SINGAPORE PRODUCTIVITY AND STANDARDS BOARD BILL

Order for Second Reading read.

The Minister of State for Trade and Industry (Mr Goh Chee Wee): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

During the Committee of Supply debate in March this year, the Minister for Trade and Industry explained to this House that, as our economy develops, it is critical for Singapore to seek greater qualitative improvements as opposed to sheer expansion in inputs. Singapore can no longer rely on growth achieved through increases in labour and capital resources. As Singapore moves towards the status of a developed country, a key challenge is to generate growth through more efficient and effective use of labour and capital. The qualitative improvements in the use of resources are known as Total Factor Productivity (TFP).

In most developed countries at the same stage of development as Singapore is in now, TFP growth averaged 2% to 4% a year. However, for the period from 1980 to 1992, annual TFP growth in Singapore only averaged 0.4%. There is scope for our economy to be strengthened through improved TFP performance. Singapore should therefore aim to achieve annual TFP growth similar to that of the developed countries of at least 2%. This will help to sustain a productivity growth of 4% and GDP growth of 7%.

During the debate, the Minister also announced that a multi-agency task force had been set up to look into the strategic reorganisation of productivity and quality efforts currently undertaken by NPB, SISIR and EDB. The task force had completed its deliberations. The task force noted that while there are different agencies addressing the various determinants of TFP separately, there is at the moment no single agency that is primarily responsible for TFP. The key recommendation that arose from the task force's deliberations was the setting up of a statutory board to be responsible for promoting TFP. The Bill before the House today is to establish the legislative framework for this new Board which will be called the Singapore Productivity and Standards Board (SPSB). We are targeting to establish the SPSB on 1st April 1996.

The SPSB will absorb the functions of NPB and SISIR and integrate EDB's small and medium-sized enterprise (SME) development function. Its primary mission is to promote TFP growth and, through it, help to enhance our economic competitiveness. SPSB will adopt a holistic management of the main factors that have direct bearings on TFP growth. The three factors have been identified to be manpower development, economic restructuring and technical progress. These factors are very much inter-related and their overall impact on TFP growth depends very much on how well they are integrated and managed.

Being the executive body responsible for TFP, SPSB will develop an overall plan, formulate policies and strategies, develop programmes, and manage incentive schemes related to manpower development, economic restructuring and technical progress.

To constitute SPSB, we need to enact the Singapore Productivity and Standards Board Bill and repeal the National Productivity Board Act and the Singapore Institute of Standards and Industrial Research Act.

I now move on to the key aspects of the Bill.

Clause 5 of the Bill provides for the constitution of the SPSB's Board. An amendment to the Bill will be moved so that the Board of Directors will have between 8 and 18 members, including the Chairman and the Chief Executive. The constitution of the Board is tripartite, which is a feature retained from the existing constitution of NPB's Board. However, the restriction on the number of members that can represent Government, employers, trade unions, and professionals and academia are removed for added flexibility. The number of Board members has also been increased for greater flexibility too. The Minister will appoint the Chairman and members of the Board. As for the appointment of the Chief Executive, clause 12 requires that Minister's approval be sought by the Board.

Clause 6 sets out the functions of the Board. The key function of SPSB is to raise productivity and improve competitiveness through manpower development, economic restructuring and technical progress.

In the area of manpower development, SPSB will promote, facilitate, and assist in the development and upgrading of skills and expertise of persons preparing to join the workforce, persons in the workforce and persons rejoining the workforce. It will also take over the administration of the Skills Development Fund from the NPB. These functions are set out in clause 6(1)(b) and (c).

On industry development, its efforts will be in the development and upgrading of industry and enterprises and the support of the growth of small and medium enterprises. Clause 6(1)(d) of the Bill sets out this function.

In the area of technical progress, clause 6(1)(e) provides that SPSB will take over SISIR's role as the national standards body and serve to promote and facilitate the national standardisation programme and the participation of Singapore in international standardisation activities. It will also encourage the development, application and diffusion of technology in industry.

SPSB is empowered, inter alia, via clause 7 of the Bill, to establish and operate schemes considered necessary for furthering its functions. It will have powers to form and participate in any joint ventures and form companies. Clause 7(1)(r) allows SPSB to take over the administration of the Local Enterprise Financing Scheme (LEFS) from the EDB.

