The electronic bureaucrat - Economist.com

Putting their services online should allow governments to serve their citizens much more effectively. But despite heavy spending, progress has been patchy, says Edward Lucas (interviewed here)

AT 6.15AM on a December morning the streets of central London are cold, dark and offer little for the omnipresent CCTV cameras to record. But outside the Indian High Commission 109 people are sleepily waiting for the visa section to open. David Robb and his friend are first in line, huddled in sleeping bags behind a windbreak since 3am, to ensure visas for a planned holiday in Goa. Nearly all his fellow-sufferers in the queue have booked their air tickets and sometimes their entire holiday on the internet, paying with a credit card. Those electronic signals move information almost at the speed of light—billions of times faster than the shuffling, shivering humans in the visa queue. “In this day and age? Bleeding disgusting,” is Mr Robb's pithy comment on the Indian visa system.

It is not just that the passport and its owner must be physically present. The £30 ($60) fee must be in cash; the visa form must be filled in by hand and authenticated with a signature and a photograph (a hard copy, not a digital file). The procedure has scarcely changed in 60 years. The 500 people waiting at 8.30am, when the visa office opens, should get their visas by noon, though on busy days stragglers may be told to collect it the next day. Applying by post is possible, but may take weeks.

Compare that with another queue forming in Grosvenor Square, a brisk 20-minute walk across London. Procedures at America's fortress-like embassy are even more stringent, requiring all visa applicants to present themselves in person, with no postal option. But here the procedure is backed up by intelligent use of electrons. Applications must be submitted online, accompanied by a non-refundable $131, paid electronically. In return, the applicant receives a confirmation e-mail, which includes a barcode with the information from the completed form. Printed out, it is also the entry ticket to the embassy, controlling outsiders' access to one of the main terrorist targets in London.

Inside, the barcode is scanned, putting the data onto the visa officer's computer. Fingerprints are digitally recorded. The visa itself, collected shortly afterwards, has banknote-style security features, plus a scanned picture of the applicant.

In some ways the differences are smaller than they seem. Under both systems, absurd questions are asked but the answers are never verified. India wants to know if you have relatives in Pakistan; America wants to know whether you were ever arrested for anything anywhere, and if so, why (your correspondent, detained several times by communist-era secret police, brazenly fibbed).

But in a few nutshells, visa services also illustrate some of the big issues about technology and government. First, processing power and good software can make government more user-friendly and sometimes also more efficient, but technology on its own cannot compensate for the mistakes of bureaucrats and politicians. Second, the state has to balance convenience against effectiveness, the outsider's time versus the taxpayer's money and the bureaucrat's effort. Technology may sharpen these problems or ease them, but it cannot eliminate them altogether.

Believers in technology's potential in public administration often speak of e-government, or of “transformation”. The practicalities are sometimes vague, but the big picture is clear: government not only puts its services online, but in doing so changes the way it works.

Most countries have got at least somewhere on this, chiefly in what might be called i-government: the provision of information. India's downloadable visa application form represents that stage. Progress is also being made on using the internet's potential for interaction. America's visa system goes some of the way by getting the applicant to key in the data.

The internet is also being used inside government to share data among departments. That is easier to do with non-citizens than with voters, who may be touchy about their privacy being invaded. The next stage will be to provide the whole service online. For visas, that would mean something printed out by the applicant, downloaded onto a smart card or even stored in a mobile phone (an example of “m-government”—same service, different delivery). At the same time, technology should also make it easier for politicians to connect with their voters (“e-democracy”).

George Markellos of PA Consulting, a British-based consultancy, says that government needs to start by making three big changes. First, it needs to personalise what it offers, rather like online shopping services which record customers' preferences, making their next visit easier. Second, it has to provide round-the-clock access. People want to deal with government not only in office hours, but also in the evenings and at weekends. And lastly, public services have to be as easy to use as anything the private sector offers. In the online world, government is competing for users' time and attention with beautifully designed sites that are fun to use. The government's offering, says Mr Markellos, “has to be massively attractive”.

Yet comparisons with the private sector get you only so far. Government rarely faces competition and public services seldom come at market prices. More often they are “free” or subsidised, and their use needs to be policed or rationed. The state provides its “customers” with defence, justice and roads, and usually some public services such as health care, education, pensions and transport, plus some support for the poor. But it is also the steward of scarce public resources and the preserver of public goods such as law and order. In keeping track of wrongdoers, actual and potential, being user-friendly is not crucial. New technology makes it easier to collect taxes but it does not make them any more welcome.

The state's role as a watchdog is something that the grumbling queues outside embassies have to bear in mind. Tough visa procedures undoubtedly deter businessmen and tourists from visiting, but the visa is the way that the state protects its citizens from undesirable outsiders. Similarly, issuing passports and driving licences is never going to be as easy as getting a loyalty card from a retailer.

This report will argue that technology can give politicians and officials a better idea of what the public wants and how to provide it, just as it has done in the private sector. But just as the private sector's adoption of new technology involved a number of pitfalls, some e-government ventures have been ill-starred. Citizens are right to be suspicious about technology that can make government all-encompassing, and they should demand a lot more of government as a monopoly provider of public services.

Technology on its own will not bring reform, but it can make changes easier, cheaper and more effective. The learning curve has not been nearly steep enough, but governments are getting better at buying and using computers and software. The benefits are mounting and the costs are coming down.

The benefits will be biggest in countries where officials and politicians are open to pressure and where the citizens are public-spirited to start with. E-government is no magic bullet, but it gives citizens and lobby groups more power to scrutinise government and highlight waste and dishonesty.

It's everywhere

Although hopes have been high and the investment has been huge, so far the results have mostly been disappointing. That reflects a big difficulty in e-government (and in writing about it): it touches on so many other things. What exactly is it that public organisations are trying to maximise, and how can it be measured? Ask the economists. What motivates officials and politicians to make government honest and competent? Bring in the political philosophers. And who decides on the highly contested trade-offs between privacy and security, efficiency and equity?

This report will explain that gloom, fear and optimism are all justified. It will look at the return on investment so far, the hoped-for gains and the neglected drawbacks of e-government. It will show how good leadership, openness and competition can bring spectacular gains, and how bad planning and political interference can make technology in government an expensive disaster. It will look at the dangers of government-run databanks and how to lessen them, and the way in which poor countries such as India may be able to leapfrog rich ones in their use of technology. It concludes by asking if e-democracy makes politics more participatory, or merely noisier. But it starts with an incontestable success: i-government.

Getting serious - The Economist

Computing: Virtual worlds are being put to serious real-world uses—and are starting to encounter some real-world problems

IT IS a typical example of the colonisation of a new frontier. A few intrepid explorers stake out some new, unexplored territory. Before long the first settlers move in and start to look for ways to make a quick buck. Their success attracts more settlers, and an unruly bonanza ensues; finally the policemen, lawyers and tax collectors show up. But the territory in question is not a new continent: it is the realm of cyberspace, where two developments suggest that virtual worlds are coming of age. The first is the emergence of commercial uses for virtual environments; the second is the advent of litigation and regulation.

Many of the serious uses of virtual worlds were on show at a conference held in September at Coventry University in England. Aptly, people could also take part in the conference by visiting an online re-creation of the university's Serious Games Institute, where they could chat with other participants and watch presentations. David Wortley, the institute's director, says half those attending did so this way. The focus of the conference was the application of computer-game technologies and virtual environments to real-world business problems.

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With the popularity of virtual worlds such as Second Life and games such as “World of Warcraft” and “Sims Online”, companies, academics, health-care providers and the military are evaluating virtual environments for use in training, management and collaboration. Superficially, such uses look a lot like playing a video game. “The thing that distinguishes them from games is the outcome,” says Mr Wortley. Rather than catering to virtual thrill-seekers, the aim is to find new ways for people to learn or work together.

