SMRT: The Instant Failure of Privatization

In Economics study, there is always a debate over the pros and cons of “Privatization” of companies providing public goods like public transport.

Companies providing public goods are natural monopolies because they need economies of scale. But the downside is, it tends to be inefficient if it is under government administration. However, this may not be always true.

Natural monopolies are preferred to be under government control because this will prevent them from “exercising their monopolistic power” to “overcharged” and gain abnormal profits through maximization of profits pricing strategy.

Even when natural monopolies are turned into private companies, they will be heavily regulated due to the enormous monopoly power over pricing. This is in the interests of the public.

However, there are other issues when you try to achieve “efficiency” via privatization a monopoly like SMRT. When it becomes a private company, it will shift its priorities from providing reliable public service to making good returns to its private shareholders to sustain its stock market value.

SMRT’s privatization exercise in 2000 is a typical example of how such shift of priorities will harm public interests.

After its privatization and public listing on SGX in 2000, SMRT appointed Saw, a lady from DFS and with only skill set in retail to become its CEO. The motive is simple. They wanted to MAXIMIZE profits from the vast potentials of the properties it owns under its MRT stations.

But Saw went beyond extending the retail space in MRT stations. As a person without any Engineering skillsets but with vested interests in getting hefty bonuses by increasing profitability and cutting costs, she started to cut the “Cost Centers” of SMRT operations. Obviously, the Maintenance Division is considered as a huge cost center that doesn’t generate sales nor revenue but costly to SMRT!

Just like any ignorant money smelling face, she thought she could cut down expenses in Maintenance by replacing “expensive” but experienced engineers and technicians with “Foreign Talents” who have only some paper qualifications (oh, never mind if these paper certificates are fake or not) but extremely cheap at a fraction of the experienced staffs. All thanks to PAP government opening the Floodgate to “Foreign Talents” so that SMRT could capitalize on this fully!

She thought she could just ignore the need of upgrading or replacement of critical assets of the rail system so to boost the profits of SMRT further!

Well, in the short run, SMRT did “extremely well” in giving out good dividends to shareholders. Dividends jumped more than 5 folds after 2002 in some years.

However, it is just obvious and common sense that such management of a company which is heavily depended on good engineering to keep the CORE business running smoothly cannot be sustainable. Eventually, the rail system broke down. This is also partly due to the “overloading” problem due to the extensive influx of foreigners which inflated our population up to 5 million and beyond!

The MRT system was designed and built for a capacity of 3 million. It is supposed to have 8 cabins (like the Hong Kong MTR) in order to cope with a 5-8 million population.

While it is possible to mitigate the problem of overloading by building extensive by-routing rail network like the NW line, Circle lines and Downtown lines, but the stress on the main line NS and EW lines are still extremely heavy. Furthermore, the increase of the number of lines and stations would also mean the need to expand the maintenance division extensively!

How could SMRT keep the growth of expenditure on its maintenance division comparatively low while the number of lines and stations keep increasing in such a speed? You need time to train and get new engineers and technicians to familiarize with the job scope!

The proportion of money spent in maintenance as compared to Hong Kong MTR is extremely low. Do they really want us to believe that SMRT engineers are magicians or superman and women who could do wonders?

The entire system ended up in the current sorry state just because PAP screws it up with its Money-face-cronyism management strategy. They just anyhow send in someone who know nuts about running an effective and efficient rail system to become CEO just because she might be great in squeezing every penny out of SMRT!

And the most ridiculous thing is that they made the SAME mistake of sending in a replacement from the army who also knows nuts about running a rail system and hope that he could clean up the mess the previous idiot has done!!!???

What is worse than putting people who are totally clueless about the job scope to run an important rail company? And both just took in their own KAKIs from the same UNRELATED industry who similarly, CLUELESS and lack of the relevant skill set and in-depth technical knowledge of rail system to run the departments!

Instead of headhunting people with REAL Experience in running a rail system, we ended up with these mulit-million dollar parasites who are clueless of running a rail system!

