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Speech by Mr Heng Swee Keat, Minister for Finance, at the Economic Society of Singapore (ESS) Annual Dinner at the Mandarin Orchard Singapore Grand Mandarin Ballroom, 2 August 2017

02 Aug 2017


Professor Euston Quah
President of the Economic Society of Singapore

Excellencies, friends and colleagues

Good evening.

1. Thank you for inviting me to join you tonight. Thank you Euston for your very kind words, and for this honour from the Economic Society of Singapore.

a. It is humbling to be considered alongside the other five Honorary Fellows, who are all distinguished individuals.

b. Our work cannot be done without the support of our colleagues and partners.

c. I would like to attribute this honour to the strong spirit of teamwork and public service I have been fortunate to encounter in many others throughout my career. I hope to continue in this spirit, not least with the ESS.

2. The ESS has done good work in fostering public discourse on economic policies.

a. I appreciate the ESS’ ideas to the Committee on the Future Economy (CFE). There were thoughtful suggestions that fed into the CFE’s work, such as your call to help SMEs adapt to the digital economy.

b. I look forward to continued rigorous, practical insights and suggestions from the ESS, as contributions to robust economic policymaking and to building our future economy.

A. Creating value amid change

3. When I last spoke at an ESS Annual Dinner, I touched on the effects of the Global Financial Crisis (GFC), structural changes in the global economy and how we should respond.

4. That was only 4 years ago (2013), and global uncertainty has risen significantly since. The rise of ISIS and the increase in terrorist incidents worldwide, North Korea’s missile tests, Brexit, the US’ withdrawal from the Trans-Pacific Partnership are just some examples. In some advanced economies, political support for globalisation has given way to nationalism.

5. The future is uncertain – a complex configuration of both short-run challenges and long-run trends. Even as we address the immediate pressure points, we should anticipate the long-term changes. Let me identify some of these.

6. First, our population is ageing.

a. This means higher healthcare expenditures, and a decline in our domestic labour force, which will affect our growth rates. Other economies, including China, Japan, Korea and the EU, are facing the same.

b. In comparison, there are many other countries in Asia with youthful populations. Whether this will translate to a population dividend depends on how well they educate and develop their people, and if new technology trends will enhance or diminish this advantage.

7. The second change is the global slowdown of productivity growth and the impact of technology.

a. Economists have been grappling with the Solow paradox – you can see the computer age everywhere but in the productivity statistics.
i. Various explanations have been put forth to explain the global slowdown in productivity growth, including: the rising importance of the domestic services industries; under-investment in capacities and structures; the slow and patchy diffusion of best practices; and the lack of competitive pressures to channel resources to their most productive use.

b. There are also different views about the impact of technological progress on productivity and jobs.
i. On one side, Robert Gordon, studying the total factor productivity (TFP) in the US economy over the past century, concluded that technological advancements in recent decades, including the rise of ICT, have paled in comparison to the five Great Inventions that drove substantial growth from 1870 to 1970 – electricity, urban sanitation, chemicals and pharmaceuticals, the internal combustion engine, and modern communication.
ii. Recent technology just has not lifted growth and productivity as much as past advancements have.

c. On the other side are the techno-optimists.

i. Erik Brynjolfsson and Andrew McAfee advocate for the potential of digitalisation and automation. For example, they see large economic potential of online platforms, citing Tom Goodwin’s observation that large companies – like Facebook, Airbnb, Alibaba and Uber – do not own or make the underlying assets from whose value they profit.

ii. Others call data the new oil, perhaps even more valuable and powerful.

iii. Klaus Schwab describes the Fourth Industrial Revolution as a confluence of emerging technology breakthroughs, not just in ICT, but also in materials science, biotechnology, energy storage and others, which interact across different domains.

d. It is not certain what the overall impact of technology will be. What is certain is that the countries that are prepared for technological change will be at the greatest advantage.

