05 Jul 2013

The secret to economic development is not a technocratic matter of mastering facts and figures but a thorny process of harnessing emotions and enlightenment, along with a fierce will to execute. These factors are driving the dizzying rise of some Asian economies, with total factor productivity (TFP).


Sixty years ago, amid the Korean War, Asia was burdened with intense conflicts, poverty, and pessimism; no one could imagine how prosperous and optimistic about the future the region would be today.

So I throw up this puzzle: “What will happen in the next 60 years? What will happen in 2073?” In Asia now, we are still in the phase of “catch up” growth – many of the less developed countries in this region are in a hurry to accelerate their economic growth. For policy makers from these countries, it is a matter of learning from successful experiences.

But why countries do certain things is more important than how and what they do.

Take Singapore’s success in public housing for example. Government officials from many countries have come to Singapore to learn about this experience. However, they usually look at what Singapore has been doing without seeking to understand why. It’s a common mistake – people who come here to learn tend to look only at the things they can see – the infrastructure, the projects. But if you learn why and how – the ideas, the things unseen – the learning is more productive, more in-depth and vigorous.

It is important to identify and appreciate the “why” factors in many of Singapore’s policy successes. For example, Singapore’s investments in public housing were driven by three reasons. First, Singapore, which is not endowed with natural resources, has always considered human capital as the most valuable resource for its development. Investing in housing was one of the best ways to invest in this strategic asset. Second, Singapore’s leaders and government believed that by providing good and affordable housing to ordinary people, the country strengthens the loyalty of its citizens. Third, by proactively developing public housing, Singapore enhances the efficiency and effectiveness of its development process, especially given its scarcity in land and the complexity in its ethnic make-up.

I believe national development depends on two drivers – emotion and enlightenment. Emotion refers to the people’s aspirations, anxieties and sense of responsibility. The latter, especially applies to leaders. Enlightenment comes from freedom from ideology and dogmatism, having an open mindset, and the hunger for learning.

So these are like a bird’s wings; if they are strong, they give the power to soar. Both are a must for the development of a nation to take-off just like Japan during the Meiji Restoration and the four Asian tigers – South Korea, Taiwan, Hong Kong and Singapore, in the past five decades. For Singapore’s future, I have no doubt about the strength of its enlightenment wing. However, I believe, the country’s future success will also depend a lot on its ability to strengthen its emotional driver.

Due to the driving forces of the emotion and enlightenment, economic growth in successful Asian economies was driven not only by intensive capital formation, but was also sustained by reasonable total factor productivity (TFP) growth over extended periods. TFP is the part of GDP growth that is not due to mere additions of inputs of capital and labour. TFP growth explains why “the whole is greater than the sum of its parts”: it arises from technological progress, efficiency gains and all the positive, intangible externalities of education, a skilled workforce, and other productivity effects.

As a country becomes more advanced, its growth is driven increasingly by TFP growth. This trend has been observed prominently in the past two decades in the four tiger economies, especially South Korea and Taiwan. The share of TFP in GDP growth increased from 46.1 per cent in 1990-2000 to 54 per cent in 2000-2010 for Korea; while these two figures were, respectively, 28.4 per cent and 50.2 per cent for Taiwan, 7 per cent and 58.2 per cent for Hong Kong, and 1.7 per cent and 15.2 per cent for Singapore.

It should be noted that Singapore was the fastest-growing economy among the four tiger economies in both 1990-2000 and 2000-2010.

Singapore has been very good in learning through all the four key channels of organisational learning: competency acquisition, benchmarking against the best, experimentation, and continuous improvement. This is a major source of Singapore’s success in the past and has helped Singapore earn admiration around the world. This is the strength that Singapore should leverage even more vigorously in time to come in transforming the economy towards more innovation and knowledge-based structures.

Vu Minh Khuong is Assistant Professor at the LKY School.