This is how Privatization of such an important public goods provider cum monopoly ended up so wrong. I guess this will enter into World Wide Economic and Management Text Books!

On the side note, PAP has always treated GLCs as their “dumping ground” for their “scholars” who have expired their usefulness in SAF or civil service. Maybe it is time for us to rethink whether the extensive Scholar system we have right now, especially the SAF scholarship system, is still useful or relevant. We cannot just dump them anyhow into GLCs which they lack the skillsets and experience to work in!

Goh Meng Seng




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19 Responses to “SMRT: The Instant Failure of Privatization”

  • A Nation Of Greedy Cronies:

    These are very evil people. Plain common sense will know the importance of maintenance to keep the train running. However these appointed CEO will only think of their survival and immediate rewards before they are fired and jettison to another job. The trend is as such for many CEOs in the world nowadays. However governments are also hitting back, holding them accountable for the mess they created even after they had left their companies. The Sarbanes–Oxley Act is just one of the few attempts to set right the things that had been done wrong.

    In short, when CEOs are held accountable they will think twice about their actions. Saw should be investigated for her negligence in running the public transport.

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  • Sputzy:

    The govt has been putting ex-army people in charge all over the place
    – in case of a “freak” election, as Lee Kuan Yew had threatened he’d do.
    That means any opposition party will face Horrific problems. It has
    already happened in Aljunied.

    The problem with having the army run things is that the ex-generals are
    running the country down badly, putting the PAP itself in a bad light.
    So the plan is backfiring.

    Expect more, much more, to go wrong. The train problems are only the start.
    These happen each time Khaw says all is good and right on track. The PAP
    and its scholars are slow learners and have yet to admit they’re doing
    a pretty poor job.

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  • asd:

    $ paid for maintenance went into nothing ..

    so say if want tip top pay more . .

    pay more for nothing . .

    this is how it works ?

    LOL .. . can’t believe it . .

    tip top salary person can even say things like this ..

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  • Rabble-rouser:

    It’s a wonder why opposition figures like Goh Meng Seng, Dr Chee Soon Juan, Kenneth Jeyaretnam et al were looking in as outsiders from the outer fringes of a power sphere which is dominated by the PAP & their cronies. These guys simply talk fantastic sense irrespective of their own shortcomings & ‘perceived’ character assisination by the ‘evil’ MSM & ‘idiotic’ PAP IBs. And when 70% voters think that the PAP are the best & they can do the job – methinks the end of the world is coming!
    First things first, Privatisation harks back to the idea that private sector companies & organizations are the best equipped to provide goods & services compared to the inefficient public sector &/or highly govt regulated industries.
    The Privatisation idea was an outsourcing of sorts by govts grappling with budget deficits, economic problems & public sector employees wage/union problems were a NO-BRAINER. This idea of Privatizing Public services originated during UK PM Margaret Thatcher & US President Ronald Reagan’s time. PM Margaret Thatcher after she came to power, had to deal after a Winter of Discontent when Public sector workers regularly going on strike for higher wages disrupting essential public services, a high unemployment rate due to labour wage rigidity & an ongoing stubborn recession.
    Thatcher’s political philosophy & economic policies were financial deregulation, creating a flexible labour market, privatisation of state-owned companies, & crackdown on labour unions.
    Similarly, US President Reagan on coming to power, embarked on supply-side economic policies, dubbed “Reaganomics”, lowered the tax rate to spur economic growth, control the money supply to curb inflation raising the interest rate to 20% in 1981, economic deregulation, and reduction in government spending. Notably, Reagan took on the Air traffic controllers’ strike; basically sacking all the striking Air traffic controllers replacing them with supervisors & the military. In essence, Reagan broke the backs of the US labour unions.
    The early part of Privatization under the Reagan-Thatcher economic era was a success. So successful was the Reagan-Thatcher Privatization era that the Communist regimes began to crack due to their own stagnation & eventually collapsed.
    And under the Privatization era came the early part of Globalization where S’pore benefited immensely from the PC-era boom (S’pore became the centre of HDD universe re: Seagate, Maxtor, Miniscribe, Microscience, Conner, Rodime, Western Digital and IBM).
    But LKY literally took the Reagan-Thatcher economic philosophy & extended to the provision of Public Goods. And Public Goods meant Public Transportation, Healthcare institution like Hospitals &…