8. A third trend is the rise of emerging economies.

a. Attention was previously on the BRIC economies. More recently, the limelight is on Asia, which hosts two of the strongest growing economies, China and India.

b. Studies suggest that the shift in the world’s economic centre of gravity to Asia may be accelerating. The IMF’s latest forecast places Asia at the top of the global growth league table.

9. Though there are other trends to consider, each of these alone will have profound impact on a small, open economy like Singapore’s.

10. We won’t feel the full effects of these trends tomorrow, and no one can predict the future. But we can prepare.

a. When the Committee on the Future Economy considered these trends and discussed possible responses, there were some who sought to bet on new growth industries, new technologies and new markets to go into.

b. But in a fast-changing, unpredictable world, there are no short-cuts.

c. What we need is a certain shift in orientation – a readiness for change, and a willingness to try, learn, and try again.

d. Last year, I met the CEO of a food company that was doing well, along with several of his competitors in the industry. He told me, “Years back, an official told us that we were in a sunset industry. We wanted to prove him wrong. We worked hard, we worked together. There’s no sunset industry, only sunset thinking!”
i. I applaud his fighting spirit.
ii. I’ve continued to reflect on the food manufacturing sector’s experience. Whether a firm or an industry will succeed is not pre-ordained -- it depends on our mindset and how we build competitive advantage.

11. Our economy’s competitiveness and ability to create good opportunities for our people rests on a set of inter-related factors.

a. First, we need to maintain macroeconomic stability, and have a well-functioning financial system that channels savings to productive uses. We have done this well in recent years, keeping inflation at bay through effective monetary policy, while maintaining fiscal prudence. Our financial system has also continued to innovate to meet the evolving demands of the modern economy.

b. Second, we need strong microeconomic foundations, that allow resources to be allocated efficiently across firms and individuals, in an equitable and sustainable way. We have, and must, continue to make our regulations more pro-business, tweaking them to encourage innovation and risk-taking, while protecting the interests of our people.

c. And third, we must encourage our individuals, firms and industries to build deep capabilities, so that they can achieve sustainable competitive advantage to adapt and thrive in their fields.

12. This third factor, capabilities, is what I will focus on today. At their core, the recommendations of the Committee on the Future Economy are about keeping our economy globally connected, and building deep capabilities – both horizontal capabilities across the economy, and vertical ones within each industry. By bringing all key stakeholders together to create Industry Transformation Maps or ITMs and to build capabilities, we can better address the challenges and opportunities in each industry, and the entire economy. While we cannot predict the future, strong corporate and human capabilities give us the best chance of riding the waves of changes ahead.

B. Our firms: Creating value through firm-specific and industry-wide capabilities

13. Let me start with our firms.

14. Firms need 2 main types of capabilities to be competitive, particularly in a time of change:
a. One: distinctive, firm-specific capabilities, to differentiate themselves from their competitors.
b. Two: industry-wide capabilities that benefit all firms within a sector.

Firm-specific capabilities

15. First, firm-specific capabilities.

16. A competitive firm creates unique value for its customers, in cost-effective ways.

a. There is no formula for this. Every company must develop its own.

b. But there are some broad areas that we heard about during the CFE’s industry consultations:
i. Human capital;
ii. Innovation, including the use of technology; and,
iii. Internationalisation.

c. I will speak more on human capital later.

17. Let me first discuss innovation. The ability to innovate new products, services, processes or business models that create new value gives companies a competitive edge.

a. In recent times, the rapid growth of some start-ups has captured public imagination. Innovation is often associated with start-ups. But large companies need as much, if not more, innovative capacity. Beyond in-house development of new products and services, companies are also setting up corporate venture funds and incubators, so as to discover, work with, and invest in promising start-ups.
i. We see this in the pharmaceutical industry, where large companies are licensing drugs developed by smaller start-ups. Also in Silicon Valley, where promising tech start-ups get acquired by larger players.

