In this reinvention keynote, native Singaporean and venture capitalist James Chan discusses how policies can help create successful cities. The age of the nation has passed and now the age of cities is upon us. The flow of power and money into cities is continually increasing so they can command their own futures. There is the possibility for cities to magnify humanity’s strength, yet as people continually aggregate in cities, urban density increases there are many lingering problems.
Chan demonstrates how the policies used in the Singapore deal with problems related to water shortage, water pollution, racial riots and lack of jobs to turn a developing city into a developed city. Education helps enable social mobility allowing for the best and brightest to step forward.
In the past I’ve gone into detail on why I think technological incentives generally favors smaller, more agile city-states. Understanding how Singapore has come so far is important to understanding how a new city-state could do the same.
Here’s my cliff notes of the talk with extra reading material from other people, he doesn’t have enough time to go into enough detail about the entire country so a lot of extra material is needed to really get the point across (in my opinion):
1. Start with the basics.
My notes: He doesn’t go into too much detail, I’d recommend reading Vinay Gupta’s Dealing In Security : Understanding How Vital Services Keep You Safe (pdf) for a clearer overview.
2. Engineer Political Stability. Attract the best and brightest from the city to serve. Success of the top 1% of leaders is no longer a functional just of intelligence and passion to serve, but also empathy. What worked before may not work now. Policies take more than one political term to take effect.
My notes: To elaborate more, let’s turn to the class notes from Peter Thiel’s class on Start-Up’s:
Everybody knows that company culture is important. But it’s hard to know exactly what makes for an ideal culture. There are obviously some things that work. Even though they didn’t necessarily look like a winning investment at the time, the early Microsoft team clearly got something right.
Then there are some things that don’t work so well. A cult is perhaps the paradigmatic version of a culture that doesn’t work. Cults are crazy and idealistic in a bad way. Cult members all tend to be fanatically wrong about something big.
And then there is what might be called anti-culture, where you really don’t even have a culture at all. Consulting firms are the classic example here. Unfortunately, this is probably the dominant paradigm for companies. Most of the time, they don’t even get to the point of having culture. People are mercenaries. People are nihilistic.
Picture a 1-dimensional axis from consultant-nihilism to cultish dogmatism. You want to be somewhere in the middle of that spectrum. To the extent you gravitate towards an extreme, you probably want to be closer to being a cult than being an army of consultants.
Good company culture is more nuanced than simple homogeneity or heterogeneity. On the homogeneity side, everyone being alike isn’t enough. A robust company culture is one in which people have something in common thatdistinguishes them quite sharply from rest of the world. If everybody likes ice cream, that probably doesn’t matter. If the core people share a relevant and unique philosophy about something important, you’re onto something.
Similarly, differences qua differences don’t matter much. In strong company cultures, people are different in a way that goes to the core mission. Suppose one key person is on an ice cream only diet. That’s quirky. But it’s also irrelevant. You want your people to be different in a way that gives the company a strong sense of identity and yet still dovetails with the overall mission. Having different kinds of problem-solvers on a team, for example, can make for a stronger culture.
In thinking about building good company culture, it may be helpful to dichotomize two extreme personality types: nerds and athletes. Engineers and STEM people tend to be highly intelligent, good at problem solving, and naturally non zero-sum. Athletes tend to be highly motivated fighters; you only win if the other guy loses. Sports can be seen as classically competitive, antagonistic, zero-sum training. Sometimes, with martial arts and such, the sport is literally fighting.
Even assuming everyone is technically competent, the problem with company made up of nothing but athletes is that it will be biased towards competing. Athletes like competition because, historically, they’ve been good at it. So they’ll identify areas where there is tons of competition and jump into the fray.
The problem with company made up of nothing but nerds is that it will ignore the fact that there may be situations where you have to fight. So when those situations arise, the nerds will be crushed by their own naiveté.
So you have to strike the right balance between nerds and athletes. Neither extreme is optimal. Consider a 2 x 2 matrix. On the y-axis you have zero-sum people and non zero-sum people. On the x-axis you have warring, competitive environments (think Indian food joints on Castro Street or art galleries in Palo Alto) and then you have peaceful, monopoly/capitalist environments.
