Singapore Wants to Stay Competitive

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WASHINGTON – If there is one economy that is generally understood to be a net beneficiary of globalization this would be the small island state of Singapore. They started early on, back in the 1980s, to modernize everything, thus creating a well oiled, well organized, if somewhat autocratic, environment almost entirely geared towards the promotion of high value economic activities, well supported by a modernized infrastructure and a capable public administration apparatus. Singapore’s cleanliness, super efficiency and pro-business attitude attracted foreign investments. Its ethnic Chinese leadership created bridges with China and gave Singapore a unique opportunity to broker deals and to invest in the mainland. And the reward has been the attraction of high tech investments which in turn led to significant knowledge transfer, an above average growth and the creation of widespread prosperity.

Singapore: not as good as it should be

But today’s news is that the forward looking technocratic leadership is worried. They are worried that Singapore is losing or may be on the verge of losing its edge. If higher competitiveness was achieved through considerable investments in human capital and in the creation of efficiencies all around, in business as well as public administration, there are signs that the edge has been eroded.

The new budget sets priorities

Indeed, the new state budget for 2011, recently presented by Deputy Prime Minister Teo Chee Hean is almost entirely focused on the issue of refashioning and strengthening Singapore’s competitiveness via a series of measures aimed at increasing the level of skills of the Singaporean work force, so that the once famed edge may be reconstituted. “We are now a more developed economy, further up the productivity curve”, observed Deputy PM Chee Hean. “We have made progress, but those ahead of us have also progressed and moved up as well. And those behind have made rapid advances and are catching up with us”. Hence the need to focus on improved education standards and higher productivity.

Education and Productivity

To advance this goal, the Government is establishing a “National Productivity and Continuing Education Council”. And here, in the very name chosen for this new Council, the Singapore leadership reaffirmed what should be the obvious but perhaps not often enough reaffirmed crucial, strategic link between “education” and “productivity”.

Competitiveness needs to be enhanced

The headings of the budget are all focused on this major effort aimed at enhancing competitiveness. A)Investing in Continuing Education; B) Supporting Enterprise Investments in Innovation and Productivity; C) National Productivity Fund; D) Supporting Business Restructuring; E) Enhancing Land Productivity. Will all this succeed? Who knows. But what is important to note is that one of the most sophisticated, albeit small, Asian economies feels the heat of the global competition and is determined to move a few notches up the value chain in order to regain its competitive place.

But if tiny Singapore whose claim to fame is efficiency and productivity is on the move, what about the developed West?

In 2000 Europe announced the “Lisbon Goals” –a high tech revolution strategy

In the year 2000, with much fanfare, the European Union announced with a high degree of optimism the launching of the “Lisbon Goals” high tech agenda. Having noted the unfolding IT revolution dominated by the USA and to a lesser extent Asia, Europe declared its determination not only to catch up but to acquire a world leading position in the advanced technologies that will reshape the economies of the world.

The stated goal was nothing less than to make Europe “the most dynamic and competitive knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion, and respect for the environment by 2010”.

Very ambitious targets

Given a rather lackluster record on technology and innovation up to that point, itself due to a low level of spending in R & D, this was a very, very ambitious goal aimed at essentially transforming Europe from supporting character in the innovation scene into an IT and high tech powerhouse. According to the “Plan” adopted in Lisbon by the EU leaders, the “Goals” would be achieved by adopting whatever innovation solution would work in order to enhance productivity and leading technologies. If the strategy would succeed, the world would look at Europe, and not just at the US and emerging Asia, for state of the art this and that. A great and worthy idea, no doubt.

Part of the plan was also the project to create a “European Institute of Technology”, some sort of super university, or cluster of universities, to be modeled after MIT in the US that would be an integral component of this massive modernization effort.

Goals not met

So, what happened since 2000? Well, unfortunately not much. Former Dutch Prime Minister Wim Kok, entrusted with conducting a “mid-term review” of progress to date, in his report presented in November 2004 expressed serious doubt that Europe would achieve its “Lisbon Goals”. He noted “disappointing delivery”, due to an “overloaded agenda”, “poor coordination” and “conflicting priorities”. At the same time, The European Round Table of Industrialists, (ERT), a business group, expressed its “deep concern about the continued erosion of Europe’s competitiveness”.

Lisbon Goals: “Failure”?

In 2009, towards the end of the time line set by Europe for the achievement of its “Lisbon Goals”, Swedish Prime Minister Fredrik Reinfeldt admitted that: “Even if progress has been made, it must be said that the Lisbon Agenda, with only a year remaining before it is to be evaluated, has been a failure”

Odd enough: blame those who have tried to make positive changes

Not a complete and utter failure across the board, but mostly a failure. R & D spending has not advanced much. No new hubs of high value innovation established. No new striking centers of excellence created. The US, 2008-2009 massive financial crisis and astronomic rescue cost notwithstanding, continues to lead, (with a bit of shortness of breath, mind you), in labor productivity and IT innovation; while China and indeed Asia overall is investing massively in modernization. Europe, with due exceptions here and there, is not shining.

Germany powers ahead

And even where there is progress, such as in German labor productivity, this is oddly pictured as harmful by other (envious?)Eurozone members who are less competitive vis-à-vis Germany. With truly twisted logic, it has been recently observed that, as Germany has done very well in containing labor costs and enhancing labor productivity, this has widened the competitiveness gap with the Eurozone laggards who have now comparatively greater difficulties in retaining their markets, because the Germans are “too good’.