b. The value chain for innovation is changing – some start-ups may choose to develop themselves fully, while others may partner established companies to commercialise their innovations.
i. ST Engineering has launched a corporate venture capital unit, and started an open innovation lab called Innosparks in Launchpad @ one-north.
ii. In time, companies can make use of the Global Innovation Alliance (GIA) to extend their innovation networks overseas – in fact, as part of our GIA efforts, BLOCK71 Jakarta was officially opened just last week.

c. Another way to innovate is to use technology. Firms can adopt existing technology to improve productivity, or adapt technology to change their business models and disrupt industries. Others may invent technology and create intellectual property (IP).

d. We should encourage a variety of approaches to innovation, including the use of technology, and create some flexibility in our regulatory frameworks, like regulatory sandboxes, to allow new things to be tried.

18. Another important corporate capability is the ability to internationalise.

a. Technological advancements and trade liberalisation have reduced distances and extended companies’ reach to resources and customers.
i. Companies need local market insights and outreach capabilities to tap on the larger potential markets that emerge as a result.

b. Technology allows big and small firms alike to expand into the region and the world.
i. From start-ups like Carousell to large enterprises like CapitaLand, Singapore firms are already doing so.

c. There is Government support for firms to internationalise.

Industry-wide capabilities

19. Beyond firm-specific capabilities, industry-wide capabilities also matter. Companies can cooperate to help build these.

20. A few years back, I visited a company in Switzerland that was training about 100 students to operate complex machinery. But the company needed only 60 new recruits. The remaining 40 would go to their competitors. Now, why would a company train for its competitors?

a. The CEO explained that there would be an industry-wide shortage of talent otherwise – a shortage would affect them all.

b. It was a lesson in competing and cooperating at the same time.

21. In Singapore too, industry leaders have taken encouraging steps. You may be familiar with the TechSkills Accelerator (TeSA), which trains ICT professionals.

a. About 2 years back, members of the Singapore Infocomm Technology Federation (SITF) and the Singapore Computer Society (SCS) told me they were facing a shortage of strong ICT talent.

b. I asked them, “Would you be willing to work together? Government can help provide resources, but, as industry, you know best what skills are relevant.”

c. They said yes, and competitors worked actively together with our agencies to form and run TeSA. I was impressed by this.

d. Over 10,000 professionals have benefitted from TeSA’s programmes. And companies can hire from a deeper pool of talent with relevant skills. I look forward to seeing TeSA achieve even more.

22. Our Trade Associations and Chambers (TACs) are also important in building industry-wide capabilities. So I am glad that they, too, are actively collaborating.

a. For example, more than 20 TACs will share facilities and resources at the Singapore Chinese Chamber of Commerce and Industry’s (SCCCI) Trade Association Hub, which will officially open soon.

23. Some industry leaders have asked me if our economic agencies can also improve our coordination, to provide more integrated support, in areas such as helping companies to build capabilities and to internationalise. We are studying these.

24. Indeed, collaboration is the spirit of the Industry Transformation Maps (ITMs). Each ITM gathers the stakeholders – companies, TACs, unions, research institutes, training providers and Government agencies – to formulate and implement strategies to develop the industry and its capabilities.

a. The different capabilities cannot be considered in isolation. Each industry will need a different configuration of capabilities. By bringing all stakeholders together, we can implement changes more effectively.

b. Beyond each single industry, we should also explore developing capabilities across different industries. This is why we formed six clusters of related ITMs.

25. To sum up, to compete in the Future Economy, our companies will need firm-specific and industry-wide capabilities.

a. To develop firm-specific capabilities, companies should invest in internationalisation, innovation and smart technology use and development.

b. To develop industry-wide capabilities, companies can look beyond their individual pursuits, and collaborate with others, both within their industry and across industries, for mutual benefits.

