Should Singapore Prioritise Productivity over Inclusiveness in Promoting Growth?

Question

Economists regard productivity as vital in enhancing the well-being of a country’s residents as it generates growth, jobs and income.

(b) Discuss the view that the Singapore government should prioritise raising productivity over inclusiveness, when considering policies to promote economic growth. [15]

Answer

Economic growth comprises actual growth (a rise in output) and potential growth (a rise in productive capacity). Productivity policies raise output per unit of input; inclusiveness policies secure a fair distribution of the gains of growth across all groups. The thesis is that, while both deserve attention, Singapore should on balance prioritise productivity, because productivity-raising measures are more sustainable and self-financing, and because Singapore’s context makes them unusually effective — though the strongest position is to pursue both where resources permit.

The case for prioritising productivity. To promote growth while prioritising productivity, Singapore can use supply-side policy such as worker retraining — CET-centre courses accredited by the WDA for WSQ qualifications, subsidised through the Skills Development Fund and the Lifelong Learning Endowment Fund. Such policies raise workers’ skills and so the quality of labour, raising productivity and making Singapore a more attractive destination for foreign direct investment. In the short run this raises investment expenditure (I) and so aggregate demand, achieving actual growth; in the long run it raises potential growth, as FDI brings technological transfer and capacity expands — sustained growth. The limitation is that retraining is costly and its effectiveness depends on workers’ willingness to take up courses.

The case for prioritising inclusiveness. To promote growth while prioritising inclusiveness, Singapore can use expansionary fiscal policy: tax rebates and transfer payments to low-income households. Lower taxes raise the disposable income and purchasing power of the poor, raising consumption (C), while transfer payments act as government spending (G); together these raise aggregate demand. By directing the benefits to low-income households, the government reduces income inequality and spreads the gains of growth fairly — inclusive growth. The limitation is that fiscal transfers do not address the root cause of inequality: once removed, inclusiveness lapses.

Judgement. Singapore should, on balance, prioritise productivity. The decisive consideration is sustainability. Expansionary fiscal transfers require the government to raise spending while cutting tax revenue, which works in the short run but risks a persistent budget deficit. Supply-side productivity measures are also costly initially, but by raising firms’ revenue they raise corporate tax receipts, allowing the government to recoup its outlay over time — a more sustainable footing. Context reinforces the verdict: Singapore’s strong culture of formal education (at least six years of schooling for all) makes its workforce receptive to retraining, raising take-up and effectiveness. The qualification — and the more defensible final position — is that the two are complements, not substitutes: where resources allow, the government should run both together, using supply-side policy to secure sustained long-run growth and expansionary fiscal policy to lift output in the short run. Prioritisation of productivity is therefore the right ranking, but not to the exclusion of inclusiveness.