Happy New Year!

The following is a Press release I wrote in my capacity as SG of  The Reform Party. The more I think about it the more it concerns me that the Committee could make such a fundamental error  in their  understanding of median calculations. You’ll find my explanation of the  true figure in the Press release below under the heading,

“The committee said that with the discount, the pay is actually closer to the top 1,400th earner.”

Wrong! The median of the top 1000 is the mid-point between the 500th and the 501st earner. Applying a 40% discount to the amount earned by the 500th earner does not mean that the resultant salary would necessarily be close to that earned by the 1,400th earner or even the 700th earner (which is what 40% more than 500 comes to ). ………”

Did the committee actually deliberately attempt to mislead the public? At the time that I wrote my Press release I thought not – but  now I’m not so sure. Maybe when feedback came back to them that linking Ministerial pay with the top 0.02%  of earners in the country would send the wrong message they sought to downplay it. The figure 1,400th sounds so much better than 501st or even 700th. The only other explanation for the fundamental mistake  is that they don’t understand the Math. We need to be seriously concerned about this. If  a civil servant heading an enquiry produced this type of error anywhere else then heads would roll. In may opinion it goes to the heart of credibility of the whole report.

Those of you who are interested can find an earlier release on the same subject published in May  soon after the announcement was made where I made proposals some of which have been picked up by the Committee . http://thereformparty.net/about/press-releases/the-reform-party%E2%80%99s-response-to-the-setting-up-of-a-committee-to-review-ministerial-pay/

Anyway please do read on and let me have your views.

Press Release

The Reform Party is disappointed by the report of the Ministerial Salary Review Committee released today. The Prime Minister first announced that a review of ministerial salaries would be commissioned as a response to what was seen as a critical criticism of the Government during GE2011. In short it was a public relations exercise. Judging by the report issued by the committee today, the government may be in danger of scoring an own goal. The overall impression is that the pay review recommendation will entrench the public view of Ministers as overpaid and the PAP leadership as an uncaring, elite out of touch with the needs of the majority of Singaporeans.

We feel it was a mistake to peg the salaries to top earners and by installing a cut in basic salaries the committee is admitting that ministers were previously overpaid. Despite Mr Ee’s description of Singapore as a ‘rock’ with a unique set of conditions he cannot justify the continued disparity between ministerial pay here and that of any other advanced Nation. The amount that Ministers will take home is still obscene and the recommendations will only encourage divisive policies. The committee was not open, sufficiently independent nor transparent in its workings nor did it recommend complete transparency. The methodology is suspect, the statistics are erroneous and the weightings are not disclosed.

We understand that the Committee is between a rock and a hard place. On the one hand their recommendations need to placate the public anger over ministerial salaries and so appear to make the PAP elite seem responsive to the voting public come GE 2016. On the other hand they need to continue to make the government political service an attractive and fulfilling career move for the ‘talented.’

Basic misunderstanding of median calculations
We will look at some individual areas of the report and Mr Ee’s preamble in more detail below. But before we go into that we would like to draw attention to a fundamental beginner’s mathematical error made by the committee. According to today’s report by CNA,

“The committee said that with the discount, the pay is actually closer to the top 1,400th earner.”

Wrong! The median of the top 1000 is the mid-point between the 500th and the 501st earner. Applying a 40% discount to the amount earned by the 500th earner does not mean that the resultant salary would necessarily be close to that earned by the 1,400th earner or even the 700th earner (which is what 40% more than 500 comes to ). It would depend on the distribution of incomes between the 500th and the 700th earner. A reasonable inference resulting from this kind of elementary statistical mistake leads one to doubt the quality of the statistics used by the committee to underpin the pegging of the salaries and the Key Performance Indicators for bonus awards. We cannot believe that the committee would deliberately be disingenuous or mislead the public with such an erroneous statement so we must assume that this kind of fundamental error is merely indicative of the ‘top talent’ that the government attracts.

The three guiding principles
Mr. Ee describes the three main principles which he kept in mind whilst producing the report as being
1. a desire to keep ministerial salaries competitive in order to attract the right calibre of talent
2. to safeguard the ethos of sacrifice entailed by public service , hence the discount
3. to produce a clean wage system with no hidden perks

In an interview with Today newspaper in May 2009 I said that absolute power doesn’t produce corruption as generally believed but rather leads to a government of ‘yes men’, which is flabby thinkers, devoid of new ideas. To quote from that interview, “The problem with the one-party system is not corruption – at least not in Singapore because the Government is not corrupt – but it leads to a society closed to new ideas, with too many “yes men”.

Nearly three years later this essential problem has not changed. It is not the salaries that are attracting or keeping away talent, it is a society closed to new ideas that 50 years of PAP rule has produced. Pegging salaries to high earners will only entrench the dearth of talent bringing in as it does all those motivated primarily by concern for their pockets. Within the PAP the cadre system reinforces this by making those who want to advance to ministerial rank dependent on the top leadership rather than on election by their peers. Outside the GRC system and other insults to democracy have long ensured walkovers for those who stand under the PAP banner. In GE 2011 we witnessed Chan Chun Sing move from being a General to being a Minister without one vote ever being cast in his favor by the public who pay his salary.

Principles one and two contradict each other. Public service is either public service and our leaders are servant leaders or they are in it for the money and their salaries need to keep pace with the top 500 earners. A discount on the 500th highest earner isn’t a sacrifice by any definition that any ordinary Singaporean could relate to and to call it a sacrifice is deeply insensitive in the current economic climate.

