Business Beyond the Reef

Journalists in Hawaii live for the moments when Governor Neil Abercrombie goes “off script”. An intelligent man, the former college professor has a propensity for off the cuff remarks about things he doesn’t know much about. The nation’s least popular state governor often provokes hilarity and amusement.

Governor Abercrombie went off the reservation Monday when he delivered his annual “State of the State” address to the Hawaii Legislature. While discussing energy issues, he suddenly departed from his text to blame Singaporean speculators for Hawaii’s problems.

We are totally in the hands of oil speculators in Singapore.
- Hawaii Governor Neil Abercrombie

Rather than the usual giggles, the crowd responded with a collective “hunh?”.

There is a lot that’s just wrong here. First is the assumption that anybody in Singapore controls energy prices in Hawaii. Yes, Singapore is a sort of headquarters for oil companies in S.E. Asia, but I’ve worked with these folks and they don’t sit around discussing how to hurt Hawaii. Second, as Honolulu Civil Beat points out, Singapore doesn’t have a futures market in oil so any speculation isn’t happening there. Third is Abercrombie’s implicit assumption that speculation must, by its nature, be bad – an assumption made by politicians and beleaguered CEOs worldwide. Have you noticed, though, that politicians blame speculators when prices rise, but CEOs blame speculators when prices go down?

Fact is, “speculator” is merely a derogatory term for somebody who buys and sells stocks, bonds or commodities and doesn’t intend to hold them for a long time. They provide a lot of the liquidity that allows markets to function efficiently. Some bet that prices will go up, others make the opposite wager, and they often offset each other. If you sell stock in an oil company, there is a good chance that you sold it to one of those evil speculators. And what does that make you?

The price of oil in Hawaii was once driven by supply from the mainland United States, but not so much anymore. We always compare our gasoline prices to the mainland and we usually run about a dollar a gallon more than most Americans pay. Many in Hawaii haven’t noticed yet, but our oil prices now are more dependent on demand in Asia. Economic growth in China has driven the price up, but our local price surged when Japan shut down most of its nuclear reactors following the Fukushima disasters last year. That’s where the blame lies for our spiking electricity bills, but somebody on his staff needs to tell the governor.

I often disagree with Clyde Prestowitz, especially on the benefits from trade, but that may be why his readership is higher than mine. But he got it right in a post he did for Foreign Policy titled “Washington doesn’t sincerely want jobs”. I have been thumping that theme on my tub for quite a while. There are two other reasons I took note of what Prestowitz has to say, because he lauds Singapore’s economic growth programs and he raises the specter of a budgetary assault on America’s ability to export. Here’s part of what he has to say:

A few days ago I was in Singapore meeting with, among others, some old friends from Singapore’s Economic Development Board. This is the government body in charge of promoting exports, attracting foreign investment and technology to Singapore, and of generally planning and executing the city-state’s economic strategy. As always, I was impressed with the comprehensive strategic thinking of these people and of their single-minded pursuit of investment, technology, and jobs that could be brought to or developed in Singapore.

I went from these meetings to have a drink with a senior U.S. Commerce Department official who happened to be in the neighborhood. Now remember that one of the much-publicized Obama administration initiatives of the past couple of years has been the export doubling program of the Commerce Department’s Foreign Commercial Service. The idea was that every $1 billion of exports generates about 15,000 jobs and that doubling exports would therefore generate lots of jobs and drive unemployment down. It was and is a good idea. So you can imagine my surprise when the official explained that, although not yet announced, the Commerce Department is planning to reduce the staff of the Foreign Commercial Service. I guess Obama and his new, inexperienced commerce secretary think the service will do more with less, but the reality is that it will do less with less. And this was the plan before the recent debt ceiling deal. In the wake of that, the likelihood is that the service will get even less and perhaps do nothing.

I can vouch for the thorough, impressive approach of the Singapore Economic Development Board, though I acknowledge they have an easier job of it than Washington does. After all, Singapore is only a city of a little more than five million people, and policy becomes easier in what is essentially a single-party political system. That said, I watched the EDB in action for three years in the Lion City and they have accomplished wonders.

