Taking Over Private Turf For Public's Good

2 Feb 2007 (TODAY)

The State is right to acquire land if it is clear the purpose is to
benefit the majority

Ngiam Tong Dow

In my 40 years of service, I conclude that what works is what counts. The
embedded rhetorical question is - works for whom and counts for whom?

Looking back, one of the most satisfying pieces of work that I did for Dr
Goh Keng Swee, my first Minister for Finance, was helping to draft the
Cabinet paper setting out the economic and social rationale for the
introduction of the Land Acquisition Act.

A news item titled, "In China, land seizures fuel unrest in rural areas",
in The Wall Street Journal (Asia) of Nov 10-12, 2006, reported that
hundreds of enraged farmers in Guangdong province's Sanzhou village
surrounded a granary during its inauguration ceremony, and for almost 24
hours refused to allow the departure of dozens of officials and investors
inside the encircled building. The farmers complained that the money paid
by the investors for the seized land was significantly higher than the
compensation paid to them, and alleged that corrupt local officials
pocketed at least part of the difference.

I would now dissect this Chinese episode from the viewpoint of a Singapore
administrator. At the outset, I would state that, in principle, the larger
interest of the community must take precedence over the rights of the
individual. If property rights are absolute, then HDB towns could not have
been built to house 85 per cent of our population. The modern city we now
call home would have remained a town of slums and swamps.

The core principle of the Land Acquisition Act is that private land can
only be acquired for a clear public purpose. In Singapore, private land is
compulsorily acquired for infrastructure, such as roads and expressways,
low-cost HDB housing, the Jurong industrial estate, schools, hospitals,
and public parks.

The process is open and transparent. No Singapore Cabinet would have
approved the acquisition of the granary in the report cited above as a
granary built by private investors is clearly for commercial gain and not
for a public purpose. A Land Acquisition Act is a very powerful tool, and
in the wrong hands, it can be easily abused. Acquisition can easily
degenerate into expropriation, where corrupt officials in the name of the
State turf out peasants and resell the land for a huge premium.

When the Singapore Government acquires private land for public purposes,
it pays - from public revenue - compensation to the landlord. Land is
priced at its market value in its original undeveloped state. The Chief
Valuer does not take into account the potential commercial value of the
land. It is the State that builds the infrastructure. The community pays
for public infrastructure out of tax revenue. Hence, any increase in value
of the land from public investment should rightly accrue to the State. The
individual landlord is entitled to the value of the raw land, not the
incremental value created by public investments.

The large landlords in Singapore appreciate that it is in their larger
long-term interest for the Government to invest in public housing and
infrastructure. As Singapore grows economically, all land in Singapore
appreciates in value, sustaining the value of homes and offices, including
their own.

A more difficult problem in land administration is the resettlement of
tenants and squatters who do not own the land. The Singapore Government
pays what is called ex-gratia compensation. Unlike the landlord, the
squatter is not entitled to any legal compensation. The State, out of the
goodness of its heart, compensates on the basis of fixed assets, such as
his hut and pig-pens. He is offered priority in the allocation flats by
the Housing Board, sometimes offered taxi licences or market stalls, so
that he can find alternative means of livelihood.

By being fair to resettled families, public infrastructure has been built
for the good of the larger community without public discontent.

Purist economists are for an individual's absolute freedom to choose and
against any form of state intervention in the economy's functioning. As a
former practising administrator, I would think that the second part of the
equation is just as important. The state can and should intervene in the
working of the marketplace when it is manifest that public interest will
be better served.

The Land Acquisition Act enables the Government to acquire huge tracts of
private land for the construction of low-cost housing. Individual rights
were violated, but not trampled upon. Compensation was paid, but not at
its full commercial potential.

Were any mistakes made? Yes, but they paled into insignificance compared
to the larger national achievement of building a modern metropolis.

When the MRT system was being built, the Government adopted a policy of
acquiring all private land and properties within a certain radius so that
small lots can be consolidated and tendered publicly for comprehensive
redevelopment. The intention was benign, but did such acquisition pass the
test of manifestly being in the public interest? Could the free markets be
used instead to achieve comprehensive redevelopment without state
intervention?

Private capital and expertise could have been used to develop such
strategic sites to reap better economic value for the community, instead
of the Singapore Land Authority playing the unfamiliar role of developer.
The happening Boat Quay redeveloped by the private sector contrasts
sharply with the sterile atmosphere of renovated Chinatown shophouses. Of
course, private enterprise is no guarantee of commercial success. The old
Lau Pa Sat redevelopment is an example of private sector failure.

Take en bloc redevelopment sales of private property. There may be one or
two individual owners who, for good reasons, are not willing to sell their
properties. Should a minority of one be allowed to stop all the neighbours
from unlocking the value of their aging condominiums in a buoyant market?

Should the economy miss out on the economic value-add of public
infrastructural investment such as the MRT?

When en bloc redevelopment succeeds, the public revenue benefits from
development charges paid for higher development intensity. The happy
outcome is that both individual and public interest are served.

In the economic domain, there is no need for conflict of interest between
the majority and the minority. Fair and transparent pricing serves the
interest of both parties.

What is in the best public interest will ultimately have to prevail,
provided the State does not allow the majority to oppress the minority. In
a multi-racial country such as Singapore, the burden of leadership must
fall on the majority.

This was adapted from former Permanent Secretary Mr Ngiam Tong Dow's
speech at the Singapore Academy of Law's Professional Affairs Committee
on Wednesday.