German Economics Minister Rainer Bruederle retorted that it is peculiar to accuse Germany when those who are not doing well “lived beyond their means and neglected their competitiveness”. So there. Here you have the picture of the actual Europe, as opposed to what was imagined in 2000. Rather than trying to emulate them, some blame those who are doing better.

What about anemic America?

But, just to show that most of the “old” industrialized countries share similar problems, the Washington, DC based Center for the Study of the Presidency, led by establishment veteran David Abshire, just recently (March 19), released a paper titled “Prosperity or Decline” prepared by some recognized US bright minds. The Report is not too sanguine on the current US competitiveness posture and America’s chances to retain its innovation lead, the only recipe that would guarantee America’s leadership in world affairs and a reasonably high standard of living at home.

“Prosperity or Decline”?

Norman Augustine, former CEO of defense and technology giant Lockheed Martin and almost universally praised as one of America’s sharpest thinkers, presenting one section of the report, noted that America’s edge has been eroded or is fast eroding. He pointed out that at present, as a society, we are the lucky beneficiaries of huge investments made long ago. These benefits, without replenishment, are beginning to wear out. In the global economy the US is confronted with millions of progressively more skilled people who are willing to work for a fraction of what their US counterparts get paid. The primary and secondary education system is of dubious quality and quite bad in many areas.

And even the vaunted American university education system, still ranked very high in the world, is suffering because the increasing cost of maintaining state of the art “super universities” is not matched by commensurate revenue/grants growth, absolutely necessary to attract and retain the best minds and state of the art research facilities. Finally, Augustine noted the disproportionate cost of litigation for corporations, something that detracts precious resources from needed new investments. Other presenters noted the unsustainable levels of both Government debt and balance of payment deficit, as well as the erosion of the old free trade consensus. 

Do decision-makers understand?

Well, yet another report, issued by a another blue ribbon panel on behalf of a Washington think tank, whatever the patina and the fame of the contributors, by itself is not going to transform the policy landscape. But, while somewhat pessimistic, this gloomy outlook replete with warnings matches concerns repeatedly expressed by respected The New York Times columnist Tom Friedman and many others who believe that there is some kind of tone deafness in Washington, whereby key policy makers seem unable to recognize and address in a timely manner the salient strategic issues, creating thus a mismatch between what the country really needs and what is on their policy agenda. To put it simply: Washington has got its priorities all wrong.

Structural debt: can we deal with it?

To add further gloom, there is the other unpleasant issue of structural long term debt, not just in the US, but across most OECD members. Of course, much of the recent debt increase is due to extraordinary measures needed to counter the ill effects of the unprecedented real estate and banking crisis.

Fine.

But this crisis occurred in an environment in which most industrial democracies were already in debt and on a course leading to higher public spending and comparatively lower investments. This trend is mostly due to the promises made by the welfare state, coupled with major demographic shifts: lower fertility rates and increasing numbers of older people, in absolute terms and as a percentage of the total population. A lot has been promised to retirees and now there are more and more of them, while, due to significant birth rate drops, there are far fewer active workers paying into the system. So, on balance, most modern societies are spending more than they are investing. And as spending has overtaken revenue, the rest is paid for with borrowed funds.

Decline is not a heart attack. More akin to coping with chronic ailments

And so, where are we? This is not a disaster. We are not about to fall into the abyss. This is not like being victims of a fatal, massive heart attack. But we are like someone who used to be healthy and now is afflicted by a variety of annoying, chronic diseases that require constant care and attention –and that cost more and more money. Money that cannot be spent on other things. The opportunity cost is that while you pay more and more for your care, you do not have much to spare to buy new equipment for your small business. This is the long and the short of this.

Little investment, little growth

Low rates of investment, slow down of the innovation process, insufficient investments in education, high levels of debt and societies with increasing numbers of retirees –retirees who are fiercely protective of each and every entitlement program designed to keep them happy and comfortable. And unfortunately all those promises were made at a time in which nobody could clearly foresee the future, gigantic financial obligations, (nowadays we call them “unfunded liabilities”), created by this socially minded public largesse. This is the picture across the developed world. More pronounced in Europe and Japan, less so in America; but prevalent across the board.

Singapore gets it

The technocrats running small Singapore have gotten the message and they manifested the intention to redouble their efforts in order to retain or regain their competitiveness. A small city state run by capable people is like a modern maneuverable vessel. It can change course rather fast. The old OECD supertankers will take a long longer, assuming that is, that those in charge will decide that a course correction is not just prudent; but absolutely essential and urgent. Alas, while we may hear noises about course corrections, we do not hear much talk about its urgency, so far.

Washington: social issues first. Wise choice?

Barak Obama campaigned on a promise of dramatic transformation and a drastic reformulation of policies so that America would be the best that it could be. Well, in the last year, here in Washington, beyond coping with the banking crisis, we have focused most of our energies on social justice issues, (the complex health care package just passed). By all means this is a worthy concern. But in the meantime we have done almost nothing to improve our competitivensss and our productive potential. In the end “social justice” is just an aspiration, unless you have some added value to spread around.

Successful social policies are predicated on an ongoing wealth generation capacity

It is worth remembering that even old Karl Marx postulated that successful socialism could be established only because a socialist economy would be more efficient than wasteful, inefficient capitalism. “Socialism –as he put it—is not about the socialization of poverty”.

Which is to say that a even a successful socialist society, according to its major theoretician, was predicated on sustainable high levels of growth. So, it would be good that all of us would understand that competitiveness –itself the foundation of new growth– is the necessary premise for any kind of social policy, including the most egalitarian. Without growth, we cannot even fight over the spoils; because, once the sources of wealth we did produce will have been eroded, there will be less and less to fight over.

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