Blitz Games, for example, the firm behind “Karaoke Revolution” and other games, has applied its technology in a rather more serious field: the development of a medical-triage simulator. The idea is to use it to train paramedics, doctors and firefighters in prioritising care immediately after a disaster. “We are simulating the scene of an explosion on a high street,” says Mary Matthews of Blitz's TruSim division. Players observe the virtual patients and gauge their respiration, pallor, bleeding and level of distress; then they use this information to determine which of them is in greatest need, all against the clock. Each player's performance is scored according to an industry-recognised training protocol. Real-life exercises could achieve the same objective, but the simulated environment cuts costs and improves access.

The same technology can also be used to simulate the more mundane environment of an office. PIXELearning, a British company based in Coventry, has developed a simulator for a big international accounting firm in order to train interns who are fresh out of university. The role-playing simulator lets them develop their skills by interacting, for example, with a difficult client who is being aggressive on pricing. This is invaluable, says Kevin Corti, PIXELearning's boss, because it allows them to make mistakes before being unleashed on a client. Similarly, a big American bank is using PIXELearning's simulator for “diversity and inclusion” training.

Cisco, an American network-equipment giant, is using virtual worlds to improve internal collaboration, says Christian Renaud, the company's “chief architect of networked virtual environments”. Such environments are used to host meetings and to create virtual workspaces for employees who may be part of the same team but spread out over half a dozen countries. The hope is that the use of virtual worlds, rather than more structured forms of communication such as e-mail or conference calls, will make serendipitous meetings more likely and interpersonal networking easier. Holding business meetings in a simulated environment is not quite as glamorous as the depictions of virtual reality found in science fiction. But it makes a change from the usual drab meeting rooms.

Here comes trouble

It is not just office workers who are taking their first steps into virtual worlds. So too are lawyers, as disputes in such environments spill over into real-world lawsuits. Such disputes often concern the trade in virtual goods and services, which are bought and sold for real money. In some countries lawsuits over virtual goods are already common. Unggi Yoon, a judge in the Suwon District Court in South Korea, estimates that Korean courts have heard nearly 300 cases of fraud and more than 60 relating to hacking in virtual game-worlds. Similar fights have broken out in American courts, too. So much for escapism. “I have heard from other players that the element of fun in the game has been diminished by thinking of all these legal issues,” says Sean Kane, a virtual-worlds specialist at Drakeford & Kane, a law firm in New York.

Real-world trade in virtual items is allowed in virtual worlds that are intended to simulate reality, such as Second Life and Entropia Universe. And it has been going on for years among players of “massively multiplayer online” role-playing games such as “World of Warcraft”, “EVE Online” and “Lineage II”, even though such trading is banned in many game worlds, since it upsets the competitive balance if some players buy weapons or armour rather than earning them in the game. “We don't allow real-money trades in our games because we think it creates an unfair advantage to those who are trying to play the game as it was created to be played,” says a spokesman for NCsoft, the maker of “Lineage II”.

In practice, however, preventing trade in virtual items is difficult, and several dedicated trading platforms have emerged to enable players to buy and sell in-game items. One of the biggest, IGE, based in Hong Kong, is now being sued by a “World of Warcraft” player who claims it has spoiled his online fun. Mr Kane says the value of virtual items traded hit $1 billion in 2006. Dan Kelly, the boss of Sparter, a trading platform based in Menlo Park, California, says that figure will double this year.

With such large sums at stake, it is not surprising that other unpleasant aspects of real life are starting to appear in virtual worlds too. In May two players were banned from Second Life for depicting sexual activity between an adult and a child. Eros, a company that sells sex-related add-ons in Second Life, filed a lawsuit in July against an inhabitant of the virtual world for selling unauthorised copies of its SexGen bed, which facilitates sex between in-game characters. “When you have a community that is an extension of Newark, eventually you will have the ills of Newark going on,” says Edward Castronova, a virtual-worlds expert at Indiana University. Some people think the very nature of virtual worlds can inspire bad behaviour. Such environments provide “anonymity along with a lack of social recourse,” notes Gus Tai, a venture capitalist at Trinity Ventures in California's Silicon Valley.

Second Life
Just like the real world in some respects—but not others

Bad behaviour is not the only problem. The growing value of commerce in virtual worlds has provoked interest from the taxman, too. Governments in America, Britain and Australia have all said they are considering a new tax on real-world profits from virtual trade. Mr Castronova is aghast. “Monopoly is not a very fun game if I have to pay a tax every time I buy Boardwalk,” he says. South Korea actually imposed such a tax in July.

One way to deal with unwanted activity, in virtual worlds as in the real one, is to decriminalise and regulate it, rather than trying to outlaw it altogether. That is the approach taken by Sony Online Entertainment (SOE), the company that runs “EverQuest II”, a fantasy world of dragons and busty blondes. It found that some 30-50% of customer-service calls concerned scams relating to real-world trade in virtual items. So it divided the game world in two and made trading legal in one part but not the other; players can choose which to play in. As a result, says Greg Short of SOE, the share of calls relating to scams is now less than 10%.

Despite these problems, things are not really so bad, argues Dan Hunter of New York Law School, who is writing a book about the social significance of virtual worlds. “If you look at the numbers, there are so few events of fraud and problematic activity,” he says. Robin Harper of Linden Lab, the firm behind Second Life, agrees. “Social networks, online auctions, classifieds and even the internet itself have all encountered issues of appropriate content, taxation and the use of intellectual property,” she says. “If anything, we are proud that against this backdrop, there are relatively few disputes.”

As with any novel technology, virtual worlds bring new opportunities and new problems. The embrace of virtual worlds by companies for mundane uses on the one hand, and by scam artists to get up to no good on the other, points not to the shortcomings of such environments—but to their increasing maturity and potential. “I don't think this is the end to fun and games,” says Mr Kane. “I think it's only the beginning.”

Goldman Sachs Rakes In Profit in Credit Crisis - New York Times

For more than three months, as turmoil in the credit market has swept wildly through Wall Street, one mighty investment bank after another has been brought to its knees, leveled by multibillion-dollar blows to their bottom lines.

And then there is Goldman Sachs.

Rarely on Wall Street, where money travels in herds, has one firm gotten it so right when nearly everyone else was getting it so wrong. So far, three banking chief executives have been forced to resign after the debacle, and the pay for nearly all the survivors is expected to be cut deeply.

But for Goldman’s chief executive, Lloyd C. Blankfein, this is turning out to be a very good year. He will surely earn more than the $54.3 million he made last year. If he gets a 20 percent raise — in line with the growth of Goldman’s compensation pool — he will take home at least $65 million. Some expect his pay, which is directly tied to the firm’s performance, to climb as high as $75 million.

Goldman’s good fortune cannot be explained by luck alone. Late last year, as the markets roared along, David A. Viniar, Goldman’s chief financial officer, called a “mortgage risk” meeting in his meticulous 30th-floor office in Lower Manhattan.

At that point, the holdings of Goldman’s mortgage desk were down somewhat, but the notoriously nervous Mr. Viniar was worried about bigger problems. After reviewing the full portfolio with other executives, his message was clear: the bank should reduce its stockpile of mortgages and mortgage-related securities and buy expensive insurance as protection against further losses, a person briefed on the meeting said.

With its mix of swagger and contrary thinking, it was just the kind of bet that has long defined Goldman’s hard-nosed, go-it-alone style.

Most of the firm’s competitors, meanwhile, with the exception of the more specialized Lehman Brothers, appeared to barrel headlong into the mortgage markets. They kept packaging and trading complex securities for high fees without protecting themselves against the positions they were buying.

Even Goldman, which saw the problems coming, continued to package risky mortgages to sell to investors. Some of those investors took losses on those securities, while Goldman’s hedges were profitable.

