NETS fee hike doesn't infringe Competition Act: competition panel

NETS fee hike doesn't infringe Competition Act: competition panel

Well well, what do you know. It's not surprising that once again, CASE (which has no real power anyway), lost the case against the big and powerful corporate giants. My prediction has come true once more. Most people familiar with how the local citizens operates, thanks to the paternalistic government and restrictive laws that was designed by some scholars to work for the government, will know that Singaporeans can complain all they want but at the end of the day, they have short attention span that render them to forget about anything deemed negative as long as it does not affect them drastically and move on with life. One can hardly beat this Singapore system. If you can't beat'em, join'em!

Liberalized....at least for the moment

Liberalized....PageOne gave me my book XXX that I had mentioned in my previous post....reading time:)

US grads with basic degrees see sluggish income growth

According to a research by the renowned Massachusetts Institute of Technology (MIT), findings show that earnings of the average US worker with undergraduate degree have not kept up with gains in productivity in recent decades, challenging traditional explanations of rising income inequality.

Conventional economic explanation of income inequality state that the rise in the Gini coefficient is largely due to technology trends that disproportionately benefit skilled workers. So if you are skilled, usually proven through education qualifications, your college diplomas will get you bigger bucks than non-skilled workers.

However, this research by MIT seem to suggest a change in definition of what constitutes a skilled worker. As the economy booms, the average graduates in recent decades seem to fail to keep up with the gains in economy-wide productivity, once those productivity gains are adjusted for the composition of the workforce. The premiums one used to get armed with a diploma seems to have diminished. A basic degree had been relegated to the same spectrum as high school qualification. The law of diminishing returns was witnessed in this scenario.

But is this situation viable? Even so in Singapore? Microeconomics taught us that education qualifications allow employers to discern out the productivity of each worker. However, the 3 prong fork of grade inflation, increased supply of degree holders and increased supply of diploma holders, have seeped off the perceived value of a basic degree.

Let me illustrate this clearer. As the economy booms, the number of degree holders has increased dramatically. Pull back to the context in Singapore. 30 years ago, an undergraduate degree is more than enough to qualify one into the exclusive club of degree holders in the country--a figure that do not surpass 5%. This year, in 2007, an estimated 23% of the cohort gains admission into the local 3 universities. Add in the figures for those that embark on degree programmes from overseas universities and those that took up Distance Learning degree programmes, the total figure of those that possess a degree easily surpass 30-40%. With such a large supply of degree holders, the demand for graduates with bachelor degrees could not catch up resulting in a drop in premium for an undergraduate education.

To make things worse, new technological advances demand people who are more skilled than what an undergraduate education can give. Masters and PhD holders are now actively sought out in the working society. Flip to the Saturday classified of Straits Times. More often than not, a bachelor degree seems to be the bare minimum in recent times. To add salt to wound, the boom in diploma holders had blurred the line between the value of a polytechnic diploma and a basic bachelor degree. I should know. Very well in fact. I had a couple of jobs that paid me what is now equivalent to the pay of a fresh graduate with a basic degree when I had only a diploma. I have also seen friends getting well paid jobs with their diplomas and also seen a fair share of friends struggling to get better jobs with their basic degrees. Still, the perception that a degree is the minimum one should get in this competitive society prevails in many JC and polytechnic graduates' minds. This includes myself, thus prompting me to forgo a nice company with a relatively nice pay package and go down the road of a university education.

So what will this vicious cycle leads to? 20 years down the road, bachelor degrees may no longer be the bare minimum. People may have to strive for Masters, Phds or more prestigious universities. I call it a vicious cycle because this situation has no bright future. People want their economy to boom. In doing so, more people will be educated. As the economy grows, more people possess bachelor degrees. Demand for bachelor degree holders could not catch up with the increased supply. Premium for bachelor degree drop. Demand for masters and phds increase. Masters and above constitute the new skilled workers. People start to go for masters. Economy grows further. Demand for masters degree holders could not catch up with the increased supply. PhDs constitute the new skilled workers. People start to go for PhDs. Economy grows further. What next??

