PAP Policies Unproductive on Productivity

Looking back on 2012, what do we think has been one of the government’s primary economic concerns for Singapore in the past year? I would like to suggest productivity. Although Singapore has high GDP per person, this has been achieved – especially in recent years – in a very inefficient manner. One only has to look at our crowded trains and sky-high property prices to know that a large part of our growth has been based on pumping the economy full of imported workers. But obviously this cannot continue for ever as Singapore doesn’t have limitless room for foreigners, and therefore the government has made a lot of noise recently about growing the economy not by increasing the inflow of workers but instead by increasing the productivity of those we already have.

In April PM Lee was quoted by Yahoo News [1] as saying that “Raising productivity is more important than ever in Singapore’s maturing economy”. Further, in his May Day message the PM mentioned productivity no less than 21 times [2]. In recent years the government has set up various plans and schemes to try to increase productivity. For example the Productivity and Innovation Credit which was budgeted to cost 480 million dollars per year [3] and the Productivity Fund into which 1 billion was injected in 2010 [3, ibid] and a further 2 billion was injected in 2012 [4].

So the question is what results have we seen for these billions spent? The government hasn’t made any large public announcements about productivity recently, so I guessed the answer might not be very flattering, but acting Manpower Minister Tan Chuan-Jin let the truth slip out in a recent blog posting [5]:

“Our year-on-year rate of growth in employment level has exceeded the rate of GDP growth in the past four quarters. This has resulted in negative productivity growth. This means that with every additional worker employed, our economy became less productive on average.”

Oh dear, what a sorry outcome. For all those billions spent and all that talk, isn’t it a bit disappointing that our million dollar ministers couldn’t deliver on this? I wonder if PM Lee or Tan Chuan-Jin will come out and explain how this can have occurred despite receiving so much focus over the course not just of this year but previous years too?

I don’t want to bore everyone with a long discussion on the economics of productivity – but I will say a this. Productivity depends on the cost of labour – that means wages. If wages are low and there is a large supply of workers, productivity tends to be low too – this is because for any given employer at any given time, it is generally cheaper and easier to hire one extra cheap worker to grind out a bit more GDP than it is to invest in training or better tools or spending the time on process optimisation to generate productivity driven GDP gains. I probably don’t need to tell you that Singapore, with no minimum wage and an open door to foreign workers, has exactly those policies that we should expect to lead to low productivity. So as long as the PAP are in denial about the need for a minimum wage and a real (not imaginary [6]) tightening of the flow of foreign labour, we are likely to see low productivity in Singapore for the forseeable future. Until some time just after 2016 I expect.


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