Stephen Cohen: …That early understanding reflected the three salient properties that inhere in good company culture. First, a company must have very talented people. Second, they must have a long-term time orientation. Third, there must what might be called a generative spirit, where people are constantly creating. With this framework, hiring is more understandable: you just find people who have or contribute to all three properties. Culture is the super-structure to choose and channel people’s energies in the right direction.
One error people make is assuming that culture creates these three aspects. Take a look at the Netflix company culture slides, for instance. They seem to indicate that you can produce talent from non-talent, or that you can take someone focused on the now and somehow transform them into long-term thinking. But you can’t. Culture can always do more harm than good. It can reflect and enhance these three properties. It cannot create them.
From that insight comes the conclusion that hiring is absolutely critical. People you don’t hire matter more than people you do hire. You might think that bad hiring decisions won’t matter that much, since you can just fire the bad people. But Stalin-esque meritocracy sucks. Yes, you can shoot the bad people in the back of the head. But the problem with that is that you’re still shooting people in the back of the head.
Max Levchin: The notion that diversity in an early team is important or good is completely wrong. You should try to make the early team as non-diverse as possible. There are a few reasons for this. The most salient is that, as a startup, you’re underfunded and undermanned. It’s a big disadvantage; not only are you probably getting into trouble, but you don’t even know what trouble that may be. Speed is your only weapon. All you have is speed.
So how do you move fast? If you’re alone, you just work really hard and hope it’s enough. Since it often isn’t, people form teams. But in a team, an n-squared communications problem emerges. In a five-person team, there are something like 25 pairwise relationships to manage and communications to maintain. The more diverse the early group, the harder it is for people to find common ground.
The early PayPal team was four people from the University of Illinois and two from Stanford. There was the obligatory Russian Jew, an Asian kid, and a bunch of white guys. None of that mattered. What mattered was that they were not diverse in any important way. Quite the contrary: They were all nerds. They went to good schools. (The Illinois guys had done the exact same CS curriculum.) They read sci-fi. And they knew how to build stuff. Interesting to note is that they did not know how to build stuff the right way. It turned out that scaling up would be very challenging for PayPal because the 26 year-olds who were managing hundreds of thousands of credit cards didn’t make all the optimal choices from the beginning. But there was great clarity in the early communications. There was no debate on how to build that first database. And that alone made it possible to build it.
3. Educate and attract talent above the population average. Education is viewed as the great enabler of social mobility. He talks about how he studied alongside poor kids, rich kids, and minorities. All of them were given the same opportunities via standardized testing to prove themselves. Education is used as a filter to find top talent, give them scholarships and groom them for positions in the bureaucracy. Secondly, do your best to attract foreign talent as your own well is only so deep. At the younger level, they give scholarships to all of the cities and countries around Singapore to encourage them to come and study there. Create a skilled immigration policy so that you can inject hunger and fresh experiences into the city.
Excessive standardized testing curbs understanding in favor of reaching a higher score. If you’re pulling a city-state from the third world into the first world, having a solid metric you can judge performance on is great. However if this is taken too far, you end up with a situation like China is in, where cheating becomes a huge industry:
The difference is that corruption is punished much more harshly in Singapore. Officials collaborating and accepting bribes to rig scores would not be taken lightly, unlike in China where the system is too weak and corrupt to enforce laws uniformly.
See this study about the perception of Singaporean students on cheating, note that not contributing your fair share to group projects is considered “cheating”:
There is still a high rate of students reporting some form of cheating, so there is only so much good a focus on scores at the expense of understanding can do. The weakest link in the contrasting Finnish model is that Finland has no universities in the top 50 rankings. If you’re using your system to find and ID talent, you need some metric to judge that by. So the Finnish method comes up missing there.
For more info on contrasting the systems, see the previous post on Finnish v. Singaporean education systems:
Next on the subject of skilled immigration:
With state-of-the-art laboratory technology, an environment devoid of ethical watchdogs and, most importantly, plenty of research funding, he is attracting some of the West’s leading biotechnology experts to this authoritarian island nation.
