Fix the economy? Focus on education and culture

Just when you thought it couldn't get worse, the sky turned even greyer.

No, I'm not referring to the wretched haze.

It's the economic outlook that took a beating last week, with one piece of bad news after another.

On Monday, it was reported that Singapore's factory output had fallen for the eighth straight month, with no turnaround in sight, as global demand continues to slide.

But for the most bearish account, you can't beat the Nomura report titled "Singapore's Productivity Conundrum" released on the same day. It saw no improvement in growth prospect all the way to 2020, projecting an annual rate of just 2.1 per cent a year, at the lower end of the 2 per cent to 4 per cent the Government has been targeting.

Nor did it expect any improvements in productivity, which is critical to the economic restructuring exercise launched in 2010 to bring Singapore to its next level of growth.

If you thought the last five years had been tough, Nomura said the next five will be even more challenging.

It said the difficult business conditions made companies reluctant to invest in productivity improvements despite generous government grants.

Add the ageing workforce and the tightening of foreign labour into the mix, and it's a recipe for continuing low growth.

One number in the report was telling: According to Nomura, the Government has spent $21.2 billion since it launched its restructuring exercise, including paying for the National Productivity Fund, Work Credit Scheme, the National Research Fund and all the various productivity incentives.

That's almost the entire Education budget this year, but with little progress to show.

On Tuesday, the Monetary Authority of Singapore (MAS) released its half-yearly report with much of the same gloomy outlook.

Those hoping the recovering United States economy might provide some fillip would have had their expectations dampened when MAS said growth there was due mainly to consumption fed by domestic suppliers, and not from imports.

So, don't look to Uncle Sam to spur growth here.

This, then, is the backdrop that the new economic committee headed by Finance Minister Heng Swee Keat will have to deal with as it tries to find new ways to grow the economy.

Expectations are high, especially after the Government received a stronger-than-expected mandate in the general election in September.

Now that it's firmly in charge, can it work its magic despite the challenging conditions?

What new solutions can it offer that have not been tried in the last five years?

Does Singapore need a new economic narrative to make the transformation to a First World economy?

To be fair, there's nothing wrong with the current strategy of transforming the economy by getting Singapore companies, especially small and medium-sized enterprises, to upgrade, improve their productivity and be less dependent on cheap foreign labour.

Who can argue against wanting to be like Switzerland or Japan - with world-beating companies and skilled workers earning First World wages?

The problem is that it's so hard to do. In fact, the experience of the last five years, with all that money spent, raises the uncomfortable question: Can the Government do much at all to lift the economy?

In the early years of development, it played a key role, creating the conditions necessary for free enterprise to work - the rule of law, infrastructure, education and skills training.

Experts call it the market-enabling function of government.

Indeed, the Singapore Government excelled at it, and was widely acknowledged for the part it played in turning a place without natural resources into one of the wealthiest.

But having created those conditions, further improvements might lead to only marginal gains.

At this higher level, many of the other countries, such as those in Western Europe and East Asia, also have business-friendly environ-ments that are just as successful.

Singapore's advantage over them isn't as great as before, when it was competing against the emerging economies.

I hope the committee recognises this reality about the limits of government action.

Otherwise, even more money might be spent on schemes with questionable outcomes.

What sets countries apart in this brave new world isn't government, but the people and a culture that encourages innovation and creativity. In fact, an overactive government might get in the way of free enterprise.

This isn't to say that it shouldn't continue to do all those things it has been so successful at, including developing the infrastructure and the system for making Singapore an attractive place to do business.

They are necessary, but not enough.

So, what can governments really do?

The key is education, because it is what determines the quality of the people and whether they have the ability and creativity to do well, especially in the new digital world that is disrupting much of traditional business.

It's especially critical for Singapore because it doesn't have anything else, and because the education system here is a national one planned by the Government from primary school to university.

Indeed, it recognises this and has devoted much resources, making the system more rounded and less focused on producing merely exam-smart students.

But it should quicken the pace of change as the need is an urgent one.

Without an innovative and creative people equipped with the skills to do well in these new businesses, Singapore companies will not succeed.

The other key is culture - does Singapore have one which encourages independent thinking, creativity and risk-taking and which isn't afraid of failure?

This isn't an area where a government committee can devise quick solutions. It's about society's values, biases and preferences.

Sometimes, it's in the small and not-so-obvious things we do or don't do which make a difference.

An expatriate remarked to me recently on the poor attitude of university graduates here - that they are not willing to invest the time to master their job and would not hesitate to join another company for the slightest salary increase.

There might be many reasons for this, but he singled out one which struck me: Most students here do not do part-time work when studying, unlike their counterparts in the US, Europe and even Japan.

In these countries, it's the norm, and almost everyone does it.

They get a taste of working life early on and learn a whole set of skills and attitudes that Singapore students are missing.

It's also about being independent and risk-taking, which you can't teach in a classroom.

Do these things matter when talking about the economy?

Only if you are interested in making those deep changes that are required for Singapore to become a truly advanced economy.

Otherwise there's always another productivity scheme to launch.

A version of this article appeared in the print edition of The Sunday Times on November 01, 2015, with the headline 'Fix the economy? Focus on education and culture'. Print Edition | Subscribe