Sunday, July 17, 2016

The Riddle of Singapore’s Stalled Productivity - Social planning has a cost – innovation

The economic success of Singapore is not debatable. This leads many observers and even insiders to think of the city-state as a model of economic development. However, it should be rather thought of as an experiment in social planning. And social planning always bears a cost. This cost might endanger the future success of the Merlion City.

One of the most important costs of social planning is freedom. Of course there is freedom in Singapore. But it runs less deep in the veins of its society than, say in Korea or Japan. Singaporeans are free to own property as long as they do so in the places assigned to them. They are free to profess their own faith as long as they put the city-state’s civil religion in the first place. Singaporeans also might think what they want as long as they just utter thoughts approved by the state.

These might all seem pragmatic compromises for a polity under such circumstances as Singapore’s. But abdicating to freedom of property, freedom of faith and freedom of opinion among others has long-term consequences. And these begin to make themselves felt – even to the Merlion.

Where has productivity gone?

Singapore’s labor-productivity increase is zero. Actual economic growth rates go back in their totality to the expansion of the state’s population. This means: the actual work-force is not becoming more skilled than their antecessors. Why not?

It is never just one explanation. But one factor that contributes to the slump is that generally speaking Singaporeans are not educated to be innovative. Innovation needs people to challenge common wisdom and existing structures. Individuals striving for innovation will almost always also call the things they have learned to do and the way they have learned to do them into question.

Productivity might increase by doing something to perfection. But once this point has arrived, further increase of productivity is only possible through innovation. And a general culture of social streamlining, of setting boundaries and watching over them does not foment thinking outside the box.

Where is entrepreneurialism?

A similar problem occurs on the side of entrepreneurialism. Because of its emphasis on social planning, for decades Singapore has been favoring larger enterprises. They contribute to maintaining controllable institutions. However, larger companies foment the kind of perfection-productivity and disincentive innovation-productivity, or thinking outside of the box.

Now, Singapore wants to jumpstart start-ups. As if it was as “easy” as social planning. While it is doable to nudge people to open a café or develop an app, it is far from certain that these businesses will prevail. They will only make it, if they truly innovate in a broad sense of the word. They will only succeed if they take risks. But risk-taking, as thinking outside of the box, does not belong to the virtues Singaporeans are taught to love.

Curbing important facets of freedom has its long-run costs. Without freedom there is less incentive to innovate, to do better and to secure property. Without rewarding risks there is less entrepreneurial drive. Luckily, for Singapore, there is a relatively simple recipe to address this problems it could become a little less an experiment in social planning and a little bit more one in liberty.

Henrique Schneider is chief economist of the Swiss Federation of Small and Medium Enterprises

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