Economic Strategies Committee: Blueprint to reshape economy with quality-driven growth

Economic Strategies Committee's key thrusts to take Singapore to the next level are realistic and achievable, says PM Lee
Anna Teo, Business Times 2 Feb 10;

(SINGAPORE) Allow market forces to weed out inefficient firms and make room for productive ones as the economy embarks on its next phase - one driven by skills, innovation and productivity, says the Economic Strategies Committee (ESC).

The shift to quality-driven growth - so as to achieve a quantum leap in productivity - calls for not only economic restructuring but also a major investment in people and capabilities across the board, the ESC says.

Formed in May 2009 to chart a new economic blueprint for Singapore, the 25-member panel headed by Finance Minister Tharman Shanmugaratnam submitted its proposals to the government over the weekend.

Wide-ranging recommendations from its eight sub-committees towards the overall goal of doubling annual productivity gains to 2-3 per cent over 10 years span seven strategic thrusts.

The ideas include using the foreign worker levy to manage Singapore's dependence on imported labour; going for high-value, complex manufacturing activities; growing a deeper base of globally competitive, mid-size local firms; and going underground to add to the island's land bank. As well, the ESC suggests that Singapore look into all energy sources - including the nuclear option - to become a 'smart energy economy'.

It also envisages a bustling new waterfront commercial and lifestyle hub - as big as Marina Bay - coming up at Tanjong Pagar in some 20 years' time.

'We must go beyond what we have developed, and do things differently,' said Mr Tharman in his letter to Prime Minister Lee Hsien Loong, along with the ESC report.

Or, as labour chief and Minister in the Prime Minister's Office Lim Swee Say, one of nine ministers in the ESC, put it at a media conference yesterday: The questions (about growth imperatives, for instance) may be the same today as before, but the answers required now must be different.

Responding to the ESC report yesterday, PM Lee described its proposals as 'realistic and achievable' and said the government accepts its key thrusts, and will give its views in the upcoming Budget speech and debate in Parliament.

Agreeing that Singapore must 'shift decisively' to foster growth through skills and innovation in its next phase of economic development, Mr Lee said this would require 'a major and sustained national effort'.

While the government will strongly support the transformation, businesses must themselves seek new ways to create value, he added.

'They must do this continually, and not imagine that a one-off effort will suffice. Our people must continue to upgrade their skills and deepen their expertise. This too must be relentless, as it is our only way to sustain growth and raise incomes,' Mr Lee said.

The ESC - which tapped diverse views from more than 1,000 people through its sub-committees - notes that there is significant room to improve productivity in every sector of the economy, especially when compared to other countries.

Mr Tharman believes the 2-3 per cent productivity growth goal - a one-third boost over 10 years - is achievable. But it will entail a comprehensive national effort, including 'investing in working adults throughout their careers'.

Just as critical is the need to restructure the economy and make room for 'more dynamic, more nimble' firms that will constantly be on the hunt for opportunities, or to consolidate or acquire other players.

The ESC sees a window of opportunity for Singapore firms to make their presence felt in Asia over the next five to 10 years - before other regional players catch up in skills.

One key plank of the ESC's strategies centres on the need to moderate the rapid growth of imported labour, which has been a big driver of Singapore's economic growth in the last decade.

Mr Tharman made clear that Singapore should, in the ESC's view, keep the pool of foreign workers at one-third of the workforce - but with better skills - while at the same time going all out to woo top talent here.

And the levy or price mechanism is 'the most efficient and flexible' way to manage the worker numbers, as it allows dynamic firms to seize immediate business opportunities without being constrained by 'rigid quotas or fixed allocations of foreign workers'.

The ESC's proposals were largely welcomed by the business community, even as analysts such as CIMB's Song Seng Wun found 'nothing unexpected' for an economy that's 'already a relatively well-oiled machine'.

The Singapore Business Federation said it will work closely with the ESC secretariat and other agencies to identify areas of tie-ups and resource needs, including grants, tax breaks and other initiatives, in support of the proposals.