SPSB is also allowed to invest its funds. Clause 19 of the Bill provides for this power.

SPSB's operations and programmes will be funded by the Government and revenues from SPSB's activities. Clause 21 enables Government grants to be made to SPSB while clause 22 allows for SPSB to raise loans from the Government or, with the approval of the Minister, from banks and other financial institutions, if such a need arises.

Provisions have been made in clauses 24 to 29 of the Bill for assets, interests, rights, privileges, liabilities and obligations of NPB and SISIR to be transferred to SPSB. Staff in the two organisations will also be transferred to SPSB.

The formation of SPSB is a significant milestone in the Government's efforts to promote productivity growth. The adoption of a holistic approach to the management of TFP will bring about more efficient use of our labour and capital resources which, in turn, will contribute towards sustained productivity growth, competitiveness and economic progress.

The Bill before the House sets out the legislative framework to enable SPSB to carry out its mission. Total Factor Productivity growth is an imperative for Singapore's future economic development. The establishment of SPSB will put us in a favourable position to meet global competition, through an integrated approach of improving the quality of our workforce and capability of our industries.

Sir, I beg to move.

Question proposed.

Dr Ow Chin Hock (Leng Kee): Mr Speaker, Sir, I support the Bill. I would like to seek some clarification and ask some questions.

This Bill sets out the functions of the proposed Singapore Productivity and Standards Board (SPSB) in clause 6 and its powers in clause 7. The objective and mission of this new Board are not stated in the Bill. However, from the report of the Task Force on Institutional Reform for Productivity and Quality Improvements, which was released on 1st November 1995, it is obvious that the SPSB's mission is to increase Total Factor Productivity (TFP) growth; and through increase in TFP, help to enhance Singapore's economic competitiveness.

We need to look at this Bill in a wider context. Here we need to address two issues: why and how to increase TFP growth? Specifically, how would the institutional reform contribute to TFP growth? On the first issue, our economic growth in the past 35 years has been input-driven by injecting into the economy more labour, and subsequently, more capital. This has brought about rapid economic growth. However, this pattern of growth cannot be sustained in the future because of labour shortage, keener competition for foreign investments, and diminishing returns on larger capital investments. From now on, our economic growth will have to increasingly depend on the increase in TFP, a performance indicator of how effective and how efficient we use our human and capital resources.

The past performance of the TFP growth has been poor, as the Minister of State has just mentioned. From 1980 to 1992, TFP grew by only 0.4%, and, if I may add, it contributed only 10% of Singapore's overall productivity growth; the other 90% came from increase in capital-labour ratio. If we break this period into two sub-periods: from 1980 to 1986, the average growth rate of TFP was negative (-0.8%); the increase in capital intensity (by 10%) made up for this poor performance of TFP to increase the overall productivity growth by 4.7%. However, from 1986 to 1992, the TFP grew by 1.7% while capital intensity by 3.6%. Now the target for TFP growth is set at 2% per annum in order to sustain a 7% GDP growth, up to the year 2000. Whether this is achievable depends on the improvements made on the determinants of TFP growth.

I now turn to the second issue on how to raise TFP. The Task Force report listed five determinants of TFP growth: (a) education and training; (b) economic restructuring; (c) technical progress; (d) changes in capital structure; and (e) intensity of demand. The report emphasized on the first three factors and recommended "a holistic approach to manpower development, economic restructuring and technical progress". Sir, conceptually, TFP growth is determined by productivity changes of the factors of production (ie, labour and capital) and technical change. Education and training' increase TFP through labour, changes in capital structure' raise TFP through capital, and technical progress' increases TFP by shifting the entire production function, ie, increasing value-added or output for a given bundle of resources, that is, labour and capital combined. Hence, economic restructuring' and `intensity of demand' cannot be treated pari passu with the other three determinants of TFP.

While the Task Force report correctly observed "there is a limit to which we can realistically influence demand intensity because of our heavy reliance on international market", it nonetheless places much emphasis on `economic restructuring' as one of the three key factors which has direct bearing on TFP growth in the future. Economic restructuring involves reallocation of resources from low value-added, low-technology economic activities to high value-added, high-technology activities. But such reallocation of resources is conceptually different from the improvements of the quality of labour and capital, and technical progress.

