Singapore growth prospects
While Singapore has a number of advantages that would improve it's prospects for productivity growth - MNCs, government institutions, fiscal discipline, trade connectivity, political capital, human capital - it also has comparative limitations for future growth prospects. In particular, three factors limiting future productivity growth are deficiency of entrepreneurial capacity, ageing population, and skill profile of migrant population.
Lack of competitiveness as an entrepreneurial hub
The potential for productivity in tasks that cannot easily be automated rests on the ability to develop human capital qualities of creative skills and emotional intelligence (OECD, 2000). While Singapore may be making steady progress in building entrepreneurial capability through initiatives such as Block 71 (Anthony, HBR 2019), it is still only a small player in the global venture capital and startup ecosystem,compared to San Francisco Bay Area or New York. In an report by StartupBlink it was recently ranked #21 out of 30 countries and was not listed in the list of top startup ecosystems (David, 2019).
The setup of Block 71 Singapore has demonstrated the nation’s capability to set up the physical building infrastructure and institutional frameworks with universities and business partnerships, unlike the development of manufacturing hubs or ports. However, the key factors for developing local entrepreneurial capacity are not infrastructural development and partnerships, but on human capital development. Specific qualities in critical demand are individuals with experience developing an idea, organizing a team and comfortable taking risks through experimentation and failure (Roundy, 2017). Similarly startup ecosystems depend on access to a liberal-minded, early-adopter consumer base that appreciates novelty and willing to take risks on unproven products and services (Roundy, 2017). There could be short term challenges for the current rules-based education system to accommodate these new kinds of self-directed disruptive skills typical of modern entrepreneurs.
Ageing population
Since the 1960’s Singapore has been experiencing a steady decline in total fertility rates similar to other highly urbanized Asian Tigers and hence net ageing of the resident population (MOF, 2015;Weng, 2004). A more aged population increases the demand for care services which have slower productivity growth potential for reasons explained above. Without immigration substitution an aged population reduces the labor force participation and thus lower aggregate wage incomes.
Composition changes in labor market from low skilled foreign workers
On their own, these trends may have limited further growth. However, as highlighted by Paul Krugman in his critique of the “myth of the Asian miracle” during the period from 1985 to 2011 the GDP growth continued mostly from inputs of capital and migrant labor promoted by liberalization and open immigration policy (Krugman, 1994 ; LKYSPP, 2016). Rather than genuine progress, instead the additional GDP growth was associated with dropping productivity and crowding. Krugman argued that Singapore’s growth since the 1970s as well as other Newly Industrialized Countries (NIC) can be attributed to inputs to the economy whereas there have been only modest gains in total factor productivity (Krugman, 1994). Unlike simple labor productivity, total factor productivity accounts for both labor and the cost of capital. Immigrants have been a part of Singapore’s history since inception and one of the main inputs in the development period from 1970 to present has been immigration, and in particular low skilled workers (Chia, Siow Yue 2011).
In the early development period from the 1970s to 1990s, growth in the labor force was characterized by a mix of factors of higher domestic labor force participation and higher education along with immigration as inputs to the economy. After the 1990s, the available domestic labor pool reached a high level of utilization and began to reverse its previous growth due to low total fertility rate and an ageing population (Weng, 2004). As such, unskilled immigrant labor began to dominate the remaining growth in employment from the 1990s, until its peak in 2010 at a 2% national net immigration rate (Macrotrends, 2020). The quality of the immigration further limited productivity growth potential. High numbers of low wage immigrants had the effect of keeping wages low in the lowest income groups and slowing the growth in labor productivity (LKYSPP, 2016).
Last updated
