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Speech by Mrs Josephine Teo, Minister of State for Finance and Transport at the Singapore Economic Review Conference

04 Aug 2011

Professor Euston Quah
President of the Economic Society of Singapore,

Distinguished speakers

Ladies and Gentlemen

1. Good morning. It is a great pleasure to be here and to open this important conference.

2. In just a few days, Singapore will celebrate our 46th National Day. This month also, two organisations which I had the good fortune to be part of, mark their 50th anniversaries. The first is the Economic Development Board (EDB) where I started my working life and spent a good 10 years including two in Suzhou China. The second is the National Trades Union Congress (NTUC) where I spent a very rewarding five years before entering Government in May this year.

3. A common value I learnt from both organisations is never to take „no‟ for an answer. By „no‟, I do not mean stubborn refusal to deal with issues. Rather, I refer to the dogged persistence of both organisations to overcome seemingly impossible odds to fulfil their missions, whether it is job creation for the EDB, since the very turbulent and difficult 1960s, or a better life for workers in the case of the NTUC. This attitude of persistence remains important as Singapore continues to transform our economy and shape our society.

4. One area of particular importance is the target that we have set to grow real incomes by 30% over this decade. This target was established by the Economic Strategies Committee (ESC) which was convened in August 2009 as Singapore began to emerge from the global financial crisis. This is a very high target for Singapore, given our stage of development.

5. A key strategy identified by the ESC is to make productivity the engine of our future growth. To spur firm-level initiatives, the Government introduced significant fiscal incentives through the Productivity and Innovation Credit. In addition, DPM Tharman Shanmugaratnam chairs a high-level National Productivity and Continuing Education Committee to coordinate Whole-of-Government efforts to lift productivity in specific sectors. Substantial grant support is also made available to industry associations to spearhead targeted productivity initiatives.

6. While accepting that these efforts take time to bear fruit, a continued sense of urgency is still needed. One concern is what happens when early-cycle and easy-to-achieve productivity gains are exhausted. 2010 is a good example of a year in which productivity grew strongly as a result of the economic rebound. However, this is clearly a natural reflection of cyclical phenomena which we should not become contented about. Indeed, productivity growth in 2011 is almost certain to be lower, if the results in the last two quarters are anything to go by.

7. For sustained increases in income over longer time horizons, we must be focussed on trend productivity growth, which is typically associated with high investment rates and high labour productivity growth rates. Because of the need to raise trend productivity growth, we cannot let up in the quest to harness technology and innovation, which are both well-cited factors to explain productivity performance.

8. A UBS study on global productivity provides useful food for thought. It concluded that trend global productivity growth will be around half a percentage point lower in the coming years relative to its pre-crisis level. This decline is attributed to the legacy effect of the financial crisis, which has weakened supply-side and innovation investments in many developed economies, including the United States.

9. In Singapore‟s context where we are aiming for 2-3% annual productivity growth over the next 10 years, a shaving-off of half a percentage point would not be insignificant. We are fortunate that fiscal prudence over the years has allowed us to have the necessary resources to grow trend productivity. For example, we have committed over $16 billion towards research and development and set aside $1 billion to fund National Innovation Challenges. Some $450 million will also be injected to strengthen our continuing education and training infrastructure.

10. Our challenge is having the sense of urgency and enthusiasm for fresh ideas to bring productivity to new highs. I don't just mean labour and firm-level productivity which can be achieved through skills upgrading, technology adoption and continuous process improvements. To generate much higher value-add for the same level of inputs economy-wide, there are relatively unexploited areas well worth further investments of time and effort. These include

- Restructuring of industries
- Reorganisation of supply chains
- Proliferation of innovations
- Enhancement of relationship networks
- Development of new markets

11. Singapore is also fortunate to be located in a region with tremendous opportunities. Led by Asia, the share of the global economy held by emerging markets has risen steadily over recent decades. India and China together already account for almost 40% of the world‟s population. By mid-century, India and China will account for 2.5 billion of the 3.5 billion additional people with advanced-country incomes. By themselves, they will cause global GDP to at least double in the next three decades, even in the absence of growth anywhere else. Other Asian economies like Indonesia, Thailand, Malaysia, the Philippines and Vietnam are equally determined to power ahead. The Asian growth story will continue to be written for many more years to come.

12. To enable Singaporeans to benefit from the opportunities around us, we will need continued investments in their education and training. Today, 47% of economically active resident between ages 25-29 have degree qualifications. The desire to upgrade is strong. We know, for example, that 60% of all polytechnic diploma holders attain degree qualifications within 10 years of graduation. Others attain advanced vocational qualifications.

13. One key area we should focus on is Continuing Education and Training for Professionals, Managers, Executives and Technicians who typically hold white-collared jobs. Today, PMETs comprise more than half of our workforce. It has been estimated that during the global financial crisis, 9 million white-collar jobs were wiped out in the US and Europe, off-shored to lower-cost locations like China and India in the same way as blue-collared jobs were off-shored, never to return. Can Singapore buck such a trend? What will differentiate a Singapore PMET from his or her counterpart in China or India?

14. I‟m quietly confident, not only because the Singaporean workforce is a highly motivated one, but also because our education foundations foster a high degree of adaptability. This has to do with language skills, strong foundational skills in math and science, and also a generally positive attitude towards change. But it takes effort and resources to organise our PMETs, to put in place relevant training, and measures that will help them remain competitive. It is however, an imperative that we must not shy away from.


15. I saw from your programme that you will discuss wide-ranging and stimulating topics over the next three days, including a most intriguing subject on “Honest Lies” by Daniel Houser of the George Mason University. I wish I had the opportunity to check it out!

16. On a more serious note, more so than before, the analyses and views of economists are important to public discourse on policies. Being in the perpetually "hot” seat of transport, I can tell you how delighted I am to see cool-headed and well-researched arguments put forward by economists. Needless to say, there is also a great amount of pain when arguments are based n ot only on flawed premises but somewhat sloppy fact-finding.

17. Let me congratulate the ESS for your success in bringing together a most illustrious cast of speakers and for convening a most interesting conference.

18. I wish you all a good session ahead and all Singaporeans a Happy National Day. Thank you.