The above scenario is anticipated by many of the new generation (including mine), reflecting the bleak outlook for fresh graduates. However, rationally, most economists and academics will deem this scenario as absurd. After all, universities do impose a cap on the number of degrees it issue out. And not anyone can gain an admission (or gifted enough, at least intellectually, to gain a place) to a good Masters or Doctorate programme. In place is an outpour of new universities to cater to the increased demand for undergraduate education. Professional certifications to the likes of CPA, CFA, ACCA, CFP et cetra gains popularity. In some industries, such certifications are almost a pre-requisite in addition to the degree. Degrees from prestigious universities and/or a good honors is of utmost importance if one is to secure a bright future with big MNCs or government boards. Even a second lower rarely gives one a competitive edge (a side note: no matter what some universities claim to be, a UK classification of honors do correspond closely to the US classification of honors like 'magna/summa cum laude').

But a more sinister truth beneath this trend is: as the economy grows, in reference to the above illustration, we can see that the gap between the skilled and the unskilled workers will shift, and most probably widen. The income inequality gap will worsen. The pyramid of social stratification will then stack up further resulting in a larger hierarchy gap. No doubt, the inevitable corollary of social conflicts will arise. A quintessential outcome from growing capitalism.

This is a major problem faced by many countries including Singapore. To combat the problem, the Singapore Government had announced an increased budget to help lagging citizens and implement more 'social welfare' programmes (the words 'social welfare' are still considered an extremely dirty phrase to the Singapore Government) by introducing a 2% hike in GST--A concept endorsed and encouraged even by Greg Mankiw, a renowned Economics professor at Harvard University. How many people support this policy I do not know. Personally, I do not support this very much as it may give rise (or rather, it had) to further inflation, compounded by the multiplier effect of the tax. I will list my reasoning in another entry in the near future. For now, let's hope that I am wrong and the government is correct in adopting this approach.

Case slams Nets fee hike as a 'great disservice'

For this, i wish to give CASE a pat on their backs. Finally, an advocate for the commoners against corporate giants! As what I had predicted in my previous entry, the 2% hike in GST is going to be used as the perfect reason for anyone or any business to hike up their pricing citing increasing costs and thinning profits.

Before I go about bashing the 3 local banks, OCBC, UOB & DBS that owe the Nets system, we have to recognize the fact that banks exist to make profits. And corporations have their loyalty linked not to any single individual or even their own CEO. They are only loyal to dollar signs. It is as cold as it can be but it's reality. It is therefore, understandably justified, that when a chance present itself to increase price which in turn increase profits, they have to grab it.

The 3 banks cited that because debit cards and credit cards earn the bank between 1.15 to 1.69 percent of the purchase price, which is much higher than the current rates of 0.35 to 0.55 percent of purchase price for purchases through NETS, they have to increase the NETS rate to 1.5 to 1.9 percent, so as to avoid the NETS system being priced out of market. A rather noble reason if you ask me. But all the same, it is bullshit. By increasing the rate, the 3 banks effectively have 2 payment methods -- NETS & debit cards (and credit cards, but that is not within the scope of this discussion, nor is it comparable, so it will be very much taken out of context here) that earns them higher transaction fees.

And no no no, the 3 banks should never cite increased competition as a reason to hike fees. A perfectly competitive market would mean the lowest price possible with zero economic profit. Saying that, it would mean that the banks should not have the market power to move prices. By saying that they have to increase price due to competition would only mean one thing: They have the power to change price across the market. They have great monopoly power! It was simply an insult to our intelligence by expecting us to buy their crap story after that statement. The worst part: citing competition between NETS and debit cards. Hey, the 2 products are products of the SAME organization! It's like telling me Microsoft XP is S$150 and the company earns S$100, and Microsoft Vista is S$160 and the company earns S$120. And because Vista earns the company more profit, microsoft has to up the price of XP to S$170 to avoid being 'priced out of market'. It does not make any sense!! You wanna cite competition? Fine, bring in Citibank (since renamed a simple 'Citi', and Singapore's first licensed full-fledged offshore bank), bring in StanChart, bring in RBS, bring in Barclays, let them collaborate on a new Nets system. In fact, I encourage these offshore banks to come together to provide more debit cards to Singaporeans. I see business opportunity here in wrangling business away from the local banks.

