Why we should be worried about Singapore’s productivity

By Kenneth Jeyaretnam

In his May Day message Lee Hsien Loong said that “productivity levels in Singapore have risen too slowly over the last few years.” That may qualify as the best understatement since Emperor Hirohito of Japan said in his surrender announcement that “the war has developed not necessarily to Japan’s advantage”.

The US Conference Board puts our growth in GDP per hour worked over the period 2007-2012 at -0.1% per annum. This is in spite of a huge jump in Singapore’s GDP per hour worked in 2010 which we are still waiting for an explanation for from the Statistics Department. Since 2012 productivity growth has continued to be negative so our productivity levels are now significantly below their levels in 2007.

In my recent article on LKY’s legacy, “Perspiration without Inspiration: Singapore’s Role in the Asian Economic Boom” I pointed out that Singapore would have stopped growing long ago if it were not for the decision by the PAP to give businesses carte blanche to import and exploit cheap foreign labour. In fact, I have been pointing this out for over six years now. The PAP growth model is a simple sausage machine: add more inputs at one end and get more output at the other without any transformation and efficiency gains in using those inputs. A good analogy is the Soviet Union, which eventually collapsed as the quality of the inputs deteriorated and living standards went into reverse. Or Japan, where pundits did simple extrapolations of the growth rate and predicted that the economy would overtake the US in size just as Japan headed into two decades of stagnation. China risks meeting the same fate as its economy may now not be growing much faster than the US.

LHL also said that if productivity continued to stagnate “so will wages, which may even fall back.” This may not be surprising to Singaporeans many of whom have had to work longer hours for less pay or take two jobs or send other family members out to work, Of course the Government Statistics Department has produced figures to support the PAP which say that real household incomes per member have been rising strongly but this is probably the result of the declining number of children in the average Singapore household and more family members working longer hours.

Despite LHL”s claim that the PAP has always been the friend of the workers in his recent May Day address, his and his father’s actions have been anything but. Allowing such freedom to companies to employ foreign workers even in roles where Singapore workers are available has undercut wages so much that there has been a growing gap between GDP per worker, which includes profits and median real wages.

The PAP have also led in undermining the value of Singaporean’s investments in degrees from local institutions by showing that they can save money by employing cheaper graduates with inferior or bogus degrees as we saw in the recent case of the Indian national employed by MDA with a bogus masters degree.

As I said earlier the PAP economic model is a sausage machine that has never found it necessary to invest in higher productivity as long as abundant supplies of cheap labour are available in the region. All the talk about raising productivity has been so much hot air and the huge sums of money spent have had no effect other than rewarding cronies and creating a cottage industry of “consultants” to help companies claim money from the taxpayer for bogus productivity-enhancing investments.

The availability of reservoirs of cheap labour from foreign countries explains LHL’s otherwise nonsensical remark about how wages can fall even in a tight labour market. Either the PM knows no economics or it was just a cynical charade. Normally a tight labour market would lead companies to raise wages and force them to raise productivity through automation or better organisation. However in Singapore “tight” is of course not really tight. The unemployment rate among foreign workers here is close to zero but they have no power to demand higher wages because there is a sizeable pool of unemployed or underemployed workers in the source countries. This lack of bargaining power, of course, keeps a lid on Singaporean’s wages even if most of them are able to find jobs at the going wage.

While cheap labour is available the PAP will just pay lip service to productivity. The only thing that would change this is if the playing field is radically tilted by costs falling so rapidly through automation and AI that even cheap labour cannot compete. The economic incentives are not there and it is a waste of time and taxpayers money subsidising companies to adopt productivity enhancements. I am, therefore, all the more curious as to where the enormous amounts of money allocated have gone. If I were in Parliament I would be pressing the Finance Minister for an audit, which is rather more urgent than the $6 million or so that the PAP is so worked up about in Aljunied.

I have specific concerns about the National Productivity Fund. The Finance Minister allocated $2 billion in 2010 to the National Productivity Fund and another $1.5 billion in this year’s Budget. The initial $2 billion appears to have been spent already since it does not appear in the Statement of Assets and Liabilities that the Government is obliged under the Constitution to publish every year. In fact, it has never appeared and we have no idea how it has been spent, as no accounts have been made public despite a legal requirement to do so. However, we can be certain that it has had no measurable effect on raising productivity just like the Productivity and Innovation Credit. This has cost taxpayers hundreds of millions if not billions since its introduction and appears to have been the subject of widespread fraud with a whole industry of consultants springing up to help firms get the credit but not without creaming off a substantial amount.

Nothing could better illustrate the fact that the PM has run out of ideas and is going through the motions than his insistence that the SkillsFuture initiative will transform Singapore’s productivity growth. While greater support for retraining for mid-career workers and for on-the-job training for new Poly and ITE graduates is welcome, the amounts involved are fairly small in the context of what has been squandered on subsidies for business with few results. It is likely more of a cynical exercise aimed at keeping out-of-work middle-aged Singaporeans from being counted as unemployed rather than leading to a secure job. In addition, many of the training courses will be run by government-linked companies so the spending will flow straight back into the government’s coffers.

In conclusion, we need to see fundamental changes to the economic model before we get a major change in our productivity growth prospects. The PAP have too much invested in the current model to change. In particular the PM and his party are devoid of new ideas. Singaporeans deserve better of a man who gets paid five times as much as the President of the US but has a considerably lower workload than some inane platitudes. LHL should set an example. He, his wife and his ministers need to be paid by results. If Singapore’s productivity is falling then he should be the first to take a pay cut.

This article was first published on Mr Kenneth Jeyaretnam’s blog.