Think out of the money box

Since my last blog post, and later newspaper letter, on restructuring the COE system based on needs was published, I’ve observed several replies that follow the same lines of thought.

  • A certificate of entitlement (COE) must be tied to capitalistic market forces, because there is no other fair way of distribution.
  • The COE must cost a particular sum of money (eg. the rich should pay more for their high-end cars)
  • A COE system based on needs can’t possibly work, due to the subjective nature of “needs” and the existence of a black market.
  • Any distribution of COE based on needs must be communist or socialist, so it can’t be good.

It’s amusing and I must admit, somewhat tiring, to see how Singaporeans think when they see a new proposal that isn’t based on money principles. This permeates not just through the citizenry, but also the government. Here are some of the responses to my letter with alternative proposals

I suggest benchmarking road tax and rebate values against the latest COE prices (pegged to the OMV) to ensure that actual cost of car ownership is borne by all road users. In times of high COE prices, owners would receive incentives to de-register their vehicles, increasing the supply of COEs. This will also allow vehicle growth rate to slow down, while maintaining price stability. Market-based solutions remain the most appropriate approach to the problem

- Tan Si An, “Look to market-based solutions to improve current COE system”, 13 Feb 2013, Today Voices.

To correct this, we must adjust our system through cooling measures, like in property, that would be easy to administer, such as a maximum loan quantum of 40 to 50 per cent, to help regulate overall demand and reduce risks for many who might overcommit on debts. A re-categorisation of COEs and their supply according to a car’s Open Market Value would ensure a more equitable distribution, with the rich paying more.

A system based on perceived needs, though, would be a nightmare to administer. Is a family with three children living within a five-minute walk to an MRT station perceived to have a higher need than an old couple with no children but living 30 minutes from an MRT station? What about a young medical professional who must respond to emergencies but is 15 minutes away from public transport? There are hundreds of permutations. How would one judge and who would judge the perceived needs? Such a system would also create unhappiness for many.

- Chew Eng Soo, “Re-categorise COEs to ensure more equitable distribution”, 12 Feb 2013, Today Voices.

And here is the Gahmen’s take on it, when the idea of balloting was raised in Parliament

Balloting for Certificates of Entitlement (COEs) will generate additional demand and reduce the winning chances for those who really want to buy a car, said Minister of State for Transport Josephine Teo.

Mrs Teo made the point in Parliament on Friday in response to MP Denise Phua, who asked if the system can be modified to allow for balloting. Mrs Teo said with balloting, even those who have no real intention to buy a car would try their luck.  “This is especially because the ‘prize’ of the ballot, in this case a COE, will be much sought after, and a person who wins the ballot can quite easily decide to cash out,” she added. Mrs Teo said there could also be a black market where balloted COEs are resold to genuine car buyers at a much higher price.

She said: “Balloting essentially means telling genuine buyers, whether they are families or businesses, that getting a COE depends on the luck of the draw or having to resort to the black market. Neither of this is very reassuring and clearly not an improvement over the present system.”

Mrs Teo said there will also be a need to fix “some arbitrary price for COEs” given out under a balloting system. She said the price has to be high enough to deter speculators and yet not too high for people who would like to own cars. She added: “The member will agree that this is next to
impossible as any price that is lower than what people are willing to pay will attract speculators.” 

- “Balloting for COEs will reduce winning chances”, Channelnewsasia, 8 Feb 2013

Ok, let’s get it clear, I’m not here to say that my COE proposal is great and is the only way forward. It is just one of many suggestions that the Ministry of Transport has been getting (and ignoring). Every suggestion I’ve posted above from other parties is valid and workable in their own way.

What I want to say here though, is that we need to examine the underlying assumptions that people make when they analyse the COE system, versus the reality which imposes limits on what can be done.

Any policy to fix the COE has to be very lucid on some things first. (These are all based on common sense and logic, no rocket science involved):

1. There must be a fixed limit to the number of vehicles in Singapore.

Why do people still think about a “growth rate” for vehicles in Singapore? The Transport Minister still wants to maintain a growth rate of 0.5%.

Excuse me, how much land is there in SG and how many vehicles can be tolerated? The finite nature of land means that there must be a finite number of four-wheeled vehicles. I was joking with a friend – one way to double to number of possible vehicles is to ban cars altogether so the roads can only be occupied by motorcycles and bicycles.

So let’s not talk about growth of the car population – let’s talk about a finite cap, which I believe we may have already busted due to the frequency of jams we see here, even during off-peak hours. Even with more road improvements, the jams will still occur – you can’t possibly widen every expressway by another lane and not see bottlenecks at each major exit point or on arterial roads.

What this also means is that there can only be a fixed number of certificates. Every cert that is scrapped goes back to the pool like today, but the pool must no longer grow. Projection of the wrong growth rates in the 2000s led to the oversupply today. The sky-high prices we are seeing now is not a natural function of the original COE system – it is gaming of the system by premium car dealers.

2. The current COE system is causing social discord and class division

Resentment of the PAP government is at an all time high for a variety of reasons. One of them is the perception that Singapore has become a “playground for the rich”, leaving the rest of the people out in the cold.