For the ESC, the bottom line ultimately is income growth for Singaporeans. 'We believe the strategies we propose will help transform Singapore's economy once again, raise our citizens' living standards,' said Mr Tharman.

The big shift
High-powered panel tells what it will take to grow Singapore's economy and raise wages

# Higher productivity
# Improved skills
# More innovation
Ignatius Low & Sue-Ann Chia, Straits Times 2 Feb 10;

A BIG shift in the way Singapore grows its economy is on the cards after a high-powered economic committee submitted its blueprint for the future yesterday.

The changes will be wide-reaching, affecting everyone from employers to workers, but are considered necessary if Singapore is to make the next leap in its economic development.

The 25-member Economic Strategies Committee (ESC) said the country urgently needs to break out of its cycle of low productivity and build a highly skilled workforce and an innovative economy.

Productivity growth must rise to 2 per cent to 3 per cent annually from the dismal 1 per cent achieved in the last 10 years. For this to happen, workers' skills need upgrading, as in past productivity drives.

But the committee, made up of public and private sector chiefs, is pressing for far more fundamental change. It wants companies to change how they work, and rely more on technology and innovation to drive productivity gains.

The Government must help companies make the transition, it added, but foreign worker levies also need to go up.

This is necessary to stop employers taking the easy way out by simply adding cheap foreign workers to increase output.

'With the recovery from the crisis, the time is right to shift gears,' the panel said in its 46-page report. 'If we leave this till later, the pain of adjustments required will be greater.'

ESC chairman and Finance Minister Tharman Shanmugaratnam underlined the scale of the changes when he addressed a press briefing yesterday.

'Everyone has to play their part. The initiatives will have to take place on the national level, at the sectoral level, at the level of each enterprise and with each individual citizen,' he said.

'If we can raise productivity, we can raise incomes. We should aim to get into this virtuous cycle of better skills, better jobs, higher wages and incomes.'

The committee's call for change comes after almost 10 months of deliberations by eight sub-committees that canvassed views from about 1,100 people.

The committee was set up last May by Prime Minister Lee Hsien Loong as Singapore was going through its worst recession since independence.

It was asked to develop strategies for Singapore to maximise growth opportunities and make the best use of resources like land, labour and energy.

The committee responded with suggestions that ranged from the breathtaking vision of a new waterfront city at Tanjong Pagar to greater spending on R&D and a new export-import bank to help local businesses expand overseas.

Some of its more unusual suggestions created an immediate buzz - such as creating a subterranean land rights system for selling underground space and exploring the feasibility of nuclear power in Singapore.

More details on its various suggestions will be revealed this week. Yesterday, it was the focus on productivity and innovation that took centre stage.

Asked if the shift to higher productivity and wages would hurt the economy, especially in sectors much reliant on cheap foreign workers, labour chief Lim Swee Say was emphatic.

'There is no turning back,' he said. 'Growth may slow down, even in the near term, but it is worth taking the risk because not to take this risk of moving towards a productivity-driven strategy is going to be the biggest risk of all.'

He said the committee's proposals were 'good for the economy, good for the workers of Singapore'.

Turning to Mr Tharman, he said: 'We look forward to a bold and decisive announcement...at the Budget!'

Smiling, Mr Tharman promised: 'This is a major new phase in our economy, and the Government will want to be bold.'

The Government will respond when it lays out its Budget for the new year in about three weeks.

But PM Lee has already broadly accepted the new blueprint. In a letter to Mr Tharman, he agreed that the next phase of development requires a decisive shift in growth strategies.

Analysts welcomed the renewed focus on productivity, but some warned that a 3 per cent target is quite ambitious.

There should be 'substantial subsidies' to encourage automation, innovation and change, said economist Choy Keen Meng from Nanyang Technological University.

'It is not just going to happen slowly, but with a lot of help and prodding from the Government,' he noted.