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  • opposition dude:

    After the great share buyout poor SMRT still can’t escape all the bad luck hounding it ha ha ha ha ha! Simi LTA buy over its assets for $1 billion rubbish, the system keeps giving problems and the assest are worth $1 billion? You sure or not?

    And no one would want to be CEO of SMRT anyway, not with the problems we see today and most definitely not with PAP’s constant interference. Even if I was CEO and made the system right again the moment another few hundred thousand non Singaporeans are let in I’m a dead man.

    Let PAP continue making themselves a laughing stock since they so love their scholars and continue making the same mistake over and over every single time. There isn’t a need for them to come out and say they are wrong, it’s an open secret already. NOL being sold and MRT trains with frequent disruptions cannot be hidden from the public after all.

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  • Amos exposed PAP hypocrisy:

    The reason governments like to privatise, especially in Singapore, is because civil servants are a bunch of spineless, deadbeats and free loaders. They want the highest salary possible with the least responsibility/accountability. They just want to stay in air-con office seating on expensive designer office chair sending emails and pushing paper. Politicians also like to privatise so they can provide jobs to their friends and most important they have scapegoat if things go wrong.

    In the PAP model of management, loyalty to the party is main criteria. Competence is optional. Want proof? Just look at the blockheads in Cabinet and the top honchos in Temasek, stat boards and GLCs.

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  • Rabble-rouser:

    - Cont’d –
    …Education. Thus Public Transportation was privatized into SMRT Ltd; Medicine & Healthcare became Corporate Medicine [Corporatized under Govt-owned companies & revamp into 6 public/private enterprises eg. Alexandra
    Health System; Eastern Health Alliance; Jurong Health; National Healthcare Group; National University Health System; & SingHealth vs the Private sector hospitals like Mount Elizabeth, Thomson Medical et al & two Polyclinic chains i.e. SingHealth & National Healthcare Group (NHG) operating alongside numerous private clinics; Education system which morphed into Corporate Educational Institutions operating International (including Independent Schools) & Private operated Schools.
    But the overwhelming problem with Privatization issue is the Profit-oriented approach – money counts for more that Public interests.
    And it was not surprising that despite public fares going up, SMRT profits going up, the level of operating efficiency not only went down but breakdown began; in the Corporate Medical/Healthcare arena, the govt due to electorate pressures, political sensitivities, the PAP had to devise a convoluted right pocket/left pocket scheme of cross-subsidies to alleviate the high costs of healthcare & medicines; in the educational sector, it became clear that the deep pocketed had the means & access to good schools/private school system while the lesser ones had to go to ‘chap-ba-lan’ neighbourhood schools. The School mechanism had also created a elitist mentality & a deep divide between haves & have-nots.
    The last part of all the PAP Privatization shenanigans was the kicker! The issue of Ministerial Salaries. LKY’s hidden agenda for all that Privatization & Corporatization became clear – it was to elevate Ministerial Salaries to an unprecedent high beyond all countries! In essence, the PAP Minister became a CEO-type figure with high salaries, bonuses, KPIs but without the performance responsibilities nor the accountability. That part is undertaken by the GLC CEOs. Yet GLC CEO were relatively protected eg. NOL ex-CEO Ng Yat Chung.
    Meritocracy Policy is also another problem – the inability to assume mistakes & failures. Look at the wayang of Blame shifting & evading responsibility & accountability. In the aftermath of the SMRT flooding, where is PM LHL or his comments on this? He had been very silent all this while!

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  • LIONS:

    *GREASE IS THE WORD* is a really pleasing song to the ears; it was sung by john trovolta n ONJ.



