Introduction
It is imperative to note that productivity growth is an aspect that is often used by economists to gauge the performance of an economy. In evaluating the living standards of a country in the long-term, the efficiency with which capital and labor are combined has a significant role to play. However, it is worth noting that productivity alone cannot be relied on to measure the performance of an economy as it is inefficient. The concept has made most analysts to focus on other features such as labor productivity, a figure that is often arrived at by dividing the total output by the number of workers. However, other scholars are concerned that labor productivity alone is not an efficient measure of economic growth and should, therefore, be reinforced by other aspects. According to Wah, (2012), total factor productivity (TFP) is the most efficient measure of productivity as it takes into account the entire labor and capital used in production.
However, in her article “Singapore productivity growth sluggish: Nomura”, Grace Leong is concerned about the low productivity rate of her country (Leong, 2015). Leong explains that the state stakeholders have employed different measures to enhance economic growth in Singapore but to no avail. For instance, the state was projected to experience a productivity growth of about 2-3% after the restructuring of the country’s economic activities but to no avail (Leong, 2015). Analysts are further concerned that if the state does not implement effective policies to jumpstart the economic growth, the situation will worsen, an aspect that will impair the economy of the nation. The above paper seeks to analyze the economic situation in Singapore, identify some of the factors that hinder economic growth and recommend effective policy to be implemented to streamline the case.
Main Body
Over the decades, Singapore has been based on an inefficient economic model which relies on export, low cost, and labor intensive production to experience growth. The model was useful in the early ‘60s and ‘70s, but currently, countries are investing more innovation, which gives them a competitive benefit in the market (Lim & Lee, 2015). However, the state is limited by the fact that it lacks adequate resources to meet the needs of the rising population in the country, an attribute that will be achieved by investing more in a skilled workforce. The above paper justifies the fact that low-wage labor-intensive model is useful in the short-run for enhancing economic growth but has adverse effects in the long-run as it results in low productivity.
In other news by Nicholas Koh, the author coincides with Leong that Singapore is experiencing a lot of challenges in enhancing its economic growth (Koh, 2015). Different scholars are concerned that the economy of the country needs to be restructured for it to regain and experience significant growth. Since 2010, the government of Singapore has dedicated itself to transforming the country’s economy to enhance its productivity(Koh, 2015). The state plans to experience an annual growth of 2-3% annually over the ten year period. According to analysts, they warn that a lagging economy has a lot of disadvantages such as making the country’s economy less competitive in the global setting due to low wage growth among other factors.
Over a few decades, the country has experienced different prospects to enhance its productivity but has faced different challenges especially with the recent cases of economic recession. However, through its policy analysts, the country has sought to the use of innovation, increased training and employment of technology as a certain method of enhancing output. Economic crises have in the past proofed to be a real challenge that hinders the country’s economic growth prospects. Therefore, to achieve the state’s objective of realizing growth, there is a need to identify effective strategies to overcome the economic decline.
Since the pre-historic era, Singapore is renowned for employing a mass employment strategy as an economic model that was effectively supported by the low cost of labor to enhance industrialization prospects. The country mainly relied on foreign labor and technology transfer to boost the government’s industrialization effort. By the 1970’s, the state experienced a shortage of domestic labor and was therefore forced to import labor from other countries to jumpstart economic growth plan in the country (Vu, 2011 p. 320). The strategy was believed to enhance the living standards of the people and contribute to increase in GDP, which was then used to measure economic performance in the country.
Moreover, the strategy required that firms ought to maintain a low cost of foreign labor to support the economy. Furthermore, during periods of recession, the policy makers were forced to make it a requirement for corporates to suppress labor costs in the country to manage unemployment rate. Although the state relied on foreign labor input as a necessary tool to enhance economic growth, it was considered as a short-term strategy. The government considered foreign labor as a temporary strategy until the mid-1980s when this labor was recognized as a permanent feature of an economy(National Population & Talent Division, 2012).
The state’s working force incorporates a lot of foreigners who make up to one-third of the population(Lim & Lee, 2015). Another challenged experienced is that a significant share of its workforce includes low skilled individuals who contribute to low productivity growth rate. However, although the country has experienced a growth in gross domestic product, it is believed that it is because the country experienced a large labor force but with inadequate skills.