When the credit markets seized up in late July, Goldman was in the enviable position of having offloaded the toxic products that Merrill Lynch, Citigroup, UBS, Bear Stearns and Morgan Stanley, among others, had kept buying.

“If you look at their profitability through a period of intense credit and mortgage market turmoil,” said Guy Moszkowski, an analyst at Merrill Lynch who covers the investment banks, “you’d have to give them an A-plus.”

This contrast in performance has been hard for competitors to swallow. The bank that seems to have a hand in so many deals and products and regions made more money in the boom and, at least so far, has managed to keep making money through the bust.

In turn, Goldman’s stock has significantly outperformed its peers. At the end of last week it was up about 13 percent for the year, compared with a drop of almost 14 percent for the XBD, the broker-dealer index that includes the leading Wall Street banks. Merrill Lynch, Bear Stearns and Citigroup are down almost 40 percent this year.

Goldman’s secret sauce, say executives, analysts and historians, is high-octane business acumen, tempered with paranoia and institutionally encouraged — though not always observed — humility.

“There is no mystery, or secret handshake,” said Stephen Friedman, a former co-chairman and now a Goldman director. “We did a lot of work to build a culture here in the 1980s, and now people are playing on the balls of their feet. We just have a damn good talent pool.”

That pool has allowed Goldman to extend its reach across Wall Street and beyond.

Last week, John A. Thain, a former Goldman co-president, accepted the top position at Merrill Lynch, while a fellow Goldman alumnus, Duncan L. Niederauer, took Mr. Thain’s job running the New York Stock Exchange. Another fellow veteran trader, Daniel Och, took his $30 billion hedge fund public.

Meanwhile, two Goldman managing directors helped bring Alex Rodriguez back to the Yankees, a deal that could enhance the value of Goldman’s 40 percent stake in the YES cable network — which it is trying to sell — while also pleasing Yankee fans. The symmetry was perfect: like the Yankees, Goldman, more than any other bank on Wall Street, is both hated and revered.

Robert E. Rubin, a former Goldman head, is the new chairman of Citigroup. In Washington, another former chief, Henry M. Paulson Jr., is the Treasury secretary, having been recruited by Joshua B. Bolten, the White House chief of staff and yet another former Goldman executive.

The heads of the Canadian and Italian central banks are Goldman alumni. The World Bank president, Robert B. Zoellick, is another. Jon S. Corzine, once a co-chairman, is the governor of New Jersey. And in academia, Robert S. Kaplan, a former vice chairman, has just been picked as the interim head of Harvard University’s $35 billion endowment.

Since going public in 1999, Goldman has been the No. 1 mergers and acquisitions adviser, globally and in the United States, with two exceptions: in 2005 it came in second in the United States rankings, and in 2000 it lost the top spot globally. In both instances, Morgan Stanley took the lead, according to Dealogic.

Goldman, of course, has made its share of mistakes. It took among the most serious write-downs in the third quarter on loans that were made to private equity firms, totaling $1.5 billion. The firm runs one of the largest hedge fund operations in the world, but its flagship funds — funds whose investors include marquee Goldman clients and employees — have had two years of abysmal performance. Clients are expected to redeem billions of dollars of capital at the end 2007.

But Goldman’s absence from the mortgage debacle and the strong performance of its other businesses made up for the write-down associated with the loans. The firm reported $2.85 billion in profit in the third quarter, up 79 percent. Mr. Moszkowski estimates that investment and commercial banks in the United States have taken $50 billion in write-downs related to mortgages, with more coming; Mr. Blankfein said at a conference last week that he expected to take none.

Goldman’s business is built on taking risks, both for itself and its clients. In recent years, Goldman has established the largest private equity and real estate fund complexes in the world. That has led to natural tensions with private equity clients who sometimes complain, but never publicly, about Goldman’s common insistence to team up with them for a piece of the deal.

“Goldman has done the best job of any firm in the U.S. or world competing with their clients but doing business with them,” said one client who asked not to be named because he does business with the firm. “They’ve managed to get their clients to live with it.”

Still, this bottom-line approach has turned off some Goldman veterans and clients. They see the firm’s desire to advise, finance and invest — a so-called triple play — as antithetical to Goldman’s stated No. 1 business principle of putting clients first.

And there is little question that its success in trading, investment banking and servicing hedge funds — many of the traders come right from Goldman — allows the firm a bird’s-eye view on trends and capital flows in the market.

Numerous Goldman investment bankers, former and current, voice the view that Mr. Blankfein’s approach — using Goldman’s investment banking business to develop principal investment opportunities for the firm — creates a brand intended to feed Goldman’s profits rather than relationships. But this harking back to the firm’s golden days as a pure advisory firm does not find much sympathy at Goldman these days.

“I have little patience for these people who talk of the last days of Camelot,” Mr. Friedman said. “Principal investing has been an important and useful business. If you want to be relevant you have to anticipate where the world is going.”

Mr. Blankfein, at the conference last week, echoed that sentiment. “While the integration of our investment banking operations with our merchant bank was somewhat controversial at the time, we felt these businesses were mutually reinforcing,” he said.

Money soothes a lot of concerns, of course, and Goldman has had plenty to spread around. Through the third quarter, Goldman’s $16.9 billion compensation pool — the money it sets aside to pay its employees — was significantly bigger than the entire $11.4 billion market capitalization of Bear Stearns.

Goldman executives and analysts assign much of their success to smart people and a relatively flat hierarchy that encourages executives to challenge one another. As a result, good ideas can get to the top.

But the differentiator that has become clearest recently is the firm’s ability to manage its risks, a tricky task for any bank. Checks and balances must be in place to turn off a business spigot even as it is still making a lot of money for a lot of people. In a world where power gravitates to the rainmakers, that means only management can empower the party crashers.

At Goldman, the controller’s office — the group responsible for valuing the firm’s huge positions — has 1,100 people, including 20 Ph.D.’s. If there is a dispute, the controller is always deemed right unless the trading desk can make a convincing case for an alternate valuation. The bank says risk managers swap jobs with traders and bankers over a career and can be paid the same multimillion-dollar salaries as investment bankers.

“The risk controllers are taken very seriously,” Mr. Moszkowski said. “They have a level of authority and power that is, on balance, equivalent to the people running the cash registers. It’s not as clear that that happens everywhere.”

For all its success on Wall Street, it is Goldman’s global reach and political heft that inspire a mix of envy and admiration. In the race for president, Goldman Sachs executives are the top contributors to Barack Obama and Mitt Romney, and the second highest contributor to Hillary Rodham Clinton. Mr. Blankfein has held a fund-raiser for Mrs. Clinton in his apartment and has come out publicly in her favor.

Another member of Goldman’s influential diaspora is Philip D. Murphy, a retired executive who is the chief fund-raiser for the Democratic National Committee.

All of which has made Goldman a favorite of conspiracy theorists, columnists and bloggers who see the firm as a Wall Street version of the Trilateral Commission.

One particular obsession is President Bush’s working group on the markets, an informal committee led by Mr. Paulson that includes Ben S. Bernanke, the chairman of the Federal Reserve; Christopher Cox, the chairman of the Securities and Exchange Commission; and Walter Lukken, the acting chairman of the Commodity Futures Trading Commission.

The group meets about once a quarter — privately, with no minutes taken — to ensure that government agencies are briefed on market conditions and issues. The group is currently examining the extent to which the packaging and distribution of mortgage loans contributed to the crisis. It also recently completed a study recommending that hedge funds not be subject to further regulation; the group’s fund committee was led by Eric Mindich, a former Goldman trader who now runs a successful hedge fund.

There is no evidence that the conduct of the group is anything but above board. But to some, the group’s existence adds more color to the view that Goldman is indeed everywhere — much as J. P. Morgan was in the early years of the 20th century.

“Goldman Sachs has as much influence now that the old J. P. Morgan had between 1895 and 1930,” said Charles R. Geisst, a Wall Street historian at Manhattan College. “But, like Morgan, they could be victimized by their own success.”

