ACJC H2 ECONS P2 essay Q4 (productivity-driven growth)

ACJC 2018 PRELIMS ESSAYS_SUGGESTED ANSWERS (Q4) 1 4. In its report dated 1 February 2010, the Economic Strategies Sub-committee on Fostering Inclusive Growth stated that 'only productivity-driven growth can deliver sustainable and inclusive economic development'. Assess the validity of this statement. [25] Suggested Approach for Q4 UNPACKING KEY TERMS/ PHRASES Setting the context (introduction) • The statement by the Economic Strategies Sub-committee (ESS) on Fostering Economic Growth is all about growing the level of productivity in Singapore to drive growth forward. This is important given the smallness of our economy and hence our tight resource constraints. • While a country can grow its national output by increasing quantity or quality of resources, the severe lack of natural resources in Singapore compels us to depend on productivity gains to sustain growth. Th is is a strong concern for the Singapore government, given the productivity declines in recent years (which compared with already slow gains averaging 1% in 2000-2010) due to heavier reliance on labour inputs (largely foreign) to generate economic growth. Productivity = efficiency with which inputs are converted into output. Expressed as output per unit of input. Higher productivity  firms produce greater output for the same level of input (or same output with less input)  a fall in unit cost  can charge lower prices for its products  higher revenue (PED>1) and/or higher profits. Productivity-driven growth = the case when a country’s economic growth is achieved via an improvement in quality of resources rather than an increase in the quantity of resources. Economic development covers both growth + welfare values. Economic growth = increase in national output but … Economic development = economic growth + improvement in quality of life (usually measured by HDI); has direct relationship with environmental issues. Economic devt. that is sustainable = economic growth that a country can maintain over an extended period of time, without creating other significant economic problems (e.g. depleted resources and environmental harm) for the future generations Economic devt. that is inclusive = economic growth that is broad-based across economic sectors, creates productive employment opportunities for majority of the population, and higher SOL for all Analysis Thesis argument : Productivity gains can deliver sustainable and inclusive economic development … Counter argument 1 : Productivity-driven growth does not always bring about sustainable and inclusive economic development … Counter argument 2: Although necessary, productivity gains alone will not be able to deliver sustainable and inclusive economic development … Synthesis: give overall judgement on whether it is a valid (sound or logical) claim that productivity growth alone can deliver sustainable and inclusive economic development

ACJC 2018 PRELIMS ESSAYS_SUGGESTED ANSWERS (Q4) 2 Expansion of ANALYSIS & SYNTHESIS Thesis argument: Productivity-driven growth can deliver sustainable and inclusive economic development The statement is valid because given the scarcity of resources, a country cannot continually grow its economy by using more resources. It must focus on increasing th e efficiency of its scarce resources, i.e. make them more productive. [Note: A global review by the International Labour Organisation in 2013 finds that labour productivity gains within economic sectors is the main driver of economic growth.] The statement is made even more pertinent given the co ntext of Singapore economy which is at or near full employment, and is faced with demographic constrai nts, i.e. ageing population and falling birth rate. Thus, to attain an economic development that is sustainable and inclusive, Singapore needs to raise its economic competitiveness, produce sustainable wage growth and improve the SOL for all Singaporeans. In other words, we need to adopt a holistic approach to grow firms which see innovation as a way of life, a workforce that is at the global skills frontier, and we must put in extra effort to ensure that economic growth uplifts and upgrades low-wage workers as well. The following are some examples of how productivity gains can be achieved in the three key areas so that we can have sustainable and inclusive economic development. a) To build dynamic and innovative firms that constantly seek to develop new and improved ways to do business (e.g. investing in technology), we can: o Incentivise firms to invest in productivity enhancem ent and innovation, and to take these initiatives at a national and sectoral level to accelerate large-scale productivity transformation o Develop knowledge base for firms to tap on, e.g. setting up of Singapore Productivity and Innovation Centre to conduct applied research on productivity and innovation that firms can tap on (just like Japan, Korea and Hong Kong) o Develop productivity training for managers, line superv isors and workers to enable employees at all to learn skills and techniques critical for development and implementing productivity initiatives (e.g. demand forecasting, flexible scheduling, supply chain management, servicemen management) b) To raise the quality of our human capital (both local and foreign) to support a productivity-driven economy, we can: o Develop multiple skills pathways (establish a stronger focus on skills qualifications) to complement academic pathways, and create opportunities for different types of talent and industries to thrive in Singapore o Provide stronger and meaningful linkages betwee n academic and skills pathways to facilitate upward mobility for workers and provide employers with grea ter clarity on how different qualifications relate to one another (e.g. mutual recognition between Workforce Skills Qualification and ITE Nitec) c) To strengthen the ability of our low-wage workers to upgrade their skills so that they can move into better and more productive jobs over time, we can: o Introduce a broad-based incentive scheme to encourage employers to send their low-wage workers for training and for these workers to commit to training (because low-wage workers face several barriers to upgrading, e.g. high opportunity costs and non-supportive employers) o Develop a structured programme to train and place low-wage workers in better jobs, e.g. customise to their needs and cover basic literacy skills, financial assistance to cover opportunity and other costs (training allowance, completion awards), modular classes to suit their rotating shifts, counselling, etc. To ensure sustainability of our produc tivity efforts, there should be a closer linkage between productivity and wage growth to motivate workers. This can be done through performance-based remuneration. Point to note: To ensure an economic development that is productivity-driven does not mean that we should do away with a foreign workforce because this is not pr actical at all. Instead, we need to ensure that the growth in foreign workforce is sustainable in the long-r un, i.e. a slow growth to maintain a balance between the foreign and local workforce, and to compel firms to continue improving productivity.

ACJC 2018 PRELIMS ESSAYS_SUGGESTED ANSWERS (Q4) 3 Counter argument 1: Productivity-driven growth does not always bring about sustainable and inclusive economic development (points in brief …) • Productivity gains may hinder the attainment of inclusive economic development e.g. innovations tied to investment in technology or increased usage of capital inputs which may displace low-skilled workers. • Efforts to innovate and improve productivity incur high fixed costs. Employers may use this to justify small or delays in wage increme