Thoughts on economics and liberty

Category: Public policy

How Singapore hires, pays, promotes and fires its bureaucrats – extract from NC Saxena’s book

The fine Indian bureaucrat NC Saxena shared his 2011 book yesterday that is also publicly available: Virtuous Cycles: The Singapore Public Service and National Development

To me the answers to four questions determine whether a bureaucracy is high-performing or junk. Here are the answers in NC’s words:

Appointment, promotion, discipline, and the public Service commission

The Public service Commission (PsC) was set up in 1951 ‘to meet the staffing requirements of the Government in accordance with the merit principle’, with the authority to appoint, confirm, promote, transfer, dismiss, pension, and impose disciplinary control over public officers. The Commission, consisting of a chairman and between 5 to 14 members, is appointed by the President, on the advice of the Prime Minister. Members of the Commission are drawn from respected persons in senior positions from every sector of Singapore society – individuals with “extensive experience in assessing character, capabilities and performance”.71

Personnel management in the early civil service was highly procedural. recruitment of all public sector personnel was carried out centrally via the PsC. It also administered and awarded top-tier undergraduate scholarships, which were and continue to be an important recruitment mechanism for talent in Singapore’s public service.

The centralisation of promotions however resulted in a situation where personnel decisions were made centrally by staff with little direct knowledge of the specific service area in which the public officer worked. For instance, in education, principals had little say in teachers’ promotions, although they worked together on a daily basis. This meant that personnel management could not be responsive to operational needs on the ground, and hindered attempts to recruit, retain and promote the best officers in a timely manner. There were knock-on effects for the efficiency and effectiveness of the public service at the operational level.

Since January 1995, however, the government has delegated authority for many personnel functions such as appointments and promotions of almost all civil servants, except the top ones, from the PsC to a system of Personnel Boards, with the PsC retaining the power to appoint Administrative officers as well as the management of all superscale officers of Grade D and above (including those who are statutory Board Ceos). Three levels of personnel authority – the special Personnel Board, the senior Personnel Boards and Personnel Boards – cater to different levels of civil servants. This is to give civil service line managers greater authority over the management of their officers, and to allow speedier decisions on recruitment and promotion. However, the PsC has also retained the authority to discipline civil servants, leading to a reduction in rank or dismissal.

Recruitment

Public service employment carries high prestige in Singapore, and there is considerable competition for positions within the civil service or the statutory boards. In a system which clearly echoes both the Chinese Confucian bureaucracy and the British civil service, the public service recruits from among Singapore’s most academically able young people. Civil servants are appointed without discrimination by creed, ethnic group or gender; selection is meritocratic: the best and most suitable candidates are recruited, with education qualifications, job fit and suitability for public service considered the main criteria for recruitment. The statutory Boards are permitted to hire foreigners, except for security-sensitive jobs. Promotion and tenure are based on an officer’s potential for greater responsibilities and demonstrated performance.

The majority of public service recruits are tested for long-term careers. However, contract employment is increasingly being offered to new entrants to the civil service. It gives ministries greater flexibility in managing their manpower needs and allows them to assess the suitability of new officers for a long-term career with the organisation. some may be brought in to work on specific projects within a certain timeline. others may possess specialised skills which the civil service requires for a certain period and hence are brought in for a fixed term.

Once appointed, all civil servants have to prove themselves through performance on the job. They are promoted based on their contributions, not their qualifications (since performance depends on more than academic aptitude, and those with better academic results may not always perform better on the job). Individual capacity for problem-solving is actively cultivated through challenging “stretch” assignments both to sharpen necessary competencies and to identify those with an aptitude for greater responsibilities. officers who reach the top rungs of the civil service have not only been identified as having the aptitude, qualifications and potential to hold high office, but a proven track record of active contributions to the public service.

The scholarship system in Singapore

To compete in Singapore’s tight labour market for the best candidates for office, the public service offers attractive undergraduate scholarships to candidates who do well in the Cambridge General Certificate of education Advanced level (‘A’ level) examinations and show an aptitude for public service. Traditionally, the Public service Commission has played a central role in selecting candidates for prestigious scholarships, although some of this responsibility has been taken up by the delegated Personnel Boards.

