Tuesday, August 2, 2011

Singapore and Productivity

There are only two ways to grow an economy: You either increase the working age population or you increase the productivity. That is it, only two. Forget about Keynesian government spending alchemy infecting the West, it just creates an “inflation” that looks like a growth in the short run and ends up like a Greek Tragedy.  Either you increase your working age population or you increase the productivity.

Working age population increases either by more children grow up and enter the workforce (population growth), by once non-working population start to work (women, if underemployed at house enter the workforce) or more immigration. Productivity increases only when private sector invests, people get more knowledge to do things better or have more capital investment (i.e. heavy machinery).

Economic growth can only be sustained and real prosperity can only be created by increasing productivity. When 100 people creating 100K$ per month starts to create 120$K, they get prosper. If instead 20 more people is added and the output increases to 120K$, there is still growth but not a significant prosperity.

So what is the productivity situation in Singapore? As The Straits Times stated Singapore has a productivity problem:

“Singapore’s productivity growth has averaged just 1 per cent in the last decade. Its productivity in manufacturing is 55 to 65 per cent of that in the United States and Japan. In retail, it is 75 per cent of that in Hong Kong and just one-third that of the US. In construction, the situation is even worse.”

Before proceeding just we need to be clear: we are relatively productive, especially compared to Indonesia, Malaysia, Philippines and Thailand. That is the single most important reason Singapore is more prosper than these countries. Singapore is relatively productive, nonetheless growing but the productivity is not growing. And if the growth is not coming from a growth in productivity it is coming from increase in working population: enter the abundance of cheap foreign labour:

“Economists have pointed to one key reason for this: the abundance of cheap foreign labour. In sectors such as construction especially, Singapore companies tend to employ lots of low-wage workers to do the job, while firms in other economies may employ fewer but higher-skilled.”

And this is creating a chicken egg problem since cheaper foreign labour is dragging the productivity while lack of increase in productivity is tried to be covered by more foreign labour. No need to repeat the problems of overcrowding, inflation generated by high numbers of foreign workers.

If we want to get more prosper, we need to increase the productivity! Individuals need to increase their productivity and companies need to increase productivity and entire industries need to do the same. There is a limit we can increase our working  population and we are not so far away from that ceiling so if we do not increase the productivity now, growth may halt in the future. But fortunately, it looks like everybody at least are aware of this problem and many companies are now trying (sometimes not on their own but by government push as it happened with foreign worker levy) to increase their productivity. Although it will be painful for the sectors who have large pool of unproductive workforce, they will benefit a lot if they increase their productivity.

Getting Things Done

For companies, there is a web site created by Enterprise One, “Productivity @ Work”.  Here they can have more information on basics, how to get started, productivity calculation, case studies. For individuals I suggest the masterpiece on personal productivity “Getting Things Done: The Art of Stress-Free Productivity” by David Allen. The book gives great insight to productivity in knowledge work where processes are not as clear as manual work.

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