Weblog -- Economics & Business -- Monday, 10 November 2003
Monday, 10 Nov 2003 -- Legal Pyramids or Networks, NEL Debacle plus Unrealistic Expectations plus and Group Think
Let's see now ... The last entry I made in this weblog was in July 2003 ...
Today's entry in this weblog is about two networks:
- one that works -- i.e., making money, and
- one that is in some trouble -- i.e., losing money.
The winning network: Pyramids, Pyramids, Pyramids -- LEGAL ones, that is!
First, about the network that's making money ...
As stated above, it's been some three months since the July entry ...
During this time, I have gotten myself involved in a new business venture, specifically in a networking business -- or network marketing, a.k.a. multi-level marketing (MLM).
I know, I know ...
Some people think of "pyramids" straightaway, when they see or hear about "MLM" ...
But, hey, unlike prior to June 2000, MLMs are now LEGAL in Singapore. Only the scam versions continue to be illegal -- and the Singapore Government is NOT known to be tolerant about anything illegal or scam-like, believe me!
So, if you have written off MLM in Singapore, you are hiding your head in the sand, ostrich-like!
And you have chosen to become less and less informed about the real world of economics and business ...
Anyway, the MLM outfit I am representing goes into some reasonably heavyweight sponsorship of national events in Singapore ...
Thus, we are a main sponsor of the National Day Parade (NDP) 2003 ...
And we are also a main sponsor for the National Kidney Foundation (NKF) Charity Shows for
- last year (i.e., 2002),
- for this year (i.e., 2003), and
- for the next year (2004) ...
And the wife of our current Prime Minister -- i.e., Mrs Goh Chok Tong -- is the Patron of the NKF ...
So, you tell me whether our MLM company is a fly-by-night MLM pyramid?
* * * * *
The losing network -- that is, NEL
Anyway, today's entry in this weblog is triggered by the recent NEL debacle ...
NEL, of course, is the acronym for our North East Line -- part of our so-called "mass rapid transit", or MRT, network.
That's the network that is in some trouble ... 'cos it's losing money, man!
Our local broadsheet The Straits Times, of today (10 November 2003) carried a Commentary entitled "Raility bites" ... An appropriate title.
Here's the relevant parts that I wish to remember:
- When the idea of NEL was first spawned, the Government hoped that a multi-modal scheme - which calls for transport companies to run more than one mode of transport - would inject competition into the transport sector and result in better integration of bus and train services.
So it invited SBS Transit and Trans-Island Bus Services to tender to run NEL in 1998, and conspicuously kept the incumbent rail operator, SMRT, out.
But such contrived competition translated into higher NEL fares and greater inconvenience for commuters, as SBS slashed its network of bus routes to avoid cannibalisation of its train services. And an estimated first-year loss of up to $35 million for SBS.
JUDGING from the dearth of takeover offers, NEL is as good as nobody's child today. Transport economists say its conception was doomed from the start by the limitations of catchment size and Singapore's scope for competition.
Daily ridership on the NEL hovers around 170,000, way below the Government's earlier projection of up to 250,000, because of a slowdown in the development of housing estates in the north-east of Singapore.
As the chairman of the Government Parliamentary Committee on Transport, MP Chay Wai Chuen, puts it: 'Was there any doubt that it would be a losing proposition because of the lack of scale?'
- Transport watcher and GK Goh economist Song Seng Wun ... argues that the Government should no longer assume continuous upward growth as the norm for Singapore, but take into account less-than-desirable scenarios.
- Institute of Policy Studies researcher Chang Li Lin goes one step further, suggesting that such projection and planning errors may have been 'a result of group-think' and a lack of diversity in the information sources.
- Others also scratch their heads at the Government's notion of 'competition'. Isn't staging competition between two players merely creating a duopoly?
Professor Gershon Alperovich from Israel, who is teaching a course on transportation economics at the National University of Singapore, contends that if the Government really wants competition along a given line-haul, this should be done by opening the line to bidding by different companies every few years.
'This way, the most efficient company runs the line and has incentives to be efficient so that in future bidding, it can outbid others,' he says.
- Insiders from transport companies say the reality is that despite the privatised fronts, they are still obliged to run the companies like statutory boards.
They say their work is a tightrope walk between living up to private-sector performance indicators - in profit and productivity - and Singaporeans' sky-high service expectations, and a public-service provider's responsibility to keep prices down to earth.
The dilemma that dogs them daily is how to generate ever-growing profits to motivate staff with better pay, and yet justify why these profits cannot translate into lower fares for commuters.
The fact that both SMRT and SBS Transit are publicly listed companies adds a thorny third dimension. 'As any business textbook will tell you, shareholders come first; or else, there will be a lot of yelling come the annual general meeting,' says a senior industry source who declined to be named.
This is worsened by the fact that transport costs remain a flaming-hot political potato.
A five-cent fare hike can translate into public outrage and lost votes at election time. As the source describes it: 'It's like being stuck between a rock and a hard place.'