The recommendations at a glance
Straits Times 2 Feb 10;

TO HELP Singapore increase its productivity and grow in a sustainable and inclusive way, the Economic Strategies Committee (ESC) released dozens of recommendations yesterday in a 46-page report that involved more than 1,100 people and took eight months to produce. Here are some of the key suggestions, which the ESC will elaborate on over the next few days.

Productivity-driven growth
# Raise foreign worker levies so that companies will rely less on cheap foreign labour
# A high-level national council will drive productivity efforts
# Have 240,000 workers doing Continuous Education and Training (CET) per year by 2015, up from 100,000 in 2008
# National Productivity Fund to give productivity grants to companies
# Tax rebates or grants for companies to invest in productivity
# Enhance Workfare to keep older workers in the workforce and encourage low-wage workers to upgrade their skills
# Develop 'T-shaped' professionals, managers, executives and technicians (PMETs) with both deep skills in their chosen area and broad skills across general fields

Global-Asia hub
# Position Singapore as a Global-Asia hub for global firms coming to Asia and Asian firms wanting to go global
# Keep manufacturing at 20 per cent to 25 per cent of the economy
# Make Singapore a leading consumer business centre
# Attract companies here to test urban innovations, such as the Electronic Road Pricing system

Diverse mix of companies
# Double number of small and medium-sized enterprises (SMEs) with revenues of over $100 million to 1,000 by 2020
# Export-import (Exim) bank to offer trade finance and project finance
# Government and private sector to start a growth fund of up to $1.5 billion to invest in growth-oriented SMEs in next 10 years
# Encourage mergers and acquisitions among SMEs and cooperation between multinationals and SMEs

More innovation
# Spend 3.5 per cent of gross domestic product on R&D by 2015, up from 3 per cent now
# 'Designed in Singapore' accreditation to emphasise design-driven innovation
# Centres of Innovation in polytechnics to help firms enter new growth areas
# Recruit faculty with entrepreneurial skills in universities to help develop innovation

Smart-energy economy
# Consider coal and electricity imports
# Study feasibility of nuclear energy
# Renewable energy to account for 5 per cent of peak demand in 2020
# Price energy to reflect real costs and constraints
# Study possible carbon pricing scheme

Better use of land
# Tanjong Pagar to be new waterfront city after 2027
# Study feasibility of consolidated port at Tuas
# Create new underground spaces with an underground master plan and subterranean land rights
# Intensify land use and make land zoning more flexible

Global city, endearing home
# Five world-class institutions or programmes by 2020 in new disciplines such as arts, fashion and sports sciences
# Affordable spaces for arts and design
# Host more high-profile international events

ESC proposes greater productivity and less dependence on foreign labour
Channel NewsAsia 1 Feb 10;

SINGAPORE: A high level committee has unveiled ambitious plans aimed at transforming Singapore's economy over the next decade.

The Economic Strategies Committee (ESC) on Monday offered several suggestions to make significant improvements in productivity in every sector of the country's economy so as to achieve productivity growth of two to three per cent a year over the next 10 years.

In its key recommendations to the government ahead of the Budget due on February 22, the ESC said that target will allow Singapore to grow its GDP by three to five per cent a year.

Productivity will therefore account for about two-thirds of the country's GDP growth, compared to just one-fifth in the past decade.

The priorities include boosting skills in every job, deepening corporate capabilities to seize opportunities in Asia and making Singapore a distinctive global city.

"Our assessment is that the next five to 10 years will provide greater opportunities for growth in the world around us than in any decade we have seen in the past," said chairman of the ESC, Tharman Shanmugaratnam.

"But at the same time we will also face greater constraints than we have had in the past. In particular, because of a slow-growing workforce; and over time too, because we'll have run up against the limits of our land."

He went on to say: "It will require a change in how we work, how we create value, and it will require that our companies expand overseas to make the most of opportunities that match their strengths."

The 25-member ESC, which took about eight months to come up with its comprehensive report, also recommended the setting up of a high-level national council to boost productivity, as well as a National Productivity Fund. The fund will provide grants to support initiatives to raise productivity.