Sir, more important than the conceptual difference is that the scope and strategy of economic restructuring are well beyond the powers and functions set out for this new agency. Although the Task Force Report indicated that the SPSB will focus on economic restructuring', in-employment training' and technical progress' to achieve its mission, the scope of SPSB's work under economic restructuring' is in fact confined to development of small-and-medium-sized enterprises (SMEs), a function taken over from EDB. Similarly, the scope of SPSB's work under `technical progress' will be limited to technology development, application and commercialization, and also standardization and quality infrastructure, and other functions under the current SISIR. R&D activities and technological infrastructure will remain in the domain of the National Science and Technology Board (NSTB) and its related research institutes and centres.

This brings out some specific questions concerning the institutional reform. Both the National Productivity Board and SISIR grew out of EDB, and developed into two separate statutory boards in 1972 and 1973 respectively. There was a need to carve out some functions hitherto under EDB to create these two new Boards in the early 1970s. So my first question is: What is the compelling reason for merging these two Boards now? Specifically, in what way will the merger of these two statutory boards contribute to a faster TFP growth than if the two agencies were to continue to function separately? After all, the SPSB will still have to work and coordinate its efforts with other agencies such as EDB, NTSB, and so on, to raise TFP. Second question: Should the functions of SISIR be merged with NTSB instead of NPB as both agencies have been dealing with different aspects of technical progress? Third question: Should a separate new agency be established to take over the development and upgrading of local enterprises, instead of submerging this important role under SPSB? If we intend to develop a strong domestic sector, there should be a holistic approach to help local enterprises grow. Lower productivity is but one of the problems faced by local enterprises. Will a separate agency, focusing on the local enterprises, be more effective in helping local enterprises grow?

Sir, a final question: Why was the Task Force Report not given to my GPC members and me on or before 1st November 1995 when it was released to the press?

Dr Lee Tsao Yuan (Nominated Member): Mr Speaker, Sir, I support the creation of the Singapore Productivity and Standards Board. The merger of NPB, SISIR and SME's development function of EDB into one organisation with a comprehensive mandate to improve productivity and quality standards will bring about positive synergies.

I would like to highlight three areas for the Board's consideration when it is formed. First, its role in the development of SMEs; second, the use of Total Factor Productivity growth measures as a policy objective; and third, the need for good institutional relationships.

First, SME development. The Bill states that one of the functions of the Board is "to promote, facilitate and assist in the development and upgrading of industry and enterprises and support the growth of small and medium enterprises". The Task Force Report on Institutional Reform for Productivity and Quality Improvements explains that the Board will have a local enterprise upgrading centre which will be a first-stop centre for SMEs and which will implement a number of schemes currently under the EDB. However, SME development is only one of the 10 functions of the Board, as stated in the Bill. My concern is whether SMEs will be given sufficient attention. Would SME development be lost in the multiplicity of functions of the Board?

The challenge for the proposed Board is to deliver development support to SMEs more expeditiously, effectively and graciously. With the new synergies arising from the merger of NPB and SISIR, it has more inherent capabilities under one roof to do so. Since it is a new institutional set-up, the Board might want to come up with a new statement on SME policy and what it will do as a first-stop centre for SMEs. In this regard, I believe that SME policy in Singapore has to strike a balance between two extremes. The first extreme is that of a hands-off attitude on the part of the Government where SMEs are left to fend for themselves. In the Darwinian world of business competition, if they survive and grow, good for them. If they are unable to compete, too bad. The Government would take care of overall macro-economic stability but would not be involved in any specific programmes to assist SMEs. This is a policy of benign neglect. You swim, or you sink, at your own peril.

The other extreme is that of molly-coddling SMEs to the point of heavily subsidising them in the form of preferential credit, generous investment allowances, and so on. This situation is entirely possible as SMEs often elicit much public sympathy. They are often perceived in some countries, and in Singapore as well, who need help because they are competing against the "big boys" and that the playing field is not level.

The Singapore Productivity and Standards Board in achieving its stated function of promoting SMEs should neither neglect nor molly-coddle them. Instead, the purpose of the Board should be to facilitate SME development in such a way as to promote healthy and viable SMEs. Its basic orientation should be to help SMEs become competitive by skills training, technology development or other means of upgrading their productivity. After all, the SME of today could well be the local MNC of tomorrow.

