Committing to productivity for the long haul

Budget 2014 could, in time to come, be seen as cementing a trenchant reform for Singapore’s economic policy that places productivity ahead of growth. By fine-tuning and extending many of the policies first promulgated in the aftermath of the 2009 downturn, the message demonstrates an unwavering commitment to the next phase of national progress.

In line with its declaration of a focus on depth, the Budget’s productivity message has coalesced around three key challenges: Technological upgrading, the resource constraints faced by small and medium enterprises (SMEs) and the skills of the workforce.

In terms of technological upgrading, the focus is squarely on infocomm technology (ICT). While ICT has pervaded our society, the exploitation of ICT to serve as a viable technological complement to employees has a long way to go. Since we are starting from a low base, the potential for productivity gains is significant.

For example, in the case of security companies, using remote cameras instead of personnel on the ground is a solution that has been available since the advent of high-resolution digital cameras and enhanced Internet bandwidth.

However, this technology has not been fully absorbed by the industry for many reasons — including, possibly, the degree of comfort with industrial applications of Internet technology. Industrial applications are different from casual usage in important ways, relating to issues such as reliability, bandwidth costs, online security and customers’ privacy.

LOOK INTO SUPPORT NETWORK TOO

Some of the Budget’s initiatives are clearly aimed at encouraging long-term innovation. Hence they may not yield productivity improvements in the short run. Even basic productivity-enhancing practices take time to show results.

There are still some quite basic challenges in introducing ICT that, if addressed, could yield large gains. Consider the use of iPads to take and convey orders in a restaurant.

In order for this to be a truly effective innovation, not only must the service workers and food preparation professionals be comfortable with such a system, there must also be adequate technological support. In other words, there must be a network of technology vendors to which the restaurants can turn to — if not, early adopters may be frustrated rather than aided by such a foray into innovation.

Some consideration should thus be given to analysing the extent to which such concerns prevent firms from undertaking more sophisticated productivity-enhancing initiatives.

THE GRAVITY OF REALITY

The Government has made strong efforts over the years to boost productivity. These efforts, originally spearheaded by agencies such as the National Productivity Board and the Productivity and Standards Board, exhorted our workers to work smarter and faster.

In contrast to the colourful mascot and catchy acronyms marking those initiatives (including WITS or work improvement teams), this Budget’s tone is more sombre. I believe that is a good thing, because it injects a sense of gravity about the challenges we face.

The longer we put off the real changes that need to be made in embracing a productivity-centred work culture, the further behind we will be compared with our global competitors. One thing we should be careful to avoid is the over-optimistic expectation of a spectacular improvement in productivity in a short time.

Since most people usually get better at their jobs if they do it long enough, it may be interesting to consider what could inhibit productivity growth, even given the massive undertaking of the past few years. The most serious factor would be a lack of preparedness — the workforce may be unprepared for changes that would occur with greater ICT penetration into their work processes.

The fact that key productivity-related initiatives are to take effect only from next year indicates that the changes are not meant to take anyone by surprise. The lead time of almost two years built into the next round of levy increases for the construction sector, for instance, should give employers enough reaction time to make the necessary adjustments.

THE WORKER AT THE CENTRE

From 2005 to 2008, the pressing needs of growth had a negative impact on productivity. The problem was that, contrary to the short-term imperatives of that period, which resulted in too heavy a dependence on manpower, productivity is very much a long-run challenge.

In contrast, by maintaining a more steady focus, the Budgets of the past few years as a whole will come to be seen as achieving a much-needed consolidation in what had been an inchoate stream of initiatives targeting productivity over the past few decades.

Still, based on experience to date, it is almost certainly clear that this Budget alone will not be enough. Productivity is more of a guiding philosophy than a pursuit: We should want it because it represents the correct way to do things.

Indeed it is possible — as has been noted by some economists — that fewer workers will be needed once productivity is achieved.

This is the other prong that a long-term policy on productivity must contain; this is why the focus on elevating workforce skills is required. That this Budget has sunk another S$500 million into the Lifelong Learning Endowment Fund, in anticipation of expanded needs from a review of the Continuing Education and Training system, is reassuring.

In short, while technology is an enabler, the central figure continues to be the worker.

BETTER TO HAVE DELAYED CPF CHANGES?

Given the urgent priority that the restructuring of the labour market plays in the scheme of things, I believe it would have been better to have delayed the Central Provident Fund (CPF) changes.

For older workers, for instance, with the change, employers will ultimately have to contend with a 2-percentage point hike for those aged 50 to 55, which is more than half the 3.5-point difference between that age group and the main one before the change.

It is unclear how the ongoing effort to increase older workers’ labour force participation rates will be affected by this.

More generally, while the 1-percentage-point increase in Medisave contributions is important as a long-term objective, I feel the timing could be better. I would think it should not be more urgent than the economic structuring still going on in the labour market.

Something similar to the two-year lead time for new levy increases in the construction sector could have been considered as it could make a difference in terms of substituting local for foreign workers.

The employment credits present a clear signal of the Government’s concern about hiring costs. But getting the taxpayer to fund hiring costs is quite extreme and may not be a good idea if it occurs with regularity. Short of an emergency measure in a recession, such employment credits may actually lead to labour market distortions.

So, the 0.5 percentage points funding through the two employment credit schemes to ameliorate the impact of the CPF increase is another indication, in my opinion, that it would have been better to delay the CPF increase by a longer time.

Delaying the CPF increase to a later time would have concentrated our focus on the labour market changes that are meant to contribute to the productivity-enhancement targets.

ABOUT THE AUTHOR:

Associate Professor Randolph Tan is with the Centre for Applied Research at SIM University.