How The Book Cocktail Party Economics Changed My View On Singapore

Recently, I have been indulging in this very interesting book called ‘Cocktail Party Economics’ and its basically about economics which has helped me thoroughly see in-depth about the topic. Now before you roll your eyes, this book is written in English, which is easy for any layman to comprehend and it has helped me come to understand more about economics decisions and more importantly my own country’s choices. If you recall, I am from a small country at the tip of South East Asia called Singapore. It is one giant city, which is overly clean, with one of the most efficient subway systems in the world and the largest economy in its area. I will highlight some topics from the book that has aided me into understanding more about Singapore and my views of what makes the world go round and round.

Land

Singapore is tiny, it stretches 50km from east to west and 27 km north to south with a population of about 5 million. It’s congested with people and for good reason, it is an economics hub. Even though the land is tiny, which accounts for no farmland which means no natural resources and that they must import most of their food. Also, the majority of the population must live in apartments or condominiums. Houses with land costs more than $5 million CAD, which is more than a regular Singaporean can afford. Land is scarce. Which also means that its fixed quantity has not much capacity to expand or grow develop horizontally. Land is limited and extremely expensive. So even though Singapore is so tiny that it is literally only a dot on any physical map, what made it so successful? It’s the location the author of the book said that its all about the location. Singapore was strategically located at the very tip of the strait that shipment passing from China had to pass in order to reach places like India and the rest of South East Asia and vice versa. So Singapore became a major port in the late 1900’s which helped them skyrocket their growth and propel alongside China. Location of the land was key to success for Singapore.

Protectionism

Singapore has no national car brand not like its neighbor Malaysia, who has a national car brand (Proton) and protects it by taxing all other car manufacturers and brands high tariffs so that the overall price of the car exceeds Proton’s price. Owning a car in Singapore is one of the biggest expenses in one’s lifetime. Every time you park it is a flat rate of $3 which goes up with every half hour, gas is pricy and it is by law that the car must be scraped when its 10 years old. Singapore, has a form of protectionism and that is a tariff and a rule and regulation that charges consumers for the right to own a car, which is called the COE (Certificate of Entitlement). The cost can vary, and is higher on holidays, car sales and peak seasons. The cost of a COE is usually as much as one pays for the car including taxes. This is how the Singaporean government ensures that the supply of cars on the road is limited to those who can afford one. The argument the government implied was that public transportation goes everywhere in Singapore and is so efficient and cheap that no Singaporean really needs a car, or does he?

The COE is direct tax money that goes straight to the government’s pocket. With these high prices, there is little benefit for car suppliers however, every Singaporean dreams of owning a car as it is a symbol of wealth. So the demand is always high. The COE does not exist to protect jobs (as foreign car companies tend to create a lot of good jobs), or anything that is stated in the Cocktail party book that explains what protectionism should do which is to mainly protect jobs, but it is apparent that the same effects on protectionism of this rule and regulation apply, that the ones left with the short end of the stick are the consumers.

Cartels & Collusion

If you are on the business news bizz you may have heard about Singapore fining $19.5 million for cartel colluding. Apparently four Japanese electrical part companies that design small components to many electrical equipment lie aluminium electrolytic capacitors which are found in all computers and smart phones. These companies colluded with Panasonic by setting similar high prices for 20 years. The author stated in Cocktail Party Economics that colluding includeds either setting all prices the same or restricting supply so that the price would drive up naturally due to the lack of supply, or both. The five companies met every year at meetings in Singapore to report collusion analysis and sales volume. Total reported collusion profits totaled about $10 million excluding Panasonic. As Panasonic was not fined as they were the whistleblowers.