On closer analysis, going by the figures, they are planning to make it more lucrative through NETS as one can see the higher percentage charged for purchasing price. 1.15 to 1.69 percent for debit and an increased figure of 1.5 to 1.9 percent for NETS. A no brainer if you ask me. And by pricing debit cards transactions lower than NETS would mean more profits as it is generally known that more people pay through NETS than debit cards. 5-10 years into the future, because more people pay through debit cards due to its lower transaction costs, and as the banks see their gold pot dwindling in NETS but another new pot of gold appear with big letters stated 'debit card', will the banks then say, "Oh, because the NETS earn a higher fee for the bank, I think it is just right that we increase the rates for debit cards so as to avoid debit cards from being priced out of the market."?

Here is the true story. 22 years ago, debit cards are almost non-existent in the United States, all the more unheard of in Singapore. Because not many people qualified for a credit card, the banks bank on a new system called NETS that can contribute to much convenience and the evolution of a cash-less society. For all that, the banks get to earn transaction fees from all purchases, a lucrative market worth at least S$10 billion [I do not have concrete data here. But if lecture notes from the National University of Singapore is any reliable data, the figure is placed at S$8.1 bn in 2004, adapted from the module Money & Banking 1]. The best part is, the banks do virtually nothing except putting up ads encouraging people to spend via NETS.

15-18 years down the road, the financial system has evolved. Debit cards are introduced and promoted in Singapore and as debit card functions similarly to credit cards and NETS, the banks priced it higher than NETS and similar to credit cards. Now one fine day (only recently), the 3 top bankers at the 3 local banks realized that debit cards serve the same basic function as NETS in local context and earn them higher fees. 'Ding!!' a Big gigantic lightbulb lights up in their heads. "Eureka! We have strike GOLD!!"

They have 3 options. Allow the situation to continue and accept the fact that they are losing out on opportunity costs by leveraging on increased prices for transactions through NETS. Second option: Face out NETS, bear the full brunt of public outcry and in turn compel everyone to get a debit card so as to earn higher fees. Third option: Increase the transaction price for NETS, price it higher than debit cards, with a noble reason of avoiding the system being priced out of market hoping that the public 'understands'. In the process, they will earn even higher fees than choosing option 2, and has 2 money making channels instead of one. By doing a cross benefit-cost analysis and a weathered down discounted-cash-flow model, these MBA/CFA bankers conclude that Option 3 is the best option. In fact, option 3 will bring in more monies and pave a path for future increments.

It is mentioned that CASE will file a complaint with the Competition Commission of Singapore against NETS's monopolistic practice. But I do not harbor much hope. A prospective fee hike equates to higher potential net profits. This will then be enjoyed by large and powerful individuals, investors and financial institutions, shareholders of the 3 local banks, including our dear Temasek Holdings and probably GIC (since GIC is supposed to be the 'safe investor' of national assets as opposed to Temasek's more aggressive investment style, and banks are traditionally rather safe bets). So all price increase benefit business owners, benefit shareholders, benefit government, but all paid for by commoners who have no choice but to live with it. It is no surprise that the Gini coefficient continues to rocket up. I will be surprised if the government acts on this issue, of which I would believe is done more to mollify the public furore against inflation due to the 2% hike in GST rather than to go against monopolistic practices. After all, we do have a monopolistic government to begin with.

Discounts = Lower Supply + Higher Demand

So it's the annual GSS. Once again, given the 20% discount for all English books, I am washed with joy as I made my way to PageOne at Vivocity in the hope of getting the books that I have always wanted. As I went in for a kill, to my great disappointment, I could not seem to find the books that I had aimed for so long. Determined to get it, I approached the counter staff and consulted them about it.

Me: "Excuse me, I am looking for this book called XXX. Can you possibly help me check whether the shop has any stock?"

Staff: "Please wait for a moment while I check for you sir." [typing away at the computer while I waited earnestly for it]

Staff: "I am sorry sir but the book that you are requesting is out of stock at the current moment."

Me: "Oh [disappointed]...So what about the book YYY?"

Staff: [without checking]"Oh I am afraid that this book is out of stock too."

Me: "WHAT!? So are you guys stocking in the 2 books mentioned?"

Staff: "Yes sir, I believe that we are making orders for it. But it may take a few weeks to come. Maybe you would want to leave your particulars so that we may contact you when the stocks arrived?"