I hope that the transfer of SME development functions to the proposed Board would result in greater effectiveness in SME development, not less. While the Board would, of course, not devote all its resources exclusively to SME development as it has other responsibilities, I also hope that, since SME development is only one of the 10 functions of the Board, it would not devote only one-tenth of its resources to SME development.

My second point concerns the approach to TFP and the use of TFP growth targets. The concept of TFP is a good one, that is, output growth comes not just from the bootstraps approach of the growth of inputs alone, but by increases in the productivity of all factors. As a productivity concept, it is superior to that of labour productivity which emphasises the productivity of one input alone - labour. While I support the promotion of TFP as a concept, I would caution against the use of short-term TFP growth targets.

I note in the most recent NPB's Annual Report that with the revised GDP growth estimate of 7%, up to the year 2000, labour productivity growth is expected to be at least 4% annually. NPB's objective is that a 2% average growth in TFP is needed to sustain the 4% labour productivity growth. The use of such TFP growth targets causes some concern. First, TFP growth is a black box. Nobody knows for sure why TFP growth is high or why it is low, although one can generally say that innovation and technological developments, as well as economic restructuring, from low to high-value added sectors, such as from agriculture to manufacturing, are positive contributors to TFP growth. Exactly what the relationship is. For example, that an X% increase in R&D spending would lead to a Y% increase in TFP, nobody can quite say. While policy too, such as technology development and in-employment training, would have positive effects on TFP growth, we do not know what the time lag is, if any, and what the exact relationships are.

Second, in growth accounting methodology, TFP growth is often computed as a residual, that is, output growth minus the sum of input growth. As such, TFP growth is often sensitive to the business cycle. More specifically, TFP growth figures are often pro-cyclical, rising on the upturn of the business cycle and falling on the downturn when companies tend to engage in labour hoarding in expectation of an upturn in their business activities. This is also the same with labour productivity growth figures. What this means is that in a good year, TFP growth is high, the Board at MTI can breathe a sigh of relief. In a bad year, TFP growth is low, alarm bells ring and there is a rush to find out what the causes for this are. In actual fact, this would be what one would expect because of the business cycle.

Third, TFP growth measurement is fraught with difficulties and inaccuracies. To name but one, Singapore does not have a capital stock benchmark because we do not have a wealth survey. I doubt if we will ever have one. I shall not elaborate on the other difficulties here. But having computed these numbers for both the manufacturing industry and the Singapore economy, I fully realise what heroic assumptions have to be made to compute TFP growth in Singapore. While I support the move to measure TFP on an annual basis, I suggest that TFP growth figures should not be used as an annual target but as a medium term one, say, average over five years or so. It should be used as a record of productivity performance in the medium or long term, not in the short term, or from year to year. For example, it is useful to know that Singapore's TFP growth performance in the 1960s, 1970s and the first half of the 1980s was poor but has been better since then. Unlike GDP growth figures, it is less useful for me to know what the TFP growth was in 1994 or what the forecasted TFP growth will be in 1995.

My third point concerns the continued need for good institutional relationships. For example, the Board, as a first-stop centre for SME schemes, would administer some schemes itself but it would also refer SMEs to other agencies, such as the promising local enterprises scheme of the EDB. It is therefore important for the Board to maintain good working relationships with other agencies, particularly those whose sanctions overlap as in the area of SMEs and technology. This is to ensure that companies do not get caught up in any inter-agency rivalries that could occur in the future. In addition, the Board's mindset should be one where companies are regarded like clients to be treated with respect and to be helped.

To summarise, I have made three comments regarding the function of the proposed SPSB, ie, SME development, TFP growth and the need for good institutional relationships. I support the Board's establishment and the Bill.

Mr Goh Chee Wee: Mr Speaker, Sir, I would like to thank the GPC Chairman, Dr Ow Chin Hock, and NMP Dr Lee Tsao Yuan who spoke in support of the Bill. Both Members have asked a number of questions and I will try to respond to the questions raised.

Dr Ow asked what is the compelling reason for the merging of NPB and SISIR now and in what way will the merger contribute to a faster TFP growth. Sir, I have already explained in my speech the rationale for the creation of a new agency, SPSB. There is a need to make strategic reorganisation of our productivity and quality improvement efforts to meet global competition. We have to improve our TFP growth and we are attempting to achieve this by integrating the functions of NPB, SISIR and SME development function of EDB. In this way, we can take a holistic approach in promoting TFP.