At the same time, the committee also felt there is a need to expand the Continuing Training and Education scheme at all levels. The committee projects that at least 240,000 people will undergo the programme each year by 2015.

"We achieved one per cent in the last decade, we can achieve two to three per cent in the next decade. If we can raise productivity, we can raise income. We can raise incomes, adjusted for inflation, real incomes," said Mr Tharman.

According to the ESC chairman, through the moves, Singapore can grow individual workers' incomes, and in particular, focus on productivity, skills and innovation in each enterprise.

He added that it is the best way in which Singapore can ensure that those in the lower end of the skills band as well as those in the lower end of the income band can move up and it is the best way to ensure growth is inclusive in Singapore.

The ESC went on to recommend that Singapore manage its dependence on foreign workers, suggesting that levies on foreign workers be raised progressively, although it did not give a quantum for this.

Foreign workers now make up about a third of the total workforce. The committee said Singapore cannot increase the number of foreigner workers as liberally as it has done over the last decade due to "physical" and "social limits".

It said that being less dependent on such workers will also incentivise companies to improve productivity.

Nonetheless, the ESC recognises that it is critical for Singapore to continue attracting highly capable and entrepreneurial people from around the world to work here.

The proposed changes to the foreign worker levies should include greater differentiation between the skilled and the unskilled worker.

On the business front, sweeping measures to anchor Singapore as a Global-Asia Hub and strategies to build a vibrant and diverse corporate ecosystem were put forward.

While manufacturing remained a key sector, making up to 25 per cent of the economy, there is also a strong push to build Singapore into a trusted financial services hub and leading consumer business centre.

Companies in Singapore - big and small, local and foreign - should also form strong networks so they are inter-dependent on one another, the ESC recommended.

The target is to grow 1,000 Singapore enterprises with revenues of over S$100 million by 2020.

Innovation will also be driven by R&D and raise Singapore's gross expenditure in the area to 3.5 per cent of GDP by 2015. This will put Singapore on the level with developed countries like Finland, Sweden and Japan.

Also proposed are public-private co-investment funds of up to S$1.5 billion in the next ten years for growth-oriented SMEs based in Singapore.

The government will now review the recommendations of the ESC and it is expected to respond to the proposals during the Budget debate later in February.

- CNA


Economic Strategies Committee unveils ambitious plans for Singapore's economic transformation
Mustafa Shafawi, Lin Jiamei and Hoe Yeen Nie
Today Online 1 Feb 10;

A high-level committee has unveiled ambitious plans aimed at transforming Singapore's economy over the next decade.

Top most on the Economic Strategies Committee (ESC) report is to make significant improvements in productivity in every sector of the country's economy.

The target - achieve productivity growth of two to three per cent a year over the next 10 years.

That will allow Singapore to grow its GDP by three to five per cent a year.

Productivity will therefore account for about two-thirds of the country's GDP growth, compared to just one-fifth in the past decade.

Three priorities have been laid out:

One, boosting skills in every job; two, deepening corporate capabilities to seize opportunities in Asia and three, making Singapore a distinctive global city.

Chairman of the Economic Strategies Committee, Mr Tharman Shanmugaratnam told a news conference Monday morning: "Our assessment is that the next 5 to 10 years will provide greater opportunities for growth in the world around us than any decade we have seen in the past... But at the same time we will also face greater constraints than we have had in the past. In particular, because of a slow-growing workforce; and over time too, because we'll have run up against the limits of our land. .. It will require a change in how we work, how we create value. And it will require that our companies expand overseas to make the most of opportunities that match their strengths."

More than just laying out a vision, the committee has outlined broad strategies to ensure targets are met.

In upping productivity, the ESC has recommended the setting up of a high-level national council as well as a National Productivity Fund to support the efforts.

The council will oversee and drive the efforts while the fund will provide grants to support initiatives aimed at raising productivity levels.

At the same time, there is also a need to expand the Continuing Training and Education scheme at all levels.

