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Asian Development Outlook 2003 : III. Competitiveness in Developing Asia
Education and Skills
Since the 1980s, the labor market in industrial countries has shown a remarkable development in terms of the increase in demand for skilled labor relative to unskilled labor, accentuated by the creation of the knowledge society (Drucker 2001). Productivity growth, innovation, and product quality rest critically in the hands of skilled workers and, therefore, lack of educational opportunities and training has serious consequences for any economy, including high unemployment (or disguised unemployment), low growth, insufficient innovation, and poor product quality. A second labor market development, a product of the forces of technological change and international trade, is the continually changing nature of jobs and the appearance of new job categories. Consequently, skills become obsolete quickly. These two developments have begun to be seen in developing Asia, where they reflect the skill bias of technological progress as well as the changes in the product demand mix toward more sophisticated goods and services. Three factors explain the phenomenon: (i) the "computer revolution" has raised the demand for highly educated workers; (ii) the rise in the demand for professional, managerial, and technical services has raised the demand for skilled labor; and (iii) MNCs in industrial countries initially imported products intensive in unskilled labor from developing countries. Today, however, these firms have realized that many developing countries in Asia have a large pool of well-trained and highly skilled workers (engineers and scientists) that can perform jobs currently performed by substantially better-paid engineers in industrial countries. Different countries are being affected by these developments in different ways depending, among other factors, on their labor market institutions. Yusuf and Evenett (2002) argue that both the supply and quality of education and skills underpin the long-term ability of countries to assimilate and master new technologies. Education helps to increase the science and technology (S&T) "absorptive capacity" of a nation, enabling it to benefit from S&T inputs from a multitude of sources. (In GVCs, these sources include the spillover effects of MNC investment, licensing, the ability to learn within GVCs, and acquiring knowledge during the import of essential capital goods.) Local industries' S&T absorptive capacity is partly determined by the availability of high-quality human capital (Cohen and Levinthal 1989) and indeed, such human capital enabled the NIEs rapidly to assimilate and master new production processes; it also enabled them to innovate. Basic Educational AchievementsThe educational attainment of the East Asian economies and its relevance in contributing to the remarkable growth and development of the last 30 years have been well documented (World Bank 1993, Asian Development Bank 1997). Of particular importance is the provision of primary education to a large portion of the school-age population. Most NIEs have achieved high literacy rates, as reflected in the high secondary and tertiary enrollment rates in advanced Asian economies (Tables 3.10 and 3.11 give data for 12 selected countries in developing Asia). These attainments reflect large allocations to educational spending. In Korea, for example, total education expenditure increased from 8.8% of GDP in 1966 to 13.3% in 1998. Illiteracy declined to virtually zero by the late 1990s, primary school enrollment was 100%, and secondary school enrollment was almost universal.   Although countries such as the US, Australia, and Finland have higher enrollment rates than the NIEs, the more advanced developing countries in the region have moved quickly up the educational rankings: Korea has overtaken Japan and the UK in terms of tertiary enrollment rates (in 1998, the tertiary enrollment rate was 43.7% in Japan and 58.4% in the UK). Student performance has also improved in most countries in developing Asia, with Korean students in grade 4 outperforming the OECD average (Ihm 2002, p.3). Most Asian countries in the table have achieved enrollment rates of virtually 100% at the primary school level (Table 3.10). For countries such as Bangladesh, Cambodia, India, or Lao PDR, this represents a very important achievement, as in 1970 this ratio was very low. Secondary enrollment rates have increased substantially and in many cases have more than doubled since 1970. Some countries, such as Korea and Malaysia, have achieved virtually universal secondary education. Tertiary enrollment rates in developing Asia are substantially lower than primary and secondary ratios, except in Korea. These high enrollment rates do not, however, indicate the length of time that children have actually attended school. Data on the percentage of students reaching grade 5, although incomplete, indicate that drop-out rates among children entering school are not high in East Asia (Table 3.11). However, in some countries, they are very high. Neither do enrollment rates provide information about the quality of education offered. An indirect indicator of educational quality is the pupil/teacher ratio. Here there is a marked contrast among the countries in Table 3.11 between the East Asian economies and, for example, Bangladesh, Cambodia, and India, with the latter group still exhibiting very high ratios, though these are declining. While India has achieved universal primary education, its educational attainment at the secondary level lags behind that of the East Asian economies (including the PRC). India also suffers from a very high drop-out rate, and rural households see a very low return on basic education, especially for women. The rest of South Asia faces the same structural problems as India but without having achieved the same relatively high levels