Should Govt’s create an entrepreneurial class in Singapore

Q: Should government create an entrepreneurial class in Singapore?

A: What makes you think that they have not be trying to do exactly that? I read somewhere $40b has been spent in the last 20 years – despite this Singapore has still not managed to produce the innovation and creativity spins off’s of enterprises.

So they have tried, but since many of the horses they backed in the past didn’t manage to make it anywhere near the pole positions. I think it’s fair to say they have failed.

Q: Some people say the government is bad at earmarking business opportunities and should no longer back any more horses. What do you think?

A: It is very easy with the benefit of hindsight to say what Govt should or should not have done today – but that is not a very constructive approach. What you have to understand is many of the sectors the government once put their chips on really looked like high growth sectors at that time. Semi conductors, disk drives, life sciences – they all looked very promising back in the mid nineties.

Life sciences especially held out the exceptional hope as the new frontier in the business the environment back then – if you want proof all you have to do is trace out all the stocks dabbling with grow livers and noses in Petri dishes in both the NYSE and Nasdaq to verify how much confidence investors believed in that business model.

So I don’t blame the government per se for these failures – as many of these sectors where they once placed most of their chips really took unexpected bad turns which eventually led to their lack lustre performance.

The key word here is unexpected or unforseesble.

Like I said earlier it’s easy today to pin the blame on figures like Philip Yeo. But where were these critics then?

If I have any criticism it is this – it is conceivable government may now be shit scared of taking a higher equity of the whole idea of creating an enterpreneurial class in Singapore. They’re like those scady cats in the control room of NASA during the space race with the soviets during the 60’s when every rocket launch in the Cape exploded in the launch pad. While the soviets seem to be successfully launching bigger and bigger payloads into space – so I can well understand their reservations to play an proactive role these days in business. But I think they should just brush the dust off, get up and try again. Only this time conduct a honest review of what actually went wrong and glean valuable lessons from that tragic episode so that they can break out from that bad habit of reinforcing failure.

Q: What reasons can you give to argue the case government should continue to grow an entrepreneurial class in Singapore despite their past history of failures?

A: You speak as if doing nothing is a credible alternative – it is not. Not to me Kompf. As to do nothing is to condone stasis and fossilization of so many SME’s who cannot seem to discover the imagination to prosper by climbing the value chain. That’s OK if Singapore happens to be a hermetically sealed state like North Korea.

You think the Chinese are not taking a big equity in the development of their SME’s as a strategic economic asset? Do you really believe the Chinese planners trust the MNC’s that much that they will even consider relying on them alone as the primary engine to drive sustainable economic growth?

Q: Some can well argue. Quite sensibly I might add. It makes far more sense to leave it all to the free market to winnow the losers from the winners and all that government should do is regulate by keeping the field level? What’s your take on an non interventionist policy towards domestic businesses?

A: You know Kompf. The Japanese can manufacture everything under the sun – you name it, there’s probably a factory in or outside Japan that’s putting it together. Everything. Honda even rolled out an executive jet recently. Kawasaki heavy industries can manufacture everything from high speed bullet trains to military tanks.

Everything under the sun Kompf. Except farming equipment – all their farming hardware look as if they’re from Toy r us! They’re so small and cute and useless that they even look like those fifty cent rides for kids you see from time to time in malls – you want to know why Kompf.

Because only one sector in Japan is left untouched by every successive government since the Meiji era. Farming. By sheer force of numerical superiority. Farmers is Japan wield tremendous political influence, through the national network of local farm co-operatives called Japan Agriculture (JA). Farmers are so strong that they even own the Liberal Democratic Party (LDP) and the agriculture ministry – the farming lobbyist is the reason why the tariff on rice on the date this blog entry is published stands at 779.2%, on butter it 360%, while sugar attracts a 328% levy. Let’s not even talk about peaches, grapes, oranges and all other fruits in Japan. Because you literally have to be a millionaire to be fruit lover. I am not kidding you – if you go to any Japanese household in Singapore. You will find they’re eating fruits from NTUC 24/7. As it’s so expensive to do the same in Japan.

But that is not the worst aspect of government absence in the agriculture in Japan. As the knock on effect is since the average farm is only three hectares! That also means all farms in Japan are really only for hobbyist – there is no such thing as economy of scale in farming. Not in Japan at least. All you have is old men and women who are all weekend farmers.

That’s what happens when government doesn’t come into a sector with a strong guiding hand, the assets that make up the sector will begin not only resemble a stunted bonsai plant, it will fossilize into hard points – the sector will begin to grow pear shaped. That is why Kawasaki, Yamaha, Honda et al are all taken to the proverbial Cleaners by the likes of John Deere and catepillar. Those mothers manufacture serious farming hardware – they’re all over above three thousand horse power and some of them are so big and wonderful they even come with satellite GPS navigation – that again is a function of how Government has always featured prominently in the farming sector in the US.

But only in Japan do you have three hectare farms. You know how small that is Kompf – that’s the size of my dog house. Can you imagine three hectares!

Q: In what way do you think the LDP should intervene to nurture the farming industry in Japan?

A: That’s my point Kompf. Abe has taken on the formidable farming Lobbyist by entering the TPP.

Letting in cheap foreign rice is what the TPP will do – but you have to understand in Japan rice is not just rice – as feasting on rice is really a spiritual and transcendental experience to the average Japanese.

If you know Japanese expatriates working in Singapore like I do as I am a Kendo instructor – you will find they love to dine in Little India. As that is the only place where there seems to be free flow of rice.

