Increasing productivity key to revive growth in Asia-Pacific

To overcome these challenges, revive the region’s economic dynamism and effectively pursue the 2030 Agenda, policymakers are advised to use all available policy levers, including countercyclical fiscal policy and supportive social protection measures, which critically calls for raising domestic resources.

Such interventions would not only support domestic demand but also strengthen the foundations for future productivity-led growth by targeting areas such as: labor quality, including knowledge, skills, and health of the workforce; innovation through trade, investment and R&D; adequate infrastructure in transport, energy and ICT; and access to finance, especially by SMEs.

Fiscal measures, underpinning such initiatives, should be accompanied by sustained reforms towards efficient and fair tax systems which deliver the necessary revenues for the required investment in sustainable development

Sustained increases in domestic demand will also require steady growth in real wages. This requires linking labor productivity more closely to wage levels. Strengthening the enabling environment for collective bargaining is one necessary component in the policy arsenal of governments, with the enforcement of minimum wages as another important policy tool.

After increasing significantly over the last few decades, productivity growth has declined in recent years. This is worrying not only because wage growth has lagged behind productivity growth, but also because wage growth ultimately depends on productivity growth.

Specifically, compared to the period 2000-2007, annual growth of total factor productivity has declined by more than 65% in developing countries of the region, averaging only 0.96% per year between 2008 and 2014; labor productivity growth has declined by 30%, reaching just 3.9% in 2013.

TARGETS. The Sustainable Development Goals. Image courtesy United Nations

TARGETS. The Sustainable Development Goals.

Image courtesy United Nations

The recently-adopted Sustainable Development Goals provide an entry point to strengthen productivity. For instance, raising agricultural productivity and thus lifting rural households income must be the center of the focus to end poverty (Goal 1), to end hunger and achieve food security (Goal 2). This is because agriculture accounts for one in 4 workers in the region and more than half of the region’s people live in rural areas. Efforts to eradicate poverty and increase agricultural productivity would also foster development of the rural sector and encourage industrialization (Goal 9).

Higher levels of productivity in agriculture will also free-up labor, which would be available to work in the non-agricultural sector. It is therefore imperative to consider a broader development strategy that moves towards full and productive employment (Goal 8) to accommodate the “agricultural push” of labor.

This will require mechanisms to provide, particularly those with low skills, access to quality education and lifelong learning (Goal 4).The need to provide quality education cannot be overemphasized in view of the skills bias of modern technology, which reduces the pace of absorption of unskilled labor released from the agricultural sector.

Thus, whereas the goals will contribute to strengthening productivity, importantly, strengthening productivity will also contribute to the success of a number of the goals, creating a virtuous cycle between sustainable development, productivity and economic growth. –

Shamshad Akhtar is an Under-Secretary-General of the United Nations and Executive Secretary of ESCAP. She has been the UN’s Sherpa for the G20 and previously served as Governor of the Central Bank of Pakistan and Vice President of the MENA Region of the World Bank.