Singapore’s policymakers catch up with economic reality
Emblazoned on the front page of today’s Straits Times was the bold headline Grow Productivity, not just GDP: PM:
One must wonder if it were really that difficult for Singapore’s self-styled “able and successful” multi-millionaire ministers to reach this conclusion. As pointed out in an earlier post, various economists, both influential (Krugman in 1994) and lesser known have argued likewise as early as the 1990s when labour productivity was still growing, whilst drawing annual wages a mere fraction of the ministers. Consider the following extract from the 1999 paper highlighted in that post:
It is generally agreed that rapid growth in Singapore derived from massive factor accumulation-“a mobilization of resources that would have done Stalin proud” (Krugman, 1994, p. 70). In a series of influential articles. Young (1992, 1994, 1995) demonstrated that from 1967 onward total factor productivity growth in Singapore was next to nil, and for significant parts of the period most likely negative. Using accounting methodologies somewhat different to Young’ s, Kim and Lau (1994) also found that Singapore’ s economic growth came chiefly from increased capital inputs; technical progress contributed little or nothing. Although modifying this result for recent years, Collins and Bosworth (1996) (pp. 138-41, 157, 167-69) concluded similarly. So too does a careful study by Rao and Lee (1995) for 1966-84, but the study also finds encouragement improved total factor productivity growth for 1987-94.’
Another exercise: try guessing when the following was written.
Improvement in productivity will almost surely mean an increase in competitiveness; but this relation does always hold vice-versa. Some countries can improve their national competitiveness by slashing nominal wages; and engineering a depreciation of its currency. These beggar-thy-neighbour expediencies, though may save jobs for a while, may invite retaliation. Trying to reduce nominal wages in every country will lead to higher unemployment without improving growth and competitiveness. Likewise is the case for competitive devaluation of currencies. Moreover, exports based on low wages or a cheap currency do not support an attractive standard of living. Only productivity allows a nation to support and enjoy high wages, a strong currency, and attractive return to capital. Productivity should the goal for growth and prosperity. According to Harvard Business School Prof Michael Porter, “Only if a nation expands exports of products and services it can produce productivity will national productivity rise” (Porter 2002: 25). Productivity is the goal, not exports per se.
Did you think it was written last year? Or the year before? Nope. It was authored in 2004, some five years before an economic review committee reached the same conclusion. Yep the same economic review committee which Alex Au critiqued earlier (also see here) for being devoid of economists.
The importance of critical analysis and advice from economists cannot be understated. In fact, the Singapore Ministry of Trade and Industry’s own economists have shown in 2001 how Singapore’s GDP growth in since the late 1980s were increasingly driven by foreign labour and capital inputs coupled with the diminishing influence of total factor productivity growth:
Singapore’s policymakers and leaders have routinely dismissed or ignored invaluable advice from academics, listening only to those who largely concurred with their ideology (so much for pragmatism). In several cases, the government publicly rebuked or took (legal) action against dissenting opinions from academics, effectively stifling valid intellectual criticism.
Such acts have only engendered and promoted delusional and self-serving groupthink, created a virtual fantasy world where growth is always attributed to “far-sighted” government policies rather than the sacrifices of the Singaporean people. As Lucky Tan puts it:
The thing that I really didn’t like about the NatGeo article on Singapore wasn’t just what MM Lee said about Singaporeans but also the myth perpetuated by the article. It gave all the credit for Singapore’s success to the PAP govt and much of it went to MM. The Singapore workforce that build the economy consisted mainly of children of laborers and coolies who grew up in the postwar years. A tough bunch similar to those in Japan, S. Korea, Hong Kong and Taiwan…all successful countries in their own right but we never hear people say S. Korea’s success is due solely to its govt or that the Japan’s LDP is singlehandedly responsible for Japan’s industrialisation. The PAP took away not just our rights and freedom, they also took the credit for the success of this country from the hundreds of thousands of hardworking citizens that formed the number 1 workforce in the world.
Now of course, Singapore’s ministers are finally begin to acknowledge reality. Hopefully for Singapore, it’s not too late.