Mr. Blankfein of Goldman seems aware of all this. When asked at a conference how he hoped to take advantage of his competitors’ weakened position, he said Goldman was focused on making fewer mistakes. But he wryly observed that the firm would surely take it on the chin at some point, too.

“Everybody,” he said, “gets their turn.”

Whose language?

By Michael Skapinker

Published: November 9 2007 02:00 | Last updated: November 9 2007 02:00

Chung Dong-young, a former television anchorman and candidate to be president of South Korea, may be behind in the opinion polls but one of his campaign commitments is eye-catching. If elected, he promises a vast increase in English teaching so that young Koreans do not have to go abroad to learn the language. The country needed to "solve the problem of families separated for English learning", the Korea Times reported him saying.

In China, Yu Minhong has turned New Oriental, the company he founded, into the country's biggest provider of private education, with more than 1m students over the past financial year, the overwhelming majority learning English. In Chile, the government has said it wants its population to be bilingual in English and Spanish within a generation.

No one is certain how many people are learning English. Ten years ago, the British Council thought it was around 1bn. A report, English Next , published by the council last year, forecast that the number of English learners would probably peak at around 2bn in 10-15 years.

How many people already speak English? David Crystal, one of the world's leading experts on the language and author of more than 100 books on the subject, estimates that 1.5bn people - around one-quarter of the world's population - can communicate reasonably well in English.

Latin was once the shared language over a vast area, but that was only in Europe and North Africa. Never in recorded history has a language been as widely spoken as English is today. The reason millions are learning it is simple: it is the language of international business and therefore the key to prosperity. It is not just that Microsoft, Google and Vodafone conduct their business in English; it is the language in which Chinese speak to Brazilians and Germans to Indonesians.

David Graddol, the author of English Next , says it is tempting to view the story of English as a triumph for its native speakers in North America, the British Isles and Australasia - but that would be a mistake. Global English has entered a more complex phase, changing in ways that the older English-speaking countries cannot control and might not like.

Commentators on global English ask three principal questions. First, is English likely to be challenged by other fastgrowing languages such as Mandarin, Spanish or Arabic? Second, as English spreads and is influenced by local languages, could it fragment, as Latin did into Italian and French - or might it survive but spawn new languages, as German did with Dutch and Swedish? Third, if English does retain a standard character that allows it to continue being understood everywhere, will the standard be that of the old English-speaking world or something new and different?

Mr Graddol says the idea of English being supplanted as the world language is not fanciful. About 50 years ago, English had more native speakers than any language except Mandarin. Today both Spanish and Hindi-Urdu have as many native speakers as English does. By the middle of this century, English could fall into fifth place behind Arabic in the numbers who speak it as a first language.

Some believe English will survive because it has a natural advantage: it is easy to learn. Apart from a pesky "s" at the end of the present tense third person singular ("she runs"), verbs remain unchanged no matter who you are talking about. (I run, you run, they run; we ran, he ran, they ran.) Definite and indefinite articles are unaffected by gender (the actor, the actress; a bull, a cow.) There is no need to remember whether a table is masculine or feminine.

There is, however, plenty that is difficult about English. Try explaining its phrasal verbs - the difference, for example, between "I stood up to him" and "I stood him up". Mr Crystal dismisses the idea that English has become the world's language because it is easy. In an essay published last year, he said Latin's grammatical complexity did not hamper its spread. "A language becomes a world language for extrinsic reasons only, and these all relate to the power of the people who speak it," he wrote. The British empire carried English to all those countries on which the sun never set; American economic and cultural clout en-sured English's dominance after the British empire had faded.

So could China's rise see Mandarin becoming the world's language? It may happen. "Thinking back a thousand years, who would have predicted the demise of Latin?" Mr Crystal asks. But at the moment there is little sign of it, he says. The Chinese are rushing to learn English.

Mr Graddol agrees that we are unlikely to see English challenged in our lifetime. Once a lingua franca is established, it takes a long time to shift. Latin may be disappearing but it remained the language of science for generations and was used by the Roman Catholic church well into the 20th century.

As for English fragmenting, Mr Graddol argues it has already happened. "There are many Englishes that you and I wouldn't understand," he says. World Englishes , a recent book by Andy Kirkpatrick, professor at the Hong Kong Institute of Education, gives some examples. An Indian teenager's journal contains this entry: "Two rival groups are out to have fun . . . you know generally indulge in dhamal [a type of dance] and pass time. So, what do they do? Pick on a bechaara bakra [poor goat] who has entered college." Prof Kirkpatrick also provides this sample of Nigerian pidgin English: "Monkey de work, baboon dey chop" (Monkeys work, baboons eat).

It is unlikely, however, that this fragmentation will lead to the disappearance of English as a language understood around the world. It is common for speakers of English to switch from one or other variantto a use of language more appropriate for work, school or international communication. Mr Crystal says modern communication through television, film and the internet means the world is likely to hold on to an English that is widely understood.

The issue is: whose English will it be? Non-native speakers now outnumber native English-speakers by three to one. As hundreds of millions more learn the language, that imbalance will grow. Mr Graddol says the majority of encounters in English today take place between non-native speakers. Indeed, he adds, many business meetings held in English appear to run more smoothly when there are no native English-speakers present.

Native speakers are often poor at ensuring that they are understood in international discussions. They tend to think they need to avoid longer words, when comprehension problems are more often caused by their use of colloquial and metaphorical English.

Barbara Seidlhofer, professor of English and applied linguistics at the University of Vienna, says relief at the absence of native speakers is common. "When we talk to people (often professionals) about international communication, this observation is made very often indeed. We haven't conducted a systematic study of this yet, so what I say is anecdotal for the moment, but there seems to be very widespread agreement about it," she says. She quotes an Austrian banker as saying: "I always find it easier to do business [in English] with partners from Greece or Russia or Denmark. But when the Irish call, it gets complicated and taxing."

On another occasion, at an international student conference in Amsterdam, conducted in English, the lone British representative was asked to be "less English" so that the others could understand her.

Prof Seidlhofer is also founding director of the Vienna-Oxford International Corpus of English (Voice), which is recording and transcribing spoken English interactions between speakers of the language around the world. She says her team has noticed that non-native speakers are varying standard English grammar in several ways. Even the most competent sometimes leave the "s" off the third person singular. It is also common for non-native speakers to use "which" for humans and "who" for non- humans ("things who" and "people which").

Prof Seidlhofer adds that many nonnative speakers leave out definite and indefinite articles where they are required in standard English or put them in where standard English does not use them. Examples are "they have a respect for all" or "he is very good person". Nouns that are not plural in native-speaker English are used as plurals by non-native speakers ("informations", "knowledges", "advices"). Other variations include "make a discussion", "discuss about something" or "phone to somebody".

Many native English speakers will have a ready riposte: these are not variations, they are mistakes. "Knowledges" and "phone to somebody" are plain wrong. Many non-native speakers who teach English around the world would agree. But language changes, and so do notions of grammatical correctness. Mr Crystal points out that plurals such as "informations" were once regarded as correct and were used by Samuel Johnson.

Those who insist on standard English grammar remain in a powerful position. Scientists and academics who want their work published in international journals have to adhere to the grammatical rules followed by the native English-speaking elites.

But spoken English is another matter. Why should non-native speakers bother with what native speakers regard as correct? Their main aim, after all, is to be understood by one another. As Mr Graddol says, in most cases there is no native speaker present.

Prof Seidlhofer says that the English spoken by non-native speakers "is a natural language, and natural languages are difficult to control by 'legislation'.

"I think rather than a new international standard, what we are looking at is the emergence of a new 'international attitude', the recognition and awareness that in many international contexts interlocutors do not need to speak like native speakers, to compare themselves to them and thus always end up 'less good' - a new international assertiveness, so to speak."

