Intellectual moral hazard and outsourced thinking

If we compare Singaporeans with Hong Kongers or Americans (who tend to be much more entrepreneurial), the difference in how they view the government is pretty stark. Ronald Reagan once said, "The nine most terrifying words in the English language are "I'm from the government, and I'm here to help." In contrast, most Singaporeans tend to start their proposed solutions with "The government should..." as in "The government should limit immigration", "the government should not ban some books", etc.

I have always wondered what is the cause for this. While I'm not entirely sure, I'm hazarding a guess that perhaps this comes from a degree of intellectual moral hazard.

Moral hazard
A foundation of Singapore's policy philosophy rests on the concept of "moral hazard", which sounds very complex and deep but is actually not. If I remember correctly (possibly from Connections the TV show or the column), the term came about as early insurance companies (after the Great Fire of London) noticed that homes with fire insurance had a higher probability of burning down.

A related concept is the idea of freeloading: everyone has probably experienced a freeloader at some point. The guy on your team who does no work but shares the credit? Yup. The footballer who doesn't do anything but is on the team that wins the world cup? Yup. And so on.

If one looks at the Singapore government policies, invariably the idea of moral hazard comes about. That's why no matter how much the Singapore government subsidises citizen services, there is always a payment of a nominal sum to ensure that there is no moral hazard: citizens have some skin-in-the-game as their money is in it, so to speak.

What not many policy owners realise, though, is that this has increasingly obvious down-sides:
1. By exchanging money, the state enters into a monetary transaction with its people. This creates a mindset of "I paid for the service", regardless of the degree of subsidisation.
2. There is also intellectual moral hazard: people no longer think for themselves or for the collective good, but they appear to have mentally outsourced thinking to the government.

Outsourced thinking
There are many dangers to this outsourcing mindset, not least "it's not my problem, it's the government's problem." This is perhaps the core reason why the Singapore political dialogue has become increasingly cynical and non-constructive: on the blogosphere, it's increasingly obvious that people are just venting their spleen and demanding accountability etc., without really thinking through.

The other thing about this type of outsourcing is the agent-principal problem (notice how few real estate agents buy property when they are urging all their clients to do so?).

Combine this with sycophancy (which happens wherever there are hierarchies) within the government, and there's a high chance that Singapore will end up making the wrong choices for our future.

Removing intellectual moral hazard
In the long term, this is a negative development, but I'm not sure how we can go about counteracting this.

One way is for the government to enable self-help groups & to encourage civil society. To their credit, this is something that the PAP has articulated previously. With more Singaporeans helping themselves, perhaps this will create less of a mental dependency on the government.

Another way is to re-structure Singapore politically, along the lines of what Cherian George had mentioned before (see here). In the longer-term, we need to see a greater vibrancy of market competition in the political sphere. How can we have such competition if there is an unfair market structure to begin with?

These are just two of my thoughts. What do you think of this? Happy to hear your comments. 

Flatworld? More like Bowl-world

I've been thinking about many things, one of which is the global market of ideas. New York Times columnist Thomas Friedman had written his famous book on the flat world, in which he argues that the world is "flatter" since many innovations (such as the internet) have reduced the distance between places. 

Personally, I've always thought that the analogy of a "flat world" as inaccurate and unimaginative: it's probably better and more accurate to think of the world as a bowl or concave (since the distance between two points within a bowl or concave ARE closer than two equivalent points on a plane...).

In any case, Friedman isn't really saying anything new: the world has always been connected (as evidenced by my favourite TV show from my teenage years, Connections). What's probably been mind boggling has been the speed with which global connectivity has increased, leading to greater non-linearity & probably a more Extremistan world. 

Suggestions to preserve our hawker heritage and food culture?

Famous food blogger ieatishootipost posted a request for suggestions on how to preserve our hawker heritage and food culture in his Facebook post: apparently they will be brought up by Baey Yam Keng for discussion in Parliament. While I'm not sure how much good a Parliamentary discussion will do, I posted an idea of mine in the Facebook thread, which I reproduce below:

My suggested scheme is to PAIR EX OFFENDERS WITH RETIRING HAWKERS. Details below: 

MAIN CAUSE: LACK OF TALENT PIPELINE FOR QUALITY HAWKERS
From my viewpoint, I think the primary problem of Singapore's hawker landscape is a lack of a talent pipeline for quality hawkers. Singapore's hawker landscape can be broadly characterised by two trends: ageing hawkers (without the younger generation replacing them), and declining quality. 

In my non-expert view, the two are intertwined: the ageing pool of top hawkers often cannot find the right people to replace them, especially since their children often do not want to put in those long hours. On quality, even amongst the top hawkers, standards often decline, partly due to natural ageing. A few years ago, I went to Penang for a makan trip and the nostalgia it brought back was mindblowing. Sadly, many hawker places in Singapore no longer have the same standards as they used to have.

