By Zakir Hussain

SINGAPORE'S labour force will grow by only 1 per cent to 2 per cent a year in the next 10 years, and further unlimited inflow of foreign workers is out of the question.

As a result, the country has no other option but to ensure that future economic growth is based on high productivity improvements each year.

This sounds like a recommendation from the Economic Strategies Committee (ESC) report this week. It is not.

Believe it or not, it comes from page 123 of the Report of the Economic Committee, published in 1986, which identified new directions for Singapore's economy.

Productivity - the ability to create valuable goods and services through the use of the country's human, capital and natural resources - has long been a concern for the Government.

It is not hard to see why. Over the decades, ministers have stressed that raising productivity is key to sustaining the country's economic growth and consequently the standard of living and prosperity of its people.

Gains in efficiency have translated into better wages and jobs for many.

But the changing nature of economic challenges as Singapore industrialised and entered the league of developed nations has meant that this message needs to be renewed - and adjusted - over time.

Productivity in the past

IN THE first 15 years after Independence - between 1966 and 1980 - the economy grew some 10 per cent a year on average.

New businesses and investments poured in, creating jobs for people.

But by the end of the 1970s, the nation's productivity was growing much slower than that of industrialising competitors Hong Kong, Taiwan and South Korea.

It had to buck up, or be left behind.

So when the Government drew up a 10-year plan for the following decade, improving productivity became a key plank if the economy was to keep growing at 8 per cent to 10 per cent a year.

To induce employers to optimise labour use, mechanise operations and shift to higher value-added economic activities, the National Wages Council recommended a higher than usual wage increase of nearly 20 per cent a year from 1979 to 1981.

Then Prime Minister Lee Kuan Yew said in 1979 he was concerned that workers here were not as proud of or as skilled in their jobs compared to the Japanese or the Germans.

In 1981, he met key Japanese employers in Singapore to discuss practices, work attitudes and productivity in Japan and what could be applied here.

A committee on productivity was soon formed, and it recommended that a productivity movement be launched to tackle the issue.

Thus began the national campaign to work better and smarter.

A National Productivity Council and a National Productivity Board were formed. The drive worked.

The productivity of Singapore's labour force averaged 4.7 per cent a year from 1981 to 1988, contributing 77 per cent to gross domestic product (GDP) growth.

This was greatly aided by new technology, which saw output grow rapidly. The workforce grew by just 1.4 per cent a year.

But the high-wage policy was partly to blame when the economy went into recession in 1985, prompting the formation of the Economic Committee.

The committee noted that productivity growth in other developed economies, Japan aside, had stagnated.

There was therefore a need to keep raising awareness of productivity as well as take a broader approach to it - by looking at improving training, management skills, and work attitudes.

In 1990, the productivity board - the forerunner of today's Spring Singapore - issued a report on the productivity challenge over the next 10 years.

It identified five broad areas where improvements would help lift efficiency: work attitudes, skills upgrading, labour-management cooperation, progressive management practices, and effective use of manpower.

The labour movement helped to raise awareness of these issues, and productivity gains were chalked up - albeit at a much slower 3 per cent a year in the 1990s.

These gains were, however, questioned by several pundits including American Nobel Prize-winning economist Paul Krugman.

In a 1994 article in Foreign Affairs magazine, he argued that Asia's economic miracle was a 'myth', and said that Singapore's stunning growth of 8.5 per cent a year over 25 years was unsustainable: It was the result of increased investment and labour, not added efficiency.

He was criticised for overstating his case, but his point on total factor productivity - intangible productivity gains not accounted for by increased labour or investment - was noted.

Singapore Management University economist Hoon Hian Teck and Nanyang Technological University (NTU) economist Ho Kong Weng, however, found that from 1970 to 2004, total factor productivity growth contributed to over 60 per cent of the growth in the standard of living.

'Singapore's growth in standard of living benefited from the adoption of technology from abroad through our liberal policy towards multinational corporations that brought with them managerial expertise, technologies, and markets,' Professor Hoon tells Insight.