of tertiary education. The tertiary education stock (defined as the mean number of school years spent at university by the working-age population) of India is very high to the point that one can speak of a "dualistic" nature of education. While large sections of the manufacturing workforce do not have even a basic education due to high drop-out rates, India has a large stock of students with university degrees (Agrawal et al. 2000, pp.121-122). The PRC's situation is slightly different since it has had to make up for the time lost in "the Great Leap Forward" and the Cultural Revolution (OECD 1994, p.308), when the Government emphasized primary and secondary schooling but neglected university education. Despite the efforts made during the 1980s, in 1990 only 2% of the country's 20-24-year-olds were enrolled in universities (NSF 1993, Table A-2). The Central Asian republics had developed excellent educational systems during the Soviet era. However, with the collapse of the Soviet Union and the political transition, educational provision in terms of both the curricula offered and the physical infrastructure collapsed. These countries need to invest in physical infrastructure and develop new curricula, especially in the social sciences. It is not merely the volume of education that matters, especially as countries move up the development ladder into more knowledge-intensive activities. Indeed, Yusuf and Evenett (2002, p.40) argue that at the high school and tertiary levels education in much of East Asia is "mediocre and uncompetitive at best." They cite Lee (2001) who shows that, due to the poor environment of secondary and tertiary education in Korea, student performance and foreign language skills fall off sharply in the higher age groups. Lee argues that even Korea, a country highly committed to further education, suffers from a poor academic environment characterized by inadequate facilities and low teacher pay. Although Korea is second only to the US in the number of university graduates per head of population, educational quality remains a major concern. As far as achievements in science and mathematics are concerned, Table 3.12 presents a mixed picture for Asia, with Korea; Singapore; and Taipei,China scoring well above the US, but with Indonesia, Philippines, and Thailand scoring substantially below the US and the international average. Clearly, there are major differences across East Asian economies and significant weaknesses in some of the Southeast Asian economies.  The importance of competitiveness in the context of globalization has brought to the forefront again the significance of the role of education. The reason is that, while the East and Southeast Asian economies did very well in providing basic education for their populations, they are now transiting from labor-intensive manufacturing to technology-intensive manufacturing—or have already made the transition. Those that have not will require new FDI inflows and the development of domestic R&D for which an educated workforce is required. In practical terms, this means that they need not only increase the volume of education, but also, and more importantly, raise the quality of the education. The latter particularly requires an emphasis to be placed on the relevance to the needs of a modern economy of the curriculum and style of education. Correlating Inputs with Science and Technology OutputsUnderstanding the relationship between educational inputs and S&T outputs is extremely difficult, as inputs take many years to become "outputs" and there are many other factors affecting S&T achievements, such as business investment in R&D. Table 3.13 suggests that educational investments have played a significant part in contributing to an increasing supply of professional skills as well as S&T advances, including patents granted in the US and high-technology exports, especially from Korea and Singapore. However, once again, the table highlights the huge disparities among NIEs, with the PRC; Hong Kong, China; Malaysia; and Thailand scoring very low in terms of scientists and engineers engaged in R&D per million population and numbers of patents granted, compared with the Asian leaders such as Japan, Korea, and Singapore.  As seen in the section Institutions, The State, and The Market: A Partnership for Development, whenever markets are imperfect, there is potentially a role for the government to improve on the market's solution. Subsidizing R&D and the development of an institutional infrastructure in S&T, due to the divergence between private and social returns, is one such case. Most Asian countries have well-defined S&T programs (OECD 1994, Chamarik and Goonatilake 1994, Asian Development Bank 1995, APO 2001). Evidence indicates that at the highest S&T level, the number of advanced publicly funded S&T institutions in East Asia is low, with only a few international players, including the Korean Institute of Science and Technology, the Korean Advanced Institute of Science and Technology, the Korean Aerospace Research Institute, and POSEK (an S&T institute modeled after MIT), also in Korea; the Industrial Technology Research Institute in Taipei,China; and Singapore's Institute of Molecular and Cell Biology. The effectiveness of some S&T institutes in terms of their international S&T status and contribution to local industrial advance has been called into question (Rush et al. 1996). In countries such as the Philippines or Thailand, for example, there is a discrepancy between quantitative and qualitative progress in S&T. While improvements have been obvious in terms of new S&T and R&D institutions, more scientists and technologists with advanced degrees, and more research going on, the qualitative improvement has lagged behind. This refers to the process of "endogenization" of technology, which requires strong linkages between scientific and technological R&D and the country's production systems. In