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Thursday, February 15, 2007

MVC a 100% PAP idea

The MVC or Monthly Variable Component is a 100% PAP idea that originated from the entire multi-million-dollar cabinet, discussed at length and approved by the likes of Lee Kuan Yew, Goh Chok Tong and Lee Hsien Loong (some of the most expensive, if not exactly the finest, minds in the country).

That is why the idea sucks.

But before we gleefully tear the idea to pieces, let us review how and why this totally original (very few are) PAP idea came about.

It had its roots in the 1997 recession and on 1 Jan 1999, to save faltering companies from a sea of red ink, the PAP cut the employers' share of monthly CPF payments (into the employees' accounts) from 20% to 10%.

Of course, this delighted all companies, including those not faltering and most companies (75% of those surveyed -- 88% of local companies and 71% of multinationals) did not offset the cut in the CPF by giving it back in the form of salary, extra allowances or bonus, etc. The most frequently quoted reason (71%) for this is that to do so would be "inconsistent" with the government's intention. Also, which employer would argue against having more money for himself?

Thus, the PAP-mandated 10% CPF cut, essentially a 10% cut in salary, applied to all firms whether they were foundering or not, and was a blunt instrument that penalised workers even in firms making record profits. The result was a lot of unhappiness.

Add to that politically costly decision, the opposition carping by our 2 stalwart members, Mr Jeyaretnam and Dr Chee Soon Juan, and the PAP knew they could never again use such a blunt instrument of state policy to save some foundering companies.

The result? A lot of cogitation in the cabinet. They wanted to save companies (note: not workers) from financial losses but they never again could employ a blanket CPF cut that hurt even those workers in profitable firms. So, after a long time, the glimmer of what is actually very obvious, appeared to them in an incandescent burst of light. They would force every worker to set aside a part (called a component) of his salary expressly for the purpose of having it cut when the firm starts making losses instead of profits.

They would call this the Monthly Variable Component or MVC. By calling it a Monthly Variable Component, it doesn't sound as if it's the worker's money, which it actually is. And by calling it Variable, it sounds as if it is sometimes the worker's money (in good times) and sometimes it is not (in bad times).

Why does the idea stink?

There are many reasons. The first is that it is a political idea, born out of political necessity and not for any better reason. They couldn't cut our CPF again because that would make many workers unhappy. So, they would introduce a MVC into all salaries so that when a company loses money, they can cut this MVC without the PAP having to do the cutting. So the PAP can still look like the good guys while faltering companies cut their workers pay left and right.

If the MVC is a politically motivated idea, could it not still serve a good purpose? Well, admittedly, it is not as blunt an instrument as a blanket CPF cut for all workers because only those firms making losses would make the cut. But here, a Gordian knot of tangled complexities await. How do you define a just and justifiable cut? The astonishing answer is that the PAP has no answer. It hasn't really figured that all out. And it can't.

President of the Singapore National Employers Federation, Stephen Lee, gave some examples of how a cut could be justified. For example, he said, in the hotel industry, room occupancy rate could be used. If room occupancy rate fell below a say, certain figure, the hotel could then cut its workers' MVC. And in some electronics companies, he said, the book-to-bill ratio could be used. If the book-to-bill ratio drops below a certain figure, say, those companies could cut the MVC.

The perceptive reader could well be forgiven for feeling appalled at the above. In other words, this is an invitation to chaos. To point out just a few drawbacks of this approach, how would one go about selecting a fair criterion to measure business performance? Then, after agreeing on the criterion, how would one agree on a level of business performance to justify cuts? And even if both of the above are settled, by force, cunning or fair means, how much of the MVC do you actually cut (since a total cut may not be necessary even if that is what the employer wants)?

The PAP is not entirely dumb. It has something of an answer. The unions. Presumably, the union in each company would have to enter into tortuous and prolonged, very complicated negotiations to settle all that. Well and good. The PAP is again, above it all, looking like the good guys, while the unions and employers try to define and argue every concept of this complex procedure from first principles, which vary not only from industry to industry, but also from company to company.

Here, readers should do well to remember that most workers in this country are not unionised. And of those who are, they are represented by the PAP, meaning the NTUC (see May Day! May Day!). Thus, with no union or the PAP union to represent him, and not being able to understand the complexities of the negotiations from room occupancy rate to book-to-bill ratio and their relevance and implications to his level of cut in his MVC, workers will surely suffer. It is almost as if one blunt measure of a blanket CPF cut is being replaced by another equally blunt and blanket measure that any employer can easily exploit at the expense of his workers. Even the Ministry of Manpower officials do not know enough about all the industries and companies in Singapore to set intelligent guidelines. And if our PAP ministry does not know enough to set guidelines, who can? Only the employers know what they are talking about.

If chaos is not bad enough, this simple idea is conceptually flawed as well. Thoroughly flawed.