The restructuring of the country’s economy as part of the productivity campaign to enhance economic growth made Singapore set an annual target of 2-3% annual growth rate in labor productivity (Koh, 2015). However, from 2010-2014, the nation was able to meet its set target as the country’s economy had recovered from the 2008 recession(Koh, 2015). However, since2015 to date, the country has experienced decreased productivity growth of about 0.3%, and if not adequately managed, this situation will lead to an economic recession in the near future (Koh, 2015).
According to the restructuring plans of the economy, the government encouraged the different corporates in the country to rely more on efficient technologies other than labor to enhance productivity (Weilum, 2015). Moreover, although the state enacted different policies to regulate foreign labor in the country, the rules have less impact across the various sectors of the economy. One of the sectors that often rely on foreign labor in the country includes the construction industry, which has experienced less growth over the recent past.
Another challenge that contributes to increased unemployment rate in the country involves the fact that most of the people who fill for part-time jobs in the country are in most cases lower-skilled. Employing such individuals reduces the productivity rate in the country, a feature that hinders achievement of economic growth prospects. Most firms in the nation are reluctant from experiencing improved productivity in the country due to high labor and rental costs.
The global setting is to blame for the sluggish growth of Singapore’s economy due to the weak demand for export products. It is worth noting that exports account for at least one-fifth of the country’s GDP, and the low growth of the global trade hinders restructuring plans of the country(Koh, 2015). The country experiences high cost of restricting the economy, which accounts for about 5.6% of the state's GDP (Weilum, 2016). Moreover, most of the country’s population are aging, an aspect that has significantly reduced the labor force in the country. Instead of spending on different growth prospects, the government is forced to spend more on social benefits of the old age. The move will, however, strain the government finances, a feature that will possibly lead to increased taxes in the country, which is not good for economic growth.
Compared to other developing countries across the globe, Singapore has a lot of potentials to enhance its economic development. Moreover, the country is wealthy and has adequate resources to jumpstart its economy to greater heights although it has received a lot of issues in the recent past. According to economic analysts, the country’s growth prospects are hindered due to a range of structural problems that are yet to be reformed. Developing practical issues to solve the different problems will be a sure way through which the country will achieve significant growth in the future. Moreover, other scholars such as Southeast & East Asia, (2014 p. 73) indicate that Singapore relies on enhanced productivity based on the fact that the country has almost exploited all of its production resources.
Some of the structural issues that have hindered the country from achieving its growth prospects include the following;
• The country depends more on foreign direct investment as its key driver in enhancing economic growth. The situation has resulted in increased cost structure, an aspect that keeps investors away, leading to more stagnation of the country’s economy.
• The state is a two-tier economy – this includes the unproductive domestic sector and the productive sector, which is committed to enhancing export in the country. Most of the country’s workforce is employed in the domestic sector, which is the most unproductive in the economy and contributes to the increased state of unproductivity (Koh, 2015).
• Although the country has restricted on the importation of foreign labor into the country, the state lacks adequate personnel with appropriate skills to fill most of the positions hence has to rely on the foreigners.
• Compared to other countries, Singapore has low innovation efficiency
• The economy still supports the importation of cheap labor, an aspect that hinders realization of increased productivity.
As aforementioned, Singapore has in the past experienced difficulty in dealing with foreign labor. In 2013, the ministry was forced to enact a tight restriction on labor growth in the country. The practice intends to reduce the growth of foreign labor from the current 3.3% to 1% per year, which is assumed to be sustainable(Weilum, 2015). Moreover, through enacting of different policies, the government has appreciated the need for labor restriction to enhance economic restructuring. However, to experience an accurate reflection of labor scarcity in the country, the government has sought to raise the sectoral minimum wages. This includes efforts to increase pay for hiring foreign labor in the country.