countries such as the PRC or India, the S&T system had a strong ideological emphasis until very recently, was geared toward import substitution, and was not demand driven, with the result that S&T did not generate spillovers into the industrial economy. Overall, developing Asia has a strong base on which to build but suffers from several handicaps. While spending has tended to increase as a percentage of GNP per capita in primary and secondary education, tertiary educational increases have fallen behind. In addition, greater attention needs to be focused on the quality of education. In addition, there are few universities in Asia with highly effective S&T or business research capabilities. Furthermore, there is a need for a higher level of S&T education to enable firms to continue to climb the GVCs via local R&D and engineering efforts. Science and Engineering EducationSome countries in Asia are now producing substantial numbers of scientists and engineers, and the high proportion of science and engineering graduates as a percentage of total degrees awarded is impressive. In Korea and Taipei,China, for example, in the late 1990s, the figures were about 45% and 40%, respectively, compared with around 33% in the US. Also, according to US National Science Foundation data, in 1999, universities in developing Asia produced 322,100 graduates with engineering degrees (greater than the US, Japan, and the European Union combined). The PRC alone supplied nearly 200,000 engineering graduates in 1999. In the same year in India, 147,000 students graduated with a bachelor's degree in science, 3,000 more than in the US. It is notable that, together, India and the PRC generated around a quarter of the world's total graduates in science and engineering in 1999.17 This has led some to believe that these two countries will become technological powerhouses in the 21st century as the world moves toward more knowledge- and research-intensive production. It is this emphasis on science and engineering that is attracting MNCs from industrial countries.However, it is important to note that, although impressive, the supply of S&T education and highly skilled labor is a necessary but not sufficient condition for increasing competitiveness and ascending GVCs. Such progress, as illustrated in Figure 3.3, also depends on other essential economic factors. Also, these impressive S&T educational attainments are not true for all developing Asian countries and there are significant problems in tertiary education. Generally, the poorer Asian countries trail well behind. Less developed Asian economies need to avoid falling into a "low-skill, bad-job trap" (Snower 1996). While cheap, semiskilled labor may provide an important entry point into GVCs for firms in countries such as Indonesia, Philippines, and Viet Nam, they must quickly upgrade technologically in order to increase the value added of their production (as did Korea; Singapore; and Taipei,China before them). Otherwise, they may stay caught in a cycle of low skills, low wages, depressed productivity, and low levels of technology. Avoiding this vicious cycle requires an upgrading of the educational base for several Asian countries and active government participation (Box 3.8).  Examples of this approach include East and Southeast Asian economies, in particular Korea and Singapore, that have undertaken a number of training programs since the 1970s. For example, in 1976, Korea introduced the Basic Law for Vocational Training that requires private firms with 150 or more employees to conduct in-house training for a portion of its employees, or to pay a training levy equivalent to no less than 6% of its wage bill. This levy is used to promote vocational training via government-sponsored vocational training schools. Likewise, Singapore has a series of programs such as the Vocational and Industrial Training Board, set up in 1979 and financed with a levy of 1% on wages to subsidize efforts to upgrade the skills and expertise of employees or retraining of retrenched workers. Other initiatives are the Basic Education and Skills Development program to teach basic skills in arithmetic and literacy to workers, and the creation of the National Productivity Board (1972) and the National Productivity Council (1982) to promote productivity consciousness. In Malaysia, training costs can be subsidized, and the Penang Skills Development Center puts together training courses contributed by MNCs to upgrade their suppliers' skills. Thailand grants a 150% tax deduction for training expenses. The educational implication of the necessity for GVC upgrading is that countries should consciously follow strategies to improve educational attainment. Wherever possible, they should emphasize S&T education that supports those industries that have a good potential for upgrading (e.g., consumer electronics, computer products, and telecommunications goods). The dual education-industry upgrading imperative therefore places a heavy burden on those at all levels who are responsible for basic and technical education. Relevance of School and University EducationThe modernization of the workplace places new demands on employee skills, which, in turn, place new demands on educational provision. The number of people acquiring a university education, especially in the natural sciences and engineering, affects the quality of the labor force and the economic development potential of a country. New technologies require workers to possess practical specialized knowledge in, for example, the areas of ICT and automated production processes. Given the need for constant upgrading within GVCs, workers need to be able to continuously improve their skills to match workplace needs. This places emphasis on the "trainability" of workers through on-the-job learning and formal training. But will the production of scientists and engineers in developing Asia be sufficient to meet future