To what extent should the Singapore government focus on promoting inclusivity rather than boosting productivity in its efforts to achieve higher economic growth?
Productivity forms the foundation for improving a country’s standard of living, as it drives income generation, job creation, and overall economic growth.
b. To what extent should the Singapore government focus on promoting inclusivity rather than boosting productivity in its efforts to achieve higher economic growth? [15]
Introduction
Economic growth is a key objective for governments worldwide, as it enhances national income, creates jobs, and improves the overall standard of living. In Singapore, productivity growth is often seen as the cornerstone of economic expansion, as it increases the economy’s productive capacity, boosts investment, and raises real national income. However, a strong focus on productivity-driven growth may lead to increased income inequality, particularly if automation and technological advancements displace low-skilled workers. In contrast, prioritising inclusivity through wealth redistribution and social policies can help address economic disparities and ensure that the benefits of growth are equitably shared. While there may be trade-offs between productivity enhancement and inclusivity, both objectives can be pursued simultaneously through well-designed policies.
Why prioritise raising productivity
Increasing productivity allows firms to produce more output using the same amount of inputs, thereby expanding the country’s productive capacity. This results in potential economic growth, reflected in a rightward shift of the Long-Run Aggregate Supply (LRAS) curve from AS0 to AS1. When an economy is operating near or at full employment, an increase in productivity leads to a rise in real national income (NY) from Yf0 to Y1, thus driving higher economic growth.
Productivity-driven growth can also reduce production costs for businesses, making investment in capital expansion, research, and development more attractive. Greater investment increases Aggregate Demand (AD) from AD0 to AD1, leading to a further increase in employment opportunities and real national income from Y0 to Y1.
While raising productivity enhances economic growth, it can also lead to increased income inequality due to job displacement and wage stagnation for low-skilled workers. Automation and technological advancements often replace routine and repetitive jobs, leading to a decline in demand for low-skilled labour. As a result, wages for low-skilled workers may fall, while wages for high-skilled workers in technology and automation-related fields increase, widening the income gap. This could contribute to social tensions and reduced social mobility, particularly if displaced workers struggle to acquire the skills needed for new job opportunities.
Why prioritise inclusiveness
Promoting inclusivity through progressive taxation and social transfers can help sustain long-term economic growth by boosting consumption and reducing wealth disparities. Redistributive policies such as higher taxes on high-income earners and increased transfer payments to lower-income households can raise their disposable income and purchasing power.
Since lower-income households have a higher marginal propensity to consume (MPC), an increase in their income leads to greater consumption expenditure, stimulating demand-driven economic growth through an increase in AD from AD0 to AD1 and resulting in a consequent increase in real national income from Y0 to Y1.
However, in Singapore’s open economy, a large proportion of additional consumption may be spent on imports, which reduces the effectiveness of such policies in driving domestic economic growth.
Although inclusivity can support economic growth, some measures aimed at reducing income inequality may conflict with efforts to increase productivity. Raising personal income taxes on high-income earners and businesses to finance social transfers may discourage foreign talent from working in Singapore.
The presence of high-skilled foreign workers plays a crucial role in technology transfer and skills development for local workers. A reduction in foreign talent inflows could slow productivity growth, limiting Singapore’s long-term economic potential.
Additionally, excessive social spending could lead to fiscal imbalances, requiring higher government borrowing or reduced investments in productivity-enhancing sectors such as research and development.
There are no inherent conflicts between the two
Rather than prioritising one over the other, Singapore can adopt policies that promote both inclusivity and productivity growth simultaneously.
The government can implement supply-side policies such as subsidies for retraining and skills upgrading programs, ensuring that low-skilled workers are equipped with relevant skills for a more automated and knowledge-based economy. Increased investment in education bursaries and scholarships for children from low-income households can improve social mobility, bridging the income gap over time.
Policies that incentivise businesses to adopt automation while retaining and retraining workers can increase productivity without causing mass unemployment. For example, wage support programs or grants for technology adoption that require firms to reskill existing workers can help balance productivity growth with employment stability.
Instead of relying solely on higher taxation, the government can fund social welfare programs through targeted fiscal measures, such as using revenues from GST increases and sovereign wealth fund returns. This ensures that inclusivity measures remain sustainable while minimising negative effects on productivity and foreign talent retention.
Conclusion
Both productivity growth and inclusivity are essential for Singapore’s long-term economic sustainability. Raising productivity is crucial for expanding economic capacity, increasing real national income, and driving long-term investment and innovation. However, an overemphasis on productivity without inclusivity can lead to widening income inequality, job displacement, and social unrest. Prioritising inclusivity through redistributive policies and skills upgrading initiatives can help ensure that the benefits of economic growth are evenly distributed, reducing inequality while sustaining economic momentum. Rather than choosing between inclusivity and productivity, Singapore should pursue a balanced approach that integrates both, ensuring sustainable and equitable economic growth.
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