Our COE system has created a car population like no other in the world – cars often scrapped before their 10th year, BMW and Mercedes Benz are the top two selling cars in SG, we probably have the highest percentage of supercars on the roads, and so on.

Disclaimer: Now I happen to ride the Ferrari of motorcycle brands – a Ducati – so maybe I’m not the best guy to decry “class divide!”. But let’s do the sums – my Ducati Monster retails for $32K SGD including insurance and COE(as of today), while the car COE is currently at $92.9K SGD. A BMW 3-series sedan is currently going for $216K, so my Ducati may seem like an affordable scooter next to what BMW owners are forking out. And our Class 2 “scooters” can out-accelerate any car you can afford ;)

I also own a Corolla Altis which has a $4.6K COE, purchased at the system’s lowest point in 2009. If the current COE system continues, I have no intention of buying a new car when this car’s COE expires in 2019, I have better things to do with $200K.

I’m cool with not owning a car especially when my kids would be teenagers by 2019, but I can’t speak for others. So yes, the current COE does deter people from buying cars due to affordability.

But if we spent our whole lives looking at spreadsheets and doing the sums, it’s a truly sad life to lead. In a society where only the really rich or those who lack financial prudence, can drive a car, you have to think of the societal consequences. Will people construct their lives around renting a hunk of metal and wheels at illogical prices?

It’s not as if public transport is a good alternative.

The Govt has been desperately trying to persuade people that its white paper projection of 6.9 million people in 2030 SG is a worst case scenario, but I’m more worried about the next ten years.

The infrastructural problems that the Govt says will be fixed by 2030 will definitely continue in the next few years. Just this morning, a fire broke out at the Newton MRT train platform causing northbound trains to be suspended for nearly three hours.

Every other week we hear of some SMRT breakdown, until we are tired of hearing what the Transport Minister has to say on their efficient recovery plans. Nobody really cares what you say if you’ve missed work, an important meeting, or even a school exam.

The end result is an unhappy populace forced to live with a problematic public transport system, while the rich who buy new cars still get stuck in jams (but at least in air-conditioned comfort with some muzak). If the PAP hasn’t figured it out by now, the public transport system will cost many many votes in 2016’s General Elections, because the system favors the rich.

Yes, the COE system generates great revenue for the Govt, but is the ruling party ready for the cost of votes? You can promise lift upgradings, more kindergartens, but what people really want is a satisfactory means of getting to work to drive this country’s relentless pursuit of Gross Domestic Product.

3. Balloting requires a radical locus of control

To everyone who says that a balloting system will lead to a black market, you’re not thinking hard enough of what this proposal would require in terms of control.

If you tie the COE to a person’s identity card, do you think he can sell his identity so easily? We have such an advanced ERP system that can detect every car by their in-car unit and cashcard, I don’t see how difficult it is to include tracking of an inserted IC when the car goes under a gantry.

There will always be a few who will try to break the system and go sell their identity/right of ownership on the black market, but let’s remember, Singapore is a really, really small place and the level of control possible is like no other country on earth. The Land Transport Authority spends too much time trying to catch people who modify their cars with loud but harmless mods, and can instead divert their resources to doing random spot checks on cars if such a system is implemented.

At this point, someone will shout: “This proposal is communist!” Or socialist. Whatever.

For those not aware of history, communism is always the dirty word thrown about when people don’t like an idea that seeks to distribute resources randomly or equally. Communism as a political concept has failed, we all know that. But when your kid doesn’t get into school because he failed the random ballot, is the system “communist”? If you don’t get a Baby Bonus because you are childless, is the system “communist”?

Stop using words because of their political baggage and impact. Use words which speak logic and sense.

The fundamental issue with the COE is how to distribute them. This is one thing the various proposals don’t seek to consider. It can boil down to one simple question:

How many expensive vehicles should we have vs cheaper sedans?

At this point, people will probably get stuck. I can imagine the policymakers arguing: Do we cater to the rich, or do we seek to make the masses happy? Do we seek revenue or do we seek political votes of the heartlander? Maybe 50-50 lah!

I bring you back to the original principle of a vehicle quota system:

There can only be a finite number of cars, no matter the population of Singapore.

This is where all the alternative COE proposals, including mine, will run into the wall for a long time. The one factor that stops the conversation from moving forward is the stubborn assumption that distribution can be managed by market forces (ie. who has the money can own one).

But, but, what happens, say in some hypothetical scenario, there are 500,000 rich people in Singapore but there is only enough space for 300,000 cars? Forget what the poor thinks, the rich will revolt.

The problem never ends until people recognize that a quota is really meant to limit the number, not to make people happy. The current COE system – where I haven’t heard the LTA state a theoretical limit in car population – has an inbuilt time-bomb because there may come a day when even if you can afford a car, the roads are all gridlocked to the point where there isn’t any pleasure in driving anymore. So all your precious COE money has gone to waste.

4. So who decides who really needs a car?

This is where people get really upset. You mean my family of two shouldn’t be prioritized to have a car?!? You mean the million dollars I contribute in taxes means nothing?

