The Global Economy in Turbulent Times

CHAPTER 112 On Productivity and Talent Management¹

For 50 years, sustained growth in Malaysia was based on ever expanding use of manpower and accumulation of fixed capital assets. Basic economics tells us that this business model will eventually give way to the law of diminishing returns: when increasing injections of labor and capital lead to lower rates of additions to output with each passing year. The message: We can’t be expected to grow efficiently by simply doing more of the same. To become an increasingly higher-income nation, we need to shift from the “old” resource-based economy to one that is innovation led. Empirical evidence suggests the old strategies have delivered steadily worse results.

On the other hand, innovation is known to have driven one-half of US productivity growth over 60 years. Notes the McKinsey Global Institute: Those innovations—in technology as well as products and business processes—boosted productivity. For us, only innovation can be relied upon to drive exponential growth. By innovation, I mean fresh thinking and approaches that add value to consistently create wealth and social welfare. In the end, innovation drives productivity, and productivity drives the flow of real income. History teaches that a burst of productivity growth can make the years ahead much more prosperous. With higher pay, workers can still save and yet have enough left over to spend more to raise living standards.

Productivity

However, economics is unsure about the predictability ...