Yeo is constantly on the lookout for new talent. His office is filled with stacks of articles from Nature, Science and other leading scientific journals. The authors’ names are highlighted, clearly an indication that he has already picked out his next ideal candidates. “Some people collect butterflies. I collect scientists,” says Yeo, who likes to walk around his carpeted office without shoes.
One of his biggest catches is the German-born Axel Ullrich, a cancer researcher from the Max Planck Institute for Biochemistry, a man seemingly tailor-made for Yeo’s needs. Ullrich is well-known among molecular biologists because he was one of the first to translate some of his profession’s grand promises into medical practice.
There are few legal restrictions. For example, researchers in Singapore have already obtained six stem cell lines from human embryos, something that would be prohibited in Germany. “We just happen to be more pragmatic here,” says Yeo. He says that Singapore is a multitheistic state where Buddhists, Taoists, Christians and Muslims are able to live in harmony because no one insists that his religious convictions are absolute.
The other burgeoning sector of foreign labor — skilled workers — is usually referred to as “foreign talent” in both government and public discourse. Currently, skilled workers and professionals account for 22.0 percent (about 240,000) of Singapore’s total nonresident workforce, eclipsing the 14.6 percent recorded for 2006. Link
4. Share the wealth. Singapore has a GDP per capita that puts it in the top 5, depending if you use the CIA, IMF or World Bank ranking. The 2 keys to sharing the wealth:
Asset Appreciation, built on the back on widespread public housing. This is possible because of economic growth and housing value appreciation. A public apartment that was bought in 1990 for 100,000 is worth 600,000 now.
The 2nd tool is the Central Provident Fund. It’s similar to the 401k in it’s roots, that evolved into a tool that fulfills the medical, investment and education needs of it’s people. In times of economic strife or years of surplus the government can make deposits into individual’s accounts. He received 700 Singapore dollars ($560ish) this year from the fund. It’s a handout, but you can’t take it out for cash, just for government approved expenses.
The second part is income taxes. The average college graduate from Singapore would earn about $35,000 a year, but he wouldn’t have to pay anymore than $500 in income taxes for the year.
The government covers subsidizes healthcare costs. Costs are much lower all around.
The housing situation sounds like a long-term government funded bubble. Good for attracting investment, as we saw in the US, when markets are growing and confidence is high people will assume that prices can only go up. A very simple “investment” with a guaranteed return.
On the Central Provident Fund, we find a common problem with retirement schemes, too many old people:
In Singapore, the Central Provident Fund (Abbreviation: CPF; Chinese: 公积金, Pinyin: Gōngjījīn) is a compulsory comprehensive savings plan for working Singaporeans and permanent residents primarily to fund their retirement, healthcare and housing needs. It is administered by the Central Provident Fund Board, a statutory board under the Ministry of Manpower.
Working Singaporeans and their employers make monthly contributions to the CPF and these contributions go into three accounts:
- Ordinary Account(OA) – for housing, pay for CPF insurance, investment and education.
- Special Account(SA) – for old age and investment in retirement-related financial products.
- Medisave Account(MA) – for hospitalisation and approved medical insurance.
- Retirement Account(RA) – created when one turns 55 using the savings in OA and SA. It is set up to meet basic needs during old age.
The CPF savings earn a minimum risk-free interest of 2.5% guaranteed by the Government. In 2008 and 2009, Special, Medisave and Retirement Account savings earned a guaranteed minimum 4% interest. In addition, the first $60,000 in the combined CPF balances, with up to $20,000 from the Ordinary Account, earned an extra 1% interest
The greatest threats presently facing the CPF schemes are the dwindling birth rate and persistent low yield returns from Hold-To-Maturity financial instruments. The dwindling CPF contributions due to aging population will test the future government’s ability to meet CPF savings redemptions if population continues to age without raising existing taxes. The various schemes e.g. CPF Life annuities schemes and Minimum Scheme Sum provided the means to stagger CPF withdrawals or pool longevity risks. However they will not fundamentally solve the problem of re-investing the massive CPF savings to ensure that the low yields are able to provide substantial retirement savings for citizens.