Take the basic premise. Companies which make losses must be helped. Why? It may seem heresy, but companies should often be allowed to fail. For example, the thinking of Lee Kuan Yew and his crony, handpicked ministers, seems to be to ensure that companies make profits all the time. Almost as if playing a game of heads I win, tails you lose. In good times, companies make profits, which they are not obliged to share with their workers. In bad times, the minute they make losses, they can cut MVC and other costs, in order to stay profitable. So they can't lose.

Most will agree that there is something inherently unjust about this. Why should those with money and therefore become employers, suddenly be thus cosseted by the State? Why should employers be given such dispensations at the expense of workers? Why must workers suffer pay cuts just because an employer fails to make money? Do bosses have an inalienable right to profits?

The MVC is not only morally flawed (with most agreeing that it is not right for bosses to be protected by the PAP Government against losses), but on another level, too. It goes against the best business practices. For example, some bosses may overreach, or make bad business decisions, or allow bad practices to result in losses. Should they then be protected from their own mismanagement?

To take another tack, business failures are not only inevitable, but necessary in order to weed out the inefficient, uncompetitive, or the badly managed. That is what economic competition is all about. Those companies that are best managed and run make profits. Those which are not, fail. And when these fail, valuable resources from capital to human labour are freed for redeployment elsewhere in the economy and the economy benefits from this weeding out of the bad. That is how an economy should work.

Protect the inefficient or badly run companies and inefficiencies result in the economy. Capital and workers are inefficiently deployed. This distorts the proper working of these resources. Thus, there is not only a moral argument against helping bosses make money in bad times as well as good, there is the further argument that incompetent bosses who cannot manage their resources should not be bailed out using the workers' MVC money.

Why is this MVC idea so dumb when Lee Kuan Yew can speak so seemingly intelligently and glibly about say, US-China relations? The reason is, there are innumerable political journals, scholarly analyses, newspaper and magazine articles on US-China relations. There are none on the MVC.

In other words, the MVC is a genuine PAP idea, not one of the usual 'ideas' copied and adapted (usually successfully) from abroad. Not having the usual resource materials to read, Lee Kuan Yew and his cronies have to think. And the MVC is the result of their brainstorming. Not being a copycat idea and being 100% the result of our hugely-paid ministerial local talent, the MVC bears all the hallmarks of a truly PAP idea. A mediocre non-solution from a bunch of mediocre intellects.

By now, most fair-minded readers should be convinced of the cretin nature of the MVC idea, but we are not finished. Now, in the 1997 recession, it was the PAP Government that proclaimed that the recession was biting and there was a need for desperate measures, like the 10% employer CPF cut. With the MVC, there would be no such national emergency proclamation. No massive (conspiracy) campaign that ropes in the media and the NTUC to convince one and all that a 10% cut in the workers' salary was in the interests of all and not just the employers' interests.

This means that without a Government proclamation of emergency, any company that makes losses would press for MVC cuts. This could descend into a scenario where, the moment a company makes losses, it cuts its workers' MVC, recession or no. Unless the PAP intellects define certain conditions for cutting MVC, like 2 consecutive quarters of negative GDP decline. Even then, as we discovered in 1997, only certain companies and industries are hit and some not at all.

Then also, there seems to be a bias against small companies in favour of large companies. Or small employers against large employers. Many small employers will presumably have to fail without this MVC relief while large employers will not be allowed to fail because that would result in large-scale retrenchment. So if you are a family shop employing 10 workers, sorry. You'll have to fail. But if you are a large company employing 10,000, you may cut MVC and other components of your workers' pay.

To erase any lingering doubt there may be in readers' minds that surely, our million-dollar brains and scholars and generals cannot be so stupid as to come up with a daft idea, consider this. Since the MVC idea was recommended by the National Wages Council in 1999, and pushed hard by the PAP, only 29% of unionised workers and less than 3% of non-unionised workers adopted the scheme.

Executive Director of the Singapore International Chamber of Commerce, Graham Hayward, revealed that "most of his members prefer to reduce the year-end annual bonus if they have to trim wage costs" (rather than adopt the MVC). "Implementing the MVC", he argues, "is not as easy as it appears to be. If a company cuts the MVC, it may cause employees to leave and join competitors without the MVC", he said (Straits Times, Thu 10 May 2001).

One would have thought that rather obvious. But perhaps, not to our infallible little gods.

To end, perhaps we can ask our little gods if they do intend to adopt a MVC scheme for themselves? After all, we the people are their employers, and if there is an economic downturn, we should be able to cut their MVC, too. Thus, summing up, the MVC is a political idea, a 100% original PAP idea blessed by Lee Kuan Yew and pushed by our leaders and our NTUC, an idea that unlike most others, was not copied from abroad, that had no precedent or example anywhere in the world, an idea that cannot be found in journals or think tank reports.

Which is why, if there was one, our great men would win the Nobel Prize for Stupidity for this MVC idea.

The General Election will soon be upon us. Do you still think that these PAP gentlemen are the best minds to ru(i)n the country? Do you really believe that the country will collapse without their leadership? Do you continue to hold them in awe for their intellect and ideas?

Or will you cast your vote for the opposition and cast them out?