Singapore Looks to a National Productivity Strategy to Maintain Growth

Singapore has an amazing record of economic growth, having transformed itself from an uneducated and poor country fifty years ago into one of the richest countries in the world today. Factoring in the cost of living, Singapore now ranks in the top 5 richest countries, well ahead of the United States. In purely nominal terms Singapore ranks in the top 10-20, lower but still ahead of the USA.

Despite this success Singapore has long been criticized for growing its economy through capital investment (“increasing inputs”) instead of productivity growth. Capital investment increases output per worker, but only by sacrificing consumption spending. Paul Krugman was a vocal critic in a 1994 article on Singapore and other Asian Tigers:

Mere increases in inputs, without an increase in the efficiency with which those inputs are used—investing in more machinery and infrastructure—must run into diminishing returns; input-driven growth is inevitably limited.

Singapore’s leadership vehemently opposed Krugman’s prediction of slowdown at the time, which was a wise thing, as history has shown that he clearly missed some important factors in his analysis. Furthermore, is easy to understand the government’s chagrin as they had launched numerous initiatives in the 1980s intended to increase productivity: with the blessing of Lee Kuan Yew, Singapore’s National Productivity Council ran a 10+ year “Productivity Movement” program that worked with government agencies, businesses, workers, unions, and educational institutions. Singapore also worked with JICA and the Japan Productivity Center to provide training and technical knowledge. (In the 1980s, as the Yen appreciated and Japanese labor became less competitive, Japan began to offshore much of their production to parts of Southeast Asia. They were thus happy to help Singapore upgrade their productivity.)

Although Singapore’s push for productivity exited center stage during the 1990s and 2000s, it has reemerged recently (perhaps thanks to peaking savings rates) as a pillar of their competitiveness strategy. Singapore’s current initiative is under the heading of the National Productivity and Continuing Education Council, or NPCEC.

The NPCEC continues the Singapore government’s push for productivity growth through a range of activities. The council, comprised of six government ministry heads, four union leaders, and eight business leaders, oversees a working committee in charge of sector-based groups. The groups are focused on economic sectors where productivity improvement is a high priority, and have launched programs to increase worker skill and technology adoption, to lower production costs, and to encourage restructuring in some industries. The bulk of the funding so far has gone toward construction, transportation, and services, as well as some toward manufacturing. (a good official summary is available here)

The program also has a number of initiatives that cut across sectors. The NPCEC has launched a web portal that provides information for employers and workers called “Way to Go, Singapore!”, which provides a search for productivity consultants and information on productivity-related grant programs for businesses. NPCEC has also attempted to increase educational opportunities for working adults by streamlining technical skills training courses and providing new training courses specifically for low-wage workers.

Singapore’s plan for productivity growth, true to its state-capitalist model, relies heavily on state action. In contrast, in the United States today we typically see productivity improvement as the job of the market—particularly the incremental kaizen-style progress that Singapore is focused on. (There is somewhat more recognition that government can help with big breakthroughs and increasing education.) However, as anyone who has worked on a factory floor can attest, mindset is a key component of improving productivity, and in that sense Singapore’s outreach programs may be quite helpful.  Moreover, there are a host of market failures that get in the way of faster productivity growth, ranging from atomistic industry structures that don’t invest in productivity (e.g., construction); externalities from investing in new machinery and equipment; and market failures around establishing new tech platforms (e.g., such as health IT, digital signatures, etc).

It is also wise for those of us with strong market tendencies not to forget our own past. While not in exactly the same style as Singapore, the United States was itself a long way from passively trusting innovation to the market for much of its own history. The USA also has some of its own productivity-focused institutions, such as NIST’s Manufacturing Extension Partnership and DOA’s Agricultural Extension Service, as well as many at the state and local level.  In short, while we won’t and shouldn’t adopt the Singapore model whole hog, America would we well advised to develop its own national productivity strategy (the topic of a future ITIF report).