Singapore’s “chronic“ long-term economic underperformance requires the country to reform its economic strategy rather than just moving through endless existing rounds of “consultative reaffirmation”, said former Government of Singapore Investment Corporation (GIC) chief economist Yeoh Lam Keong on Friday (11 December).
Citing an article published by Academia.SG, Mr Yeoh concurred with the authors’ opinion on what they described as the “underlying malaise and chronic long term underperformance of the Singapore economy”.
“This has important and dire long-term implications for future economic stagnation unless there is a serious rethink, reform and retooling of fundamental economic strategy rather than just the existing endless rounds of cosmetic ‘consultative reaffirmation‘,” he wrote on Facebook last Friday (11 December).
The article, penned by private-sector economists Manu Bhaskaran and Nigel Chiang in November, argued that the nation’s poor productivity performance could undermine economic growth, wages and living standards, corporate profitability and international competitiveness.
Referencing the article, Mr Yeoh highlighted the need to have stricter industrial policies and better state-funded financial, technological and marketing ecosystems to rejuvenate and support small and medium enterprises (SMEs) “closer to German standards”.
He also noted that “a deep-seated” reform of mission and management is important for the government-linked company (GLC) sector.
Mr Yeoh added that Singapore’s immigration policies must be further tightened especially in the key sectors.
“So far we have failed in all three for far too long, IMHO,” said Mr Yeoh.
Private-sector economists suggest three factors to S’pore poor productivity performance
In the article, the authors noted that the government has set up the National Productivity and Continuing Education Council (NPCEC) in 2010 to oversee and implement strategies to increase the nation’s productivity.
Nearly a decade later, however, the results remains lacklustre, said Mr Bhaskaran and Mr Chiang.
“Whether measured by labour productivity or total factor productivity (TFP), the trend of deceleration has persisted for a very long time,” they said.
Mr Bhaskaran and Mr Chiang pointed out that low productivity growth is an indication that the overall economic system is not organised efficiently enough to extract value from the factors of production it manages.
This causes Singapore to mobilise additional inputs of labour and capital to achieve its desired growth rates, they said.
“And indeed our analysis earlier in this article has established negative TFP growth in much of the past decade, a material decline in the private sector’s contribution to gross fixed capital formation or investment, and an uninspiring performance by Singapore’s corporate sector,” the economists stated.
Mr Bhaskaran and Mr Chiang then came out with three potential factors to the nation poor productivity performance.
“First, local corporations are simply not efficient. In a well-functioning economy, competition should spur individual companies to keep improving and become more efficient, or risk being driven out.
“It is possible that there is simply not enough competition in the domestic economy to bring this about,” they noted.
Secondly, Mr Bhaskaran and Mr Chiang said the economy is not provided with the public goods that are necessary for companies to operate efficiently and competitively.
“For example, we arguably lack a comprehensive eco-system comprising dedicated financing and administrative elements such as a SME-focused export-import bank, to help high-growth small companies scale-up and squeeze out inefficient older companies,” they explained.
Mr Bhaskaran and Mr Chiang third hypothesis is that the distortions in the incentive structure of the economy had induced companies to operate in ways that appear to be optimal individually, but which collectively yield sub-optimal results.
“For example, the large inflow of cheap, unskilled labour in previous years may have depressed wage growth, reducing the incentive for companies to move up the value chain by investing in productivity-enhancing equipment and/or implementing better ways to organise internal processes.
“In the near term, reduced wage growth may increase retained profits. But over time, relative competitiveness suffers: firms in our indigenous corporate sector become less capable of competing in global and regional markets, which ultimately affects profits,” Mr Bhaskaran and Mr Chiang added.
“If this hypothesis is right, we should see moribund wage growth, sub-par productivity growth, declining capital investment by the private sector and poor profitability of local companies,” said Mr Bhaskaran and Mr Chiang.