Principle number three can only be satisfied with complete transparency over actual amounts as well as weightings and statistics used. We see no reason at all why there should not be complete disclosure of ministerial pay including transparency of bonus payments received. This transparency should also extend to ministerial assets, investments and directorships, including a requirement that conflicts of interest be avoided by the use of a blind trust. If the government believes the amounts are reasonable and justified they should have no trouble declaring them.

No qualitative change
In any case the new method of calculating ministers’ salaries by using the median earnings of the top 1,000 earners who are Singapore citizens and then applying a 40% discount represents no qualitative change from the previous method. It is still not clear whether earnings mean purely returns to labour (wages and salaries) or also capital returns (capital gains, dividends and share options).

In any case the resultant benchmark still leaves ministerial salaries pegged at the level of the top 0.02% of Singaporeans. The committee has shot itself in the foot with this visible demonstration of how out of touch the PAP elite are with the other 99.98% of the population that lives on this ‘rock’. They are in effect saying that only the top 500 earners matter. It is the financial version of the cadre system and indicative of a fascist mindset that believes some classes of people matter more than others.

In 1994 the government introduced the proposal to peg salaries to top earners to attract talent and to prevent corruption. Public servants should not be corrupt and should not need to be paid to keep their fingers out of the till and in any case there has been corruption in the civil service despite this. The only safeguard against corrupt practices is openness and transparency.

Encourages divisive policies
It also gives Ministers a powerful incentive to pursue policies that increase the earnings of the top 500 even if this comes at the expense of the incomes of median Singaporeans. An example would be the deliberate policy of allowing the virtually unlimited import of cheap foreign labour which, by compressing wages for those in competition with foreign workers, has swelled the profits of companies operating in Singapore. This would be reflected in the higher pay, bonuses and dividends of their top Singaporean management and the Singaporean owners of companies. In turn, on the committee’s formula this would justify a higher level of ministerial salaries. So it encourages the government to pursue divisive policies that do not benefit ordinary Singaporeans. The Reform Party recognizes that profitability is necessary and that creativity and innovation should be encouraged. We also have no predetermined view on an acceptable level of income inequality. However gains in profitability should be the result of higher productivity and new products rather than by reducing the wages or increasing the squeeze of middle and lower-income Singaporeans.

Ministers can piggy back on genuine wealth creators
Benchmarking ministerial salaries in this manner also allows ministers to piggy-back on the hard work of those in the private sector who are genuine wealth-creators and even to raise the salaries of those in the public sector (both civil servants and executives in Temasek and other GLCs) to justify their own salary increases. The PAP’s record in raising the median incomes of Singaporeans normalized by hours worked over the last ten to fifteen years has been mediocre at best. Our output per hour worked continues to languish near the bottom of the developed world. Yet our ministerial salaries will, even after the pay cuts, be hugely out of line with those paid in countries with a more successful economic track record on productivity. The PM will still earn, in basic salary, about five times as much as the US President or the German Chancellor, yet Singapore’s output per hour worked has increased at only about 50% of the US rate over the last ten years.

Benchmark to Key Performance Indicators
The committee took 7 months to produce the report. Yet, the decision to use a variety of KPI’s was already recommended by the Reform Party in our press release of 23 May 2011 (http://thereformparty.net/about/press-releases/the-reform-party%E2%80%99s-response-to-the-setting-up-of-a-committee-to-review-ministerial-pay/). We called for a much lower basic salary and a variable component which was based on a much wider set of Key Performance Indicators than the GDP growth rate. The GDP growth rate is an unsuitable performance indicator, which can be manipulated by the government through an influx of foreign workers or overly generous tax incentives for foreign investment.

We are thus pleased that the Committee has taken on board part of our recommendation and that the National Bonus will be pegged to the growth rate of real median incomes as well as the growth rate of real median incomes of the twentieth percentile as well as GDP growth rate. However we are concerned that the Committee has not disclosed the weights to be used for the different indicators as well as the fact that the production of the statistics used to calculate the bonus remain under the government’s control.

Lack of credibility
The Reform Party therefore calls for the privatization of the Statistics Department so as to make its independence from the government more credible. We also believe that the use of GDP growth rates as a criterion should be abandoned and that median incomes should be normalized by dividing them by hours worked to get a better measure of productivity growth. In addition it is not clear what will happen when the growth rates of these indicators is negative. Will there be a high water mark, like there is with hedge funds? Will ministers have previous bonuses deducted in these circumstances?

Conclusion
This report and the recommendations demonstrate that the government is not concerned about the welfare of ordinary Singaporeans and sees itself as a class apart. It demonstrates not only the uncaring, elite face of the PAP leadership that lives in an Ivory tower but shows how divisions and fault lines in our society are caused by the government and its tired old elitist policies. Tax payers have no reason to celebrate.

Published by kjeyaretnam

I'm a Singaporean economist who became an opposition activist. I blog to provide an alternative to the porkies that the Pinkies tell. It just so happens that my alternative is the truth. That's why I've never been sued in any civil or criminal court no matter how hard hitting my criticism. I'm quoted and interviewed and asked to speak across the world but largely censored in Singapore in an effort to silence my political opinions. The left hate me because they think I split their vote and because I eschew their outmoded economic models. Models that don't work. The Right and the Conservatives hate me because I'm a liberal. I'm not sure what the middle think of me. I don't think there are more than a handful of people in the middle, here in Singapore. I'm a Singaporean born and bred, dual heritage, my parents Singaporean established here before the State of Singapore was created. I'm not Eurasian. I read economics at Cambridge and could be broadly described as from the Keynesian school but I believe in interventions. I was formerly a successful hedge fund manager. After economics and politics my greatest interests are history, film and Makan. I run but I run so I can eat like a Singaporean. View all posts by kjeyaretnam