26. Contrary to the classical view, the marketplace is not an arena where companies are pitted against each other in atomistic competition. Instead, it is a journey across a complex terrain, where, at points, we will have to rely on our distinctive strengths to progress, and, at others, we can work together to advance. There is great potential for collective gain through collaboration, among partners along the value chain and even among erstwhile rivals, if we look for the right opportunities. We need to think about multiplying effectiveness, because it is not a zero-sum game.

a. Indeed, aside from Ronald Coase’s seminal work, the role of firms in coordinating resources, both internally and through their interactions with other firms and the wider economy, has not received enough academic attention. Perhaps the members of the ESS can take a closer look at this, especially in the Singapore context.

27. On our part, the Government will foster conducive macro- and microeconomic conditions for all companies to excel. Ultimately, firms and industries must take the lead to create value for their customers, by building strong capabilities.

C. Our people: Creating value through lifelong development of relevant capabilities

28. Let me now speak about the capabilities of our people.

29. Factors like the reconfiguration of global supply chains, shifts in consumption patterns, and technological advances are changing the nature of jobs and the skills we need for work, along with how businesses operate.

a. So corporate and human capabilities must go hand-in-hand, growing in tandem to drive our industry transformation. This is why Jobs and Skills form an important pillar of every ITM.

30. These changes will affect what we learn, how we learn and when we learn.

a. First, what we learn should help us realise our potential, and build foundations for further learning. Part of this involves learning skills that are relevant to society and the economy. Along with domain-specific skills, some general ones, like the ability to work with digital tools and data, will increase in economic significance. Others, like social skills and emotional intelligence, will remain important in making us effective members of society.

We should harness technology to create more value. If we can use artificial intelligence (AI) to automate more routine cognitive tasks, for instance, we can then focus on developing the uniquely human skills, like creativity or open-ended problem solving, that will enable us to do higher-value work.

b. Next, to keep up with fast-changing skills requirements, how we learn should expand to include learning from all sources and in different settings. Learning does not have to happen in a classroom – it can also happen via new technologies, like online platforms, or new modalities, like on-the-job training or overseas attachments, which can help to integrate theoretical understanding with practical application.

c. Third, when we learn need not be confined to the first two decades of our lives. As we all live and work longer, we cannot expect to cram all that we need to know for our entire lives within the first twenty-odd years of our lives. Instead, we should learn throughout life, through on-the-job experience interspersed with bouts of more intense, modular full-time training.

31. If we are to change what, how, and when we learn, individuals, institutes of learning, and industry must change our habits and practices significantly.

32. Individuals will have to shift from “learning, then doing” to “lifelong learning and doing”.

a. Instead of just learning before starting work, we should embrace a lifelong cycle of learning and doing. Throughout our careers, we learn the skills that we need for our jobs, hone them by using them at work, and then, as the economy evolves, learn a new set of skills and in turn put those to use. It is a virtuous cycle of learning and doing.
i. In Mandarin, there is a phrase: “活学活用,学以致用” – living and learning, learning and doing, are deeply integrated.

b. We must each take ownership, and be proactive about lifelong learning and doing throughout our lives. This is what the SkillsFuture movement is about.
i. We should also take up opportunities to broaden our experience beyond our shores. Initiatives like the Global Innovation Alliance, for instance, can help us to understand overseas contexts better.

33. Institutes of learning also have a role.

a. For instance, MOE has the 21st Century Competencies Framework, to help students in our schools develop competencies like responsible decision-making and critical and inventive thinking, encouraging them to become self-directed learners who can keep up learning and throughout their lives.

b. Our educational institutions are placing a greater emphasis on skills application and hands-on learning at all levels. Examples include the Applied Learning Programmes in our secondary schools, the SkillsFuture Earn and Learn Programmes in our polytechnics and ITE, and the various work-learn programmes in our autonomous universities.

