Singapore's productivity imperative: The three missing pieces

Singapore

AS Nobel laureate Paul Krugman famously noted: "Productivity isn't everything, but in the long run it is almost everything." It is the ultimate driver of prosperity and living standards. A loss of momentum in this area can cause slow-motion damage to an economy over time. Despite Singapore's impressive economic track record, Singapore runs the risk of hitting a wall unless a major uplift in productivity occurs. Almost half of the country's recent economic growth has been driven by an expansion of the workforce, but this boost is diminishing as the population starts to age. Productivity, the other major component of economic growth, now needs to pick up the slack. In order to maintain the economic growth it has enjoyed since 2000, a recent McKinsey Global Institute report estimates, Singapore will need to increase its output per worker 2.6 times faster than its historical pace - or in other words, at 5.8 per cent per year.

This sets the bar at a daunting height. Singapore's government has set a target of 2-3 per cent annual productivity growth through 2020 - and most advanced economies have managed to exceed gains of 1.4 per cent only in exceptional boom periods. Thus far, Singapore's actual productivity performance came in flat last year after a two-year decline. It will be increasingly difficult to wrest new efficiencies from an economy that has already reaped the benefits of industry modernisation and technology adoption. New innovations continue to appear on the technology front, but as other advanced economies have discovered, the most recent wave has produced diminishing returns to productivity.