To argue about who is more needy will take forever. Someone needs to put their foot down and instead of dealing with a thousand permutations, just lay down a few criteria. Some suggestions for people to qualify before they can even go ballot for a COE:

  • Entrepreneurs who deal in goods and services (why, this may spur the entrepreneurship we always bemoan that is lacking)
  • Families with at least three kids. (This will work better than any Baby Bonus, I always believe so)
  • Families with one disabled parent or special needs child. (Will the aged deliberately cripple themselves to own a car? Not too many, I hope).
  • Each registered company with at least 10 employees is entitled to one goods vehicle. (subject to constant onsite audits. SOHOs have no way to workaround this)

And keep it at just a few criteria – everyone else go take public transport, since its purported to be “world-class”. Don’t even release the remainder into the market for free auction. And police the car owners to the maximum until their COE expires.

One can imagine the outrage of people who don’t qualify to begin with. But will people understand the fairness of such a system?

But like I said, if you don’t put strict criteria, everyone will believe they deserve a car. No, my friend, a car can no longer be within reach of everyone because our roads are bursting and so is the population.

A painful solution is needed, but one that does not create societal problems or a wealth divide.

Unlike the past, working hard at your job and earning big dollars shouldn’t be the passport to car ownership. Even country clubs have a cap on the number of members they can have.

Meritocracy has no place in a car quota system. Just like how it’s tough to say whether an SAF general deserves a car versus a Cabinet minister versus a fresh vegetable supplier.

So don’t confuse equalitarian with communism, and don’t confuse wealth-based systems with meritocracy. When it boils down to it, nobody really needs a car in a country 50km across in length. But just like the idea that everyone should own a flat, we’ve grown up being brainwashed that we must own a car to show that we’ve made it in society. I argue that it is those who haven’t made it (the disabled, the disenfranchised, the struggling entrepreneur) who need all the transport help they can get.

The COE was created in 1990 when the population was small (3m, vs today’s 5.3m), when there was no heavy influx of foreigners and their wealth, and there was no Internet for people to share ideas and debate public policy.

If we can’t recognize the root of the problem, we can’t solve it. And I say the root of the COE problem is that we can’t think of a solution that doesn’t involve money and taxing the people to their wits’ end. We spend all our time thinking about money and that affects the way we look at issues. Sometimes we need to step back and stomp on all our assumptions before we can move forward again.

PS: Like I said, I don’t have the perfect solution. There are definitely some holes in my logic above that I can’t pinpoint because I’m just human. I just have ideals and common logic applied to them. If you wish to comment below, be constructive and be respectful to each other please. I will moderate all comments like I would a car quota system.  

  • G

    Ok, random thoughts. Based on your four criteria, does it mean that even you don’t qualify to own a car? I once read somewhere that a developed nation isn’t one in which the poor/needy own a car; it’s one in which the rich use public transport. I’m pretty sure we’re a long, long way from that. But I believe it will happen when some sort of equilibrium is reached. How, I don’t know. And in that ideal state, I think we can settle for ‘no choice kena take public transport lor’ over the more lofty ‘I take public transport because I choose to’ (even LKY admits we’re not a gracious society). And I take your point about not confusing communism with the equitable distribution of resources. Which led me to re-read Milton Friedman’s Free To Choose. Why, in capitalist Singapore, are we not able to allow market forces to dictate what’s good/necessary? Let people choose their doom, almost. And maybe if we allow our roads to be gridlocked the way you describe, will we come to terms with the chaos, re-adjust, and perhaps achieve that equilibrium (rich people and public transport) that I mentioned. i.e. kena until jialat, then learn the hard way. Or is that too expensive a lesson?

  • http://www.iantan.org/ Ian Tan

    Yep, I won’t qualify at all. Because I don’t suggest ideas to suit my own personal needs, I’m more interested in “the greater good” at my own cost.

    Allowing market forces to stabilize the situation will only work if there is sufficient resources and land. The very existence of a COE system means there must be some form of control and strict parameters to ensure the roads are unclogged. And the system is being manipulated by car dealers to drive sales of particular models with sufficient sales margin for profitability.

    If we let people choose their own doom, we don’t even need a car quota system to begin with, and the entire society goes into stagnation since even buses get stuck in the gridlock.

  • http://www.iantan.org/ Ian Tan

    If you see your comment being deleted, it is because this blog deserves more than just sarcasm and mockery.

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  • http://www.facebook.com/phinehas Phinehas Tan

    My take would be: leave the system as it is, but when the “bumper crop” of COEs expire over the next few years, don’t allow a boom or bust scenario to happen again. Take the scrapped COEs and release limited quantities back into the market, so that COE supply is evened out and prices are at an acceptable level.

  • Guest

    Good for you for being for the greater good at your own expense. it’s the most intellectually honest way to go. But as someone who only spends time in Singapore, I fail to see how bad the traffic is. ASEAN is notorious for horrible traffic which I don’t see in Singapore. I understand there is a mindset now to not allow a lot more foreigners in, but how will anyone with tons of money to invest be attracted to a place where they can’t drive if they wish?