Evidence from a range of sources suggests that skills constrictions may soon limit growth potential across the region. Consequently, improving the supply and relevance of skills is a vital element in enhancing national competitiveness. As there are large private gains to be made from investment in skills, this is not a problem that calls for expansive public sector financial support. The role of government should lie more in resolving coordination failures and ensuring that the policy, regulatory, and other elements of the enabling environment create the right incentives to encourage the private sector to close the gap and reap the rewards. Of course, it will also remain government responsibility to ensure that primary and secondary school systems position the young so that they can benefit from higher education and training.
The following paragraphs outline some of the main measures for easing the skills bottleneck, in terms of steps to be taken now, and those for the long run.
Short-term policy options
While developing Asia's governments wait for their longer-term investments in higher education to bear fruit (as discussed in the next section), they can start with practical short-run measures to help ease constraints. Many of these aim to allow markets to do a better job at finding the supply–demand balance for skills.
Many frictions limit the supply of skills. Occupational associations, for example, may seek to restrict the entry of new entrants into their professions so as to limit competition and underpin members' salaries. For example, bar associations of most countries impose restrictions on lawyers that have qualified in other countries, and sometimes in other jurisdictions. Unwarranted occupational barriers—those that are not required to secure efficient and safe delivery of, say, medical services and that are intended to protect the position of "insiders"—also cut the pipeline of able university graduates who may otherwise have chosen to acquire the relevant skills. The first area of change would therefore be for governments to smooth these frictions. With political will, this can be initiated quite quickly.
Second, governments can pursue policies that make it easier for skilled foreign workers to work and live in their countries (see the chapter Asian workers on the move, also in Part 2). Richer economies embarked on this path some time ago, and most have immigration regimes favoring skilled, rather than unskilled, migrants. Singapore is a regional example of a country successfully overcoming scarcity of skills through policies that are targeted at foreign workers (Box 2.2.2).
The city-state of Singapore has become one of the richest countries in the world on the back of rapid exportoriented industrialization. A defining feature of the economy is its exceptional economic openness. Extremely low barriers to trade and investment have been key factors in the country's remarkable economic success.
However, what truly sets Singapore apart is its exceptional openness to foreign workers. Non- Singaporeans account for more than a quarter of those living in the country and around a third of the workforce. To some extent, this openness is driven by a structural gap between the workers required by the economy and the domestic workforce. This explains why Singapore welcomes not only skilled workers but also unskilled workers—the latter group in fact forming the vast majority of the foreign-born workforce.
Nevertheless, the Government makes a sharp distinction between skilled and unskilled workers from overseas, and the policy toward them is highly selective and biased toward those who can add to the country's pool of skills.
For example, it is far easier for those with higher degrees and qualifications to obtain permanent residence. Also, the Government does much more than merely welcome foreign professionals who choose to come on their own. Rather, it has gone out of its way to recruit "foreign talent," especially for the industries that it has targeted as promising.
There is general consensus that the contribution of skilled foreign workers has been positive and substantial. That contribution is especially evident in, for example, highly skills-intensive industries. For example, the young but thriving biotech industry would probably not even exist without foreigners, given the original lack of local biotech capability. Non-Singaporeans have also contributed substantially to another new but internationally competitive industry—private banking.
The main lesson from Singapore for other Asian countries is that competing for and welcoming foreign professionals can play a key role in resolving skills shortages. Singapore is extremely active in the increasingly global marketplace for such people, and succeeding.
These lessons are not only relevant for other high-income Asian countries with restrictive policies toward foreign workers, such as Japan and Korea, but also for middle-income countries, such as Malaysia and Thailand.
Third, measures to stem or even reverse the "brain drain" would make sense. The central role of engineers and scientists from the PRC and India in the creation of Silicon Valley is well known. More recently, gifted financial professionals working in international centers of finance are now returning to Asia to help run sovereign wealth funds. Yet this is just the tip of the iceberg. There are literally millions of qualified Asian graduates who study abroad and who fail to return. Although opportunities created by economic growth will tempt some back, other incentives could be considered. The experience of Taipei,China shows what a more active approach can achieve (Box 2.2.3).