The committee projects that at least 240,000 people will undergo the programme each year by 2015.

Mr Tharman who is also Finance Minister explained: "In 10 years time, we want productivity for our economy as a whole to be one-third higher than where it is today and this can be achieved because we are capable of a major national effort. We are capable of doing this consistently, in a concerted fashion, with everyone playing their part - government, unions, businesses, individuals playing their part."

The minister added that if Singapore can raise productitivy, income can also be raised.

There's also a call to manage Singapore's dependence on foreign workers.

The committee suggests that levies on foreign workers be raised progressively, although it did not give a quantum for this.

Foreign workers now make up about a third of the total workforce.

The ESC says Singapore cannot increase the number of foreign workers as liberally as it has done over the last decade due to "physical" and "social limits".

It says being less dependent on such workers will also incentivise companies to improve productivity.

Nonetheless, the ESC recognises that it's critical for Singapore to continue attracting highly capable and entrepreneurial people from around the world to work here.

The proposed changes to the foreign worker levies should include greater differentiation between the skilled and the unskilled worker.

On the business front - there'll be sweeping measures to anchor Singapore as a Global-Asia Hub and strategies to build a vibrant and diverse corporate ecosystem.

Manufacturing will however remain a key sector - making up to 25 per cent of the economy.

But there's also a strong push to build Singapore into a trusted financial services hub and leading consumer business centre.

Companies in Singapore big and small, local and foreign should also form strong networks so they're inter-dependent on one another.

The target is to grow 1,000 Singapore enterprises with revenues of over $100 million by 2020.

Innovation will also be driven by R&D.

The recommendation is to raise Singapore's gross expenditure on R&D to 3.5 per cent of GDP by 2015, putting Singapore on the level of developed countries like Finland, Sweden and Japan.

Also proposed, public-private co-investment funds of up to $1.5 billion in the next 10 years for growth-oriented SMEs based in Singapore.

Given Singapore's limited resources, there's also extensive recommendations to ensure energy sustainability and land use is fully optimised.

Among the plans - a new waterfront city at Tanjong Pagar, currently a port area comprising Keppel and Pulau Brani. The current port lease in the area expires in 2027.

The land area is similar in size to Marina Bay and the committee believes it can potentuially allow for a substantial expansion of the business district, integrated with waterfront housing, hotels and other lifestyle attractions.

The committee says there's also a need for an underground masterplan.

The Government should catalyse the development of underground space over the next decade, as well meet the need to develop subterranean land rights, a valuation framework and to establish a national geology office.

Besides land constraints, Singapore also faces energy resource constraints.

One suggestion is for Singapore to study the feasibility of using nuclear energy in the long term. It's an idea which Prime Minister Lee Hsien Loong in 2008 said he "hasn't ruled out".

The ESC says the option could help meet base load electricity demand as well as Singapore's energy security in the long run.

In the medium term, the committee suggests that Singapore should explore coal and electricity imports to diversify its energy sources.

Importing energy will also free up valuable land in the country.

The 25-member ESC took about eight months to come up with its comprehensive report.

The next step is for the Government to review the recommendations.

It's expected to respond to the proposals during the Budget debate later this month.

ESC spells out broad strategies to raise innovation & productivity
Imelda Saad, Channel NewsAsia 1 Feb 10;

SINGAPORE: The government's Economic Strategies Committee (ESC) has released its report aimed at ensuring long-term growth for Singapore, spelling out broad strategies to raise innovation and productivity.

It said that average productivity growth of 2 per cent to 3 per cent per year can be achieved over the next decade, adding that achieving such a productivity rate would allow gross domestic product to grow by between 3 per cent and 5 per cent per year in that period.

"Productivity will, therefore, account for about two-thirds of our GDP growth, compared to just one-fifth in the last decade," the committee said in its recommendations report released on Monday.

The committee, chaired by Finance Minister Tharman Shanmugaratnam, listed seven strategies to boost productivity through a range of initiatives. These include growing skills and innovation initiatives, bolstering the manufacturing sector and nurturing large enterprises.