What Prestowitz reports about the Foreign Commercial Service is more than disturbing. I have been told the same things about the CS budget that he heard, but had not reported on it because I was told in strict confidence by folks on the inside. The Commercial Service has always been a tiny part of the Commerce Department and I can only recall one year in its forty-year history in which it received strong support and attention from the Office of the Secretary. What I hear is that eleven overseas offices are on the chopping block and that as many as 270 of the local overseas employees may be let go. These local employees are the backbone of the Commercial Service. You may see the American commercial officers (I was one), but it is the local employees that have the local knowledge and expertise, and provide the continuity when an officer moves to the next assignment. They’re good and once let go, we won’t get them back.

That’s not all. The domestic side of the Commercial Service (the US Export Assistance Centers in your local communities) is also under fire. I hear that Commerce has commissioned yet another “resource allocation model” to look at where the Service’s dwindling dollars should be put. That is never good news.

And Prestowitz is right that the debt ceiling “agreement” does not bode well. When Congress returns, it will be open season on small federal programs and I anticipate attempts in the House to “zero out” the Commercial Service. There is no concept that the CS budget is an investment, not an expense. I can’t put it more clearly than one of the comments on Clyde’s post:

Cutting the work of the Foreign Commercial Service is one of the STUPIDIST things our federal government can do. How many times do economists have to tell us that exports create better jobs and bring new money into the domestic economy before politicians and the general public get it through their heads? Maybe we have to have it dumbed down for us in terms of the old business maxim “it takes money to make money”?

I’ve used the services of the Foreign Commercial Service and because of their export advice and help in starting to export I had to hire 20 new people to fill my increased orders. Now my exports exceed my domestic sales.

We can hope the cavalry will charge to the rescue. I had several conversations with a White House staffer earlier this summer about the President’s plan for reorganizing the federal government’s trade functions. (He mentioned it in his last State of the Union message, as part of implementation of his proposal to double U.S. exports.) The draft re-org plan should be on the President’s desk by the time you read this. I have no idea what is in it, or what President Obama will decide to do with it, but I know what I recommended.

Travel for health reasons has a long history, going back to pilgrimages in the mists of antiquity. And the medical tourism trade is thriving as never before. It is huge in S.E. Asia with Thailand’s hospitals leading the way, big in Europe, and even tiny Hawaii is in on the business. When I worked in Vienna, it was commonplace for expats and Austrians to drive across the border to get procedures done for cheap in Hungary. My dentist even suggested it as an alternative to her high Austrian prices!

But the price may have gotten just a bit too high in Singapore. The island city has been a focus of medical travel in S.E. Asia and has excellent facilities and personnel that attract customers from throughout the region. I had a sports medicine doctor whose clientele came from many of the surrounding countries. And a cardiologist who boasted cabinet ministers from several other countries among his clients.

Dr. Susan Lim is a leading surgeon in Singapore and has been a pioneer in Asia doing liver transplants. She also seems to be a pioneer in medical billing according to a report from Bloomberg, issuing a bill that was tough for even the royal family of Brunei to swallow. Dr. Lim treated a member of the royal family for cancer in 2007 and in July 2007 sent a bill to Brunei for a cool US$20 million! The patient, unfortunately, died the following month and Brunei asked the Government of Singapore to see if the bill could be whittled down just a bit. Dr. Lim agreed and issued a new bill for a little less than US$10 million. Dr. Lim has even found a forensic accountant who says her charges are reasonable, according to the Straits Times. Only $5,247 an hour. There is a court case proceeding in Singapore about the charges, but the damage has been done and Singapore’s position as a medical tourism destination may have been hurt.

Generally speaking, billing for medical tourism goes in the other direction. The whole reason a patient goes to another country for treatment is usually either (1) to find treatments not available at home, or (2) to pay less than at home. According to Deloitte, you can get a heart bypass for $10,000 in India, $20,000 in Thailand or $23,000 in Singapore. Healthcare Beyond Boundaries quotes the same bypass for $7,000 in India. That’s compared to $56,000 in the United States! You could get a pacemaker for only $3,500 and visit the Taj Mahal in the same trip.