Next, the tax code, which appears to be dramatically simpler than the IRS code:
- Singapore follows a progressive tax rate starting at 0% and ending at 20% above S$320,000.
- There is no capital gain or inheritance tax.
- Individuals are taxed only on the income earned in Singapore. The income earned by individuals while working overseas is not subject to taxation barring few exceptions.
- Tax rules differ based on the tax residency of the individual.
TAX EXEMPTION FOR QUALIFYING NEW START-UP COMPANIES
Singapore tax regime recognizes the importance of easing cash flow for startup companies in their initial years of operation, therefore the system, extends support in the form of sizeable exemptions to resident companies.
5. Remain relevant. Reinventing a city never ends. It must remain relevant to it’s people and the world. The Singapore leadership is extremely paranoid about it’s relevance.
Yet not all that glitters is gold. The bottom 20% are not earning anymore than $500-600(USD) every month. There is still an underclass in Singapore. The city has to trade-off growth versus inclusiveness.
As the city grows political stability may become harder. For the first time in history, 82 out of the 87 seats in the Singapore elections are contested. The opposition used to be pathetic, but as the city grows and becomes more diverse it will have to walk the line between political diversity and political stability.
Singapore is an 80 story building on marshy land – Lee Kuan Yew
The foundation of Singapore is built on racial and religious harmony, without it the city will descend into petty squabbling.
Next, see Foseti’s review of Lee Kuan Yew’s book:
Everybody loves multiculturalism, but the dirty little secret of the multicultural society is that no one has any idea how to govern one. Lee’s Singapore is the first attempt to create a system of governance that seriously attempts to deal with the problems associated with a multi-racial/ethnic/religious society (hint: the answer is not more democracy).
The first thing Lee did when he took over was build a defense force. To do this, Lee turned to Israel and Switzerland for examples of how a small country should go about defending itself. The next think he did was ensure the safety and security of the country and provide a stable legal system.
A Singapore with a totally free press would have in the best case scenario been plagued by ethnic or racial or religious violence and in the worst case become an actual Communist country. Instead, it became what it is today and everyone is immensely better off.
Lee defends his policies by noting that totally free presses are highly over-rated. Lots of countries with free presses still have high levels of corruption. He also noted that in his dealings with the press, USG (specifically State) would get involved quickly.
Lee had no intention of trading freely with anyone at first. He wanted everyone in Singapore employed (so they wouldn’t riot, among other reasons) and he didn’t want them competing with low-cost Malaysian labor. Singapore specifically protected cars, appliances, consumer electronics and other consumer goods. The protections were all phased out later, as national industries matured, the population got richer and better educated and other sources of employment became available.
Many in the West believe that the government is capable of fulfilling the obligations of the family when it fails, as with single mothers. East Asians shy away from this approach. Singapore depends on the strength and influence of the family to keep society orderly and maintain a culture of thrift, hard work, filial piety, and respect for elders and for scholarship and learning.
One of the reasons Lee was so successful was that he changed his mind quickly if something he tried didn’t work. For example, he instituted several programs to try to scatter people of the same race. However, no matter what he tried, the groups eventually recongregated. Instead of mandating desegregation, the Singapore government eventually changed election laws so that some minority representation was required and, for similar reasons, got rid of jury trials. This system combined with some geographic quotas on concentrations seemed to work.
Ceylon and Singapore became independent commonwealth Commonwealth countries and both are island nations. Anyone looking at the two countries at independence would have bet that Ceylon had the brighter future. However, both countries had diverse populations and Ceylon pursued a more democratic route following its independence. Lee sums up the results: “During my visits [to Ceylon] over the years, I watched a promising country go to waste. One-man-one-vote did not solve its basic problem,” which was ethnic conflict. Link
Prime Minister Lee Hsien Loong said this at the Economic Society of Singapore’s annual dinner on Friday evening.
Since 2003, Singapore’s economy grew an average 6.3 per cent per year.
Mr Lee said: “Singapore cannot avoid slower growth in the next decade and beyond. This is natural because we are now more developed and we are also running up against land and labour constraints, especially as we reduce the inflow of foreign workers.