With better skills comes better jobs and therefore higher wages, just like the case at "Muthu's Curry".

There is more to just good fish head curry at "Muthu's Curry" in Little India. Since 2006, wait staff at the restaurant have been carrying PDAs that allow for direct orders to the kitchen.

Aisvaryam, the company that runs "Muthu's Curry", forked out about S$90,000 for this wireless system, but said it's worth the investment.

The system has helped to reduce errors and speed up operating workflow. The easy operating workflow and training allowed the company to hire non-Indian and first-time service staff.

Moving forward, Aisvaryam is also developing standard procedures for recipes to cut down reliance on Indian chefs and enable it to hire non-Indian chefs.

To ensure consistency and quality of food, and reduce the need for skilled manpower, Aisvaryam is setting up a central kitchen at FoodXchange for its marination and sauce preparation.

It is working with the Food Innovation & Resource Centre (FIRC) - a SPRING Singapore-Singapore Polytechnic initiative for local enterprises - to upgrade its packaging capabilities in preparation for its franchising expansion and to protect their intellectual properties.

Visvanaath A, CEO of Aisvaryam's Fine Foods Pte Ltd, said: "With the introduction of PDAs, my staff efficiency has increased by 50 per cent, which means faster turnaround for my customers, which (means) more revenue for my company. As a result, my company is able to increase our staff wages by 10 to 15 per cent."

The ESC said Singapore has a lot of untapped potential to increase productivity in every sector of the economy.

In absolute levels, Singapore's productivity in manufacturing and services is only 55 and 65 per cent of that in the US and Japan.

In the retail sector, the country's average level of productivity is about 75
per cent of that in Hong Kong and one-third that of the US.

In construction, productivity level is half of the US and one-third that of Japan.

The committee has suggested setting up a high-level national council, as well as a National Productivity Fund, to drive efforts to boost productivity. To match this, Continuing Education and Training will be expanded to get 240,000 Singaporeans to raise their skills by 2015.

The committee said lifelong learning must become an integral part of society. For lower wage workers, one way is to enhance the Workfare Income Supplement (WIS) scheme to provide stronger incentives for older workers to stay employed and get more training.

The committee said the WIS introduced in 2007 has succeeded in raising incomes and encouraging low wage workers to work.

Another aspect of getting companies to invest in productivity is to reduce the reliance on foreign workers. Hence, the proposal is to raise foreign worker levies progressively.

NTUC Secretary-General, Lim Swee Say, said: "The last 10 years, one reason why we achieve only 1 per cent productivity (growth) was because some sectors in the Singapore economy did not do their job!

"We had sectors in Singapore that registered negative productivity growth in the last 10 years. That's why the labour movement feels very strongly that this time round, we must make sure that every sector of the economy (makes significant improvements in productivity).

"(This is especially so for) the lower-productivity, the lower-skilled sectors, which traditionally, because they were not subjected to global competition, they always look for easier way out to solve their problem, always run to the Ministry of Manpower to ask for more foreign workers."

"Foreign workers are good, but too many foreign workers growing at too fast a rate is no good for the economy because it dilutes our focus on productivity," added Mr Lim.

The government is expected to give details when it responds to the ESC report during the Budget debate later in February.

Innovation is of course a key driver of productivity and that is where research and development comes in. The committee has recommended that Singapore raise its gross expenditure on R&D to 3.5 per cent of GDP by 2015.

That will put Singapore on the level of developed countries like Sweden, Finland and Japan.

One way is to expand centres of innovation in polytechnics to provide local companies with technological help so they can enter growth areas like medical technology and clean energy.

Another is to introduce design thinking programmes in schools to nurture a next generation of creative Singaporeans.

The committee said the recommendations spelled out in the report will give Singapore the opportunity to invest in its people and restructure the economy. How successful Singapore will be in implementing the strategies will require a national effort across all sectors.