2.2.3 From brain drain to brain gain: Lessons from Taipei,China
Taipei,China has not been immune to the developingcountry problem of brain drain, or the loss of the welleducated and the highly skilled to industrial countries. What makes its experiences interesting is its substantial success in reversing the trend. Local-born emigrants who have returned home after studying and working overseas, especially in the United States, have made significant contributions to the island's economic growth. It is also true that growth itself encouraged many skilled Taipei,China emigrants to return home by creating new opportunities. This same "homecoming" trend is also now occurring in the fast-growing economies of the People's Republic of China and India.
What make the experiences of Taipei,China special are the authorities' active and systematic policies to attract the locally born currently living overseas, as well as the success of those policies. Both the authorities and the private sector began to tap emigrants' expertise and connections well before the economy had evolved to a point where many emigrants began to return home. In the 1970s, the National Youth Council was set up, to keep track of skilled emigrants and to link them with local businesses. The Council would sometimes provide travel support and temporary jobs for those who returned home.
By far the best-known initiative is the Hsinchu Sciencebased Industrial Park. It was created in 1980 with the goal of replicating a Silicon Valley-like cluster of high-tech industries. The authorities provided financial incentives and infrastructure for companies to locate in the park; and to attract skilled emigrants, they provided subsidized Western-style housing and commercial services. The park has succeeded in attracting both firms and people, and has become a big commercial success. It has contributed to the strengthening of research and development capacity, to industrial restructuring from labor-intensive to technology-intensive sectors, and more generally, to economic growth.
The clear lesson is that active government policies can help reverse a brain drain, although economic growth will, for any economy, remain the biggest magnet for those intending to return for good. The combination of economic growth and a far-sighted policy of viewing emigrants as a valuable resource has enabled Taipei,China to turn a brain drain into a brain gain.
Fourth, even in the short run, it may be possible to increase the number and quality of tertiary graduates, and liberalizing the outbound higher education market can add to a larger and better pool of skills and talent. Malaysia and Singapore have pursued such policies in the past. It is of course important that graduates, especially if they receive public financial support, have incentives encouraging them to return. However, the number of students that can benefit from such programs will be limited not just by fiscal resources but also by students' language skills and the quality of their secondary school qualifications. A complementary approach is to open up the domestic tertiary education market to reputable foreign universities. This may improve access to relevant tertiary education at home.
A range of other options may also be worth considering. One would be to encourage the reentry of highly skilled women into the labor force. Others include raising the retirement age, and encouraging older professionals to remain in the workforce even after they have retired. In many Asian countries, retirement ages are probably set too low. Another option would be to provide fiscal incentives for firms to provide training and retraining for their workers. Such subsidies might be economically justified because firms will often have difficulty in capturing the benefits of such training as workers leave for new jobs.
However, for many types of skills, on-the-job training and retraining are no substitute for long periods of more formal education, as discussed in the next section.
The long term: Education reform
Inevitably, the skills gap cannot be closed without the lengthy and costly process of building a strong, higher education system capable of providing the qualifications required by a modernizing economy, yet in most developing Asian countries, the university system is failing to produce enough graduates with the relevant skills. Although the dearth of skills is immediate, and the results of education reform are distant, failure to make this reform—starting now—would extend a short-run, solvable issue into a long-term, hard-to-eradicate failure.
Although the development of a tertiary education sector should serve multiple societal goals, some of which will transcend business and economic needs, addressing the skills gap will require deregulation and liberalization of the market for higher education. This approach will likely increase quantity and improve quality by fostering competition. The private sector should be allowed greater scope to meet expanding tertiary education needs, sparing public sector resources for other needs (including financial support for students who do not have the means to support their own education or who cannot access other sources of funding). It will, however, be crucial for private universities to be able to levy fees, thus allowing them an adequate return on their capital investment. Box 2.2.4 offers a good example of how private sector provision of tertiary education can produce industry-relevant graduates. Box 2.2.5 suggests that even more limited forms of private sector involvement can be useful in producing such workers.
