Why Singapore is deemed the most competitive economy globally but still can do better
SINGAPORE,. Singapore has climbed to the top of the annual world rankings for competitiveness by the World Economic Forum (WEF), beating the United States, Hong Kong and the Netherlands to the spot.
Previously, it was the second most competitive economy behind the US in last year’s WEF Global Competitiveness Report, which evaluated countries along 12 basic pillars, including the strength of their institutions, capability for innovation and workforce skills.
However, the 666-page report that was released yesterday also said that Singapore needed to do more to improve worker skills, and that “its performance is undermined by limited checks and balances, and a lack of commitment to sustainability”.
For all nations, the WEF highlighted other focus areas beyond economic growth: Tackle the problem of inequality using inclusivity, and work together towards a sustainable environment.
The report assessed 141 countries, covering 99 per cent of the global economy this year.
The WEF is a Swiss non-profit organisation best known for its high-profile annual meetings of top business leaders and politicians.
Professor Klaus Schwab, its founder and executive chairman, said that the findings serve as an annual yardstick for policymakers to look beyond short-term and reactionary measures and, instead, measure against a full set of factors affecting productivity.
In May, Singapore was similarly ranked ahead of the US and Hong Kong in a report by the Switzerland-based think-tank IMD World Competitiveness Centre, which covers fewer countries.
How Singapore stacks up
Competitiveness, a concept in accounting theory, means the attributes and qualities of an economy that allow for a more efficient use of the factors of production — namely capital and labour.
Increasing productivity in any nation is the most important factor driving economic growth, and there is strong evidence showing that sustained economic growth is “the most effective way to lift people out of poverty and increase their quality of life”, the report noted.
With the latest results, policymakers may see how their countries are shaping up in 103 indicators surveyed or tracked by the WEF and aggregated to 12 pillars that determine the country’s competitiveness.
Based on this, countries are given scores from zero to 100, with 100 being the point at which the issue stops being a constraint to productivity growth.
Here is how Singapore fared:
Institutions (80/100, 2nd in the world)
Infrastructure (95/100, 1st)
Info-communications technology adoption (87/100, 5th)
Macroeconomic stability (100/100, tied for 1st)
Health (100/100, tied for 1st)
Skills (79/100, 19th)
Product market (81/100, 2nd)
Labour market (81/100, 1st)
Financial system (91/100, 2nd)
Market size (72/100, 27th)
Business dynamism (76/100, 14th)
Innovation capability (75/100, 13th)
On aggregate, Singapore scored 84.8, ahead of the US (83.7), Hong Kong (83.1), the Netherlands (82.4), Switzerland (82.3) and Japan (82.3).
The next highest South-east Asian nation, Malaysia (74.6), is ranked 27th in the world.
However, WEF said that this year’s report showed how large the competitiveness deficit is, with many advanced economies still lagging by 30 points from the ideal of 100 points.
“Singapore, the best performer overall, still falls 15 points short of the ideal,” it noted.
How Singapore could do better
The report highlighted a few shortcomings:
1. Skilled workforce
Singapore has achieved a high skills base, ranked 19th in the world. In order to become a global innovation hub, it will need to promote entrepreneurship and further improve its skills base.
2. Limited checks and balances and freedom of the press
Singapore’s public institutions rank second in the world, behind Finland. But its performance in this department “is undermined by limited checks and balances”, which scored 23rd in the world.
In terms of freedom of the press, Singapore was ranked 124th out of 141 countries. It is 14th in the world for judicial independence, and 15th in the legal framework to challenge regulations.
3. Lack of commitment to sustainability
Singapore is 66th in the world for its commitment to environmental sustainability. It came in 62nd for the regulation of renewable energy, and 119th for its number of environment-related treaties currently in force.
4. Ratio of salaried female workers to male workers
Singapore is first for diversity of workforce. However, its ratio of female to male workers at 0.89 is 31st in the world.
5. Ease of hiring foreign labour
Singapore is top in co-operation in labour-employer relations. But it is 93rd in the world in the ease of hiring foreign labour, and 18th for workers’ rights.
In a Facebook post, Trade and Industry Minister Chan Chun Sing wrote that Singapore’s ranking at the top of the table is encouraging news, reflecting “how our strong fundamentals have continued to distinguish us from the competition”.
He added that Singapore cannot take things for granted: “We must persevere with our collective efforts to stay ahead in light of the current economic uncertainties improve the capabilities of our enterprises, transform our industries and ensure that our workers are well-equipped with the right skills to stay competitive.”
What’s next beyond growth
Beyond economic competitiveness, Prof Schwab of WEF said that world leaders must work towards growth, inclusion and sustainability”, stating that there is a “clear moral case” for a focus on the environment and on inequality.
1. The environment
The WEF found no inherent trade-offs between economic growth and social and environmental factors, but there is some evidence showing that failing to address the environmental tipping points will affect productivity.
Prof Schwab said that bold leadership and proactive policy-making will be necessary “in areas where economists and public policy professionals cannot provide evidence from the past.
Suggested approaches include giving incentives for green research, carbon taxes and subsidies, as well as international collaboration to tackle environmental challenges.
Highly competitive economies that have greater access to technological progress are better positioned to smoothen the difficult transition to a low-footprint economy, the report also said.
Based on the average number of “green patents” registered in 2014 and 2015, Singapore has one of the lowest number of environmental-related technology inventions per capita — fewer than 20 — for a country that has scored highly in the overall WEF competitive index.
While globalisation has been beneficial to overall global growth, WEF noted it has also increased inequality within countries, by transferring low-skilled jobs in high-productivity sectors from advanced economies to developing countries, which are mainly in Asia. This could penalise the workers in these developing countries.
In summary, inequality has these effects:
People who are not benefiting from globalisation could have a change in attitude to not contribute to society in the same way as they would otherwise.
Erosion of trust among stakeholders in society, such as between the government and the people.
Creation of a polarised society, the rise of extremism and the weakening of social fabric, potentially leading to social unrest and political instability.
The belief among people that this unfairness stems from capitalism, leading to the conviction that economic liberalism has failed to deliver on the promise of widespread prosperity.
WEF said that inequality should be seen as a result of these policy choices:
Deregulated labour markets and finance, changing tax codes and public investments — with little attention to how it worsens income distribution.
Insufficient action to prepare workers and businesses for technological shifts.
It recommended several policy efforts, including these:
Enhance access to opportunities to include disadvantaged households and underprivileged ones.
Foster fair competition and level playing fields. If many firms compete in the markets, prices are lower — benefiting consumers — and stronger competitive pressure translates into greater innovation and more investments and jobs.
Update tax systems to become more progressive. When it comes to personal income, “restoring greater tax progressivity” to tax the rich more should allow for more equitable income distribution “without significant losses to economic activity or productivity”, WEF said. — TODAY