Government scholarships sponsor these outstanding young men and women for studies at distinguished universities at home and abroad.72 Once they graduate, these scholars are bonded to work in the civil service for a fixed number of years. They are deployed across the public service, depending on the terms of their scholarship. returned scholars who may be suitable for the Administrative service are deployed through a four-year Management Associates Programme to be assessed for the Administrative service. other scholars are tied to specific government bodies (such as teachers in the case of Moe scholarships). I

n 2009, 16 of the 20 permanent secretaries had been government scholars; a strong indication of the efficacy of the scholarship system in spotting suitable talent for the public service. However, as PsC Chairman Eddie Teo has pointed out, it also suggests that the personnel system is “flexible enough to allow for those with talent to be developed and rise to the top even if they did not start out as scholars”.73

Promotions and salaries: incentives that drive performance

Promotion decisions in the civil service are based on the outcomes of an annual staff appraisal process, in which an officer and his or her supervisor meet to discuss work assignments and training plans for the year, as well as to assess the officer’s performance and achievements in the period under review. A confidential staff report by the supervisor is also made, indicating the officer’s overall performance, character, potential and recommendation for promotion. officers are given an overall performance rating each year, measured by how far he/she has met or exceeded the expectations of his/ her substantive grade. The ratings range from A (when an officer far exceeds requirements in all areas of his work and makes contributions beyond his immediate responsibilities) to e (when he/she is unable to meet the requirements of his work).

Officers are also assigned a ‘Currently estimated Potential’ (CeP) by their respective Ministries, which then determine the speed and trajectory of the officer’s career, taking into account the norm for persons of similar potential. CeP (introduced in the 1980s) refers to the highest level of responsibility that an officer is expected of being capable of undertaking eventually, which determines his/her long-term promotional prospects and career track. The CeP not only influences how far an officer can go, but how quickly he/ she may advance up the career ladder, with higher potential officers being promoted more quickly if they demonstrate performance consistent with or exceeding these high expectations. As a result of this approach, the best officers can rise up to be Permanent secretaries in their forties. More rapid promotions, complemented by a fixed term appointment policy introduced in 2000 for senior officers, have ensured both parity and constant rejuvenation even at the highest levels of the civil service hierarchy.

Officers are ranked to ensure that assessments are equitable and fair, since it serves to moderate differences in standards between various supervisors and takes into consideration factors such as quality of work, output, organisational ability, knowledge and application, reaction under stress, teamwork and sense of responsibility, relative to others across the entire organisation.

Principles governing civil service wages

Singapore’s approach to public sector compensation is quite distinct from those of many other countries. one key difference is the principle of paying public servants competitive wages. As Singapore’s largest employer, the public sector’s compensation approach has had to reflect market conditions and take into account national objectives. It has also needed to adapt to the changing desires and aspirations of a younger, more educated and more demanding workforce. According to Neo and Chen (2007), public sector compensation rests on five core principles:

(i) Paying competitive rates commensurate with abilities and performance

The public sector recognises that good administration is premised on good people and that it needs to pay market rates to retain talent. Annual salary reviews are carried out, particularly for the professional services, with comparisons based on equivalent job markets or equivalent qualifications. Civil service pay rises usually follow strong economic growth, as was the case in year 2006 when strong wage growth in the private sector resulted in an increase in public sector attrition rates.

(ii) Paying flexible wage packages
Salary packages of civil servants now have a fixed and variable component, with the latter forming about 40 per cent of annual compensation. Having a greater flexible component has enabled the public sector to reward staff according to the performance of the economy without locking in large wage increases. In 2006, two days after the economic growth forecast for the year was revised upwards from between 6.5 to 7.5 per cent to between 7.5 to 8 per cent, the public sector announced a bumper bonus for all its officers of 2.7 months, a significant increase from the 2.15-month bonus for 2005 when economic growth had been less robust.