2.2.4 Private sector incubation of skill-intensive universities: Pohang University of Science and Technology, Korea
Korea's Pohang Iron and Steel Company (POSCO) is one of the world's leading steelmakers. Its establishment of the Pohang University of Science and Technology (POSTECH) in 1986 is a good example of the private sector taking the initiative to resolve its skills shortages. POSCO, desperately short of high-quality scientists and engineers, did something about it—and extremely well. In a short time, POSTECH became a top university in Korea, and in 1998 AsiaWeek magazine selected it as the top Asian university in sciences and engineering. Even though POSCO initially set up POSTECH out of self-interest, the university has now become an important source of scientific and engineering talent for the whole country.
POSTECH's basic formula for academic success has been to select a small number of top students, fully support them (fees, living allowance, etc.), and recruit the best teaching staff possible. POSTECH initially had nine departments, and has since added four more. By 2002, it had awarded around 2,500 undergraduate degrees and 4,000 graduate degrees. It has a heavy focus on research, hosting eight research centers and more than 21 affiliated laboratories. These include the Pohang Accelerator Laboratory, the only synchrotron light accelerator in the country.
Another notable feature is POSTECH's active role in the transfer of technology between academia and industry: it helped set up the Pohang Technopark Foundation, with Pohang city council and POSCO, which provides infrastructure for such transfer. A more specific example of such transfer is the POSTECH Biotech Center, which opened in 2003 and is one of the largest in Korea.
2.2.5 Microsoft's partnerships with universities in the People's Republic of China
One way for companies to resolve the problem of highly educated but poorly skilled employees is to work with universities (a leading source of such workers). The objective is to better align university curricula with industry needs. In the People's Republic of China (PRC), for example, university education tends to focus on theoretical knowledge at the expense of practical application. As a result, many multinationals operating in the country find that graduates often lack the skills to perform their jobs.
Microsoft ran into these problems in its software operations in the PRC. Software projects are team efforts that require application skills, which PRC university graduates often lack, more than theoretical knowledge. To mitigate the skills shortage, it formed partnerships with four PRC universities to establish software laboratories where student interns learn practical software-development skills. More broadly, in June 2002 the company and the Ministry of Education jointly launched the Great Wall Plan to formalize and systematize the company's cooperation with universities in the country. The areas of cooperation include talent training, curriculum support, research cooperation, and academic exchange. Around 40 universities and research organizations have taken part in the program so far.
In addition to its cooperation with PRC universities, Microsoft has trained over 10,000 software engineers and senior program managers for 11 national software parks through on-site training and e-learning. Finally, in conjunction with the local software industry, the company provides training for mid- and high-level personnel to strengthen the core competitiveness of software companies with which it works.
Microsoft's partnership with PRC universities provides a possible blueprint for public–private partnerships to resolve skills gaps. PRC universities are primarily public universities, which still dominate the higher education systems of many Asian countries. This partnership involves the provision of resources in exchange for some influence over the curriculum. The private sector gains a large supply of skills while the public sector benefits from better facilities. Producing more employable graduates is also ultimately in the interests of any university, public or private.
Clear advantages arise if developing Asia opens its higher education market to foreign institutions, since there is a large quality gap between foreign and local universities: a significant foreign presence may help raise standards in the domestic sector. Besides, it is likely to take some time for local institutions to acquire the human resources that will be required to design and deliver high-quality and relevant curricula.
Government will of course still have the main role to play in building world-class tertiary education systems. It will need to lead reforms in the public sector, and set attainable performance standards. It also has an important role to play in providing an interface between the private sector and industry: early identification of industry's needs and modifications to curricula are one area where coordination is possible, and government should play a major role in setting standards and disseminating information on performance (Box 2.2.1 above). Finally, it will be government responsibility to ensure that both the private and the public streams in tertiary education are appropriately regulated, especially with respect to quality control.
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References
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