When native speakers work in an international organisation, some report their language changing. Mr Crystal has written: "On several occasions, I have encountered English-as-a-first-language politicians, diplomats and civil servants working in Brussels commenting on how they have felt their own English being pulled in the direction of these foreignlanguage patterns . . . These people are not 'talking down' to their colleagues or consciously adopting simpler expressions, for the English of their interlocutors may be as fluent as their own. It is a natural process of accommodation, which in due course could lead to new standardised forms."

Perhaps written English will eventually make these accommodations too. Today, having an article published in the Harvard Business Review or the British Medical Journal represents a substantial professional accomplishment for a business academic from China or a medical researcher from Thailand. But it is possible to imagine a time when a pan-Asian journal, for example, becomes equally, or more, prestigious and imposes its own "Globish" grammatical standards on writers - its editors changing "the patient feels" to "the patient feel".

Native English speakers may wince but are an ever-shrinking minority.

Singapore's graduates leap into work

As the job market becomes more competitive, MBA graduates need to "sell themselves," to clinch top jobs globally.

Michael Melcher, a New York partner with Next Step partners, who has conducted training workshops with a number of Ivy League universities, says focusing on soft skills can add value to a student's appeal.

"I've worked in a lot of top schools in the US and Europe, and most of the MBA students need a fair bit of work. Most of them have made huge investments, time and money to get a MBA degree. But most do not know how to market themselves," adds Mr Melcher.

"So we need to work on their soft skills, to help them tell their story to the employers in a convincing manner. At the end it doesn't matter whether you come from Asia or the US, you need to transcend your local levels, and be able to have a global impact."

This is especially true to the MBA students coming out of Singapore, who are a blend of local and foreign graduates. Even though the buoyant economy coupled with a tight labour market has brought about good employment opportunities, the universities admit it is important for their business schools to find quick job placements for their graduates. As a result a lot of resources are channeled into preparing students to be market-ready.

"MBA is an investment. The opportunity costs are high especially for full-time students who quit their jobs. They are looking for a return on investment (ROI), a career progression or a career switch. Thus, through the career services we equip them with soft skills to assist them," says Ms Tan from the NTU business school.

Ms Tay from NUS agrees: "It is who you are and not what school you come from that matters. What we do at the careers services is create an environment where we can prepare our students to be ready for the market. Whether the economic times are good or bad, every company wants the best candidate for the job. We give the students the grounding to articulate their abilities when they meet an employer."

Housewives and contract workers have little savings

CHANGES to the Central Provident Fund will help CPF members retire with more money - but what about those with little or no CPF savings?

Several MPs raised the plight of this group when debating impending changes to the CPF.

For example, housewives, the self-employed, contract workers and odd-job labourers have little or no CPF funds. These groups need extra help from the Government in their old age, said MPs.

Dr Lim Wee Kiak (Sembawang GRC) said some in this group would not be able to afford longevity insurance, which the Government intends to implement.

The plan is for CPF members to set aside a small sum to buy an annuity plan that pays a modest amount when they reach 85, when their CPF savings are likely to have run out.

Dr Lim suggested the Government help co-fund the premiums of people with little or no CPF savings.

Older odd-job workers who did not make regular CPF contributions are another group to be concerned about, said Mr Inderjit Singh (Ang Mo Kio GRC).

Labour MP Halimah Yacob (Jurong GRC) suggested the Government top up housewives' CPF accounts so they can pay for the scheme. 'There are many without the Minimum Sum and women, as we know, live longer than men,' she said. However, she added, she hoped women would not be charged higher premiums.

Dr Ahmad Magad (Pasir Ris-Punggol GRC) suggested giving bonuses to mothers who work part time, so they can top up their CPF.

S'pore will have world's 4th oldest population by 2050

BY 2050, the population in Singapore could be fourth oldest in the world - after Macau, Japan and Korea.

But Singapore is also one of the very few countries tackling the issues of retirement and an ageing population head-on, said Manpower Minister Ng Eng Hen yesterday.

Singapore is greying, and the signs are showing.

He recounted that it is no longer a novelty to meet residents who are in their 80s and 90s during his constituency visits. Foreigners from younger Asean countries are also quick to note the ageing population.

A recent United Nations study confirmed these impressions. It projected the median age of Singapore's population to be 54 years by 2050, behind Macau (56), Japan (55) and South Korea (55).

Said Dr Ng: 'Singaporeans must come to terms with our longevity, both individually and as a nation. And the quicker we do this, the better.'

This means tackling the ageing problem the same way as other national issues - by thinking long term and acting quickly before a problem becomes unmanageable.

The goal, Dr Ng said, is to put in place a better and sustainable Central Provident Fund system that will help Singaporeans save enough for their full lifespan.

But not all Singaporeans recognise they are living longer. Some even think the higher life expectancy has to do with the elderly being 'farm folk' who were born overseas, and not Singaporeans born here, said Dr Ng.

A fact they have to consider is this: There will be fewer working people to shoulder the burden of supporting the elderly.

In 1960, 23 people aged 15 to 64 supported one person aged 65 and above. Now, it is eight people - and by 2030, it will be four people.

While many countries realise they are ill prepared to deal with a population that is ageing, 'not all have been able to act to avoid the impending crisis'.

Some have debated the issue for a long time. Reform commissions such as in France, Ireland and the United States have spelt out what needs to be done.

But in the case of the Irish, its commission failed to agree on a conclusion; China admits it needs to move faster; and pension reform in Italy has been a major stumbling block for successive governments even after 20 years of deliberations.

Then, there are countries that want to postpone the solution to the next generation. Britain, for instance, intends to move its state pension age to 68 - but only by 2046.

Singapore cannot afford to wait so long, Dr Ng said.

'We should not pass these problems of an ageing population to the next generation... Far better to make adjustments now, while we are able and have time on our side. If we wait and are ill prepared, then the consequences for Singaporeans when they are old and dependent will be more painful.'

How higher interest rates will benefit members

Manpower Minister Ng Eng Hen yesterday sketched out details of the CPF reforms and other measures to help Singaporeans build up their retirement savings.His ministerial statement, focuses on three pillars of retirement support - working longer, increasing CPF returns and making savings last as long as one?s life span

IN 20 years, a Central Provident Fund member with $60,000 in his CPF savings will get $17,900 more.

Manpower Minister Ng Eng Hen cited this example yesterday to show just how much a member will benefit from higher CPF interest rates.

Indeed, seven in 10 of all CPF members and more than half of active CPF members will benefit fully from the higher rate, Dr Ng told Parliament yesterday.

From next January, the Government will pay out an additional percentage point on the first $60,000 on all CPF accounts, up to a cap of $20,000 in the Ordinary Account.

This change was announced by Prime Minister Lee Hsien Loong in his National Day Rally speech last month.

It is aimed at helping Singaporeans, especially low-income workers, build a bigger retirement nest egg.

Yesterday, Dr Ng fleshed out details of the CPF changes, revealing that the higher interest rate will cost the Government at least $700 million a year, equal to its annual grant to the HDB.

At the same time, the Government will float the interest rates of the Special, Medisave and Retirement Accounts (SMRA) and peg them to 10-year Singapore Government Securities (SGS) rates.

Under the current system, the SMRA rate is a guaranteed 4 per cent.

Under the new system, the SMRA rate is pegged to the previous year's 10-year SGS rate plus one percentage point.

The average SGS rate is now 3 per cent. Based on this peg, it means the SMRA interest rate will be 4 per cent - the SGS rate of 3 per cent plus 1 percentage point.

To help members adjust to the floating rate, the Government will still pay out a minimum of 4 per cent on the SMRA for the next two years, said Dr Ng.

This 4 per cent floor will also apply to the first $60,000 in the combined CPF accounts that enjoy a higher interest rate.

