21 Jan 2013

How we can sustain good governance in an era of rapid and disruptive change? I believe that more so than before, Singapore will face greater volatility, uncertainty and complexity.

How we can sustain good governance in an era of rapid and disruptive change? I believe that more so than before, Singapore will face greater volatility, uncertainty and complexity.

We have seen this economically: we experienced more shocks to our economy in the last 15 years than in the 30 years before that. Much of this is due to our growing connectedness with the global economy, to hyper-globalisation and unfettered capital flows, and to rapid technological change that is shortening business cycles.

Politically, the government’s space for manoeuvre has also narrowed. Its traditionally admired solutions in a number of areas – housing, healthcare, education, transport and infrastructure – have come under greater scrutiny and debate. This partly reflects a more contested political scene, but it also suggests that policymaking has become more complex, and the trade-offs shaper and starker.

These economic and political trends will interact with social forces – the ageing of our population, rising inequality, wage stagnation, lower social mobility, and a larger foreign population – to create new stresses on social cohesion.

Citizens’ trust in government’s ability to deliver can also no longer be assumed. The pristine “policy lab” that our policymakers used to operate in is being replaced by a more critical public, and by a more diverse polity with competing interests. Increasingly, our policymakers have to make hard choices (where there are winners and losers), not just remind themselves of hard truths. Sustaining good governance in this new context is not impossible, but it would require significant institutional and policy reforms on the part of the government.

The Resilience Imperative

In an era of rapid and disruptive change, the most valuable asset a government can have is resilience. Resilience is the capacity of a system to bounce back – not necessarily to its original form – but to a state that allows the system to maintain its core purpose and integrity, and to continue performing its main functions.

Resilience – whether of an ecological system, an organisation, or a species – is usually a function of two things. First, a resilient system is one which has been exposed to a variety of shocks. Each of these shocks is not large enough to destroy the system but over time, they force the system to adapt, and to develop capabilities to respond to a wider range of shocks and stimuli. (This is Ashby’s Law of Requisite Variety.) Conversely, systems which are fragile are those which have been insulated from external shocks or protected from competition. This is why the Galapagos Islands are ecologically so fragile, even if they are stable and sustainable.

We also saw in the financial crisis how a lack of variety created a highly fragile financial system. The health of banks became tied to the availability of cheap credit, rising house prices, and the willingness of home owners to continually refinance their mortgages. Financial institutions mostly pursued a strategy of originating and then securitising sub-prime mortgages. The result was too much mimicry and insufficient variety in the financial system. Such monoculture systems can exhibit long periods of stability, but are also extremely vulnerable to the slightest shock. The collapse of Lehman Brothers Holdings Inc. in 2008 had such far-reaching and catastrophic consequences, not because it was a large investment bank, but because it was highly connected in the US financial system. And because many other institutions were doing the same thing, there was a great deal of “interlocking fragility” such that when Lehman collapsed, the entire banking system became vulnerable too. The second essential ingredient of a resilient system is selection. Resilient systems all have some mechanism for “choosing” between competing strategies and designs. We normally think of the selection process as being undertaken by individuals or leaders. But we can also think of selection as being undertaken by impersonal forces such as the market. Markets are resilient because they encourage variety and diversity, and because they are a highly effective way of selecting “fit” strategies or designs – and then replicating and scaling them up. As the economist William Baumol points out, markets are “innovation machines”.

This resilience perspective – which I have used to describe ecological and economic systems – can also be applied to the study of governance systems. If we agree that what governance needs most in the context of rapid and disruptive change is resilience, then we would also agree it needs to foster diversity and variety, as well as competitive selection processes that are not reliant on a few individuals making the “right” calls.

While it is extremely tempting for the human mind to respond to more shocks with a desire for control, harmony and stability, the reality is that the avoidance of shocks and failures is a utopian dream. More problematically, insulation from competition and shocks breeds brittleness and fragility.

A political system can also suffer from too much mimicry, and have too little variety to allow for the experimentation and adaptation that is needed for long-term survival. Without sufficient variety, a political system can become trapped by “groupthink” and ideological rigidity. The psychologist Irving Janis coined the term “groupthink” to explain poor decision-making by groups. Its key signs are a strong illusion of invulnerability by decision makers, a belief in the inherent morality of the group, the stereotyping of those who do not agree with the group’s perspective, and simplistic moral formulations that discourage deeper, rational analysis. Self-appointed guardians of the dominant ideology prevent alternative views from being aired and place significant pressure on dissenters, creating an illusion of unanimity, even if dissent is rampant below the surface.

