Command economy manufactures trouble

PUBLISHED : Friday, 27 August, 1999, 12:00am
UPDATED : Friday, 27 August, 1999, 12:00am

An interesting item in the Singapore press the other day showed the city state's government conceding that it has a problem with productivity.

The Department of Statistics reported that total factor productivity (TFP) was down 5.1 per cent last year, continuing a five-year trend that has seen Singapore need ever more money to produce the same amount of goods and services.

TFP is one of those arcane economic concepts that drop out of the end of lengthy equations.

But there is another method of demonstrating the point. Take the gross domestic product of an economy as a multiple of everything in it that represents domestic savings or investment. This tells you how much bang it gets for its investment buck.

In Singapore, as the first chart shows, the figure has gone steadily down for a long time and is much lower than it is in Hong Kong, good evidence indeed of a productivity problem.

Meanwhile, however, there is also data showing Singapore's manufacturing productivity rising sharply again with electronics production in the first half of this year up almost 19 per cent year over year.

Somehow it doesn't seem to tally with the other figures on productivity and it certainly is not a good fit with reports of consistent job losses in electronics as one manufacturer after another lays off workers and moves its facilities elsewhere.

Deputy Prime Minister Lee Hsien Loong, for instance, said this week that manufacturers of disk drives, a key industry, were under severe pressure and were all losing money.

But then he also said that things would not be so bad if the strained multi-national corporations, which dominate the field in Singapore, shift the work to their local sub-contractors so that the jobs remain in Singapore.

This entirely misses the point. The reason that times are tough for manufacturing in Singapore is not just a cyclical downturn in pricing.

It is more fundamentally that one of Asia's wealthiest countries, with one of its strongest currencies, with precious little land left for industrial use and with only a small labour force, is no place for manufacturing, be it foreigners or locals who do it.

If those growing electronics-production figures represent Singapore's answer to the problem then things will only get worse. When you cannot make money from what you produce then producing more of it will only lose you more money, whoever it is that produces it.

The essential difference from Hong Kong here is that Singapore made a political decision years ago to pump money into manufacturing while Hong Kong allowed the structure of its economy to be decided by the market.

And now, with 25 per cent of its economy still devoted to manufacturing as opposed to 5 per cent in Hong Kong, Singapore is stuck with the inevitable headaches that result from letting politics rule money.

Return on investment can only go still lower if this keeps up. Singapore needs a complete rethink of what it is doing here.