(iii) Performance-driven pay
The performance bonus system was introduced to senior civil servants in 1989 and extended to all officers in year 2000. This strong link between pay and ability enables the system to differentiate between outstanding, average and under-performing staff, reinforcing the meritocratic ethos.

(iv) Recognising potential
Good graduate officers are eligible for merit increments. As opposed to the previous fixed increment system, the ability to pay merit or variable increments allows good performers to be rewarded with higher increments. While the quantum of the performance bonus is determined only by the officer’s performance, increments are determined by the performance and potential of the officer as well as prevailing market conditions. High performing, high potential officers can thus receive much higher increments, helping them to ascend the career ladder at a much faster rate. This is in recognition of the fact that good young officers are no longer content to wait a long time to be promoted and face the prospect of peaking in their careers just before retirement.

(v) Paying clean wages
Public sector salary packages translate as many benefits as possible into cash. This reduces the number of hidden perks and increases transparency and accountability. By 1986 the government had by and large ceased to appoint civil servants on pensionable terms. The main exception is the Administrative service. The rest contribute to the Central Provident Fund, discussed in chapter 2.2.

The public sector compensation framework is clearly merit-based. The strong performance and potential-driven elements ensure that talented individuals rise quickly through the ranks, to reach their peak in their mid to late 30s. This has been part of a concerted strategy to reward and retain its top talent, which has been a key challenge since the 1970s. (Neo and Chen 2007)74

A history of public sector salary revisions

After self-rule in 1959, the allowances of civil servants were drastically cut in order to contain the budget deficit. Division i officers were the hardest hit by these measures, since they lost all their allowances, amounting to 35 per cent of their base salaries. As the budgetary situation improved, the Government restored the allowances in 1961. Salaries improved only in 1972 with the payment of a 13th month salary in December.75

While public sector salaries remained relatively low during the first decade of independence, this did not hinder the elected government’s drive to eliminate corruption, build strong public institutions and pursue development. By 1968, Singapore’s economy was growing at a healthy pace, and a report on public sector salaries was able to recommend pay rises of more than 25 per cent for most of the civil servants. However, the Government did not implement this recommendation until 1973 on two grounds: it was held that the economy, while growing, could not yet support a major salary revision; and the private sector was not considered a competitor for talent until the late 1960s. With this increase of 25 per cent in 1973, the gap in salaries with the private sector was somewhat reduced.76

Between 1959 and 1972, the per capita Gross National Product (GNP) had more than doubled, a civil service ‘brain drain’ to the private sector had started to develop, and the PAP government had been overwhelmingly re-elected for the third time. The government thus had the mandate and the means to make public sector salaries more competitive, reflecting the pragmatic realities of a growing economy while at the same time recognising Singapore’s continuing need for a competent bureaucracy. since 1973, there has been a trend of regular pay increases for top public officeholders with the growth of the economy. A 1981 survey found that private sector graduates earned 42 per cent more on average than those in the public sector. Not surprisingly, resignations were frequent.77 in April 1982, the Government revised the salaries of those in the Administrative service and other professional services to redress the wide disparity in pay between graduates in the public and private sectors, and to minimise the brain drain of senior bureaucrats to the private sector.78 in March 1989, then Minister for trade and industry, lee Hsien loong, recommending a substantial salary increase for the sCs, indicated that:

As a fundamental philosophy, the Government will pay civil servants market rates for their abilities and responsibilities. It will offer whatever salaries are necessary to attract and retain the talent that it needs. … the Government can afford to do so, and this is only being fair to the officers concerned.”79

As a result of the 1989 salary increase, senior civil servants in Singapore earned salaries that were high by international benchmarks.80 Further revisions have been made to keep pace with the private sector and to compensate for a reduction in medical benefits.81 As of 2008, the annual salary of a senior Permanent secretary is over s$1.9 million a year, reflecting the rapid economic growth Singapore has experienced in recent decades, resulting in high private sector wages, and consequently public sector salaries, which are pegged to the prevailing market in order to maintain the public sector’s competitiveness for the best available domestic talent. The salaries of senior civil servants are pegged at two-thirds the median salaries of the top 48 earners in six professions: Accounting, banking, engineering, law, local manufacturing firms and multinational corporations.82 Nevertheless, it remains clear that the high quality of Singapore’s public service is not due to generous compensation or employment terms, but is instead the outcome of conscious policies and strategies decades before economic conditions made it possible for the public sector to offer competitive salaries.

