater freedom to choose for ourselves, we must also take personal responsibility when the cookie crumbles, instead of crying "y didn't u stop me?" like a spoilt child!!Apologies, Dr G for being so strident. I think S'pore has a strong and well regulated financial system, but even MAS can't stop a fool and his money from being parted.
Btw, AVA isn't as laidback and dozing as u sometimes make it out to be.It detected carcinogenic traces in a consignment of canned pork from Ma Ling and Gulong food processing factories and these brands were banned from entering Singapore since August 2007.
Well done, AuntieLucia. No problem with stridency! I like your comments and enjoy having ideas challenged. Must always keep the mind open... :)
Sorry to have taken so long to respond, but it has been a very busy start of the week.
Actually I agree with you fully about the need for less regulations and the freeing up of our society. Enough with the paternalistic approach.
The government is to a large extent correct in reducing regulatory oversight. However, I sometimes question the motives and the implementation of this 'freeing up'.
Reducing regulatory oversight is not just reducing the number of regulations, it must be coupled with a constant revision and restructuring of the the regulatory approach....i.e.less regulations but the quality must improve or at the very least not be compromised.
Unfortunately some of the regulatory agencies in their rush to trim down, have just tended to reduce oversight, but not engage in renewing or restructuring the mindset.
The melamine thing is a case in point. It's not that AVA was doing a bad job with the routine stuff (as you had cited), it was that it didn't seem to have spent much time in understanding the new things happening in the world around. The melamine story was known 18 months ago, but no attempt was made to deal preemptively with the problem until kids started to die in China, and the scandal broke. Could this have been prevented with a bit of preemptive thinking?...Certainly (not just with wisdom of hindsight).
I think it is clear that regulations are important to some extent. A totally unregulated environment ultimately ends in a breakdown of the system and chaos. The financial crisis unfolding now demonstrates the folly of a minimum (laissez-faire)regulatory approach. Singapore was relatively spared because it remained conservative and had not totally dismantled regulations. The minibond saga was to some extent a consequence of deregulation.
You are right to some extent that people should be responsible for what decisions they make. But what if they had been misled? What if they had been unfairly dealt with. Many people affected were those who assumed banks weren't selling high risk stuff. It wasn't supposed to be part of their mission.
Regulatory processes are in place not just to restrict or cramp our lifestyles, but are necessary to ensure an orderliness in the environment, and they serve to moderate the tendencies towards excesses in the environment.
One should also consider that regulations also serve to protect the weak and defenseless in our society. It's fine for people like ourselves to live in a deregulated environment. We will generally Google, email and blog our way through reasonably well (although I must admit I really can't keep with all that I need to know, and must still depend on professional advice). But such an unregulated environment will eventually lead to the strong and the smart exploiting the weak and uneducated. Dog eat dog, I guess. I am not sure, that's the kind of society I want to live in, and am probably prepared to forego some freedoms (more regulations perhaps :)) so that the weaker members of society have a fair chance to get on with their lives.
It's a challenge going forward for regulatory agencies. It was this thought that prompted the posting. Regulatory authorities need to think through these issues a lot more. I am sure they do their share of think, but it doesn't seem enough from where I am sitting.
Lesser but smarter, more nimble regulations is what we need.
Thank u Dr G for being so gracious in the face of my crotchitiness. U must excuse a sanr citizen!
Reducing regulatory oversight is not just reducing the number of regulations, it must be coupled with a constant revision and restructuring of the regulatory approach....i.e.less regulations but the quality must improve or at the very least not be compromised.
It’s an ideal you are quoting: can we have fewer regulations but better quality regulation? Quantity ie the number of rules and quality ie the regulators who devise and apply the regulations are two sides of the same coin. When you push for fewer of one, then you must live with the fact that the quality will go down in the long run, on the assumption that over time those being protected would become more robust in a deregulated environment.
It’s like what you doctors advocate: expose the kids to more dirt and germs and they are less likely to fall sick at the first sip of milk that’s gone off.
Unfortunately some of the regulatory agencies in their rush to trim down, have just tended to reduce oversight, but not engage in renewing or restructuring the mindset.
Sorry, whose mindset do you have in mind? I’m not advocating that financial services should be a free for all. But as you know, banks are better regulated in S’pore than in most places in the world. By capital adequacy ratios, exposure to single client/single industry limits; even ownership rules and investing in no more than 10% of non-bank businesses. In addition, their books are examined regularly (sometimes surprise audits) by MAS inspectors; their directors have to get MAS clearance. These are not mere formalities but have real bite.
Yet at the end of the day, banks are businesses too. They have to make profits for their shareholders and pay taxes so that the poor and defenceless can be supported thru Govt aid when they fall on hard times like now. I dare say our banks pay much of taxes collected.
Since no bank nowadays does pure deposit taking and lending, why shouldn’t banks in S’pore also go for fee-based business? Media and analysts like this diversification and broadening of their business base. So do their retail customers who treat banks like a supermart for financial products. But unlike supermarts, banks, I believe, never sell their products without getting the customer to at least sign an acknowledgement that he knows what he is doing. Now, if a customer signs off his rights and things go wrong, one can tut-tut sympathy but I think it is wrong to compensate him: because he won’t learn from this, unlike the financial institutions which will.
In future, if you are poor, uneducated and old, you will be discriminated against when trying to buy investment products. Worse, should there be truly unscrupulous sellers out there in future and this “poor, uneducated, old” coterie having been rescued once think they always have this safety net and then get truly conned!
As for AVA n melamine, I think there is some hysteria about it. Perhaps a time to deflate China post Olympics so that 2008 won't associate China and the Olympics but China with melamine? After all is said and done, abt 6 kids died in China and hey, it's a country of 1.4 billion people. For all we know, all or some of us are ingesting a micron or two of melamine all the time?
