Productivity – The Key to Sustainable, Long-term Economic Growth

by Jeisilan Sivalingam

For the past 10 years, I have helped companies to streamline their operations; I reduce operating costs in companies by improving their efficiency and productivity. A leaner, more competitive company will be better equipped to attain higher profitability and growth. This is an ideal situation for all stakeholders – higher profits for companies, more cost effective products and services for consumers and most importantly, more jobs and income growth for employees. Making these goals a reality for all stakeholders is my job, and nothing gives me more pleasure!

Almost inexplicably, productivity has been given prominence in Singapore’s mainstream media only in recent times. However, productivity has always been an important factor in any organization. While governments, companies and efficiency specialists in other countries have continued working on improving productivity for the past 10 years, the cogs in the PAP machine have been moving very slowly indeed. The PAP seems to have woken up to the importance of productivity a decade too late, and are now belatedly realizing that they have caused Singapore to lose a lot of ground to her competitors.

Let me explain exactly how much ground we have lost. Singapore’s productivity growth averaged only 1% in the last decade. Our productivity in the manufacturing sector is only 55%–65% of the US and Japan’s productivity. In the retail sector, it is 75% that of Hong Kong’s productivity and a mere third of the productivity in the US. In construction, the situation is even more dire. Economists have singled out one key reason for this abysmal productivity growth: the abundance of cheap foreign labor. In sectors such as construction, companies in Singapore tend to employ a high proportion of low-wage workers, while other developed economies employ fewer workers who are more skilled, or utilize more automation in their processes.

Let us take a look at how other developed economies have improved productivity over the last decade. The productivity of Hong Kong’s service sector grew by 3.1% annually from 1999–2008. This was achieved by employing more knowledgeable and experienced workers, having business investments with more value and a shift towards higher value-added services, such as financial services. In Finland, phasing out inefficient factories and encouraging more competitive plants to invest in technology enabled the manufacturing sector’s productivity to grow by 5.8% from 2000–2008. Producing innovative products with higher quality, such as designer furniture, allowed Denmark to increase the productivity of its manufacturing sector by 2.7% annually from 2000–2008. Investing in high-value niche sectors, restructuring industries and carrying out more research and development has paid off handsomely in terms of increased productivity.

After 20 years of stagnant productivity growth, Australia’s government pushed for industry reforms to improve the construction sector’s productivity significantly in the past 10 years. Contractors were given incentives to embrace value-adding technology and reduce their reliance on large numbers of unskilled workers. As a result, Australian companies are now more willing to invest in training and upgrading their workers, resulting in higher salaries and a better standard of living for the Australian working class.

In comparison, let us assess the PAP’s response to this problem thus far – a problem of their own making. In January 2010, the Economic Strategy Committee’s recommendations included the suggestion that nothing short of “a national effort” was needed to boost productivity – simply to catch up with other developed economies. In February 2010, yet another hastily formed government council announced measures to improve productivity. One wonders what the Singapore Standards and Productivity Board (Spring Singapore) is there for; what has it been doing to improve productivity for the last decade? Upon closer scrutiny, one can see that the measures announced in February only affect 12 industries that comprise about 40% of Singapore’s economy (these industries are mostly SMCs) for two years, and even these measures are to be reviewed after this period. What happens thereafter? Surely, these short-term, limited measures are not enough! What is being done about the remaining 60% of the economy, in particular, industry behemoths such as government-linked companies (SMRT, PUB, SBS, SP, and so on) that pass on inefficiency and escalating costs to consumers, thus contributing to the ever-increasing cost of living? We should instill a new culture of prudence among civil servants, who are currently more interested in ensuring that their annual budgets are spent to the last dollar for fear of a budget reduction in the following year. Can we not transform Singapore’s massive government and the resulting plethora of agencies and bureaucracies into a leaner, more cost effective outfit, as the Obama administration and other countries have done?   

Singapore’s productivity is a pressing issue that needs to be analyzed with honesty. New ideas and methods must be explored; being content with outdated, inefficient practices will no longer suffice if we want to stay competitive.

Unfortunately, the current administration seems content with merely paying lip service to improving productivity. Consider PM Lee’s 2010 National Day Rally Speech, for example. In voicing the decision to bring in 80,000 foreigners (originally 100,000), what message is being sent out? These 80,000 foreigners are not going to help Singapore’s productivity increase, unless they are the very best that the global workforce has to offer – of course, this is highly improbable. As long as this shortsighted labour policy is effect, companies in Singapore will continue to create demand for increasing numbers of foreigners to satisfy their appetite for cheap labor. The question is: when will it be enough? How much more cheap labor does the PAP want to bring into an already overcrowded country with strained infrastructure? In my opinion, this is nothing more than a badly planned decision to placate companies.

In 2009, when productivity in most healthy economies decreased, statistics indicate that Singapore’s productivity saw the sharpest decrease, in terms of both the standard per worker and per hour worked measures of productivity. In terms of real gross domestic product per hour worked, Singapore’s productivity fell by 5% from 2008–2009. With the world mired in a global recession at the time, productivity in advanced economies such as Japan, Germany, Sweden, France and the United Kingdom also decreased, according to a recent study by the United States Bureau of Labor Statistics (BLS). As the BLS noted:

 “Most countries in 2009 experienced a decline in real GDP per hour worked, with the largest declines in Singapore and Finland (down 3.5 per cent).” The decline in productivity in other countries ranged from 0.3% to 2.3%.   

The Reform Party is committed to creating tangible, far-reaching change that can steer Singapore’s productivity in the right direction: upwards! If elected to Parliament, the Reform Party will push for full-range, mid to long-term measures, which should not be limited to 40% of the economy, but expanded to include GLCs and as many companies as possible. As a short-term measure, resources and expertise should be made available to help companies increase productivity, instead of relying on cheap labor. Another major step that can be taken is the introduction of a minimum wage, which will disincentivize companies from taking destructive short cuts to higher profitability, such as hiring cheap labor. In our long-term strategy, we can adopt and build upon the solutions that other developed economies have created to raise productivity. We need to focus on:

1)  Phasing out inefficient factories in the manufacturing sector;
2) Encouraging more competitive plants to invest in better technology;
3) Moving towards higher value-added services and more profitable niche sectors;
4) Introducing more automation in processes (for example, in the construction industry);
5) Carrying out more research and development, and;
6) Restructuring bloated companies and state-protected industries

In short, we must move towards a true knowledge-based economy that is sustainable, instead of using the current model, which is clearly and dangerously unsustainable.

We believe that these measures will lead to more jobs and higher income growth for Singaporeans, thus improving their quality of life. Help us to build a new Singapore – a Singapore where every Singaporean truly matters!

 More details about the Reform Party’s 19 major policy pledges can be found at http://votingrp.wordpress.com/about/.