Since the 10-year SGS was launched in 1998, the highest daily rate it rose to was 5.69 per cent, while the lowest it hit was 1.79 per cent.

Dr Ng said the decision to peg rates to the 10-year SGS was based on several factors.

Among other considerations, the move had to be financially sound, easily understood and not exposed to fluctuations in currency exchange rates, he said.

The ideal peg, added Dr Ng, would have been a 30-year SGS because that would be the average time members' money stayed in their SMRA.

But there was no such bond and shorter bonds of 20 years were not actively traded, making them unsuitable as a peg.

Said Dr Ng: 'Why plus 1 per cent? Because this will adequately provide for the difference we would expect between the interest on the 10-year SGS, which we are using, and the 30-year SGS, if it existed.'

Addressing worries over fluctuating returns, Dr Ng said the new rates should be viewed from a long-term perspective.

'For members' information, had the new SMRA formula been in place since the first issue of the 10-year SGS in 1998, the SMRA rate would have averaged 4.5 per cent,' he noted.

Likewise, he dismissed fears that the CPF changes will deprive fund managers of investable CPF funds.

Under the new rules, from next April, a CPF member will not be allowed to invest the first $20,000 of his CPF Ordinary and Special accounts savings under the CPF Investment Scheme (CPFIS).

Said Dr Ng: 'Money already invested in CPFIS will not be affected. Even after these restrictions, $42 billion will still be available for use in CPFIS.'

A CPF member will still be able to use Ordinary Account funds for housing, CPF insurance and education schemes, said Dr Ng.

There will also be no change to the HDB concessionary loan rate, which is currently at 2.6 per cent, pegged 0.1 percentage point above the CPF interest rate.

Financial analysts like Mr Leong Sze Hian said the change will make people less negative about the floating SMRA rates.

'With the additional 1 percentage point in the formula, there is a good chance that the rates might exceed 4 per cent over the long term,' said Mr Leong, who is president of the Society of Financial Service Professionals.

Accountant Joe Lim, 28, agreed, saying the new formula struck a balance between risk and reward.

Said Mr Lim: 'There is a potential for slightly higher gains while the extra 1 percentage point acts as a buffer for my savings. Not too bad a deal.'

Singapore’s CPF Retirement Scheme: Delivering More Bang for the Buck

Singapore’s CPF Retirement Scheme: Delivering More Bang for the Buck
From Knowledge@SMU

Singapore’s Central Provident Fund (CPF) is one of Asia’s oldest and best known defined contribution retirement schemes. Established in 1955 as a mandatory savings programme, theCPF now has over 3 million members with balances representing about 15% of Singaporeans’ total wealth. As the country rapidly ages, second only to Japan in terms of low fertility rates and longest life expectancy, government policymakers are paying close attention to whether its citizens and residents are saving enough for retirement.

Singapore Management University finance professor Benedict Koh, and Wharton insurance and risk management professor Olivia Mitchell recently prepared two working papers on Singapore’sCPF Investment Scheme (CPFIS) in which they examine the asset allocation of CPF investors and the cost of investing in unit trusts.

How the CPF Works

CPF member contributions go to three accounts where they earn government-set interest rates: the Ordinary Account (OA), earning 2.5% interest, which could be used to purchase homes and insurance, and support education and other expenses; the Special Account (SA) intended mainly for retirement savings; and the Medisave account for medical and critical illness insurance. Both the SA and Medisave earn 4% interest each, if the funds are invested on members’ behalf by the government. At age 62, SA savings are transferred to a retirement account which can also earn 4% interest and pays an annuity over 20 years up to age 82. Contribution rates to theCPF depend on age and income, and range from 8.5% to 33%, up to an income ceiling of S$4,500 per month. All contributions and withdrawals are tax-free.

The CPF has evolved over 50 years from a “forced savings scheme” to a “wide-ranging social security system”. At the end of 2005, account balances totalled nearly S$120 billion, about three-quarters the size of Singapore’s GDP that year. 49% of members’CPF balances were in the OA, 17% in the SA, 29% in Medisave, with the balance 5% in retirement and other accounts. Since 2003, CPF assets have grown at an average rate of 7%.

“Asset Rich Cash Poor Phenomenon”

According to Koh, Mitchell, Tanuwidjaja, and Fong (“Investment Patterns in Singapore’s Central Provident Fund”), the bulk of cumulativeCPF contributions (44%) have gone to the purchase of residential and investment properties. A sizeable portion (29%) remains in the OA and SA accounts, earning guaranteed interest, while only 10% of the funds were invested in capital market instruments permitted under the CPFIS .

The authors note that the heavy investment in a single property can lead to “an asset rich, cash poor phenomenon” in Singapore. They suggest that policymakers consider restricting the proportion of saving used to purchase property to helpCPF members ensure they have sufficient funds for retirement. Other policy options might include spurring the growth of a reverse mortgage market, and allowing homeowners to freely rent out their apartments for income. Recently, the government has changed rental rules for public housing estates where around 80% of Singaporeans live. Homeowners may now rent out their flats after owning them for 3 years, while those who have taken government funds to purchase their homes can rent after 5 years. The authors feel that such actions by the government may be prudent, so as to enable cash-strapped retirees to transform a consumption good (their residence) into an investment good (rental property) to generate cash for daily expenditures.

Asset Allocation

The authors note that CPF saving “clearly represents a sizeable portion of household’s total wealth…Therefore it is important that CPF holders be proactive in maximising investment returns on CPF saving”. Today, CPF account holders are allowed to invest a portion of their OA and SA funds in a wide range of capital market instruments including fixed deposits, bonds, property funds, equities, annuities, endowment policies, unit trusts, investment-linked insurance policies (ILPs), exchange traded funds and gold. Currently, there are 400 different unit trusts and ILPs on offer. However, the authors’ research shows that “the bulk ofCPF saving today is still held in the government-managed default fund”. As of December 2006, only 10% of funds have been invested while another S$79 billion is retained in the OA and SA accounts.

One reason for the low investment rate, the authors suggest, is that people may prefer to keep their money in the relative safety of aCPF default investment account. Another explanation they offer is that “participants may simply not know what to invest in and how to invest. Being perplexed, members may choose the path of least resistance, which is to simply leave their funds with theCPF and earn the guaranteed return.” Such inertia may be justified by the finding that three-quarters of CPF members in 2006 who enrolled in the CPFIS’s offerings had made losses or earned less return than the 2.5% payable on their CPF ordinary accounts .

Of the funds that were invested (S$27.9 billion), 67% went into insurance policies such as annuities, endowment policies and ILPs, 20% in equity and loan stocks, while only 12% was in unit trusts , collective insurance schemes offered by fund management companies.

The authors also find that men tend to be slightly more proactive in managing their CPF investments as compared to women. Men tend to invest more of their saving in shares, while women tend to put more into insurance products. Contrary to the advice of financial planners,CPF investors tend to take more risk as they age. The more mature (56+) age group commits a higher proportion of saving to stock investments and less to insurance products, compared to younger age-groups. The asset allocation ofCPF investors also differs across income groups. Those in the lower income groups tend to hold less risky investments as compared to the higher income groups.

“Hidden Costs”

In a second paper, “Cost Structures of Investment Offerings in Singapore’s Central Provident Fund”, Koh, Mitchell, and Fong suggest that another possible reason for the low rate of investment ofCPF funds is the “daunting array of fees and charges, minimum initial investments, and other fund features, making it difficult for the unsophisticated investor to know what to elect”. The two largest fund costs are the initial sales charge and the expense ratio. The sales charge ranges from 0% to 6% but has typically been 5%. To address this issue, as of 1^st July 2007, the CPF Board capped initial sales charges at 3%.