- CNA/ir

Singapore: The business world's launch pad
Robin Chan, Straits Times 2 Feb 10;

SINGAPORE can fashion itself as a regional pivot point where international companies looking to Asia for growth can base themselves, while Asian firms expanding out of their own countries can tap on the country's economic muscle.

Besides this 'Global-Asia hub' idea, Singapore must also be a key base for high-value manufacturing and international services, said the report from the Economic Strategies Committee (ESC).

'We can do this by building on our physical and cultural connectivity to Asia and the world,' it said.

The Global-Asia hub idea is one of seven key strategies to grow the economy. At the core is getting multinationals and Asian firms to use Singapore to launch operations across Asia and the globe.

This strategy is in line with what the Economic Development Board has been pushing in its 'host-to-home' concept. The head of the sub-committee is EDB chairman Leo Yip.

The report also emphasised that manufacturing, long a key part of the economy, will remain a vital cog. It said Singapore should retain a globally competitive manufacturing sector at between 20 and 25 per cent of the economy.

'High-value and complex manufacturing generates good jobs with diverse skill requirements, provides opportunities for constant upgrading and stimulates demand for sophisticated services,' it said.

What will set Singapore apart is its continual movement into more complex manufacturing, where knowledge and intellectual property are valued. This could be in nutriceuticals or difficult cross-disciplinary areas like bioelectronics.

Manufacturing will also bring related services such as head office operations, research and development and intellectual property management.

But developing services, which makes up about 70 per cent of the economy, is also important. Singapore should continue to grow as a financial and business centre, building on its strengths in risk management and trading and asset management, among others, as well as services such as accounting, law and consultation.

Physical trading activity should also be further integrated with related services such as trade finance and supply chain management.

The report said Singapore 'should capitalise on our cultural affinity with the region, and develop Singapore into the pan-Asian location of choice'.

Mr Phillip Overmyer, chief executive of the Singapore International Chamber of Commerce and a member of the ESC sub-committee, said: 'Western markets are softening because of the recession and Asian markets are growing.

'And the kinds of products and services Asian markets want on a broad scale are not the same as what the United States wants or what Europe wants.'


A brave new growth path
Tough journey ahead, but it'll be worth it to achieve higher incomes
Fiona Chan, Straits Times 2 Feb 10;

WHEN history looks back on the Economic Strategies Committee (ESC) years from now, it will remember one key thing out of the dozens of recommendations.

The high-level committee will go down in the books for marking a pivotal shift in the Government's economic thinking: The point at which Singapore stopped pursuing 'growth at all costs' in favour of seeking 'quality growth'.

In practical terms, this means slowing the flow of what has seemed like an endless stream of cheap foreign labour. Instead, Singapore must raise the quality and productivity of each local and foreign worker - as well as each company, each sq ft of land and each unit of energy.

Economists have been debating this issue on and off for years, trying to decide whether Singapore's productivity is rising or falling, which measure of productivity to use and whether it matters at all.

Put simply, productivity measures the efficiency of production. It looks at the value of output produced by each unit of input, usually people, capital or land.

The most commonly used measure is labour productivity, which can be derived by taking total gross domestic product (GDP) divided by the total number of hours worked in the period.

But there are other ways to look at productivity too. Fifteen years ago, Nobel Prize-winning Princeton economist Paul Krugman caused a mild sensation by warning that while Singapore's headline growth numbers were impressive, its total factor productivity - the efficiency with which people, capital and land are combined to produce goods and services - was among the lowest in the world.

Growth here, he said, was driven not by each input producing more output, but simply by increasing the number of inputs: Enlarging the labour force through immigration and pouring more money into business investments.

This would not be a problem, except that this sort of growth must eventually slow down due to diminishing marginal returns.

Other notable economists, including University of Michigan professor Linda Lim, have decried Singapore's 'growth fetishism' and suggested that more thought be put into whether this growth is 'good', and who it benefits.

Various studies by universities and banks have drawn different conclusions. For every one that shows declining productivity, another concludes otherwise.

Throughout all this, the Government's stand has been quite clear.