“Plus competition is fiercer, not only from hundreds of millions of hungry workers in the emerging economies, but also from new technologies that will transform industries all over the world.”
Mr Lee noted that some Singaporeans may desire slower growth, but deliberately slowing growth beyond Singapore’s economic potential could have irreversible consequences.
“For Singapore, slow growth will mean fewer new investments. Good jobs will be scarcer, and unemployment will be higher,” he said.
“Enterprising and talented Singaporeans will be lured away by the opportunities and the incomes they can earn in other leading cities. Low-income workers will be hardest hit, just as they were each time our economy slowed down in the last decade. Over time, our confidence will be dented.”
The government is also prioritising low-income Singaporeans through skills upgrading and sharing productivity gains.
Low-income households are also not neglected.
According to Mr Lee, a low-income household will receive more than S$500,000 in transfers from the government over a lifetime.
And to boost their assets more than incomes, Mr Lee said the bottom 20 per cent of households have an average of more than S$200,000 of equity in their HDB flat.
To continue doing so, he pointed out that Singapore must have a successful thriving economy to improve the collective well-being of its people.
But Mr Lee cautioned that the Singapore government must strike a balance between raising social spending and taxes.
Expenditure has so far been 17 per cent of GDP including defence, while tax revenue is only 15 per cent of GDP.
“For decades, we have gradually reduced our income tax rates, and partially made up with indirect taxes like the GST, in order to stay competitive with other Asian economies like Hong Kong. This has helped to foster growth, and increase the resources available to strengthen our social compact,” said Mr Lee. Link
Now some more from Peter Thiel:
Most companies are killed by internal infighting, even though it may not seem like it. It’s like an autoimmune disease. The proximate cause may be something external. But the ultimate cause of destruction is internal.
When we overlay the noting of intracompany fighting on the Marx vs. Shakespeare framework, we get two theories as to why colleagues fight. Marx would say people fight internally because they wildly disagree about what the company should do, or what direction it should take. The Shakespeare version is precisely the opposite; people fight because they both want to do the same thing.
The Shakespearean dynamic is almost invariably correct. The standard version is that two or more people each want the same role in a company. People who want very different things don’t fight in well-functioning companies; they just go and own those different things. It’s people who want to do the same things who actually have something to fight about.
At PayPal, the center of conflicts tended to be the product team. David Sacks wanted the product to be a single seamless whole. That was a good approach, but a less good byproduct was that it was a recipe for product people overlapping with everyone else in the company. Product couldn’t do anything without infringing on someone else’s turf. A big part of the CEO job is stopping these kind conflicts from happening in first place. You must keep prospective combatants apart. The best way to do this is by making clear definitions and precise roles. Startups, of course, are necessarily flexible and dynamic. Roles change. You can’t just avoid internal war by siloing people away like you can in big companies. In that sense, startups are more dangerous.
PayPal solved this problem by completely redrawing the org chart every three months. By repositioning people as appropriate, conflicts could be avoided before they ever really started. The craziest specific policy that was enacted was that people were evaluated on just one single criterion. Each person had just one thing that he or she was supposed to do. And every person’s thing was different from everyone else’s. This wasn’t very popular, at least initially. People were more ambitious. They wanted to do three or four things. But instead they got to do one thing only. It proved to be a very good way to focus people on getting stuff done instead of focusing on one another. Focusing on your enemy is almost always the wrong thing to do.
Reid Hoffman:… A side note on invention and innovation: when you have an idea for a startup„ consult your network. Ask people what they think. Don’t look for flattery. If most people get it right away and call you a genius, you’re probably screwed; it likely means your idea is obvious and won’t work. What you’re looking for is a genuinely thoughtful response. Fully two thirds of people in my network thought LinkedIn was stupid idea. These are very smart people. They understood that there is zero value in a social network until you have a million users on it. But they didn’t know the secret plans that led us to believe we could pull it off. And getting to the first million users took us about 460 days. Now we grow at over 2 users per second.
