Sunday, March 07, 2010

Productivity and related issues

Singapore is now embarking on a strategic thrust to improve productivity and reduce reliance on low cost foreign workers. A few people has asked, "What is productivity? How do we measure it?"

In its simplest form, productivity means to do a given quantity of work in less time, or to do more work in a given time. in both cases while maintaining the same quality of work.

We need to go to the next level and define, "If workers are more productive, should they earn more for their time and how much of the gain should go to the worker?". To answer this question, we have to recognize that the productivity comes from all factors of production - labor, capital, entrepreneurship and property. If the labor content is say 50%, then it is fair that 50% of the productivity gain should go to the workers.

We have to address another social question. If the productivity increases 100% and one worker can do the work previously done by two workers, who will provide the work for the displaced worker? The classic answer is "leave it to the free market". The displaced worker can find other suitable jobs in the market.

But this classic answer has proved to be false. During the past decade, the global economy was able to provide a lot of good paying jobs in the financial services sector, especially in creating "innovative" products. These innovative products are used to create bubbles in real estate, stock market, foreign exchange market and in other forms of financial speculation.  The bubbles have deflated during the past two years, causing massive loss of jobs. While  new bubbles can be created in other markets, history has shown that they will eventually lead to disaster. In the meantime, many countries will find it difficult to create new jobs in the real economy. This is why many economists hold the view that the recession in America will take a long time  to recover.

Here is my perspective. Each person needs only a certain amount of goods and services. The global demand will be limited by the population size and the time available to enjoy the goods that have been produced.  If people are working too hard, they do not have the time to enjoy the products, while unemployed people do not have the income to spend on these products. This is why the disparity of income in the past two decades have brought disaster to the global economy.

The answer to higher productivity is straight forward. With improved productivity, we should reduce the hours of work for each working person so that the total demand and necessary work is shared fairly by all available workers.This could mean a 35 or 30 hour week. The incomes do not need to be equal, but the disparity should not be so wide.

Tan Kin Lian
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10 comments:

Anonymous said...

Frankly I cannot see at this point in time, how higher productivity can result in reduced work hours. Computers were once hailed as the magic tool that will not only save the world's trees, but also allow workers to have more time with their families, and at the same time, increase their productivity!

We all know now that with computers, we take work home, work from home, and all are expected to produce more detailed, impressive and complicated work, and hard copies that will decimate our forests very soon.

Schools these days have more teachers, teacher-aides, support staff etc. Just ask any serving teacher and you'll get a bleak picture. Many young teachers resigned and became adjunct teachers, so that they can ask for lighter workload. Perhaps this is one way how we can have higher productivity, and at the same time create more jobs.......3 teachers doing the job of 2. But the downside would be lower income for all.

March 07, 2010 10:34 AM
Tan Kin Lian said...

The current competitive environment forces people to work longer to keep their jobs. Remember the slogan, "cheaper, better, faster"? It is a slogan for exploitation of workers - make them work harder for lower pay.

To give a better distribution of work, we have to implement some form of regulation on the hours of work, and protection of the rights of workers for fair terms of work and pay.

This is the job of trade unions in most countries, but trade unions hae become too weak in recent decades. The globalised world also allow the business owners to explot the weak positions of workers by introducing competition for low wage countries.

This type of economic system is unfair and unjust. It will lead to a poorer world.

We have to introduce change, even introduced some form of socialist model, to get a better allocation of work and opportunity. It is time for a review.

March 07, 2010 11:02 AM
Anonymous said...

I like the last paragraph:

"The answer to higher productivity is straight forward. With improved productivity, we should reduce the hours of work for each working person so that the total demand and necessary work is shared fairly by all available workers.This could mean a 35 or 30 hour week. The incomes do not need to be equal, but the disparity should not be so wide".

On income disparity, my view is it should be limited to 10 max, above which the lower income worker is likely to be exploited and unfairly treated.

March 07, 2010 11:51 AM
jamesneo said...

Hi Mr Tan it is important to realize that there are actually difference between the two definition given by you although they might appeared to be the same "to do a given quantity of work in less time, or to do more work in a given time".

I believe we should encourage the first and not the second. Doing the first means that we have learned how to identify the problem and solve it in a more efficient manner. Attempting the second, 'to do more work in less time' often do not also translate to the same quality since most humans have difficulty juggling with too many tasks without compromising the quality. With lowered quality one might sometimes have to redo the work which means than in reality the actual time to do work actually increased.

In certain manual or blue collar jobs it might be possible to equate 100% increase in productivity to "one worker can do the work previously done by two workers" for example automation of work by machines. However, this is simply not practical in white collar jobs that require specialized training since each worker should have a well defined role to ensure less overlap and inefficiency. However, the often unenlightened employer would instead saddle one person to do the two or more different kind of work thinking that they can cut cost but in reality they are compromising the quality of the work. But the opposite of more people ( etc by paying one worker half of the pay) to do one work is also not beneficial as the confusion of integrating different work and personality are often very distracting.

An important fact that employers that demand long working hours to do one job forgot is that by nature humans cannot do the same quality of work over such a long stretch especially if the work require creativity and thinking. Efficiency decrease dramatically when overworked.

Hence i agree with Mr Tan that real increased in productivity should equate to decreased working hours and better distribution of fair wages and opporunity.

March 07, 2010 1:41 PM
Anonymous said...

Productivity will not get Singapore very far.

We need innovative leadership. The type of innovative leadership displayed by Steve Jobs at Apple Inc. This will give us the quantum leap we need.

But if we lack the innovative leadership, then no choice. We just have to fall back on the old tried and tested formula of making the peasants work cheaper, better, faster.

March 07, 2010 6:30 PM
Lao Tzu said...