Performance incentives

Performance incentives (usually monetary) in the civil service strengthen the meritocratic correlation between performance and reward, providing recognition to staff that have done a good job and encourage them and others to continue to put in their best efforts.

The public sector introduced a flexi-wage system in July 1988, separating an officer’s salary into several components: a Basic Wage, a Non-Pensionable Variable Payment (NPVP), a Monthly variable component (MVC), a 13th month non-pensionable annual allowance, and a Mid-year / year-end variable component. The move established a wage framework that would be more responsive to uncertain and volatile market conditions. In times of poor economic performance, the bonus, the MVC and 13th month annual allowance may be reduced or withheld, without affecting basic wages. Annual adjustments to the basic wage are conservative, while one-off special bonuses can be expected during times of good national economic performance. These wage reforms removed the rigidities inherent in the traditional wage system and linked wages to economic growth and productivity, ensuring that wages would not outrun productivity gains. It makes the wage system more flexible and provides an adequate link between public sector wages and economic growth and productivity gains.

Performance bonuses for senior officers were introduced in 1989, giving qualifying officers up to three months’ worth of salary as a bonus for good performance well beyond the requirements of their grade. under this scheme, officers who perform well during the year can receive an additional salary of up to three months. The rationale for this scheme was the need to strengthen the link between performance and pay, and to recognise and reward those who performed well beyond the requirements of their grade. Performance bonuses of up to two months were extended to Division i officers from 1996, following a salary review benchmarked to the private sector. The government preferred to enhance salaries through performance-related annual payments rather than a flat increase in wages, in order to further correlate pay with performance.

The importance of associating pay with performance was underlined by Deputy Prime Minister lee in 1996:

“We evaluate on performance. It does no good nor is there any reason why we should want to give somebody a birth right for the rest of his career just because he has gone to a good university … If you are good, you get promoted. If you are not good, you may have a very fine qualification from a good university but it will not get you very far.”83

Institutional principles for success

The Singapore Government recognised from the beginning the vital importance of a country’s public institutions in achieving national goals. Consequently, they adopted a conscious and stringent policy to align the public service with their developmental agenda, worked tirelessly to root out corruption from the old colonial system, and then actively worked to build a new meritocratic bureaucracy, seeking to cultivate and nurture the civil service, provide them challenging assignments, inspire them to show results, and thus ensure that best talents are nurtured to drive the country forward.84 Public sector governance in Singapore has been guided by several important principles:

First, the Government has articulated, legislated and enforced zero-tolerance towards corruption in the public sector, and politicians have demonstrated ethical leadership by example. successful and public prosecution of cases against public officials has bolstered the credibility of and support for the government’s anti-corruption drive.

Second, the Government adopts rational, meritocratic and market-based (rather than populist or politically motivated) approaches, continuously reviewing the country’s social, political and economic needs in relation to global trends, formulating policy and operational responses to national challenges, and drawing from the best talents and minds across all sectors in the country.

Third, the Government, through the Public service Commission and Personnel Boards, has played a very active role in identifying, nurturing and grooming qualified and promising young talent for civil service positions, particularly at the critical leadership levels, ensuring a regular flow of competent individuals through the service to keep the public sector at high levels of performance.

Fourth, public servants in Singapore receive market-competitive salaries, complemented by merit-based personnel appraisal and advancement, as well as performance-based incentives which support performance management in the civil service. Civil service compensation is pegged to national economic performance, ensuring that the bureaucracy has a direct stake in the wellbeing of the country as a whole, and is proportionately rewarded for national success.

Finally, both the political leadership and the public service, attuned from independence to the needs of the nation, are deeply conscious of the need for renewal and reform as the domestic and global environment evolves. Undertaking a process of continuous improvements, several important institutional reforms have been undertaken to transform the public sector: improving productivity and organisational efficiency, enhancing its capacity for foresight, promoting staff wellbeing, employee engagement and delivering quality service through technology and a citizen-oriented mindset.