I believe that this resilience perspective ought to replace the vulnerability narrative that the government frequently relies on. Rather than emphasise our vulnerability and how this imposes all sorts of constraints on what Singapore can do or can be, resilience thinking frames the discussion on governance expansively. It invites us to think about what institutional shock absorbers we need in a more volatile world, how we can achieve a better allocation of risks between the state and citizens, and how we should secure Singaporeans’ confidence for the future.

Better Institutions

Having identified resilience as the central imperative for our political system today, let me suggest two areas of reforms entailed by taking a resilience perspective to governance. The first is that we need better institutions, rules and norms to safeguard good governance in Singapore; the second is reforming meritocracy.

First, better institutions, rules and norms. For those of you who are familiar with the principles of governance taught in schools, you’d know there are four of them. The first of these is “leadership is key”. The elaboration of this principle is that given our inherent vulnerabilities, Singapore needs leaders of great ability and high integrity, individuals who will do “what is right, not what is popular.” I think most Singaporeans will agree that effective and far-sighted leadership is essential for Singapore.

But if we apply a resilience lens, as opposed to just a vulnerability perspective, then we’re likely to say that leadership matters, but good institutions matter too and possibly matter more in the long run. This is partly because leadership is highly context-dependent. Good leaders in one context may make for terrible ones in another. Winston Churchill was a great wartime prime minister for Britain; but less effective in peacetime.


But more importantly, the “leadership is key” principle goes against the grain of my argument that what determines resilience is not some wise man or a group of elites determining what “right” answers look like. Rather, it is by ensuring sufficient variety and diversity in the system that we increase resilience. In the long run, we are better off relying on system of distributed intelligence, on Singapore having a diversity of ideas and competing options than on a system that is critically dependent on a small group of bright people.

So beyond the “leadership is key” principle, I would like to see a principle around the importance of having institutions that support dissent, variety, experimentation and selection. Translating this into practice would see the government giving citizens and researchers more access to information, and supporting social science research as much as it does with the hard sciences. Greater transparency bolsters trust in our system of governance, and enhances government’s credibility. Encouraging greater variety might also mean instituting the practice of red teams vs. blue teams across government to encourage a healthy contest of ideas. Because the executive has been a highly successful one that has been relatively insulated from competition, the risks of insufficient variety, and of inadequate pressures for it to adapt, are quite real. It therefore has to make a special effort to create mechanisms that would foster greater variety and selection in the system.

Leaders of the ruling party in Singapore have, in the recent past, expressed their concern about how increasing polarisation might paralyse government. I’m more worried about how the human desire for control, harmony and stability, might weaken the already weak incentives for policymakers to allow competing ideas to surface, and to subject these to serious debate and analysis. In short, I’m less worried about the risks of polarisation than I am about the numbing effects of incumbency, the inertia of the status quo, and the tyranny of old ideas.

Reforming Meritocracy

A second principle of governance that we hold dear is meritocracy, the idea that rewards should be allocated on the basis of a person’s talents and abilities. But an equally critical question that we should ask is what rules should constrain the behaviour of those who have done well in the meritocratic system. There is no prima facie reason to believe that those who have succeeded in a meritocracy will channel their energies to improving society’s well-being.

Indeed, as the crisis has shown, it is possible that those who have succeeded in a meritocracy engage in morally hazardous activities, and demand government bailouts when the risks they have taken go bad.

The kind of meritocracy that was practised on Wall Street also breeds a self-justifying, entitlement narrative. Wall Street bankers justified the decision to pay themselves millions in bonuses from bailout monies on the grounds that not doing so would cause talent to leave the financial industry. This kind of meritocracy breeds a belief among its beneficiaries that they are entitled to their rewards, that the market system is inherently just, and that inequality is natural. They view those who have not succeeded in the system as slothful or lacking in merit – and thus undeserving of state support. Such a system increases resistance by the rich to the redistributive policies needed to address inequality. Over time, it entrenches inequality and immobility, and society becomes more stratified and divided by class.

Singaporeans are often reminded of the risks and moral hazard problems of providing more help for the poor. This is the main justification for why we must not have a welfare state. The crisis is a timely reminder that the risks of moral hazard are far greater when the rich are not properly regulated and reined in. Corporate malfeasance imposes much larger costs on society than the often cited entitlement mentality of the poor addicted to government welfare.

So to conclude, I would very much like to see the principle of meritocracy augmented by a principle that emphasises fairness and social justice. Translating this into practice means avoiding conflicts of interest, ensuring the independence of public institutions, having strong safeguards against regulatory capture, and increasing transparency and public accountability. It also means strengthening our social safety nets and other redistributive institutions, and ensuring a fairer allocation of risks between state and citizens, between rich and poor.

Donald Low is Senior Fellow and Assistant Dean (Research Centres) at the Lee Kuan Yew School of Public Policy. He has administrative oversight of the School’s research centres and leads the School’s case writing efforts.