Getting past the economic blame game

Economies need to go through the three phases of crisis before enacting the mandate for change. But where does Singapore and its micro economy stand in these phases?

Steen Jakobsen, Chief Economist at Saxo Bank, identifies three phases of economic crisis - denial, blame, and finally, mandate for change. Trying out some fiscal stimulus, which usually does not work, is part of the first phase - denial. Jakobsen notes that, “In the denial phase, the government says, ‘Listen, this is a short term risk so we can just expand the fiscal deficit for a while because then the weather will improve and things would be good.’” An ineffective fiscal stimulus then ushers in the beginning of the second phase, the blame game. In this phase, interest rates are lowered to make capital so cheap that it can actually work, but eventually does not work either. The result? China’s shrinking economy, India’s currency crisis, and Australia’s financing dilemmas. Now when all else do not work, what is left is the mandate for change or, in other words, reform. “I’m not saying it’s happening tomorrow or next week. What I’m saying is that the world will have to reform otherwise they’ll be stuck,” says Jakobsen.

So you have a number of countries in denial, some countries in the blame game and very few that are on the edge of moving on from denial, from the blame game to doing change. According to Jakobsen, the countries that will be moving forward to change are the countries that will survive. But where does Singapore stand? Of all Asian countries, Jakobsen is certain that Singapore is in top two in terms of being open to change.

Singapore’s micro economy

Having worked with Saxo Capital Markets, a subsidiary of Saxo Bank, Jakobsen notes that the last five years have seen a whirlwind of events for the world economy. But as Jakobsen puts it, doing the same experiment and
expecting different results is futile, especially at the macro level. “Everything about macro economics is wrong. Everything the politicians and the central banks do is by definition wrong because it is done on the assumption that they know what will happen to the economy.” But the negativity of the macro economy is offset by the optimism in the micro economy, which Jakobsen tags as ‘the updrift of the economy.’

Singapore is one of the few economies that understands the importance of the micro economy as it knows that people need to be incentivized for them to take jobs, stay, live in the city, and eventually contribute some capital. “Singapore is the success story I like the most because it’s a micro economy. It is ruled on the basis of micro economy rather than macro economy,” says Jakobsen. But he warns that Singapore has to diversify as well. “In the next 10-15 years they need to reduce the dependency on banking and have to be more involved in energy, SMEs, companies more involved in research and development than banking per se.”

So apart from understanding micro economics, what has kept Singapore immune from the challenges of the last few years? Singapore’s attractiveness to businesses and low tax base are without a doubt some of the contributors. Jakobsen also notes that security and stability attract capital in this country even if it’s based on fear. “People buy apartments in Singapore not because they wanna live here, but because when the world economy goes bad, they wanna be able to move here. I think a big part of the investments in real property in Singapore is driven by fear rather than rationality.“

Win the blame game

Singapore may be enjoying some sort of immunity, but Jakobsen warns that too much of a good thing is also a bad thing. He reiterates that economies need to get past the blaming stage to enact the mandate for change. “50% of the downturn is caused by world events which you cannot do anything about. But what about the remaining 50%? It’s about the competitiveness of not just Singapore, but also Indonesia, Australia,” he adds. Asia has a better starting point than Europe, but Jakobsen notes that there also exists a high obligation to make sure that the societies here are transformed into the mandate for change.

Steen Jakobsen, Chief Economist, Saxo Bank

Saxo Capital Markets Pte Ltd is a wholly owned subsidiary of Saxo Bank A/S, the online trading and investment specialist. It serves as the Asia Pacific headquarters and holds a Capital Markets Services licence from the Monetary Authority of Singapore, as well as a Commodity Broker licence from The International Enterprise Singapore. Clients can trade Forex, CFDs, Stocks, Futures, Options and other derivatives via its leading multi-asset multi-awards online trading platforms. For more information, please visit www.saxomarkets.com.sg