I just returned from an economist’s dreamland. It is country, where unpopular policies advocated by economists in the name of efficiency are implemented by politicians, who then get re-elected. That place is also a major trading partner for the Port of Savannah, according to “World Port Source” (statistics for 2010 can be found here: http://bit.ly/W7Px3Q).
Singapore has been captivating traders, tourists, political scientists and economists for a long time. As put succinctly by George Mason University economist Brian Caplan a few years ago: “The case of Singapore is a fascinating challenge to time-tested models of how democracy works” (the full article titled: “Singapore’s Political Economy: Two Paradoxes” is available at http://sg.sg/VcaOGL).
Or as Bentley University economist Scott Sumner describes it (here: http://bit.ly/UPJixl): “Sounds like the sort of place a free market economist would like, doesn’t it? But it isn’t. My guide told me that when western academics come to Singapore, the leftists tend to love the place, and the libertarians often go home in disgust.”
Sumner also cites critics calling the approach in Singapore heavy-handed.
The reason for this reaction is that Singapore has been following an uncompromising path of what could be called “economic paternalism” (“maternalism” would work, too) in the pursuit of economic efficiency. That includes incredibly high taxes on cars, as well as steep rush-hour tolls on roads to cut down on congestion among numerous other examples of regulation.
As I was told by my guide in Singapore, people take out large loans to pay for the certificate of entitlement needed to own a car. The most recent “bidding prices” for those entitlements are listed online (http://sg.sg/UTjtj8) and reached the equivalent of almost $74,000 (US) for relatively small cars.
A lighthearted economics book (yes, they do exist), just published by the Civil Service College, describes in detail how policymakers in Singapore use new insights from behavioral economics to “nudge” (to use a currently popular term) people into behaving a certain way by taking account of cultural settings and norms.
The book — titled “Behavioural Economics and Policy Design: Examples from Singapore” (http://bit.ly/VcgNLE) — abounds with stories and engaging cartoons describing how this system works. One chapter, contributed by economists Charmaine Tan and Donald Low, suggests that “policymakers ought to think about how norms might work in tandem or at cross purposes with economic incentives.”
This should be noteworthy to all of us because there have already been policy changes in the U.S. that attempt to use similar nudges to get people to behave in “their own interest,” for example when it comes to saving. Well known is the strategy of having people “opt-out” rather than “opt-in” when it comes to retirement fund contributions. The resulting increases in participation rates are nothing short of incredible.
If only voters could use similar methods to get their politicians to implement more coherent and efficient economic policies.
In the conclusion to her chapter, Charmaine Tan writes: “The use of market-based instruments and price incentives by governments to achieve policy goals is a reflection of a sound, rational approach to governance.”
A world in which there is a “rational approach to governance.” Call me crazy, but that sounds like a panacea at least for the economist writing this column.
If one works hard enough at it, it seems, “Dreams come true.”
Dr. Michael Reksulak teaches economics and public finance in Georgia Southern University’s College of Business Administration. He may be reached by email at mreksula@georgiasouthern.edu.