Me: "Haiz, ok"

and then I left the store a dejected person, wondering how could the staff possibly know there isn't any stock left for book YYY without even checking. There are only 2 possibilities. Either the demand is so great that hundreds of people rush to buy and hundreds more like me who asked the staff so many times that she has to know, OR there's a conspiracy going on with the staff hiding all the popular books during promotional period. After all, when people gives discounts, it's to encourage buyers to spend more on their product. But if you have some products with a very inelastic demand curve, giving discounts on it does not make any business sense as you know that people may still buy even when it is at it's original price level.

This scenario is just so common. Whenever there are any discounts given, suddenly the supply curve would turn to the left 1000 miles while the demand curve turns to the right another 1000 miles. Because price is rigid, the quantity reverts into zero (since common sense will tell you a negative figure is not possible). Take Borders for example. One fine day (or any other fine days without promotion), I see stacks and stacks of book YYY. The next day, when I got some vouchers on 20-35% discount, those stacks of book YYY suddenly magically disappeared and I was told again that there is no stock. Upon consulting the staff, I will be told that orders had been made for the books and it will come in a few weeks time--conveniently after the promotion period.

For those in the know, book YYY is written by Benjamin Graham, a very classic book. I didn't know that there is such a huge fan base for Benjamin Graham here in Singapore. And no, I am not telling those who are not in the know what is book YYY, in case you are going to contribute to a rightward shift in my demand curve.

What goes up comes down? Not in Singapore. At least in the next 50 years

One magical aspect of the laws of supply and demand (with reference to singapore especially) is: in regard to price, the laws of gravity hardly works. Once the price goes up, even when the supply problem is solved, other factors come into play. Predictable factors such as increased labor costs, increased materials cost, increased demand (such a convenient reason isn't it? Anything has to be brought about by an increase in demand, including the hoo har over increased demand for university places, so publicized in our local news lately), increased A, increased B, increased C blah blah blah. So the price remains at that level, paving a trend for more upward revisions. The increase in GST is the perfect reason to up price for all other industries. Result? Inflation.

On the other hand, inflation to any economist is not something that is undesirable. We are taught that inflation is normal. In fact, it's good. It shows that the economy is booming. People spend when they feel rich. In turn, demand goes up. And through some intricate mechanism of the asset market, labor market, capital market etc, which I am not going to explain due to its technicalities, prices go up. And tadah, the government believes they had made you and I happy and rich, and they elevate themselves a step closer to nirvana short of being labelled saints, rewarding themselves with offerings from taxpayers.

What is not taught in textbooks: When measuring the economy, say in terms of GNP or GDP, even if only an individual profits a pot of gold, but if it far exceeds any drop in production by other commoners, it is still recorded as an increase in production on the overall. This situation is nothing special. It is just the offspring of typical capitalism, which exists in any industrialized or capitalized country such as the motherland of capitalism, the United States of America, Japan, England, and now, Singapore as well. This phenomena is most often referred to as effects of globalization nowadays. I rather call it The Global Engulfment of Capitalism. So you have the economy booming but only enjoyed by the top strata of the society. The Gini coefficient goes up, and because the government is part of the zenith level of society, they blame it on globalization.

A paradox isn't it? On one hand, the government encourages globalization. "Globalization is good! The entire world is your oyster! We will become more prosperous." Then because globalization creates a larger gap between the Rich and the Poor, they say, "Oh, we have no choice. Globalization is to be blamed. But do not worry, we will help you." So people at the bottom part of society waits for help. So they wait. And they wait. And wait. And wait.....And help finally comes in subsidies that could barely support their basic daily needs in ever inflating ever expensive Singapore. The last I saw on Straits Times is something like S$250 a month? Or lesser? I could not remember.

"Oh, our resources are limited. We have to save for the rainy day when M'sia or Indonesia decided to enter war with us and at least we have the cash to buy US military help" The same reason used for the past 42 years since independence. US$130bn in Temasek, another US$150bn in GIC, another US$130bn in CPF, US$140bn of foreign reserve, plus some unclassified money lying elsewhere, a conservative estimate would be US$600bn of wealth. In case some of you do not know the magnitude of this money, it is written as US$600,000,000,000.00. Dividing it by 4m population (take note that 1.5m are PRs cum foreign talents or whatever stereotypical terms you wanna name it), that amounts to an average of US$150,000.00 or S$225,000 per capita! That is equivalent to a 3/4 rm HDB flat for every single one of us! Oh, by the way, when you purchase a HDB flat, it essentially still belongs to our dear government.