needs of the region?Firms need to be able to assess the level of trainability of prospective new entrants and their inherent ability to communicate and cooperate with others to keep up with organizational and technological changes. Trainability or individual "absorptive capacity" may well now be more important than the initial entry qualifications or professional skills of a worker in this kind of environment. Once employed, workers have to become familiar with new methods of performance assessment and reward; again, the emphasis is on lifelong learning and teamwork. The standard skills (e.g., general clerical, problem solving, information processing, and teamwork) are still widely required. However, in advanced manufacturing, for example, modern Asian firms need to introduce management practices to improve quality control and error detection. Each worker is therefore expected to participate in a wider set of processes through multiskilling or by learning more about surrounding processes and how they fit together (Ihm 2002). The changing demands within the workforce challenge the usefulness of traditional schooling and university education in many developing Asian countries. Individuals need to be sure that skills learned at school will be useful in the workplace. For example, computer and ICT skills need to be taught as well as English as a foreign language. The demand for mathematics, logical skills, and problem solving is increasing. Many countries in the region are concerned about the adequacy of their supply of scientists and engineers, and indeed a mismatch is now evident between the type of education supplied and the skills demanded in the firm. In Korea, for example, as Table 3.14 shows, both managers and workers perceive a significant mismatch between the skills acquired at university and those needed in the workplace. It is not clear how to remedy this situation regionally. There is a widely held concern around the region that university education is perhaps failing to produce the quality of skills, research, and talent needed to climb the development ladder. But when it comes to the specific policies, it is very difficult to pinpoint what it takes to "build an MIT." It might be a matter of more competition among universities, or more linkages with foreign universities so as to facilitate the transfer of ideas and technology, or even more emphasis on research publications in universities. For example, since the 1950s, the NIEs have systematically assimilated the benefits of foreign education. For a long time, Asia has sent more of its students in tertiary education to the US than any other region. In particular, the US higher education institutions are a significant source for doctoral education for Asian students, three quarters in the case of Taipei,China in natural sciences and engineering in 1990 (NSF 1993, Table 3.5). Hong Kong, China and Singapore have created new universities over the last decade—the Hong Kong University of Science and Technology in the early 1990s, and, very recently, the Singapore Management University. Both institutions have great expectations for their futures and have recruited faculty and researchers from institutions around the world (Box 3.9).   Unfortunately, there are no definite answers to these questions and more research and empirical evidence is needed. First, more work is needed on developing the methodologies and data necessary for estimating supply and demand for scientists and engineers. Second, more data are needed on the PRC's stock of scientists and engineers, in particular regarding the country's accomplishments in strengthening S&T education for economic development. Third, the degree of mobility among Asian countries and throughout the world for graduate degrees in S&T needs to be investigated, and employment possibilities in industry, government institutes, and universities studied. Fourth, analysis of the particular scientific strengths and the research niche of each country should be undertaken, given that many S&T initiatives in Asian nations are similar (e.g., ICT, biotechnology), with a view to boosting collaboration. New policies are needed to support relevant, high-quality education, and technical training to meet production-upgrading needs, so that "upskilling" becomes an ongoing process. In some cases, policies may also be needed to enhance lifelong learning opportunities for workers. This might be done, for example, through new schemes of retraining and skill development that take place throughout employees' careers and that support firm-level efforts to upgrade. Already, much of the focus of the discussion about education in Asia is on quality and the ability of education to contribute to innovation. New approaches to learning are being carried out in Japan, Korea, and Singapore, while many other countries are introducing young children to computer technology and the Internet. As Yusuf and Evenett (2002) show, Korea has proposed to set up special schools similar to PRC's "key schools," to develop the scientific talent of gifted youngsters. The PRC now encourages competition between schools and has given legal recognition to the large number of private schools (which teach around 7 million primary and high school students), encouraging diversity in educational provision. At the tertiary level, until universities in the region can produce the necessary supply of graduate students, in particular in science and engineering, many Asian countries could continue sending students to US universities. Here, Japan could also play an important role in training students from the region, the same as the PRC and India in some cases. Japan's policy to attract foreign students has been successful. Since the 1980s, good engineering schools sought to recruit foreign students from Asia. Efforts must also be made at attracting these students and well-established senior researchers and scholars back home