WE are still in the throes of the pandemic. One World Bank study suggests that pandemic-stricken countries will experience a nine per cent slump in labour productivity after three years compared with unaffected countries. Malaysia's five per cent decline in labour productivity last year supports that conclusion.
Productivity growth worldwide is expected to be soft in the coming years as nations rebuild their economies battered by Covid-19. Paul Krugman, a Nobel laureate, argued that long-term acceleration of productivity growth — squeezing more output from available resources — is indispensable for business sustainability and economic growth.
Businesses have quickened the pace of technology adoption to boost productivity growth. In a 2020 survey, the World Economic Forum found that more than 80 per cent of global firms planned to digitalise their processes, while 50 per cent wanted to quickly automate their production.
Companies have adapted to remote work and have stepped up investments in technologies that facilitate it. In a recent survey, 95 per cent of chief financial officers felt that remote presence would become a long-term and beneficial arrangement.
Less than half our small and medium enterprises have an Internet presence even though demand has largely migrated to online platforms.
The Covid-19 pandemic has had the salubrious effect of compelling businesses to adapt their models and quicken the pace of technology adoption. This must continue with one caveat: technology should help improve workers' productivity rather than displace them.
Recognising that productivity is a potent elixir of economic growth, governments, including ours, have sought to boost it.
The following three initiatives would complement the government's efforts to accelerate productivity improvements.
First, the addiction to migrant labour must be a thing of the past. The government should be stringent on foreign-labour approvals. Such cold-turkey treatment would cause temporary disruptions to the economy. But, it will ensure that the migration to technology by companies sticks, as there is a long lag between implementation and the full realisation of a new technology's potential.
With the phasing out of migrant labour and the substitution of technology to business operations, government and businesses should invest in upskilling workers to run the technologies.
Technology would jack up production costs and cause an increase in price. Consumers should not whine when this happens. They would after all get better quality for the higher prices, and society would be spared the socio-economic problems from an influx of migrant labour.
Second, the government should continue to aggressively promote investments to bring in more sophisticated technologies to power growth and productivity. Greater tax breaks should be offered to encourage companies to invest heavily in new equipment and in research and development.
Malaysia performs poorly in R&D, spending only a third of what the Organisation for Economic Cooperation and Development spends as a share of the national output.
Additionally, more public investments are needed to unleash the economy's potential and alleviate the protractedly poor private demand.
These investments should include broadband and speedy Internet access. It should also include big-data analytics, cloud computing and artificial intelligence. Such investments would catalyse higher productivity growth.
Three, for productivity growth to quicken, resources across the economy should be shunted to areas where growth is more promising. Zombie companies that now survive on government hand-outs suck in precious resources.
These have high opportunity costs, such as the benefit foregone from not shunting such resources to more resilient companies.
The government could identify these low-productivity firms and develop a plan to weed them out with targeted social safety nets for the affected workers.
There is no silver bullet to revive productivity growth. But, there are favourable indications of a dawn of a zing in productivity growth.
The advent of Covid-19 vaccination is one.
The new Malaysia Digital Economy blueprint, together with the accelerated migration to online platforms, is another.
The bright days of productivity growth post-Covid-19 are just over the horizon.
The writer is the Institute of Medicine, Science and Technology (AIMST) University's vice-chancellor