PROVIDING RETIREMENT INCOME TO OLD HAWKERS
To combat this, I agree with Irene Foo above that we should find some way to provide "retirement income" to old hawkers, and to train up a new pool of hawkers. I don't think it is sufficient for the old hawkers to just provide a recipe, though: oftentimes, it isn't just a recipe but physical and visual/aural knowhow & knowledge (even things like how to blend flavours, or how to select durian: can these things be fully taught/learned by book/text?). Such know-how can be very hard for an older, less text-driven and less verbose generation of Singaporeans to express to their successors. 

INCENTIVES FOR BOTH OLD HAWKERS AND ASPIRING SUCCESSORS
Also, there needs to be sufficient incentive for the old/retiring hawker to help the young/aspiring hawker: their skin needs to be in the game. Otherwise, there's no incentive for the retiring hawker to fully disclose their recipes/tricks, and we end up with a situation like old kungfu masters who don't fully pass on their knowledge to a younger generation. 

SCHEME OUTLINE
The scheme that I thought of (independently from Irene Foo) is to pair ex-offenders with retiring hawkers. This gives ex-offenders a chance at a new livelihood as an owner/hawker. In exchange, they have to pay X% of their sales to the retiring hawkers (as a royalty fee for the recipes & know-how); it allows the retiring hawkers an ongoing income stream from their knowledge transfer. It also ensures that the retiring hawkers have skin-in-the-game: if they do not fully transfer their knowledge or if they don't help the ex-offenders sufficiently, they also stand to lose. Retiring hawkers can also serve as consultants for ex-offenders who run into trouble/face business difficulties, and can help guide them. 

Such a scheme could help address the talent pipeline issue of our hawker landscape, and also help re-integrate ex-offenders into society. This pairing could be done in collaboration with MHA, Yellow Ribbon Singapore, SCORE and the National Heritage Board and/or NEA. 

Separately, rental is undoubtedly a factor in keeping hawker food affordable. But artificially keeping rental prices low via regulation creates the economic incentive for gaming and real-estate speculation: it doesn't solve anything, though it does create a lot of red tape that runs the risk of stamping out innovation in one of the most competitive and vibrant market places in Singapore. Personally, I think that it is unrealistic to address the rental cost by keeping rental prices artificially low across-the-board.

This post has been an idea that I've mulled on for some time, as I was contemplating the future of my favourite hawkers in Singapore (this mian chiang kueh uncle and a mee pok/bak chor mer stall at Bukit Timah Market). The problem (as I see it) is lack of continuity, since many of my favourite hawkers do not want their kids to become hawkers. The ones whose kids become hawkers often become complacent, and standards often drop: it's been a very rare case where the son/daughter does a better job than the father. Reformed ex-offenders are often looking for a job, so why not pair the two together, as a social/business scheme?

What do you think of this idea, and if it's a possibility we should explore? If you like it, please do like my comment in the Facebook post. 

New year, new habits

One of my new year resolutions for 2013 is to post more regularly on this blog.

Already, I have taken to writing more regularly in a diary (physical, since I am generally skeptical about the longevity of digital technolog. I can't read my old files on my floppy disks, but I can still read my old diary entries written when I was eleven.). The diary has so far proved useful in tracking general behaviour and the upkeep of my new year resolutions. It's also useful in keeping track of my own mind and mental behaviour: helpful as a discipline. It's also useful in capturing thoughts and ideas, some of which are (im not-so ho) pretty good and possibly worth following.

This blog is more public, so rather than the mundane details of a diary entry, the purpose is more to share some thoughts, and also to share what-I-think-to-be-best practices.

Some things which I might write about are:

1. Buddhist thoughts and practice. Increasingly, as I get older and as I get deeper into Buddhist practice (including meditation), thoughts about Buddhist practice tend to populate my mind. 
2. India. I am now based here, so naturally, I will have some thoughts/perspectives.
3. Health and fitness. Not really a fitness nut, but I have always been curious about how to improve my strength and fitness, ever since I was a fifteen-year-old struggling with a weight problem. In particular, my wife knows I can be pretty obsessed about weight loss. That could be due to my obsession with chocolates, too... :p 
4. Philosophy. I think this is a large enough basket to encompass all kinds of thoughts, be they in economics, politics, etc. 

It takes a fair bit of effort to be consistent in writing this blog, and I hope I will be able to do so in the course of the year. 

Thank you for reading, and have a good year ahead too. :)

Idea: markets for ideas?