i. The Singapore Institute of Technology’s (SIT) Integrated Work-Study Programme (IWSP) gives students real-world experience through 8-12 months of relevant on-the-job training with partner companies.
ii. The results are promising. 84% of the first batch of Accountancy students received priority job offers from the partner companies, and two were even able to start in a position above entry-level! Almost all of the rest found employment within three months of graduation. I understand that the second batch has also done well.
iii. Employers also benefit. They get 8-12 months to assess potential employees, and a head-start in training them.
iv. We should continue to encourage such close collaboration between our educational institutions and industry partners, to tighten the link between learning and working.

c. Increasingly, our educational institutions also encourage students to gain overseas exposure, through programmes like the NUS Overseas Colleges, the Polytechnics’ Overseas Student Internship Programme, and ITE’s Global Education Programme.

d. Our universities, Polytechnics and ITE have all embarked on making courses available online.
i. NTU has announced that it would convert some 1,500 courses in 5 years, about 50% of their PET courses.
ii. NUS has partnered Coursera to launch several Massive Open Online Courses.
iii. The rest are making progress to make available modules online, to support new modes of learning for full-time and part-time students.

e. MOE’s Student Learning Space will also use the latest digital tools and modalities of learning to improve educational outcomes.

34. What about industry players? It is encouraging to see that many companies are building up their human capital, as part of their overall business strategy, and reaping significant benefits from this investment.

a. Firms are integrating the development of their people with the redesign of their company processes.
i. For example, in upgrading its Singapore plant into a smart factory, Panasonic upgraded employees’ skills to remain relevant in a smart factory. As a result, the median salary of their local staff has increased by 35%.
ii. Many companies operate as “in-house approved training organisations” which provide industry-validated training to their own staff. Examples include Wing Tai, SATS and McDonald’s.

b. Firms that are far-sighted in building corporate capabilities are those that anticipate future skills needs, and invest in developing their people. I am a firm supporter of such efforts.
i. These firms can collaborate with our educational institutions through various work-study programmes, or work with Government agencies.

c. Industry-wide, there is collaboration on human capital development.
i. Today, there are companies who deliver training programmes, not just for their own needs, but for the broader industry. Examples include Ascott and the PBA Group.
ii. The Supply Chain and Logistics Academy is an example of an industry-driven effort that trains supply chain professionals across different companies, through experiential workplace learning.
iii. I encourage further collaboration.

35. In sum, as jobs and skills requirements change, we will need to transform what we learn, how we learn and when we learn. Individuals, institutes of learning, and industry will have to work closely together and use new modalities to tighten the link between learning and doing. This will maximise the potential for both corporates and people to make the most of the opportunities ahead.

D. Conclusion

36. Allow me to conclude. The world is facing major structural changes. Singapore is well-placed to manage these changes, and make the most of the opportunities they bring – we have strong tripartite relations, sound macro-economic and micro-economic foundations, and strong physical and virtual connections to the world. If our companies and our people continue to build strong capabilities, we can make the most of these advantages, to create unique value for the world and our people.

37. There is no playbook to follow. What we need is the right mindset – to be proactive, dare to take risks, and learn from our failures, and recognise that this is a continuous journey of upgrading.

38. And we will have to work together – in a national effort where we each have a role.

a. I look forward to our people embracing “lifelong learning and doing”.

b. I look forward to our companies developing distinctive capabilities, while actively collaborating for shared benefits.

c. I look forward to our TACs playing a leadership role in building industry-wide capabilities, to benefit all within their sectors.

d. I look forward to our educational institutions continuing to innovate to bring out the best in our people, and exploring how to better integrate work and study to make “lifelong learning and doing” a way of life for Singaporeans.

e. And I look forward to all of us coming closer together, preparing for and riding change with optimism and confidence, with the courage to experiment, and the humility to learn from others and from our failures, so that we can make the most of the changes ahead, and create good opportunities and good lives for our people.

39. Let us all work together to build our Future Economy. Let us compete fairly, but collaborate generously, and seek to be greater than the sum of our parts. And let us support one another, especially those of us who are less advantaged, so that we can all advance together. I hope that the ESS too, with your economic expertise, will contribute actively to these efforts. Thank you.