 

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Notes on property rights in China

See Wikipedia: https://en.wikipedia.org/wiki/Chinese_property_law

and this: https://en.wikipedia.org/wiki/Property_Law_of_the_People%27s_Republic_of_China

EXTRACT FROM The Logic of the Market by Weiying Zhang (2010)

progress in China’s economic development is occurring because China has been moving increasingly toward a private property–based economy from a position-based rights economy. Property rights have become less vague and better protected in the past three decades. The success of rural reform in the late 1970s and early 1980s, for example, has its source in contracting out the use of land to rural households. The resulting property rights are much better defined under the household-contract responsibility system than under the collective commune system.

In urban settings, under the planned economy, almost all economic rights were position based, and nonpublic businesses were completely illegal. During the reform, the government has taken several steps to grant legal status to the private sector. Sole proprietorships were legalized in 1982. Privately owned enterprises eventually obtained legal status in 1988 after a long debate. Protection of private property rights was explicitly written into the new constitution in 2004, and those institutional changes have greatly promoted the rise of business entrepreneurship and the related economic growth. By the end of the 1990s, most rural enterprises and small and medium-sized state enterprises were fully or partially privatized. Without those legal steps for implementing private property rights, entrepreneurs would not have emerged, and China would not have been so successful in its economic development. In fact, the Chinese economy almost stagnated from 1989 to 1990.

EXTRACT FROM Coase’s How China Became Capitalist

What the Chinese economists and policymakers found particularly relevant was the idea that the delineation of rights is a precondition for a market economy. If China was moving toward a market economy, it had to clearly define all property rights. This basic idea of property rights economics thus suggested a convenient way to “get property rights right” without changing the ownership structure via privatization.
While the Chinese government shied away from letting broken state enter- prises close and economists debated the issue of property rights, Zhucheng, a small county-level city in Shandong, quietly privatized 272 out of its 288 state or collective enterprises. This happened between late 1992 and mid-1994.

Coase acknowledges some potential risks with Chinese property rights:

The continuous presence of the state in defining and redefining property rights has raised a serious challenge. The discretionary power that the Chinese state still holds undermines the credibility of China’s emerging private property rights. Since the power can be and has been abused by government officials, it remains a big hurdle for the Chinese government to protect private property rights that has been recognized by the new constitution since 2004.

EXTRACT from a FEE article

globalization has increased personal freedom and put pressure on the Chinese Communist Party (CCP) and National People’s Congress to pass a Property Law last March. It recognizes the importance of the private sector and better protects property rights—all with a positive impact on civil society. [Source]

People are free to own their own homes, operate their own businesses, and seek work in the private sector. [Source]

NOTES FROM A 2016 Forbes article

On Sunday, China’s Central Committee of the Communist Party of China and the State Council released general guidelines on shoring up property rights which promise to “raise people’s sense of wealth security, boost social confidence, foster positive expectations and raise the impetus for entrepreneurship and innovation by various economic entities.”

The guidelines lay out 10 tasks of property rights protection, including improving legal enforcement of property rights (as reported by Xinhua, “law procedures should be elaborated concerning the sealing up, distraining, freezing, auctioning or other disposal methods of property belonging to enterprises or individuals that are suspected to be unlawful”).

 

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Extracts from a superb article on Singapore – must read this snippet

I’ve written an article on the Singapore model for TOI which is expected to be published in a few weeks. Then, while researching some other issues, I came across this which I’m extracting. A brilliant article in The Economist written in 2011.

Go East, young bureaucrat   – Emerging Asia can teach the West a lot about government, Mar 19th 2011

Singapore is important to any study of government just now, both in the West and in Asia. That is partly because it does some things very well, in much the same way that some Scandinavian countries excel in certain fields. But it is also because there is an emerging theory about a superior Asian model of government – it comes in four parts.

