COE and the Successful Manager

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Home > Articles > COE and the Successful Manager

 COE and the Successful Manager

by Antonio Rappa | Today's Manager
June 1, 2016

What are the costs of Singapore’s material successes today? This paper examines why the Singapore manager may not need to own a car today.



I am no property guru by any measure. But it does not take a management guru to explain Singapore’s material successes. Cars are important for many people because they accord prestige and power. But we know for sure that some of the wealthiest people in Singapore actually take the bus or walk to and from work. No riches were ever made from being lavish as a former Minister of Finance says on YouTube, the path to riches is through frugality. Better to be a wealthy scrooge than an impoverished stooge.

When foreign scholars ask me what made Singapore so wealthy in such a short time, I answer with great confidence that it was our National Service (NS) policy, our Central Provident Fund (CPF) policy, and foreign multinational companies (MNCs). The NS policy under the Singapore Armed Forces (SAF) Enlistment Act of 1967 gave Singapore a stronger sense of security when we had no real security apparatus. It provided a way for Singaporeans to defend Singapore without depending on foreigners or foreign powers with their own vested interests. Secondly, our CPF policy enabled most employed workers to save for a rainy day and for their retirement. The CPF also gave the state a means of creating an investment vehicle that would grow profits for the entire population. Forced saving meant that the unforeseen political and economic downshifts could be safely and comfortably navigated. The MNCs that were invited into the country provided jobs and helped create wealth and confidence for other investors to set up their businesses here. Singapore now has more public policies such as the certificate of entitlement (COE) and electronic road pricing (ERP) policies, the two integrated resorts, and the highway to Kuala Lumpur and/or Bangkok.

The COE was initially implemented because it was meant to be a green policy to keep the car population young, and prevent breakdowns and traffic congestions. The ERP was in a sense a response to the traffic congestions that arose in spite of the move from an all-bus system in the 1970s to a bus and mass rapid transit (MRT) system in the 1980s and 1990s. Yet most or many working managers need a car to drive to and from work. They cannot survive without a car. Even though the MRT is still expanding, the congestion remains. This is because of the inherent design of Singapore’s road infrastructure. For example, a single vehicle breakdown can cause traffic to slow and snake on for kilometres. This also prevents the Singapore Civil Defence Force (SCDF) and other security personnel from getting to where they are most needed in a timely fashion.

Therefore the COE does not appear to have helped much in terms of controlling the number of cars on the roads because there remains to be traffic congestion at peak times, even with the omnipresent and pricey ERP gantries.

The COE has however had an unintended consequence. All managers in Singapore are aware that motor vehicle taxes, additional registration fees (ARF), and the COE are big money generators for the state. While the Land Transport Authority (LTA) seems to “only” control the supply of COEs, the final price is set by the demand for new vehicles with prices that are determined by car dealers. But car dealers are not the only ones who desire to profit from high prices. Individuals who buy cars are themselves willing customers who support a system that is designed, really to keep them out. The COE policy is often believed to keep people away from car ownership and towards public transport.

But whether you own a car or more than two cars, or even if you take public transport, the state always wins. This is because even car dealers will realise losses if the COE rises when it is expected to fall on closed deals made with their customers. After all, those who are trained in economics know that demand is a function of ability in any market. But the state always wins because the state controls the number of COEs. And hence by controlling a scarce good, it controls what happens when it increases or decreases the supply of that good. Wait a minute. Do Singaporeans or car owners in Singapore really own their own cars? Well, yes they do in the same way Housing Development Board (HDB) flat owners own their flats. But unlike every other country in the world, it is only in Singapore that car “owners” only get to keep their cars for 10 years. If the car is still road-worthy, it might be extended for a maximum of another 10 years. No need to explain how long a 99-year lease from the HDB lasts. If one takes 50 years to pay off one’s HDB flat and bequeaths it to one’s children who will be in their 50s or 60s when you kick the bucket, then the kids are left with a fully paid flat with 25–30 years left on its lease. No one knows what will happen when the lease turns 99 because no HDB flat has reached that stage yet. But what if the government of the day decides to re-sell that flat back to the “owners” for a new resale price for another 99 years? Is that ownership?