It has sent the message that while productivity is a desirable and essential goal, a small, open economy with no natural resources such as Singapore's has to take growth wherever it can be found and not be too picky about where it comes from.

Why, then, the mindset change now?

When things were going well in the boom years leading to 2008, the question of Singapore's productivity was put on the back burner.

But since the financial crisis, the discussion over where Singapore's growth is coming from has been reignited and become more heated, with the recent surge in foreign workers adding fuel to the fire.

Between 2004 and 2007, the economy expanded at fiery rate of 8.2 per cent a year. But this was driven by a deluge of foreign workers and foreign capital, while productivity grew a mere 1 per cent per year in the last decade.

The population jumped by 20 per cent between 2003 and 2008, led by a near 60 per cent increase in foreigners, according to Citigroup economist Kit Wei Zheng.

Foreigners now make up a third of the labour force, from only a quarter just four years previously. They contribute almost half of the GDP, up from one-third a decade ago.

The flood of foreign workers willing to work on the cheap has also been blamed for depressing the wages of low-income locals and widening the income gap.

Apart from the economic ramifications, the rise in the number of foreigners has caused considerable social and political discomfort, which analysts say may have been the key catalyst for this change in policy.

Singaporeans have become alarmed at the number of foreigners within their midst, crowding public transport and forming enclaves in housing estates. This has helped prompt the Government to tighten the tap on foreign workers and precipitate the next stage of growth.

The shift in thinking demonstrates not only a recognition of the unsustainability of Singapore's previous growth model, but also a brave step towards a fundamental change in the economy.

Growth through cheap labour has been an 'easy route', as Professor Lim has said. Restructuring the economy and retraining local workers to increase productivity will be a more difficult journey.

Economists have already identified key risks in the path to higher productivity.

First, reducing the inflow of foreign workers and cheap labour means growth rates will have to fall, they say.

The ESC indicated in its report that Singapore's medium-term growth will average 3 per cent to 5 per cent per year over the next decade. Prior to this, Singapore's trend growth was set at 4 per cent to 6 per cent.

Labour chief Lim Swee Say, however, offered a different take on this. Whatever the risks of switching to productivity-driven growth, the risks of not doing so are higher as the current growth path is unsustainable, he said.

A second immediate result of the economic paradigm shift is a rise in costs.

As Singapore allows in fewer low-wage foreign workers, companies will have to switch to higher-skilled and pricier foreign workers, pay more for local workers or invest in more machinery.

The biggest victim of this is likely to be the construction industry, which is reliant on cheap foreign labour. As construction costs rise, so may property prices.

Third, not all companies will survive the fallout. Those which find themselves unable to survive without cheap workers because they are too weak or uncompetitive will be forced to relocate, shut down or merge with other companies.

There is also the risk that reducing foreign workers will just lead to lower total output, rather than increased productivity. This is where the other measures to train workers must come in.

Restructuring an economy is always an uncertain exercise, especially one as complex as Singapore's.

There will be ups and downs, and twists and turns, in this test. But when the ultimate aim is higher incomes for all, the challenge should be worth undertaking.

Some key recommendations
Teo Xuanwei Today Online 2 Feb 10;

To become Asia's most liveable city

- Boost vibrancy in areas with unique heritage and character, eg Bras Basah-Bugis, Orchard Road, Singapore River; decentralise economic activities, eg to Jurong Lake District, Paya Lebar

- Invest in cutting-edge sustainable development strategies/technologies, to build highly-liveable precincts eg Punggol, Marina Bay

- Attract more top-notch international events eg in sports, arts, music, cuisine, fashion

To become leading cultural capital in Asia

- Rejuvenate the Civic District with stronger programming, marketing and linkages between cultural institutions; encourage original, innovative art forms and entertainment content

- Let out vacant state-owned properties as affordable space for budding creative enterprises

To attract and nurture diverse pools of talent

- House five world-class institutions or programmes by 2020 in new disciplines eg the arts, design, sports