Have a good week ahead and thanks for letting me get this off my chest, tho those who know me will say I can't afford this luxury!, hehe!
:)
Blogging does et a lot of stuff off the chest doesn't it? It's quite therapeutic. So please feel free to rant as the spirit moves...:)
I don't think that as you deregulate the quality must go down...at least not proportionately. Deregulation must be accompanied with a change in the paradigms...and here is where I think the "risk based approach" mantra creeps in. It's what is supposed to represent a paradigm shift. Unfortunately I think people just chant the matra, but no real change...just reduce regulations. So your nets just get bigger holes.
"In addition, their books are examined regularly (sometimes surprise audits) by MAS inspectors; their directors have to get MAS clearance. These are not mere formalities but have real bite."
I think audits are rather limited in their effectiveness as they concentrate only on compliance to procedures. In the spirit of deregulation, there will just be less stuff to audit. Auditors don't examine quality of decisions.
"In future, if you are poor, uneducated and old, you will be discriminated against when trying to buy investment products. Worse, should there be truly unscrupulous sellers out there in future and this “poor, uneducated, old” coterie having been rescued once think they always have this safety net and then get truly conned!"
hehheh...you sound like you are saying, we shouldn't have police patrols or better lighting in dark parks, otherwise people will get used to being safe in these dark places...then what will they do if they wander into some really unsafe areas...hmmmmm.......
and here is where I think the "risk based approach" mantra creeps in.
Sori, I believe the new mantra is "disclosure-based approach" -- which is that companies whether banks or whatever have to disclose whatever they are supposed to disclose under the various regulations. This is in many ways more onerous than when there is a standard n static bible to refer to. But then many disclosures will have to relate to what are market practices and so long as these don't fall foul of enacted laws. Hence illegal insider trading is now fined rather than jailed.
What I'm trying to say is that while S'pore is better regulated than most, if not all, other financial centres of size one can think of, because of de-regulation, caveat emptor is more relevant than ever.
But this is what most vocal S'poreans have been pressing for anyway, right? So, sori lah, when these vocal people were pressing for Nannie to take a back seat, they didn't envisage Lehman, minibonds, hi-notes etc
That's why I'm saying S'poreans shld take responsibility n not blame the Govt, tho of cos the Govt for political reasons must cater to some extent to such unreasonableness. But me, not being a politician has no need for such considerations and can play it as it lays.
As for yr analogy of police patrols in the park: sori, it doesn't work. A better analogy would be for the Govt to compensate everyone who gets mugged: doing that, it will encourage people to be careless and for crime to grow exponentially. Rather, it is better to keep reminding "Low crime doesn't mean no crime".
So, the message for those TKL is catering to shld be loud and clear: if u are old, uneducated and poor, then never put all yr eggs in one basket. And there isn't any free lunch unless u go to a family service centre...
Thanks Dr G for this space...
AuntieLucia, you sure sound like someone who 'grew' up in the finance environment...or is it in finacial regulation? MAS perhaps? :) hehehe...I don't mean to pry...:)
I don't think our views are necessarily incompatible. I can see where you are coming from and I can't disagree with your comments. I guess our balance of perspectives may be somewhat different because of our backgrounds.As a doctor perhaps I am too much of a softie and tend to over protect our weaker members of society. Our professional community is also much less tolerant of 'abuses' by health care service providers and retailers.
Dr G: Thanks for not disagreeing with my comments. U r really gracious. Nope, I'm not from MAS or the finance industry. I just have greater empathy for their arguments. In any case, where money is concerned, it is like food: everyone should and must know something. Even my non-financial literate sister knows enough to say "no" to minibonds etc based just on the fact that our banks are not the orginators of the products, merely distributors. I think it's not a co-incidence that none of my family or friends have been affected by the minibonds, hi-notes etc. It shows we are know there's no free lunch. If normal bank deposit rates are 0.8 to 1%, products that are offering 5% or five times the norm must be considered suspect. Clear as a bell!
Btw, glad that as a doctor u r a softie. U know that joke abt what doctors do with their mistakes, hehe! Really mean this as a joke, so pse don't take offence!
Just to keep a couple of things for consideration, AuntieLucia.
a] It is probably a lot easier to look at financial products and claim caveat emptor. Even so I think it is actually not that easy for the average consumer to fully comprehend the risks. Still one can always just claim, "if you don't understand, don't touch."
But for health care products, the consumer has no way to assess risk-benefits, and will require the retailer to 'advise'. There are many vopices in the public domain and it is difficult for the consumer to sieve out the noise from the real signal. Here is where for health care, the regulator's role is paramount, because the there is a reasonable public expectation that the regulator will not allow a disportionate level of risk-benefit (whatever this may be).
With food saftey, this falls abit into the cracks. Somehow in Singapore, this has fallen out of Health to Env. ut this should not change the paradigm....i.e. the public is still unable on its own, to assess food safety. They require a strong regulatory presence to ensure that the food they consume has a reasonable level of safety (whatever this may be). Caveat emptor rings a bit hollow here.
"disclosure based approach" ?
This kinda means the retailer tells us what is in their products? Yeah, sure....we can surely trust those factories in third world )don't always blame China, lor)companies with questional practices to tell us what they put in their produce.
"risk based approach"
This kinda means we choose to see what we want to see.
hmmm......
It seems to me that as we move to being an open society...our regulatory agencies in Singapore, whether they regulate financial instruments and products or health care type of products, they owe us much more transparency. If they expect us to trust them, they must tell us what we are trusting them to do. Only then we can minimize the discrepancy between what they provide and what we expect.
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