The expense ratio ranges from 0% to 7% of the fund’s net asset value. It is important since this is a yearly cost, whereas the sales charge is a one-time cost. The study found that the average expense ratio was 2.1% for actively managed funds allowed under the CPFIS and 1.0% for passively managed funds. There are 164 actively managed equity funds included in the CPFIS and only 3 passively managed ones. Balanced funds (bonds and equity) also had an overall expense ratio of 1.9% while income funds (bonds) showed an average expense ratio of 1.1%.

A third cost becoming more widespread is a “wrap fee” which is charged by financial advisers and insurance companies. It can be as much as 1.5% and is not part of the expense ratio. The authors point out that “unwary or uneducated investors may not be fully appraised of these additional charges.” A fourthcharge is transaction fees and agent bank fees. Bank transaction fees are charged under the OA but not the SA scheme. There is a quarterly service charge of S$2 to S$5 collected by the agent bank for servicing eachCPF investment account. There is also a S$2 to S$2.50 transaction fee per lot of shares purchased unless one works with an Investment Administrator to consolidate purchases. As of the end of 2006, there were threeCPF-approved Investment Administrators.

A fifth charge is hidden expenses, also not included in the expense ratio. This refers to brokerage commissions and the impact of the bid-ask spread on costs. It also includes taxes deducted at source and foreign exchange conversion costs. Although not a cost, investors are also subject to foreign exchange fluctuations. This may be thought of as a hidden risk since it is not easily seen by investors. Marketing and advertising expenses are also excluded from the expense ratio as are interest expenses. ILPs (but not unit trusts) generally include an insurance charge; some ILPs also include a service fee of up to 0.75%. Neither is part of the expense ratio. Less common hidden expenses are a realisation charge (back-end load), redemption fee (for selling in a short time such as 90 days) and switching fees (for switching within a family of funds).

The authors argue that passively-managed funds (regardless of fund type) could be less expensive to manage than actively-managed funds, due to the lower turnover of securities and less monitoring required Passive equity funds have average sales loads that are more than 50% below the sample mean. The same cost difference holds for balanced funds.

The authors also carried out a regression analysis to explain observed cost patterns. They find that (i) ownership, (ii) style of fund management and (iii) type of fund are key factors. Foreign-owned funds are found to charge 42 basis points more in sales load than locally-owned funds, 16 basis points more for management fees, and 53 basis points more in first-year total costs. Actively managed unit trusts charge more than passively managed funds. Equity and balanced funds charge more than income and money market funds. Larger funds are also found to be slightly less expensive than small funds, charging 8 basis points less. According to the authors, “passive funds are often deemed suitable for novice investors who are not sufficiently confident to select their own stocks or unit trust; they may also be suitable for long-term investors seeking growth but who lack the time to actively manage their investments.”

The authors also recommend streamlining and rationalising the many investment choices to include inflation-protected instruments, more index-linked funds, and low-cost life cycle funds. The latter especially are a cost-effective way to diversify and rebalance investments to suit the investor’s life stage. They cite the Chilean experience where investors are defaulted into higher risk funds when younger and automatically transit to more conservative portfolios as they get older, unless they opt for a different investment mix. Other ideas for encouraging investments to enhance investor returns are to aggregate and simplify data on fees and charges, and to provide education and learning aids, such as on-line calculators, that would help investors compare offerings and take decisions on how to optimise their savings for retirement.

“The CPF has taken several measures recently to moderate retail costs for investors. These include setting more stringent criteria for admitting new unit trusts into the CPFIS, continually reviewing existing unit trusts, capping sales charges, and developing investor education programmes that advise its members to make informed decisions,” says Mitchell. “In the longer term, theCPF could continue to fine-tune costs, devise default funds with acceptable risks and returns, and even harness market forces to drive down costs and enhance net returns.”

Published: August 2, 2007

Parliament debate to focus on CPF changes

MPs say compulsory annuity is perceived in negative light

CHANGES to the Central Provident Fund (CPF) system will be the main topic of debate in Parliament from Monday when Manpower Minister Ng Eng Hen gives details of proposed changes.

Wide-ranging amendments to the Penal Code, which governs most criminal offences here, will also be tabled at the sitting, as will a proposed piece of legislation on preventing terrorist bombings.

As these two sets of amendments are only being introduced, or in parliamentary parlance, going through their 'first reading', they will be debated at a later date.

Changes to CPF to prepare for a greying population were first outlined by Prime Minister Lee Hsien Loong in his National Day Rally speech last month.

The CPF measures are meant to ensure people have enough for old age even as lifespans grow longer.

Among other things, CPF members will get higher returns of up to one percentage point more on their savings.

The draw-down age for the Minimum Sum will also be postponed from 62 to 63 in 2012, and gradually raised to 65 by 2018.

The Minimum Sum is the amount members must keep in their Retirement Account after withdrawing their CPF at age 55.CPF members now get a monthly payout from the Minimum Sum at age 62, for up to 20 years.

But the change likely to attract intense scrutiny is some form of compulsory annuity for members now below 50.

MPs say the annuity is perceived negatively at dialogues with residents.

Mr Charles Chong (Pasir Ris-Punggol GRC) said: 'Nobody thinks they are going to live beyond 85. Usually, whatever money goes to the next of kin, so it's hard to say the money goes to others.

'Others also ask, where is the government involvement here? It's getting half the people to subsidise the other half. The minister has to fill in all the blanks,' he added.

On Monday, three MPs will ask the Prime Minister for an update on the public sector's efforts to re-employ older workers beyond the retirement age of 62.

MPs have also tabled questions on the impact of the sub-prime mortgage crisis in the United States on Singapore's economy, banks and property market.

Opposition MP Low Thia Khiang (Hougang) will ask Defence Minister Teo Chee Hean how Dave Teo Ming, an army corporal, managed to slip out of Mandai Hill Camp with arms and ammunition earlier this month. The army corporal was arrested in Orchard Road on Sept 3 after a 20-hour manhunt, and his case is before the courts.

Changes to the Penal Code are likely to include more teeth to deal with crimes committed online and increased sentences for various offences. A draft of the proposed changes was released for the public to give its views last November.

Seven Bills will also be up for debate at the sitting.

They include changes to the Land Titles (Strata) Act to make collective property sales more transparent, and changes to the Building Control Act to improve the quality of construction and safety standards at worksites.

Leave comfort zone to gain cultural versatility

Leave comfort zone to gain cultural versatility I REFER to the report, 'More secondary students to go on overseas stints' (ST, Sept 13). While I am heartened by the move to have more school children go abroad, I believe it requires more than a short stint of overseas experience to instil that 'global thinking' and 'cultural versatility' espoused by Education Minister Tharman Shanmugaratnam.

For students to be truly able to absorb this global mindset, it will take at least three to four years of study abroad. This is because part of this mindset encompasses the need to network and forge deep and meaningful relationships with foreign counterparts, by having common life experiences and growing and developing together. This is not easily achieved by venturing abroad for a few weeks or months.

Sometimes, even pursuing an entire three to four years of tertiary education is no guarantee of this global outlook and mentality.

As pointed out in another article, 'Singaporeans stick together overseas' (ST Life!, Sept 13), there is not much global networking if students stick to their own cliques and associate only with other Singaporeans.

By all means, students should plan for overseas stints or even seriously consider pursuing their higher education abroad. But to think that doing so will naturally instil a global mindset is a misconception.

It requires each individual student to move out of his comfort zone and make a conscientious effort to appreciate each other's cultures and values.

Only then, in the words of Mr Tharman, can students truly 'understand differences around the world and turn them into opportunities'.

Tony Tan Song Huat

WILL NEW BOND PEG END UP 'HURTING THE OLD'?

IT IS designed to enhance the retirement nest egg, but if market conditions have their way, some economists and finance professionals wonder how re-pegging Central Provident Fund (CPF) interest rates to government bonds will help the older generation.

In a recent market weekly report, Citi economist Chua Hak Bin mapped out a scenario in which the younger generation may benefit, but the older generation may get lower returns than now, if their Special, Medisave and Retirement Accounts (SMRA) are pegged to a long-term bond.