And that is still a conservative number. Who knows? Maybe the government has hundreds of mini accounts spread out over the world and a secret vault containing tonnes and tonnes of goldbars/money hidden in the Singapore equivalent of the AirForce 1, parked 1000m under the Istana, ready to soar into another country with all the elites when war broke out?

So at the end of the day, when is 'enough' enough? 10 years down the road, even when the total reserves reaches 5trillion, the same reasoning is, more likely than not, appear again. This question will continue to linger. When is 'enough' enough? Look at the pay scale of our elites. Being elites, having looked at complex mathematical formulas and educated at renowned universities to the likes of Harvard, Stanford, Oxford, Cambridge, I doubt 6-7 zeros can hardly be considered a large number. Maybe they are aiming at this thing called

∞

I wonder who invented it...this guy's a genius and an elite of the elites!

Milk, condensed/fresh/evaporated price up up up

So the price of milk has gone up. As usual, the supply and demand logic comes into play. Higher demand with decreasing supply brought about by drought in Australia and removal of subsidies from the European Union.....sure, for anyone who had studied basic economics, or anyone with common sense for that matters, will know that it is a no brainer that the price of milk HAS to go up.

Now, let us decipher this closer. Drought in Australia. An issue that has been ongoing for the last 5-6 years. It wasn't any new news. Why not increase price years before? Why now? Increase in demand worldwide. So suddenly every single person on earth is rushing to buy milk? "No! Increased population! Increased demand" shouts some economists-wannabes. "No! China has become more westernized and realized the importance of milk!" shouts another. I do not know which one is true or maybe both are. But 1 thing I know for sure is that demand comes in slowly. The time mechanism has to play a part. Keynesian law dictate that demand and price is rigid in the short run. So are we in the long run now? I thought in the long run we are all dead. I suspect a cartel in play here.

A,B,E, C not good enough for local university

In regard to the recent hoo ha of the seemingly overly protective father of this tragic little girl who could not get a place in local university even though she had performed relatively ok (in her father's words), I would say, further education does not ends at local universities. In any case, the minimum bar for local harvards is 3 A level passes. Having A, B and E effectively meant that she has only 2 A level passes. It wasn't surprising if she was rejected by all 3, and more so if the courses she applied for were competitive ones.

There are so many other options. Get into SIM, work for a few years, retake your A levels (so what if the syllabus has changed? That should not stop anybody), apply again, save up for overseas etc. There are a thousand and one routes to a degree.

Despise SIM/MDIS/Other private education providers? Come on, this perception is so outdated. I am saying it not because it's politically correct to say so, but I have seen the course materials from these schools. It's not exactly easy stuff. It's not as if NTU/NUS/SMU is all glamorous and elitist. But I do agree that the local harvards do provide more opportunities and a more 'holistic' education (the term 'holistic' is over-used, seriously.....).

Unless you are gunning for some top posts or further education in some lvy leagues or scholarship, a distance learning degree (this term itself serve a discriminatory purpose) will do just fine. Many companies don't really differentiate, especially so for junior positions. Take it from someone who had worked in the industry. When I left my last job, I have someone who took a private diploma (from a private institution, not the local 5 polys) taking over my job.

Truth is, degrees will only show you the doors to the interviews. Whether or not you get the job is another matter altogether. Despite the nice pictures painted by all 3 universities on how well their graduates have been doing, truth is, only those with extraordinary academic/non-academic records and those with strings to pull around are awarded those few gems that propels them into the top 20% earners aka semi-elitist group of the society. The other 60-70% are left out in the cold scraping on the left-overs.

Now, I am staunch advocate of the conspiracy theory where the fittest survive with the assumption that everyone is selfish, which would equates to man in power are always corrupted, no matter how righteous they would want you to believe. If you can't beat them, join'em!

Economics is everything

Economics is everywhere and is in everything. Fact.

The world runs on the rules of supply and demand. Fact.

Man creates supply and man creates demand. Fact.

Anything that can be created by man can be manipulated. Fact.

Anything that is manipulative and meaning or interpretation not being stationary is fiction. Fact.

So fiction = fact = economics. Fact.

Fact = Fiction. Fact.........And Fiction.