It is pity, that the more productive you are the more jobs you get and yet you are not being compensated MUCH better than YOUR PEERS.

So this kind of culture, which exist in many companies, breed many un-productive workers. Or at least, it encourages people to consciously be LESS productive!

March 07, 2010 11:02 PM
Lao Tzu said...

There number of social values/cultures that we need to change. So, it is not only about using more technology or machine.

March 07, 2010 11:05 PM
Anonymous said...

6) Government leaders have no proven record in productivity boost. Neither do they have a proven record in creating jobs that requires such productivity.

Does Mr. Lim have a proven track record in improving SG's productivity? No. Does he have actual and implementable plans that can boost our productivity?

The entire workforce of Singapore can be multiple PhDs who can build Rome in a day. However, are there jobs in the country that require such expertise? If so, how many jobs are there available?

I was flipping the papers one day, looking at classifieds. Sands was hiring bar tenders, receptionists, dealers, cab callers......

How do workers retrain enough to be productive in those jobs? And also, even if they do the job of 10 people, do they get paid the pay of 10 people? And just like what Mr. Tan said, so what do the rest of the 9 people do?

March 08, 2010 6:27 PM
Anonymous said...

I think there are several issues to consider in view of productivity.
1) Often, we need other capital inputs to make labour productive. For e.g., a worker cannot be as productive if he doesn't have a computer that has a spreadsheet to calculate things.

SMEs are often skimping on such capital inputs to enhance labour productivity. Often it boils down to the "budget", but even more so, the technical know-how.

2) The quality of leadership and management in companies/organizations.
Productivity of workers is moot when the leadership/management is poor. If you are asked to reach behind your back and touch your nose, you have to do it. The culture of "following orders" and hierarchy here in Singapore that entails shut up and obey can be very damaging.

I often find that leaders or management here are generally poor, uninspiring, and almost haphazard. It is ironic that this person is in a better position to utilize resources and create a more productive environment. However, there is no incentive for him to do so, since he can just make people below him work OT, just like his/her boss did.

3) Being fair to the labour component. We have seen how Wall Street has robbed the banks and countries. However, in Singapore, the labour component is not fairly compensated.

This can be made worse if labour has become a more productive input, and not only there is no incentive in terms of compensation, it may lead to one less headcount (i.e. one less paycheck). This will become an overall disaster for the labour market instead.

4) the floodgates have been opened, and the government has declared that our economy will collapse if we close the floodgates. that's how wall street held banks and government at ransom. my god, have foreign workers become our wall street?

what happened to the singapore economy prior to unlimited influx of foreign workers? we did all right, we will continue to be all right. if the rent component (with the govt being the biggest landlord) rises to a level that by paying reasonable wages is no longer sustainable, the free market dictates that companies will fold, and the market adjusts so that the rent comes down.

However, that does not happen in singapore because rent is raised, but companies are given a way out by lowering the labour component to manage rising costs. However, for the labour market, this is definitely not sustainable, as they have to pay businesses for rent from their paychecks.

5) the structure of the economy. Some industries benefit more from the productivity boost, some don't.

I've ranted earlier that 9 women doesn't make a baby in 1 month. There are things that don't scale.

The structure of the singapore economy is such that it doesn't scale too well for productivity boost. Also, the government and MNCs being a big part of the employers' market, mean that they are in the best position to make that happen. However, MNC jobs here are mainly sales, marketing and accounts. Public Service is highly bureaucratic and in fact, has bad practices that decrease productivity, let alone boosting it.

"pulling rank", "mr. x says so"....indian chiefs can't enhance productivity, but they are the culture in public service.

March 08, 2010 6:27 PM
Tan Ah Kow said...

Tan Kin Lian,

My view about all these talk about productivity is that nothing will come of it unless the Singapore people (ordinary worker type and those in power) are prepared to change their mindset. It is also not so much a economic problem in the sense that you can change behaviour by simply adjusting the supply of money.

The root of the problem is going to be political. I say political because any adjustment is going to be painful for certain groups of people those that benefit from the status quo. It will mean a power shift.

Let me explain why that is the case. You see when we speak of productivity, particularly at a macro economic level, we require a totally different concept to appreciate what it means than say at the mico-economic level.

At a macro-economic level, the productivity of a nation it means the ability to compete (i.e. generate and sell goods, services or commodities) to other nation within the constraints of a nation. If you took the political stance that the result of trade with other nation is for the good of the people of the nation, then clearly the constraints would be the supply of labour and labour cost (financial and social). In other words, you try to sell things that generate enough value to cover for your labour cost.

Take the case of Germany up to 2009, it was the largest exporting nation, by value, in the world. They have only been exceeded by China and is still the second largest. Now Germany is by no means a cheap labour nation. German wages are high and they have very good social provision, for weeks paid holidays. Also they have a declining population. They too import large migrant workers maybe not as large by comparison to US or UK.

Contrast Germany with US. The US in someways is very similar to Singapore in terms of labour profile. Lots of migrant worker and not particularly good social safety net, two weeks paid holidays (cannot be carried over like Singapore). The only exception is the US wages is higher than Singapore but less than Germany.

Yet, how is it that Germany is able to sustain higher export value than the US. Doesn't logic dictate that lower cost US ought to be able more competitive than Germany?

Put aside the China case, which is an anomaly, you see the high cost German economy is really offset by the high value export generated cumulatively by the industries in based in their country (not all of it home grown). Also more importantly the mindset of the German industries (i.e. people running it) are prepared to share out they wealth).

The point here is that when you discuss about productivity, you must also look at the value of your output and willingness to share out the fruits of labour.

In the Singapore context, the mindset is (a) not to compete in terms of value (which is much harder to quantify) and (b) not to share out the fruits of labour. Both factors are constraints by politics not economics!

March 08, 2010 9:51 PM

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