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  • I'm Halimah also jiak liao bee:

    When the Khawpeh Khawbu was running the MOH, he failed to plane for the increase in the population and add extra beds, with patients ending up sleeping along corridors and in tents.
    And now he is running the LTA, with the overly corrupted company culture sinking SMRT for the last 5 years.
    Is he not sleeping on the job, or just wayang to his Liang Shan Po BS.

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  • MarBowling:

    Great insightful comments by Rabble-rouser!

    “In the aftermath of the SMRT flooding, where is PM LHL or his comments on this? He has been very silent all this while!”

    Response: looks like his Grand Plan to perpetuate his FAMILEE strong grip on the Imperial Throne and his various scheme of things to achieve that, has been thrown into disarray when D Trump showed him the LOONG Middle Finger at TPPA and President snubbing him when OBOR ends at KL instead at SinKapore! Don’t think he has the mind or time for SMRT flooding, or any similar big issue. Right now, he is busy trying to kiss or lick the arses and balls of both D Trump and President to get back into their Good Book. Doing all this Not For SinKApore. But for himself and the future of his FAMILEE. Period!

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  • Change We Must:

    What a foolish idea to privatized those essential services. The health care sector is going to be another big problem waiting to happen. The cost of polyclinic and hospital will hit the roof if they are on auto pilot again. How can a polyclinic consultation fees higher than the private GP? The polyclinic are staffed with novice doctors whereas the private GP have years of experience.

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  • People like GCT and his team:

    Privatization of our MRT happened because it was overseen by people without the ability to understand how things work. People like GCT and his team.

    In a national monopoly, more so one over some essential services such as our mass transport or power or water or healthcare services, the profit element shouldn’t be factored in. For that, they shouldn’t be in private hands. There are no justifications for some private people or entities to reap a profit from it.

    However, the big folly (ignorance) of the thinking of the incompetent team of GCT and subsequently, LHL, is that a private company runs more efficiently (than a public sector company?).

    That may be true when it operates under free market competition. They have to perform or they will lose customers and have to close shop (outwitted by the competition). Their owners or the shareholders will not permit that. So they (have to) perform, or get the boot.

    However, in a monopoly, there is no realistic measurable tangible gauge of their performance or efficiency. On the contrary, they often tend to be less efficient for the (private) owners or shareholders do not (have to) feel the pain of the inefficiency since the price of their inefficiency or incompetence will be invariably passed onto the consumers (held hostage by the monopoly).

    Now, if SMRT or SBS is publicly owned, it’s owners, the citizens of Singapore will feel the pain if they don’t perform or are inefficient or incompetent. And the citizens (the public) can make them perform or they get the boot.

    Singapore citizens can do that (make SMRT or SBS or any monopoly perform), if there is free press and freedom of speech and transparency and transparent rule of law and truly independent judiciary, not PAP rule of law. And no nepotism and cronyism.

    Public opinions and public scrutiny, due to the weight of their sheer numbers as well as their ability to hold the political rulers accountable, will be able to outdo any private owners or private shareholders. And definitely outdo any ignorant Civil Servant administrator or any Civil Servant politician.

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  • People like GCT and his team:

    People like GCT and his team:
    In a national monopoly, more so one over some essential services such as our mass transport or power or water or healthcare services, the profit element shouldn’t be factored in. For that, they shouldn’t be in private hands. There are no justifications for some private people or entities to reap a profit from it.

    If one understands how to run a business or a Corporation, one will be conscious of having to streamline the organization to create optimal efficiency.

    Take public healthcare for example. There is no reason why or how a public hospital or set-up cannot operate more efficiently, and certainly more cheaply, than a privately run hospital.

    In fact, they have to be less costly.

    For public hospitals need not pay top salaries for top medical professionals. A professionally qualified medical staff will do (can do the job). It need not be a ‘top’ professional although they can be, and often are equally competent, if not more, if only because he/she would generally see more cases and learn from more cases.