Let me give you an example of how the synergy between SISIR and NPB could be developed by having a single institution. A primary role of SISIR is to promote the application of technology in industry, and the NPB's role is to provide and promote workers' training. The new Board, SPSB, will coordinate the two functions to ensure that the level of technology promoted to industry could be supported by the skills level of the workforce. So this is just one example.

Dr Ow also asked whether the functions of SISIR should be merged with NSTB instead of NPB. My answer is that merging SISIR and NSTB will not address the primary need of creating a single institution or agency to promote TFP. It is only by merging SISIR and NPB that we can bring the key components of TFP which are manpower development, economic restructuring and technical progress under the purview of a single institution. But I can assure the Member that SPSB will maintain close links with NSTB and other technology providers to secure access of the appropriate technology to the industries.

Dr Ow expressed concern that SPSB may not be able to pay sufficient attention to the development of SMEs and asked if a separate agency responsible for local enterprises could be set up. Sir, I can assure the Member that upgrading the local enterprises will be a key function of SPSB and it is for this reason that we are setting up a Local Enterprise Upgrading Centre within SPSB. It will serve as the first-stop centre for SMEs. The Centre will tap on the resources of not only SPSB itself but also those of the other competent agencies.

Finally, Dr Ow asked why the Task Force Report was not given to members of the GPC earlier. Sir, the Task Force Report was released to the public during the press conference and the public can actually ask for a copy of the Report from the Ministry. This Report was subsequently given to Members of the GPC. But I think the point made by Dr Ow is why was the Report not given to members of the GPC at the time of the press conference. This point is noted.

Let me now turn to the questions raised by Dr Lee Tsao Yuan. Dr Lee has also expressed concern whether SMEs would be given sufficient attention in the new organisation in view of the multiplicity of functions of the Board. I have already given the assurance that the development of SMEs will be one of the key functions of SPSB and the needs of SME will not be neglected. The Board will not devote only one-tenth of its resources to SME development, as Dr Lee feels that that could be the case. I must explain that although only one of the 10 functions listed in the Bill is expressly to develop SMEs, other functions listed in the Bill, like manpower development and technology application, will also benefit SMEs.

Dr Lee also spoke of the need for SPSB to maintain good working relationships with other agencies. I fully agree with her. Without close coordination and cooperation with other agencies which have the required expertise, SPSB will not be able to perform its functions effectively.

Dr Lee also touched on the subject of TFP and suggested that TFP growth figures should not be used as an annual target but as a medium term one. I would like to clarify that the TFP growth target of 2% mentioned in my speech is meant to be a longer term target and not an annual one. We recognise that the measurements of TFP growth are sensitive to the business cycle, as rightly pointed out by the Member. SPSB's focus on TFP, including the publication of the estimates, will bring attention to the factors that determine TFP and set our efforts in the right direction.

Sir, I believe I have answered all the questions raised by Members.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. - [Mr Goh Chee Wee].

Bill considered in Committee.

[Mr Speaker in the Chair]

Clauses 1 to 4 inclusive ordered to stand part of the Bill.

Clause 5 -

Mr Goh Chee Wee: Sir, I beg to move,

In page 4, line 23, to leave out "12" and insert "16".

The SPSB Bill originally provides for the Board to have between 6 and 12 members, excluding the Chairman and the Chief Executive. This is the same number as that allowed in the National Productivity Board Act. In view of the wide-ranging functions of SPSB, it is proposed that the size of the Board be expanded to have a maximum of 16 Board members, excluding the Chairman and the Chief Executive. Increasing the size of SPSB Board will allow it to have adequate representation from the various bodies who have an interest in and who can contribute to the work of SPSB. This would include the Government, unions, professionals, training institutions, local enterprises and foreign multi-national companies. Maintaining a good network and receiving multi-angle inputs from members of different background will benefit the work of SPSB.

Amendment agreed to.

Clause 5, as amended, ordered to stand part of the Bill.

Clauses 6 to 44 inclusive ordered to stand part of the Bill.

First to Third Schedules ordered to stand part of the Bill.

Bill reported with an amendment; read a Third time and passed.