The PAP has enjoyed an indestructible monopoly in the field of local politics since the founding of Singapore. A portion of each member’s paycheck goes to the party fund, while other parties are denied funding from corporations and companies. Singapore is divided into constituencies, with the parties vying for control for these individual constitutencies by garnering votes during elections. Opposition party-controlled constitutencies are denied privileges granted to PAP-controlled ones, such as public apartment upgrades, new amenities and facilities. These constituencies are usually promptly broken up and assimilated into other constituencies to divide opposition support. Potong Pasir GRC is one of the few remarkable constituencies that still remain under opposition control. However, since the government hasn’t screwed up yet, few people complain about this lack of political diversity.
Malay is the official national language. The lesser-known reason for this is that the indigenous people were Malay, and this is done out of respect for our origins. The current majority of the population is Chinese (76.5%). The other races include Malays (13.8%), Indians (8.1%), and other races (1.6%).
Any place that doesn’t serve an economic, commercial or residential purpose will have green stuff planted on it. This widespread greenery is readily apparent in bird’s-eye views of the country.
The average Singaporean is well-educated, but isn’t exactly creative (a side-effect of the rigid education system). He/she can speak 2 languages: English, and his/her own native tongue.
Don’t you get me started on cost of living. The cars cost 3 times as much here. Add COE to this, and it means you’ll have to work like mad to earn enough for one. But since the public transport system is very well-developed (Point A to B anywhere on mainland island within 1.5 hours), cars usually serve as a symbol of wealth, and not much more.
Singapore has no tourist spots, no matter what your travel agency might say. Don’t come for them.
In order to ensure that overseas investors would view Singapore in a good light, the government keeps property prices high – and they keep on rising. The high cost of living in Singapore can be largely attributed to the high cost of property, and when coupled with the low wages, it means that the quality of life of average Singaporeans is low – the problem is, what can be done about it? The more I think about it, the government is doing the only thing that it can do with what it has to work with – but Singapore is in a rather precarious position at the moment. China, one of the world’s largest markets, is opening up; and it is getting rather difficult to ensure that Singapore will be chosen above it. Let me try to explain:
Singapore has next to no natural resources, it cannot function without the constant flow of goods into the country. China has all the resources that it needs to be self-sufficient – for a long time it functioned in total isolation from the rest of the world. Singapore has no minimum wage requirements, but wages have to be high enough for the population to be able to survive with such a high cost of living. China has no minimum wage requirements, and because the cost of living is one of the lowest in the world, wages don’t have to be high for the population to be able to survive on them.
China is a market which has only started emerging recently; already a sizable portion of the world’s manufactured goods are made there. Cost of living is low; wages are low; property prices are low – unfortunately for China, educational standards are also low, at least when compared to Singapore. Singapore’s possession of a highly-skilled workforce would seem to be the only distinguishing feature that the island possesses, but China can be expected to devote much effort into improving the educational standards of its workforce – what happens to Singapore then?
So what about all the criticism of Singapore? The fact is that much of what the government has been doing over the past several decades is the only thing that it can do. It has positioned itself in the only way it could, and our criticism comes from believing that there must be a better way to run a country. Take minimum wage for instance, many people believe that having a minimum wage is almost a requirement for “civilized countries.” Last time the government tried to adopt a minimum wage the entire country went into recession – it conflicted with the need for big businesses to be able to operate in Singapore at a low price.
Singapore is one country that cannot afford to go into recession, all the things that are needed for human beings to live are imported from overseas. Our water comes across from Malaysia, our meat comes mainly from Australia, etc. The government has no choice but to do things which which may not seem to be good for the people, but are good for the country itself. Making sure that thecrime rates are low, the country is clean, the people are educated are all things which are necessary in order to promote Singapore as being a prime location for big, Western businesses to set up shop here.
As for the things like compulsory National Service, the country needs to be able to defend itself – just like any country. In Singapore however, given it’s relatively small population, if joining the army was something that you only did by choice then there would be hardly enough of a force to repel any would-be invader. However, somewhere along the line the government got so preoccupied with making sure that the people would do things which were for the good of the nation, they managed to create a state where the people can barely operate without someone telling them what to do. They are trying to repair some of this damage, and they are doing it in the same way that they caused the problem in the first place, but in reverse.