Wednesday, May 31, 2006

Does Opposition Scare Foreign Investment?

If you allow opposition into Parliament, you will send the wrong signal to investors and drive them away. The PAP sometimes takes this line and, in GE 2006, I saw it once in the newspapers and heard it again at a forum I attended recently at the National University of Singapore Society.

The gist of the argument seems to be: Opposition in Parliament will introduce political instability. Foreign investors don’t like political instability – it’s a risk – and will hence be scared off. So, opposition in Parliament is bad for Singapore.

Is this true?

The first step towards finding out is to understand political stability better, as there are several kinds. The second step: ask what kind of stability investors want. The third step: ask what impact opposition will make in Parliament, on the kind of stability that investors want. If opposition does indeed introduce instability of the kind investors shy from, then it is bad for Singapore. However, if it does not cause the kind of instability investors dislike, then it is not true that opposition will drive them away.

There are many definitions of political stability, and different people will include different ingredients. The basic ingredients include a lasting political order and an absence of agitation among the people, in the form of riots and other unrest such as strikes, civil war, or revolution.

Some may add additional ingredients, such as a legitimacy of government (acceptance of rule) and peaceful transition of power. Based of these as indicators, political stability can also be measured.

However, ingredients such as legitimacy are not necessary elements although, in most cases, they are very important. Political stability is also not the preserve of democratic countries. Monarchies, communist regimes and military juntas can be stable, too, with (benevolent) rulers enjoying a degree of legitimacy. You can also have a powerful and repressive government or a strongman leader, ensuring that there are no riots, strikes or other civil unrest. You’d then have little legitimacy but a lot of stability.

China is not a model of western democracy, but it appears stable, and attracts investors. Myanmar is not a democracy but it appears stable, too, and there are trade missions going there. India is a democracy but, for sure, politics in that country can get hot. It has many ingredients that spell “unstable”. Yet, it attracts investments.

Examples such as these suggest that the form of government in a country is, by itself, not the most critical factor for investors. They also certainly seem not to mind the presence of some ingredients of political instability in the countries where they put their money.

What is crucial to them, it would seem, are the economic and business conditions arising from political stability or instability, rather than political stability itself. Their concerns would include whether their physical investments (buildings, machinery), and staff whom they send, would be safe from physical harm. Whether taxation laws are favourable. Whether they can repatriate funds if they choose to.

Other factors would include whether there is adequate infrastructure, an appropriately skilled and competitively-priced workforce for the kind of investment they are considering. Whether there are suitable labour laws that are fair to them as employers. Whether the courts are competent and fair in settling business disputes. Yet other factors: Whether there is consistency, durability and some predictability in the business rules and economic policy for investors.

Basically investors would be looking for economic and business stability, and at political stability mostly in relation to how it affects economic and business policies. To answer the question with which we started: Investors look mostly for the kind of political stability that supports economic stability and, in particular, the investment conditions in that country. Political stability alone, without favourable investment conditions, is not enough.

So, what if one GRC worth of seats are won by the opposition in addition to the existing two? That would mean up to eight opposition MPs in Parliament .What impact would it have to political stability in Singapore, and to the attractiveness of the country for investors?

Political Impact
Eight opposition MPs, or the control under 10 percent of Parliament is not good enough to stop the PAP from having its way when it comes to legislation. The PAP would hold enough control so as to be the power in matters as crucial as, say, amending the Constitution.

How would things change if opposition had even more numbers? It would depend on the opposition’s political stances. As far as I know, no major party in Singapore has suggested changing the form of government (a PAP leader, meanwhile has in the past floated the idea of tinkering with “one man, one vote”).

There have also been no opposition suggestion – certainly none that I know of – that can lead to unrest of the kind that would upset political stability with civil war and such. Even if there were, the opposition would not have the numbers to make it a reality

In fact, rather than cause political instability, some have argued that with 33.4 percent of the national vote and just two MPs, comprising, under 10 percent of seats in Parliament, opposition is grossly underrepresented. The entry of more opposition would address this and reflect more truly the relative support for the opposition and the PAP.

Economic Impact
As with political stability, it is clear that the present number of opposition MPs, or even five times that number, would not have enough support in Parliament to either derail a PAP economic programme or initiate one of their own.

Again, supposing they had bigger numbers, what is it that they would want to do that would scare investors? They have not made, as an election platform or manifesto, any suggestion or shown any desire to tinker with Singapore’s overall stance to investors.

In an earlier entry, it has already been observed that the opposition does not have a clear economic plan, and appears not to have thought through many economic questions. They have been concerned in campaigns to retain their single-member seats in Parliament and, in GE 2006, had some energy and resources to make a reasonable push into GRCs.

They have yet to reach a stage at which they can offer alternative economic plans for Singapore. Perhaps knowing this, the opposition MPs already in Parliament before GE2006 have seldom, if ever, touched on economic matters. They have left it to the PAP and focused on domestic and municipal issues. With the expertise they now have, it is most likely that this will continue for some time, and the PAP’s economic programmes which relate to investors will prevail.

So, to summarise, it is not true that the entry of opposition – even in numbers greater than at present ­– is going to cause political instability. In fact, it may redress the issue of underrepresented opposition at the national level. Any “trouble” they cause is not going to affect the good economic climate for investors in Singapore.

At the end of the NUSS forum I attended – during Q &A ­– a member of the audience rose to make an impassioned plea to all present, not to leave the room with the idea that opposition scares away investment. With the typical time given to a person in a Q &A at such events, it is understandable that member did not elaborate on why.

Here, I hope I have given reasonable backing for that plea.


At 3:49 pm GMT+8, Anonymous Mark said...

Well said Geoff....great insight.


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