Q: But then again many can argue the case what has happened to the quirky Japanese sector has more to do with government interventionist policies that are responsible for creating all these price artificialities for rice, beef, butter, fruits etc etc. Had their government left it all to the free market – then all these artificialities would logically find equilibrium?

A: Yes, that was what I thought as well – but in the case of Japan. It is quite the reverse and even contradictory. All these price artificialities have nothing whatsoever to do with goverment interference – it is the result of government unwillingness to do anything whatsoever for the last 200 years to reform the farming sector. Some of these protectionist levies and tariffs are so old they go all the way back to the Meiji era.

However where MITI has been very proactive and even successful is in growing heavy industries and automobile sector in Japan – the auto industry in Japan is a very good example.

One reason why Japanese car manufacturers are world class and ahead of the learning curve in auto manufacturing is primarily because their government makes it so costly for the average car owners to hold on his car after three years.

Cars lose their value so fast in Japan that there are no old cars on their roads. It’s like snakes in Norway. The bloody thing doesn’t exist!

Of course their government will continue to insist on the need to maintain these rigorous and costly inspection standards when a car turns 3 years old, then every 2 years until the car turns 11, then every year on the pretense that it’s because Japanese roads are so lousy that they can’t afford to have old cars breaking down and holding back traffic on their decrepit roads.

But everyone with an IQ of five above idiot knows only too well – the primary reason for this stringent and costly inspection service after three years is primarily to light a bon fire under the ass of the Japanese auto industry to force them to innovate – by doing so. You can very well say the average car consumer is indirectly subsidising research and development for the Japanese auto industry.

Since the average car owner in Japan rarely ever keeps his car beyond three years – this is a very clever way by MITI to revivify the Japanese auto industry and their vendors to come up with new models in three year cycles as well.

Q: How does this benefit their SME’s?

A: That’s a question that requires may be ten pages to elaborate.

Q: Please summarize and share. The Guilds would be interested to know.

A: An auto manufacturer in Japan or for that matter any where else in this world makes absolutely nothing – that is the ultimate paradox of the auto industry. The only people who used to design and make everything in one monstrous building that goes under under the hood of a car were the Soviets during the 60’s. That’s old hat technology.

All car manufacturers really do these days is design, quality inspect, assemble and get pretty girls with mini skirts to stand next to their new roll outs every three years – the real engine that powers the auto industry is 100% dependent on their retinue of SME’s who supply the countless parts and componentry that goes to make up a car – and that makes a lot of sense. As not only are many of these SME’s who supply parts and components specialist in their respective fields – but in some cases they even own the proprietory technology.

I give you an example. Step into any car today. And if you look closely at the dashboard – you find the words SRS airbag – “SRS” is the acronym for supplemental restraint system. So if you’re sitting in a Toyota, Honda, Audi, BMW and at least twenty other cars – it’s probably designed and made by this company called Takata.

I wouldn’t call Takata a SME any longer. They may have started off as one when airbag technology was still new – because not only do they supply to just the Japanese auto carmakers. But they also sell airbags to most car manufacturers around the world.

But what allows them to do this is their skill of arms in airbag technology is so advanced that not only do they own all the patents for this technology but they also happen to own the patents for the machines to make airbags. They also own the IP for the crash test simulation software that auto manufacturers use to design how big or long their car windows can be along with probably a thousand other things I don’t know about that goes into manufacturing a functional airbag.

The reason why I have brought up Takata specifically is because this is how SME’s actually move up the value chain – they don’t just build to blueprint. I don’t doubt they may all have started off at that point. But as they proceed along this business model – at some point they will have to develop their own proprietary technologies to test, manufacture and in some cases even act as consultants to advise car manufacturers how to best design their cabins and dashboard so that if the airbag activates you don’t get a stainless steel Buddha or crucifix mounted on the dashboard impaling into your head – what many people don’t seem to fully understand is this is how all SME’s move up from just being Low cost Centers to higher value added – this is also something the Japanese copied from the Germans many years ago.

If you drive around Germany. You will not find big industrial heartlands like Detroit. Or Jurong. Germany is very perculiar. As when we talk about innovation and creativity it is not concerntrated in only cities like Stuggart that manufactures Mercedes Benz or even BMW based in Munich. Instead you will find very specialised SME’s in unheard of towns that even lonely planet doesn’t write about. You’re just cycling around Germany. You’re passing thru a village. You past by plenty of farms and cows. Suddenly you see a factory that in all probability, neither you or I have every heard of before. Now Kompf. What I’ve just described is very normal to you. But trust me. It’s very surreal to me. As most of these firms are so small that they are usually family owned and managed – they probably also drive the whole local economy of the village as well. But most importantly they don’t only make whole complete things – instead they make things that go into recognizable things like aeroplanes, power turbines, engines, switch boards etc etc. But their real strength lies in their skill of arms to develop new solutions to fit into complete systems – often they own the IP not only for the things they manufacture. But they have been able to consistently do one more thing that no SME in Singapore can yet do – they have developed their own proprietary based manufacturing systems that they sell to the rest of the world. To put it another way. They don’t just supply. They design and make the machines to make those things they once supplied – that is why Germany is the only country with SME’s in the world that doesn’t fear the China man copying and selling the stuff he used to supply at one tenth of the price in Pasar malam (flea markets) – infact the German is very happy to continue to supply machinery to the biggest copy cat in the world. China. When the German is reading news articles about how Kawasaki heavy industries is planning to sue the shit out of China Railway for copying their drive trains – he is shouts out wunderbar. As that means the Chinese will be buying more machines from him.