Robots have made Singapore a modern manufacturing success

James Lambert is director of economic consulting for Asia at Oxford Economics in Singapore.

Manufacturing industries across the world are facing a trifecta of extreme challenges in the wake of economic and geopolitical turbulence: soaring inflation, shortages of labor and supply chain delays.

Yet in the face of these hurdles, Singapore’s manufacturing sector is going from strength to strength. The country is one of the few in modern history to have succeeded in reversing the decline in the manufacturing sector’s share of gross domestic product.

The secret of Singapore’s success can be found in one word: robots.

The country’s move toward automation has not been a short-term fix. Rather, it is the result of the little city-state embarking on a long-term plan that led to the creation of the perfect environment for high-tech manufacturing.

Singapore has taken a number of farsighted steps to establish itself as the host of the second-most robot-intensive manufacturing sector in the world, behind only South Korea. This has included cultivating world-class talent assiduously over the decades with initiatives such as sponsored research partnerships with well-funded local universities and subsidized worker training.

It has ensured its attractiveness to multinational investors by running an open economy allowing foreign direct investment and intermediate goods to flow in and exports to flow out, seamlessly and cheaply to a vast Asian market. It is also recognized as a regional haven of intellectual property protection.

In addition, the government has heavily incentivized global manufacturing and engineering companies to build advanced production facilities on the island and offers grants to local companies that work with them, leading to knowledge acquisition and access to cutting-edge technologies.

This means that when leading global manufacturers are looking to develop new facilities, there are a lot of reasons for putting them in Singapore.

Robotic automation, though, presents a dilemma. While the use of robotics increases productivity and boosts output in the manufacturing sector, it can displace workers from traditional factory jobs and exacerbate income inequalities.

According to a study by Oxford Economics, each robot installed in a lower-income area displaces an average of 2.2 factory workers. But in higher-income areas of the same countries, the displacement average is just 1.3 workers.

Politicians have to weigh up the distribution of costs and benefits. In the U.S. and Europe, there is a strong political imperative for industrial policy to boost wages as well as profits, and the spirit of reviving manufacturing is aligned with creating new jobs.

In Singapore, even though manufacturing employment has shrunk for eight years in a row, the social costs of robotic automation have been displaced onto foreign migrant workers.

While automation creates winners and losers in the workforce, Singapore’s labor market is skewed toward the winners: 60% of its manufacturing workers are classified as highly skilled, and their share is growing.

Singapore may be relatively unique, with its tiny land mass, highly educated population and world-class infrastructure, but its successful exploitation of robots still offers lessons for the wider world.

The first is the need for long-term strategic planning, something often absent from larger advanced economies that respond to countervailing pressures from business, finance and labor unions. The U.K., for example, in 2021 abandoned the industrial strategy it had put in place four years earlier in favor of a different approach.

A rare example of coherent forward-looking planning in the West though can be seen in the passage by the U.S. Congress of the CHIPS and Science Act last July to provide $52 billion in subsidies for chip manufacturers and a further $100 billion for technology and science investment.

Another ingredient in Singapore’s recipe for success has been its tie-up between industrial policy, the education system, specialist training institutions and the business ecosystem. On top of that has been public investment to promote academic research on advanced technologies, tax breaks for businesses investing in their technological capabilities and programs to raise the skill levels of the workforce.

There is a limit to how much a continental-sized economy like the U.S. or the European powerhouse of Germany, with their diverse manufacturing bases, can learn from a city-state economy.

But Singapore’s example shows that targeting government investment toward the long-term acquisition of new manufacturing technologies, improving education and skills levels and expanding the social safety net to catch those directly affected by technological transitions can place the manufacturing sector on a growth footing.

By taking a long-term perspective and embarking on a coherent plan, businesses and governments can exploit the benefits of robotics while helping vulnerable workers prepare for and adapt to the upheaval that automation can bring.

A version of this article was first published by Nikkei Asia on Oct 24 2022.©️ 2022 Nikkei Inc.
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