    Once the start-up infrastructure cost has been taken care of (like our MRT infrastructure), the bulk of the running cost will mostly be the market salary cost of any qualified medical professional and equipment maintenance. Admin cost and even medical staff can be kept to a minimum if well streamlined and computerized, with advantage of economies of scale of a nation-wide system.

    I am not suggesting that medical professionals should not be well paid. On the contrary, if only for reasons of the degree of difficulty of the training they have to go through, the unsocial work hours and the nature of the work and a moral obligation to be dedicated. However, public hospitals need not compete with the private hospitals for staff.

    Medical professionals who want to earn the kind of salaries in the private sector are free to leave. Public service staff have job stability and other Civil Service perks and conditions to compensate.

    With the kind of medical professional salary levels in SG, there will be no shortage of medical professionals from other First World countries eager to take up those jobs, if need be.

    Together with a streamlined, smoothly run organization, where services can be massed serviced without sacrificing the quality of mass ‘production’ or medical attention, public healthcare need not break our national budget.

    If our administrators understand how to run it, we can even make free universal healthcare available to all (partially financed with compulsory affordable means adjustable healthcare insurance for every economically active…

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  • People like GCT and his team:

    … for every economically active citizen.

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  • People like GCT and his team:

    And Singaporeans need not have to delay or procrastinate or forego the medical attention they need because they can’t afford or feel the pain of the medical bills.

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  • MarBowling:

    People like GCT and his team:
    November 15, 2017 at 12:10 am (Quote)
    Privatization of our MRT happened because it was overseen by people without the ability to understand how things work. People like GCT and his team.

    Response: wow. What a BEAUTY! you have nicely summed up the “BEAUTY” of what Privatization is all about!

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  • People like GCT and his team:

    For a start, with free universal healthcare, we will save huge sums in unnecessary, wasteful and unproductive processing and vetting and billing and admin work.

    And there will be no need for ‘promotion’ campaigns together with all the unnecessary admin costs.

    Will there be abuse if services are available for free? Possible. Will people normally take time away from their routine or work to visit a doctor if they don’t feel unwell?

    Is it so difficult to think of a way to prevent abuses without deterring those with a genuine need for medical attention?

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  • Competency:

    The rail RTS is a very complex system and you need competent staffs. In most well run rail organisation, they recruit staffs very carefully.

    CEO – minimum at least 20 years railway experience with past 5 years heading a rail department. Minimum academic qualification – recognised degree, preferably Masters.

    SVP – same as above.

    VP/Director – minimum 15 years railway experience with past 5 years heading a rail department. Minimum academic qualification – recognised degree, preferably Masters.

    Snr Mgr – minimum 10 years railway experience. Minimum academic qualification – recognised degree, preferably Masters.

    Mgr – minimum 5 years railway experience. Minimum academic qualification – recognised degree, preferably Masters.

    Snr Engr – minimum 3 years railway experience. Minimum academic qualification – recognised degree in Engineering.

    Engr – Minimum academic qualification – recognised degree in Engineering.

    Asst Engr – Minimum diploma in Engineering

    Technical Offr/Technicians – Minimum ITE certificate

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  • RDB:

    It was built and launched in mid-1988 before GCT became PM2 in 1990. LKY was urged by Ong Teng Cheong his DPM. He had turned down the idea and needed to be convinced. Only a lawyer he was, OTC was an architect.

    PAP had no knowledgeable people at all to know enough to get the best in term of both technical at the best cost deals. And so MRT was doomed at the very start by having incompetent “expert” to evaluate selection. And their extreme self PRIDE awarded spelt their disasters way up front. LKY made daft Singaporeans also voted for him and his crony PMs 2 & 3 based purely on job & food on the table. None from them to their supporting voters ever think of longer term issue. The only longevity that LKY & his chosen PAP cronies ever think of is their own longevity by endless boast and brags!

    Pride comes before a fall doe it not!

    When some tell you endlessly how good they are in perfection, it has has to be far too good to be true. Never ever belief anything that is too good to be true. They were all FAR too “good” to be in SELF PRAISE TOO aren’t they!!!

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