No, ownership is when you own something in perpetuity. But of course, not everyone will agree with that, especially the policy-makers. Similarly, the idea of car ownership in Singapore does not exist. Owning something for 10 years at the prices paid is not real ownership; it is merely ownership for a fraction of your life. The scarcity of COEs has caused prices to spiral but the Preferential Additional Registration Fee (PARF) and taxes have made cars in Singapore the most expensive in the world. The state COE policy is about distorting the market by artificially controlling supply (restricting supply). What if after 10 years a whole bunch of COEs appear from deregistered cars? Well, the clawback simply puts the COE supply back to exactly where the state (i.e. the LTA) wants it to be. So even if 300,000 COEs appeared on the market, the LTA could take that away too. The control of supply resulted in FY2014, where approximate vehicle taxes collected was S$1.8 billion from ARF (money in) and lower PARF (money out) rebates plus another S$3.7 billion from COEs.

A way to beat the system requires cooperation from customers and dealers where most drivers give up their cars and cause a crash in the secondhand car market. This will cause many dealerships to close down, without costing too many “Honest John” type car dealers their jobs. Don’t think that it cannot happen. When the secondhand car market crashes, dealers will have to export their stock or incur losses by the second. Once they fold, prices of new cars from larger and bigger distributors will fall dramatically. This will cause a big loss for the LTA in terms of revenue collected. But it will also create different problems. There may be fewer traffic breakdowns or congestions but the car-owning population
will shift from one means to the next. Former car owners will now become mass transit commuters. The public transportation system should be able to handle that. But if the state decides to increase the number of COEs, then the car population will go up and everyone will end up in the same place.

If one out of every two current car owners, including taxi-drivers, gave up their licenses and vowed never to drive, it would only reduce the state’s profits from ARFs and COEs by about 30–40 per cent and temporarily. Given the nature of human greed, there will be more new drivers coming into the market on any given day. So the final answer is that the intelligent worker will not drive his own car unless he derives so much prestige value from it that he is willing to sacrifice money for love.

Materialism and global marketing have only led to relative deprivation and disaffection with what one possesses. Singaporeans have become so brand conscious that we have bred a generation of superficial brand-conscious children from all walks of life. The nominal belief in Singapore is that the visible signs of success: a luxury car, a prestigious address, luxury watches, and expensive jewelry and attire project the image of success. The image of wealth may not always be due to inheritance, hard work, or good luck. Many people have low monthly savings and are barely keeping themselves afloat due to monthly mortgages, car payments, extra tuition for the children, enrichment classes, and credit card bill payments. Yet, many people living in Singapore would rather drive then take our world-class public transport system. Many prefer to cab it rather than wait for the bus on a rainy day.

Creating the image of success does not last forever. But we do know that in the vicious, low-balling world of late modernity, anyone living on ill-gotten gains through corruption, bribery, or nepotism, will eventually get their comeuppance. As Mr Lee Kuan Yew once said, the hardworking chap who lives in a HDB flat will eventually get to purchase that big landed property from the ones who inherit that property but do nothing to maintain their good fortune. In Singapore, materialism has settled into the fabric of society. And there is nothing for us to do but to survive through proper ethics and righteousness rather than through fabricating images of success through material acquisition.

IMAGE: 123RF

 

​Dr Antonio L Rappa held an SAF Overseas Training Award (New Zealand, 1984) NUS Overseas Graduate Scholarship (1994) and was Consultant to the S Rajaratnam School of International Studies (NTU). He was also a Research Fellow at ISEAS, a Fellow at the Institute of Governmental Studies (UC Berkeley) and at Johns Hopkins University. He is currently a Fellow of International Security and International Studies (ISIS) Thailand at the Faculty of Political Science, Chulalongkorn University and Associate Professor and Head of Management and Security Studies, UniSIM, School of Business.

 

Copyright © 2016 Singapore Institute of Management

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Today's Manager Issue 2, 2016

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