Commentary: Core to growth, yet productivity has lost its shine

SINGAPORE: The world we know today is a function of productivity gains over time.

Productivity is at the core of the story of growth. It is productivity improvements driven by innovation, technology and skills which explain the global growth story since the industrial revolution in the eighteenth century. With this growth, has come the uplifting general welfare of wide swathes of the global population.

However today, despite all the hype and excitement on the promise of a digital future, productivity has been in secular decline since the 1990s for all advanced economies.

For Singapore, lifting productivity has been a central tenet of economic strategies dating back to the early 2000s and received intensified emphasis in both the Economic Strategies Committee or ESC plans in 2010 and the more recent Committee of Future Economy’s 23 Industry Transformation Maps or ITMs.

THE PRODUCTIVITY PUZZLE

Explaining why productivity growth levels have been falling and remain at low levels of 1 to 2 per cent even for strong economies has challenged economists.

There are variety of possible explanations. Standard measures of productivity may not be taking into account the full impact of digitalisation.

It may also be that digitalisation has a very long cycle and the productivity gains are back-loaded and will be realized further into the future.

It may also be that we need a fundamental rethink about how to conceptualise productivity. The most pessimistic view is that at long last, after 250 years, the march of innovation is petering out.

The upshots of the productivity puzzle are twofold. First, that it is not unique to any one economy.

Second, that a better understanding of what is happening to productivity is critical to sustaining growth in the future, making it an urgent priority for all economies. For every country, particularly those on the lower rungs of the development ladder, that imperative is crucial to enabling the well-being of their people.

A more global effort to lift productivity matters because only by doing so can we aggregate resources, learning and share best practices sufficiently to match the scale, complexity and diversity of the challenge.

Low productivity is not only a challenge for advanced economies nor only for industrialised sectors. Boosting productivity in agricultural regions will be critical to confidence in the long-term prospects of feeding a rising global population without excessively depleting finite natural resources and polluting the environment.

THREE SHIFTS NEEDED

There are three major shifts which are needed.

First, there needs to be a greater recognition and sense of urgency on the need to understand productivity and to deploy effective policies to sustain its gains into the future.

Second, there must be a higher sense of national and collective ownership of this challenging task. No one country can do it alone but all countries will benefit from the understanding achieved and solutions developed.

Third, there must be willing leaders to champion the cause of productivity for the broader good. Strong and advanced economies such as Singapore would be natural candidates. They have the fiscal capacity to invest in research, test out innovative policies and facilitate the sharing of knowledge.

Less affluent countries, with limited resources, must in turn be willing to be committed to learning, applying and notwithstanding the support of others, must to their utmost extent, contribute willingly and ably to efforts to improve their own productivity levels.

Productivity improvements are something that has been taken for granted for too long. It has been assumed as axiomatic that with technological change will come productivity gains. This comfortable and convenient assumption is not holding true. All economies have a stake in understanding why this is so and what needs to be done about it.

CHAMPIONING PRODUCTIVITY

Singapore is the current Chair of ASEAN. This, together with its economic strengths, place it in an ideal position to take the lead in championing productivity in ASEAN.

Singapore should demonstrate that its interests extend beyond its parochial sovereign boundary and that it is prepared to play a role as a leading, responsible and effective regional and global citizen

If Singapore steps forward as a role model, there is every chance that other Asian advanced economies such as Japan, Korea, Hong Kong and Taiwan will be inspired to join forces to achieve critical mass in productivity targeted research, policy and programme efforts.

Singapore’s impact need not be limited to Asia. Singapore has a history of taking the lead globally. Singapore made a critical contribution to the 1982 United Nations Convention of the Law of the Sea (UNCLOS) and in 2015, it was designated the Asian venue for the International Tribunal for the Law of the Sea.

In the early 1990s, Singapore was the moving force behind the United Nations Forum for Small States (FOSS) which in 2017 marked its 25th anniversary. From 2000 to 2002, Singapore served as non-permanent member of the United Nations Security Council (UNSC), with the added distinction of acting as President of the Council in January and May 2002.

More applicably to the topic of productivity, Singapore’s Deputy Prime Minister and Coordinating Minister for Economic and Social Policies Mr Tharman Shanmugaratnam, served as Chairman of the International Monetary and Financial Committee (IMFC) from 2011 to 2015. There is scope for Singapore to propose and take the lead to spearhead a Productivity Task Force (PTF) within the International Monetary Fund (IMF).

The future is a shared space and there is no better panacea for peace and stability than broadly distributed and sustained growth and the positive economic and social knock-on effects that flow from it.

Productivity and peace are conjoined twins. Not only are both worth nurturing, but one cannot be sustained without the other.

Devadas Krishnadas is CEO of Future-Moves Group.