Policies implemented by the government to enhance productivity
As evidenced by the above study, the cause of Singapore’s productivity challenge lies with her dependence on low-cost labor. The aspect led to the development of a business ecosystem that heavily relies on low-cost labor. The country’s policymakers need to take into consideration a lot of aspects so as to effectively jumpstart the state’s economy. To boost innovation in the country and also experience positive economic benefits from the same, the country ought to invest more in research and development and increase the extent of industry collaboration (Southeast Asian Economic Outlook, 2013). Furthermore, the government has to set in place active agencies that monitor for optimal utilization of public funds and resources in the different schemes set in place to contribute towards economic development (Mukhopadhaya, Rao & Shantakumar, 2011). For example, Singapore government sought to invest in the Productivity and Innovation Credit (PIC) as one way to promote technological innovation, a project that was faced with lots of challenges. Nurturing of innovation and entrepreneurship is one of the most efficient strategies through which the country can engage in the creative and optimal utilization of human capital (Reports – Singapore, 2016). Some of the specific schemes that have been introduced to enhance the development of skill-focused economy include the recent introduction of Skills-Future program in the state. Furthermore, the human resources practitioners should be trained on the competent skills to choose while staffing different organizations in the country. The strategy leads to the development of a motivated workforce, which is necessary for economic development purposes.
Another strategy that will allow for business to effectively evolve and experience significant growth includes tightening of the labor market (Southeast Asian Economic Outlook, 2013). The country should avoid being swayed by the global events such as economic crisis to prevent them from achieving the required reforms. Moreover, some of the recent changes to the labor market should be sustained which include the sectoral minimum wages as they indicate the value of labor scarcity in the country (Nomura & Amano, 2012). Over the past two years, the government effort to tighten labor relations has proofed to be successful as it has helped increase employee wages with influencing unemployment rate in any way. The government should, therefore, exert more pressure on corporates to abide by such policies so as to effectively restructure the business ecosystem. Moreover, the government has to monitor the sectors with wage stagnation to prevent any cases of wage trap whatsoever. Through overcoming the different prospects to deal with labor-intensive plans, the Singaporean economy will achieve significant growth plans (Lu, 2012 p. 370).
Recommended policy issues
The government of Singapore settled on implementing the following medium-term policy issues to address the situation;
Sought to manage foreign workers dependence an objective that would be realized by increasing productivity of domestic workforce(Southeast Asian Economic Outlook, 2013).
The government recommended further the support to initiatives to sustain small and medium enterprises, an aspect that will be achieved through effective development of an entrepreneurial environment.
Increased innovation among the local workforce (Southeast Asian Economic Outlook, 2013).
Conclusion
Leong’s article is based on the situation of sluggish economic development experienced in Singapore as a result of low productivity. The country, through its policy analysts, has suggested different schemes to help restructure its economy. Through the various programs put in place, the country intends to experience an annual growth of about 2-3%. However, from the study, it is evident that Singapore over-relied on the importation of cheap labor as a strategy to meet the country’s need of solving the situation of labor scarcity. The state is characterized by aging population, and therefore, the available domestic labor cannot adequately meet the demand in the business setting. Furthermore, most of the domestic labor is low skilled and to meet the rising demand for innovation and the country ought to depend on importation of foreign labor.
The country has gone through recession and utilizes different policies to survive during such difficult moments. For instances, the government made it a policy to maintain low wages during the recession for sustainability purposes of the unemployment rates in the country. However, different analysts are concerned that such measures are ineffective and may instead harm the growth of an economy, making it ineffective in achieving it set goals. Moreover, to be competitive in the current global setting that is characterized by diversity, the country has sought to use innovation and efficient techniques to enhance productivity other than relying on intense labor. However, it is worth noting that in managing foreign labor in the country, the stakeholders ought to maintain it within a sustainable level of one percent. The aspect (foreign labor) should, therefore, be appreciated as a necessary factor for enhancing economic development, and should not be neglected whatsoever.
One of the issues that should be addressed to enhance the state’s productivity capacity includes reducing the government’s overreliance on direct investment as part of the economic drivers. Moreover, the government has to improve on the domestic sector by employing skilled employees to boost production in the local market. As mentioned earlier, foreign labor should be controlled within some set range of one percent and not total elimination of the concept. Singapore is an economically stable country when compared to other developing countries, and by enhancing its productivity, it will jumpstart its economy over other developed nations. The government has a role to play by using effective fiscal policy to ensure that optimal utilization of the government resources is achieved. The above goal can be accomplished by increasing money supply into the market while at the same reducing taxes, and these initiatives will motivate people to work more.
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