EconomicAffairs

The CFE report is out. How to track its progress?

The Committee on the Future Economy laid out broad goals for S'pore to grow by 2 to 3 per cent a year. But when the objective is to boost innovation to gird workers and firms for an uncertain future, what kinds of targets make sense?

Singaporeans are largely a pragmatic, results-oriented lot.

So it comes as no surprise that the Committee on the Future Economy's (CFE) long-awaited, 109-page report has drawn some flak for its broad-brush suggestions and a perceived dearth of fresh ideas to take the country's economy forward.

The real test of how robust the recommendations really are, however, has only just begun.

Presumably, specific details will eventually be ironed out and a host of programmes will be implemented in the coming years to realise the CFE's vision. But it is not clear what metrics should be used to track progress or measure success.

Are such metrics needed and, if so, what should they be?

 

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THE PERILS OF MEASURING PRODUCTIVITY

The CFE itself offers few suggestions on what these benchmarks should be.

The Economic Strategies Committee's (ESC) 2010 report, for instance, spelled out concrete proposals on enhancing productivity and even set a target: To hit an annual productivity growth rate of between 2 per cent and 3 per cent until 2020. This means productivity improvements should account for about two-thirds of economic growth, compared with just one-fifth in the preceding decade, the ESC noted.


ST ILLUSTRATION: MANNY FRANCISCO

In comparison, the CFE has laid out a much broader goal: for the Singapore economy to expand 2 per cent to 3 per cent a year on average, "exceeding the performance of most advanced economies".

This should be accompanied by sustainable wage growth and the creation of good jobs for Singaporeans, the report adds.

This is hardly specific enough to be an effective gauge of the CFE's efforts to build a more open, innovative and vibrant economy of the future. After all, many factors impact economic growth and many of them are unpredictable - from international geopolitical events to financial crises and disease outbreaks. But the CFE's broad, big-picture approach comes after its predecessor, the ESC's productivity growth target, was subjected to intense scrutiny in the years following the release of its report.

This is because Singapore's productivity growth has remained lacklustre despite efforts to encourage companies to automate, train their workers and invest in innovation.

Labour productivity - measured in terms of value-added per actual hour worked - grew at an average of 1.3 per cent a year between 2010 and 2015, weighed down by the sluggish economy and a larger number of workers entering less productive sectors, such as food and beverage services.

"There was the expectation that there would be some progress, but there hasn't been much to show besides anecdotal stories about what companies are doing," says OCBC Bank economist Selena Ling.

"The decision is between lowering the target and moving on from it, and the approach taken has been to move on."

No one can predict the future, though the CFE has had to do its best to try. Given that the world we live in is becoming increasingly volatile and unpredictable, perhaps the CFE wanted to avoid becoming wedded to hard targets which might turn out to be wildly off the mark in realistic terms or simply tough to meet.

DIFFERENT FOLKS, DIFFERENT STROKES

The push to raise productivity has shifted away from a one-size-fits-all strategy in favour of a more targeted approach.

Instead of broadly encouraging companies to invest in automation and train workers, the CFE has called for industry-specific blueprints. The strategy is outlined in the form of Industry Transformation Maps (ITMs) - road maps for each sector rolled out under a $4.5 billion programme announced in last year's Budget.

ITMs aim to offer targeted, industry-specific help for firms to invest in skills, boost innovation and promote internationalisation.

These programmes present an opportunity to specify progress metrics for each industry, says Professor Ivan Png from the National University of Singapore Business School.

"It's good to work at the industry level, but... the Government hasn't set any targets. (Policymakers) could well set targets for growth of productivity for each sector. But (they have) not, at least, not publicly," he adds. "Absent targets, we won't be able to know how well the transformations are succeeding. And we won't be able to judge the return on investment.

"Of course, private economists can always calculate and compare the growth of productivity before and after the ITMs. However, it would be difficult to tell how much of the difference is due to the ITMs and how much due to other factors," adds Prof Png.

Still, it would be complex to have a set of benchmarks to measure productivity improvements for each sector, since every industry measures productivity differently.

Retailers, for instance, would use sales per square foot as a gauge, while manufacturers might count the number of widgets produced per hour.

"Productivity means using less manpower to do the same type of project and possibly completing each stage within a shorter time," says the president of the Society of Interior Designers Singapore, Mr Keat Ong. "One good way to measure this is the time taken for each stage, from conceptual design, schematic design, design development, design documentation, down to the construction stage."

Mr Paul Lim, the founder and president of Supply Chain Asia, which trains logistics and supply chain professionals, says the organisation is working on an index to gauge productivity in the logistics sector.

"We are working out models... to assist companies in benchmarking their use of various resources - from space, labour, technology and even energy - and the impact on their overall turnover or cost management," he adds.

NOT EVERYTHING THAT COUNTS CAN BE COUNTED

Still, the fact remains that not everything the CFE is trying to achieve can be measured.

Singapore Management University economics professor Hoon Hian Teck says "there is a shift away from quantitative targets" towards cultivating more innovation, especially among small and medium-sized enterprises.

Dr Walter Theseira, senior lecturer in economics at SIM University, says Singapore is now a developed economy, which means setting specific growth targets is tougher.

In the past, the path to generating headline economic growth was clearer - for example, through encouraging women to join the labour force, upgrading skills, attracting a certain amount of foreign investment, or increasing manpower through immigration.

"But to increase productivity growth in a First World developed economy is much more difficult," Dr Theseira says.

Ms Ling agrees, noting: "A big part of what the CFE aims to do is create a conducive environment for innovation." This is a natural progression from the ESC's focus on "low-hanging fruits", such as encouraging companies to invest in automation and technology.

"A lot of this is quite fungible and difficult to set hard targets for… Innovation is not something that is easy to measure because it might not always result in a product," Ms Ling adds.

Measures such as research and development spending as a percentage of gross domestic product, or the number of patents filed in a year, might be useful proxies for the level of innovative activity going on in an economy.

But it ultimately boils down to "whether you are building local capabilities, are small and medium-sized enterprises scaling up and going overseas, is the economy shifting away from being dependent on multinationals towards more indigenous growth", Ms Ling says.

BEYOND NUMBERS

Measuring the success of policy recommendations is complex and the considerations myriad.

If the hope is that Singapore will become a global innovation hub, home to top talent and start-ups from around the world specialising in niche technologies, headquarters for home-grown SMEs spreading their wings across the region, well, it would be impossible to distil these outcomes into a single set of measurable statistics.

Instead, other non-numerical factors could be more pertinent.

For instance, will more young people aspire to become inventors and entrepreneurs instead of just doctors and lawyers? How will attitudes to failure shift? Will Singapore ever celebrate failure the way start-up mecca Silicon Valley does? Will our education system evolve quickly enough to equip children for a fast-changing world where adaptability is an essential skill for staying afloat?

Beyond obvious, measurable metrics such as economic growth, job creation and productivity, perhaps the coming decade calls for a more qualitative, nuanced approach to gauging progress.

A version of this article appeared in the print edition of The Straits Times on February 15, 2017, with the headline 'The CFE report is out. How to track its progress?'. Print Edition | Subscribe