First, Singapore is good at government (which is largely true). Second, the secret of its success lies in an Asian mixture of authoritarian values and state-directed capitalism (largely myth). Third, China is trying to copy Singapore (certainly true). Last, China’s government is already more efficient than the decadent West (mostly rubbish, see next section).

Singapore provides better schools and hospitals and safer streets than most Western countries—and all with a state that consumes only 19% of GDP.

The Chinese are fascinated by it. “There is good social order in Singapore,” Deng Xiaoping observed in 1992. “We should draw from their experience, and do even better than them.” It sends streams of bureaucrats to visit Singapore. One of the first things that Xi Jinping did after being anointed in 2010 as China’s next leader was to drop in (again) on Lee Kuan Yew, Singapore’s minister-mentor, who ran the island from 1959 to 1990, and his son, Lee Hsien Loong, who has been prime minister since 2004. … It is hard to think of any rich-country leader whom China treats with as much respect as the older Mr Lee.

So what lessons are the Chinese learning? In particular, two humdrum virtues: a good civil service and a competitively small state.

One thing that stands out in Singapore is the quality of its civil service. Unlike the egalitarian Western public sector, Singapore follows an elitist model, paying those at the top $2m a year or more. It spots talented youngsters early, lures them with scholarships and keeps investing in them. People who don’t make the grade are pushed out quickly.

Sitting around a table with its 30-something mandarins is more like meeting junior partners at Goldman Sachs or McKinsey than the cast of “Yes, Minister”. The person on your left is on secondment at a big oil company; on your right sits a woman who between spells at the finance and defence ministries has picked up degrees from the London School of Economics, Cambridge and Stanford. High-fliers pop in and out of the Civil Service College for more training; the prime minister has written case studies for them. But it is not a closed shop. Talent from the private sector is recruited into both the civil service and politics. The current education minister used to be a surgeon.

Western civil services often have pretty good people at the top, but in Singapore meritocracy reigns all the way down the system. Teachers, for instance, need to have finished in the top third of their class (as they do in Finland and South Korea, which also shine in the education rankings). Headmasters are often appointed in their 30s and rewarded with merit pay if they do well but moved on quickly if their schools underperform. Tests are endemic.

Come in, the water’s lovely

Rather than seeing foreign investment as a way to steal technology or to build up strategic industries, as China often does, Singapore has followed an open-door policy, building an environment where businesses want to be. The central message has remained much the same for decades: come to us and you will get excellent infrastructure, a well-educated workforce, open trade routes, the rule of law and low taxes.

In other words, Singapore’s competitive advantage has been good, cheap government. It has worked hard to keep its state small; even education consumes only 3.3% of GDP. But the real savings come from keeping down social transfers and especially from not indulging the middle class. The older Mr Lee thinks the West’s mistake has been to set up “all you can eat” welfare states: because everything at the buffet is free, it is consumed voraciously.

Singapore’s approach, by contrast, is for the government to provide people with assets that allow them to look after themselves. Good education for all is one big part of it. The other mainstay is the Central Provident Fund. A fifth of everybody’s salary goes into their account at the CPF, with the employer contributing another 15.5%. That provides Singaporeans with the capital to pay for their own housing, pensions and health care and their children’s tertiary education.

There is a small safety net to cover the very poor and the very sick. But people are expected to look after their parents and pay for government services, making co-payments for health care. The older Mr Lee especially dislikes free universal benefits. Once you have given a subsidy, he says, it is always hard to withdraw it. He is convinced that if you want to help people, it is better to give them cash rather than provide a service, whose value nobody understands. China, he thinks, will eventually follow Singapore’s model.

Arguably the place that should be learning most from Singapore is the West. For all the talk about Asian values, Singapore is a pretty Western place. Its model, such as it is, combines elements of Victorian self-reliance and American management theory. The West could take in a lot of both without sacrificing any liberty. Why not sack poor teachers or pay good civil servants more? And do Western welfare states have to be quite so buffet-like?

By the same token, Singapore’s government could surely relax its grip somewhat without sacrificing efficiency. That might help it find a little more of the entrepreneurial vim it craves.

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