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