with attractive salaries and living conditions. In the past, when students went abroad to earn an advanced degree, there was a high probability that they would remain abroad rather than return home and between one half and two thirds of these students chose to stay abroad (NSF 1993, Table 10).18 Hong Kong, China; Korea; Singapore; and Taipei,China have been particularly successful at attracting them back. Incentives for teacher retraining could help overcome some of the resistance to modern educational methods and topics. At higher levels, joint programs with industrial country educational groups provide part of the solution, as these are able to import directly new educational techniques and adapt them to suit local circumstances. Many leading universities from Australia, France, UK, and US already have joint programs with universities within developing Asia. To meet more advanced research needs, some universities in developing Asia and government-sponsored research institutes have begun to engage more intensively in commercially oriented research, taking on consulting, contract research, and collaboration with local industry and MNCs. For instance, several genome research institutes in the PRC have been spun off from government research institutes and have become more financially independent. There is also some evidence of private company investment (by pharmaceutical companies) in university-based research in East Asia (Yusuf and Evenett 2002). However, although these programs will help develop new approaches to S&T education, much of developing Asia is still at the early stages of this transition, and educational systems will need to change more fundamentally and more quickly to support the S&T requirements of the region's leading businesses. SummaryGiven the recognition of the educational difficulties, governments in PRC, Korea, Malaysia, and some other Asian countries are increasing their expenditure on tertiary level education, encouraging university-based R&D, and increasing funding to government research institutes. Self-evidently, new policies for education need to be tailored to the specific needs, problems, and opportunities of each individual country.The role of education policies in enhancing the productivity of labor is important in two ways. First, it facilitates and encourages the accumulation of human capital via direct investment by the government. Second, it makes investment in schooling profitable to households. For the countries that seek to exploit GVCs, there are perhaps five key policy messages arising from the trend toward higher value-added, knowledge-intensive production (Ihm 2002). First, while basic education needs to remain the bedrock of schooling at all levels, many schools need to shift the focus away from mere rote learning of facts toward a more critical understanding of analytical concepts and technical knowledge. Although national curricula need several core subjects, there may also be a need for more discretion at the school level to teach work-related subjects relevant to the changing needs of industry. In many countries, this will require some deregulation and decentralization of curriculum policy. Second, at the level of student assessment and teaching methods, pedagogy should encourage more experimental learning as well as group learning and teamwork, the cornerstone of skills in the modern workplace. More continuous evaluation of performance at the school level may also be needed. Governments should ensure that industrial needs are assessed regularly and provide incentives for schools and teachers to place greater emphasis on these areas in the curriculum. Teacher training provision may also need to be revised, as well as college admission procedures that have traditionally stressed basic cognitive achievements rather than the students' behavioral attributes and potential. Third, the modern workplace requires employees who are inherently "trainable" and can learn rapidly. Policies may therefore be needed at the upper secondary education level to respond to these needs. More vocational colleges and high schools may need to add relevant skills such as ICT, group working, English, and other foreign languages. Governments may wish to increase support and provide new incentives to vocational schools to introduce programs for the retraining and redeployment of teachers to help them cope with new work requirements. Fourth, there may well be a case in several countries for increasing public investment in higher education to expand provision and make it more affordable to a greater number of students. In developing Asia, as in industrial countries, the demand for lifetime learning by workers and managers is likely to increase. Workers will need to be encouraged to undertake further education and training to keep up with competence and performance requirements. Nontraditional means of financing such training (e.g., student loans and other schemes) could be increased to encourage more adult workers to undertake new learning opportunities. Fifth, governments in several less developed countries may need to improve the supply and quality of lifelong learning. The new capacities and skills needed in the workplace will require continuing investment in new learning and training programs. Schools, colleges, universities, and S&T institutes need to become more responsive to the needs of industry as well as to the specific skills that individuals need through different phases of their careers. Obviously, high-quality basic education is needed, but to reach more individuals, new learning methods such as distance education, electronic-learning, and group learning need to be considered by educational groups and government policy makers. Lifelong career requirements should play a greater part in the deliberations between teachers, trade unions, government bodies, and firms.
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