I've been thinking recently about what-I-call "idea markets". Many organizations and systems tend to think of themselves as that: organizations, hierarchies and systems. But what happens if we think of these organizations and systems differently, as a marketplace where the products are ideas? Here's what I think might happen:

1. The best ideas will come regardless of hierarchy: command-and-control might not work as well. There is a certain democratization that happens from a marketplace approach (assuming that your organizational culture isn't hierarchical), as anyone could have an idea that could work. Does the best idea necessarily come from your boss? No, as the marketplace might already have a solution. Often the best ideas come from one's clients or co-workers. 
2. Crowdsourcing will be more commonplace. Crowdsourcing tends to work best when there is enough depth to demand. Hence, the most commonplace tasks/requirements will likely have the biggest drivers for crowdsourcing (i.e. getting inputs directly from the market) and also for collaborative efforts (especially if the idea-market in question is within the same organization).
3. Career progressions might become different due to different impact of different ideas. For an idea market to work, it must have the main characteristics of a market: strong economic incentives for "effective products", similarly disincentives for "faulty products". However, this type of market incentive is quite different from the traditional pay and incentives of a traditional organization and hierarchy; indeed, it is much more like the incentives for an entrepreneur, and better fits an entrepreneurial mindset than a traditional hierarchy-man/woman. The flipside to this is that an idea market is likely to drive greater income inequality between the top and bottom earners in an organization. 

I'm sure what I'm writing about isn't new and has already been thought of or invented by someone else. Will be happy to hear more comments/feedback from people about it.

Should capital markets slow down?

I've been following the recent Knight Capital algorithm debacle for some time, and am a bit puzzled: what's the advantage of allowing all these algorithms to run amok in the capital markets? In particular, those algorithms that make hundreds of trades per second.

Brokerages and exchanges will want these algorithms in the market, since algos will allow them to earn commissions. With a global trend of declining commissions, most brokerages and exchanges need to increase the volumes to make up for the declining commission rates. Prop firms (including hedge funds and proprietary desks of investment banks) will want these "algos", since the algos supposedly give an "edge" (i.e. competitive advantage over the rest of the market). As my previous trading boss used to say, "no edge, no profit". 

However, if you look at the capital markets on the whole, it's hard to see how the advantages outweigh the risks involved. A rogue algorithm running amok in the market can react much more quickly than any human, causing markets to crash without any underlying economic basis: besides this Knight Capital incident, the Flash Crash of 2010 also comes to mind. This can spread fear through a market faster than you can swear "F----"... and fear (as an emotion) is a dangerous emotion to have spreading throughout a market. Worse, once a "situation" occurs, it's next to impossible to stop it without disrupting the entire market's function. High frequency trading basically raises the possibility of more negative black swans, without any real economic benefit.

It's also arguable if allowing milli- and micro-second trades helps in the price discovery process: is it really meaningful price discovery between a willing buyer and seller who can cognize the price and economic benefit/cost, or is it just "noise" between one algo and another? Can it really be meaningful price discovery if a human watching the exchange (even an experienced floor trader) won't be able to cognize the price, as it just happens far too quickly?

Perhaps as a policy, exchanges globally should consider limiting the speed of transactions, s.t. an algorithm cannot be faster than, say, the typical human reaction time on an electronic trading desk. Otherwise, we run a real risk that the Machines will overtake the markets, and leave us wondering what happened in the aftermath. 

It's been a while...

I haven't blogged on this since I started working in my current organisation. This had to do with lack of time, but also lack of familiarity with the environment: what can I write about? What can't I write about (especially since I'm under the Official Secrets Act)? Rather than risk it all with commentary, I thought it safer to wait a while, understand the "new" landscape, before taking any risks. (The Polish saying "only a fool tests unknown waters with both feet" comes to mind...)

Hence, after a three year absence, I've decided to dip a tiny portion of my little toe into these once-familiar waters. Why? The answer is similar to George Mallory's reply, when he was asked why he climbed mountains: because it's there. If you were to try a six-year-old's interrogation technique (of repeatedly asking "why" to every reply), Mr. Mallory would probably have replied "because I like climbing" and ultimately "because it's fun".

And so, in my case, I'm writing again in this blog, because (a) this blog is here, and some previous blog entries were pretty good, in my not-so-humble opinion, (b) because I like writing, and (c) because I find writing fun.

It's also the case that a blog serves as a great way to capture ideas and thoughts. Reading some of my older blog entries, it's unthinkable for me to be replicate them, largely because the moment is lost. Reading a blog entry, for me, is a bit like re-acquainting myself with my past-self. It's like meeting an old friend (i.e. my self from the past), or more accurately, like a ghost or a memory.

To be sure, there are a few things that this blog won't capture:

1. Nothing mundane ("I ate breakfast today. I had an egg omelette that was fan-TASTIC and black coffee blah blah blah".... FTS). You don't need to know when I take a crap, as it's my own business (literally). 
2. Nothing official or official-related. Everything here is my own personal view and take, and shouldn't be viewed as representative of my affiliates, employers, etc. 

This blog is really an intellectual playground for myself, since I tend to think aloud (but not so quickly that I can verbally improvise). So, really, this blog is a mirror for myself, for me to talk to myself like a narcissistic schizophrenic with split personality disorder. 

But you're welcome to listen in the dialogue. And to comment, too. 

:)