The 10-year government bond has a current yield of 2.8 per cent compared to the SMRA's 4-per-cent guaranteed rate, he said. The Ordinary Account (OA) attracts an interest of 2.5 per cent.

Going by this, he calculated that younger individuals with a CPF account of $20,000 in their OA and $40,000 in SMRA would earn an effective interest rate (weighted average) of 3.7 per cent, or $120 more a year, compared to the current 3.5-per-cent effective rate.

The calculation includes the 1-percentage-point additional interest the Government plans to give on the first $60,000 in CPF accounts - up to $20,000 in the OA and the rest in the SMRA.

Still, an older cohort with the Minimum Sum of $99,600 in their SMRA and $20,000 in their OA would earn a lower 3.3 per cent, or $590 less a year, with the bond peg, Dr Chua calculated.

This is because a lower long-term bond yield could dominate the 1-percentage-point interest rate for those with larger sums in their SMRA.

Individuals who previously transferred their savings into the SMRA from the OA would also see the interest rate gap narrow substantially under the new peg.

"Not everybody will benefit. The younger generation benefits as they have only started to save and would most likely put their savings within the first $60,000. But if you are of the older generation who would have a larger proportion of your CPF savings in the SMRA, rates there are actually lower in the long run. Ironically, you are hurting the older generation you are trying to help," Dr Chua told Today.

A recession or financial crisis could also bring down the SMRA interest rate.

Manpower Minister Ng Eng Hen, who will explain in Parliament today how the Government will re-peg the CPF interest rates, said last month that the new SMRA rate will be lower initially, but should do better over time.

Economists have told Today they expect Singapore government bonds to be the reference point, while Society of Financial Service Professionals president Leong Sze Hian expects rates to be pegged to a composite benchmark of two or more indices, such as part Singapore bond index and part global bond index, to give higher returns.

Most, however, are sceptical about the chances of yields crossing the 4-per-cent threshold over time.

"I don't think pegging CPF to a government bond will get high rates above 4 per cent, at least until the end of 2008," said Mr Alvin Liew, former economist at UOB Treasury Research.

With long-term bond yields generally dependent on the outlook of the economy, which grew at 7.9 per cent last year, there are questions about whether Singapore's medium-term economic growth estimate of 4 to 6 per cent can sufficiently bump up yields.

Mr Leong added that bond rates fluctuate and depend on various factors like interest rates, expectations and default risks. "There is no basis for saying that the rate is going to be higher in the future. The fact is, nobody knows," he said.

Besides the impact on older folks, if rates are lower, it might cause a shortfall in Medisave accounts. Said Mr Liew: "In recent months, you have seen healthcare costs going up quite substantially in the Consumer Price Index. The lower-income group will be more affected by lower returns."

Sharing the same concerns, Member of Parliament Ong Kian Min said that, historically, CPF members have enjoyed guaranteed returns regardless of how the economy performs. This move marks a fundamental shift.

"Investing in bonds may subject CPF savings to lower rates. This can only be a good start provided the Government also considers, in future, investments other than bonds that may yield a higher return," he said.

These are some of the questions and suggestions the manpower minister will have to address today.

Nike takes false-advertising case to Supreme Court

By The Associated Press

10.15.02

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PORTLAND, Ore. — Nike Inc. has asked the U.S. Supreme Court to review a free-speech case arising from its advertising campaign to defend working conditions at overseas plants.

The Beaverton-based company, the world's largest athletic shoemaker, filed the appeal yesterday.

Nike is asking for review of a 4-3 ruling by the California Supreme Court in May that an activist can sue Nike for allegedly violating false-advertising laws during a 1996-97 campaign to inform the public about its labor policies. Nike sent letters to the editors of major newspapers, among other things.

The suit claims Nike deceived consumers by falsely stating it guarantees a "living wage" to all workers, and that its workers in Southeast Asia make twice the local minimum wage and are protected from corporal punishment.

Nike says it is taking part in constitutionally protected political debate about worker rights and the global economy.

"Uttering even a word would become far more risky than simply keeping silent, if this ruling stands," said Laurence Tribe, Nike's lead attorney.

The company said yesterday it would not release its annual corporate responsibility report unless a court first wipes out the threat of a suit and big monetary award.

The report discusses the company's labor and environmental policies around the world.

The California Supreme Court ruled Nike's campaign constitutes commercial speech and is subject to California consumer-protection laws that are among the least friendly to business in the country.

The court fight has not yet determined whether Nike made false statements, focusing instead on whether the suit can go forward. San Francisco resident Marc Kasky filed the lawsuit, which had been dismissed by a trial court and a state appeals court before going to the California Supreme Court.

A decision by the U.S. Supreme Court on whether to hear the case, Nike v. Kasky, is expected in December or January.

Activist gets go-ahead to sue Nike over ads

By The Associated Press

05.03.02

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SAN FRANCISCO — California's highest court has ruled Nike Inc. can be sued by an activist alleging the athletic shoe and apparel maker violated false-advertising laws with an ad campaign defending the wages, treatment and safety conditions of workers at overseas factories.

In a 4-3 decision yesterday, the state Supreme Court overturned lower court decisions and ruled Nike's efforts to quell accusations of worker mistreatment constitute commercial speech, which is subject to a California consumer-protection law that is one of the nation's least friendly to businesses.

"Our holding, based on decisions of the United States Supreme Court, in no way prohibits any business enterprise from speaking out on issues of public importance or from vigorously defending its own labor practices," wrote Justice Joyce L. Kennard.

"It means only that when a business enterprise, to promote and defend its sales and profits, makes factual representations about its own products or its own operations, it must speak truthfully."

The court emphasized its ruling does not indicate whether the Beaverton, Ore.-based company made any false representations. Attorney David Brown, who represents Nike, said the company may ask the U.S. Supreme Court to review the case.

"We're greatly disappointed with it because we feel that Nike's position is legally the correct one," Brown said, adding he was happy the court was silent on the case's merits.

The highly publicized suit, which had been dismissed by a trial court and a state appeals court, claims Nike's 1996-1997 campaign in defense of its wages, treatment of workers and health and safety conditions at Asian plants run by contractors was a misleading business practice, not the First Amendment-protected political debate that Nike has argued.

The suit said Nike deceived consumers by falsely stating it guarantees a "living wage" to all workers, that its workers in Southeast Asia make twice the local minimum wage and are protected from corporal punishment, and that it complies with government rules on wages, hours and health and safety conditions.

Those claims were refuted by studies by labor and human rights groups, news media investigations and — most damaging of all — a January 1997 audit by the firm of Ernst & Young, commissioned by Nike, said the suit filed by San Francisco resident Marc Kasky on behalf of California citizens.

Kasky helps manage a foundation that preserves Fort Mason, a former San Francisco military base-turned-recreation area. He said he sued Nike "because it's important they be accountable."

Kasky's attorney, Alan M. Caplan, was excited by the ruling.

"For four years basically we've not litigated the merits of the case. It's all been the one issue of whether Nike's speech was commercial speech," Caplan said. Yesterday's ruling will hold companies "to the standard of telling the truth."

The three dissenting judges wrote it was unfair to deny Nike and other corporations uninhibited speech when defending their reputations against unrestricted public accusations.

"While Nike's critics have taken full advantage of their right to 'uninhibited, robust, and wide-open' debate, the same cannot be said of Nike, the object of their ire," wrote Justice Ming W. Chin. "When Nike tries to defend itself from these attacks, the majority denies it the same First Amendment protection Nike's critics enjoy."

Nike officials said yesterday the company has since improved standards for workers by raising minimum age requirements and using water-based adhesives to assemble products rather than petroleum-based.

Shares of Nike rose 55 cents to close at $54.24 yesterday on the New York Stock Exchange.

The case is Kasky v. Nike Inc.