BREAK­ING FREE FROM THE MID­DLE-IN­COME TRAP

Great head­way has been made in widen­ing ac­cess to education but the out­come has not been en­cour­ag­ing

New Straits Times - - Opinion -

OVER the past decades, many low-in­come coun­tries (LICs) have suc­ceeded in be­com­ing mid­dle-in­come coun­tries (MICs), yet only a few have man­aged to leap to high-in­come sta­tus.

The World Bank es­ti­mated that out of 110 MICs in the 1960s, only 13 made it to high-in­come sta­tus. The rest re­mained in the “mid­dle-in­come trap” — un­able to com­pete with low-in­come, lowwage economies in man­u­fac­tur­ing ex­ports and un­able to com­pete with ad­vanced economies in high skill in­no­va­tions.

Of the 13 coun­tries that were able to tran­si­tion from mid­dle to high-in­come sta­tus, five were from East Asia — Hong Kong, Ja­pan, South Korea, Tai­wan and Sin­ga­pore. Among the Asian coun­tries caught in the mid­dlein­come trap is Malaysia.

Ac­cord­ing to the Global Com­pet­i­tive­ness Re­port 2014-2015, Malaysia’s econ­omy was the high­est ranked among the de­vel­op­ing Asian economies, rank­ing 20th in the world. Nonethe­less, Malaysia needs to be in full shift gear in its devel­op­ment strat­egy in look­ing for and har­ness­ing driv­ers for main­tain­ing growth, such as pro­duc­tiv­ity, in­no­va­tion and com­pet­i­tive­ness.

There is a par­tic­u­lar view that growth does not oc­cur ran­domly. Rather, it re­sponds to the qual­ity of pub­lic poli­cies and in­sti­tu­tions, and the ef­forts and en­trepreneur­ship of the pri­vate sec­tor.

There is an agree­ment that govern­ment ac­tion (or in­ac­tion) can and does af­fect the growth of the coun­try.

South Korea has been sin­gled out as a model of im­pres­sive rapid growth from a low-in­come to a high-in­come coun­try, with a num­ber of pub­lic poli­cies that Malaysia can draw upon. Such mea­sures in­clude a high level of govern­ment ef­fi­ciency and lead­er­ship, and modern and pro­duc­tiv­ity-en­hanced in­dus­tri­al­i­sa­tion.

A par­tic­u­lar les­son is that in­vest­ing in hu­man cap­i­tal is crit­i­cal. There is a strong cor­re­la­tion be­tween qual­ity education and eco­nomic per­for­mance. A qual­ity education sys­tem can stim­u­late cre­ativ­ity and in turn fuel the in­no­va­tion process.

From Education Min­istr y records in 2012, Malaysia did well in terms of ac­cess to education, with en­rol­ment rates hav­ing risen sub­stan­tially at ev­ery education level. How­ever, the out­come has not been en­cour­ag­ing.

Malaysia’s po­si­tion in the World Bank’s Knowl­edge Econ­omy In­dex is gen­er­ally the same as two decades ago (48th out of 145 coun­tries). The in­dex records the ca­pac­ity to pro­duce, em­brace and dif­fuse knowl­edge and to make ef­fec­tive use of knowl­edge. In­ter­na­tional com­par­isons show that Malaysian stu­dent com­pe­ten­cies are far from sat­is­fac­tory.

While both ba­sic skills and ad­vanced skills are im­por­tant for de­vel­op­ing coun­tries, only qual­ity education can de­liver the ad­vanced skills needed.

Malaysia’s fo­cus on tech­ni­cal and vo­ca­tional education and train­ing (TVET) to im­prove the com­pe­ten­cies of the work­force and ac­cel­er­ate the sup­ply of skilled labour is to be lauded. In­deed, in­ter­na­tion­ally, TVET is known as a po­tent means for fast-track­ing te chno­log­i­cal progress, cit­i­zens’ ca­pac­i­ties, eco­nomic growth and national devel­op­ment.

As re­vealed by Education Min­is­ter Datuk Seri Mahdzir Khalid, the Eco­nomic Trans­for­ma­tion Pro­gramme (ETP) will re­quire 2.5 times more TVET en­rol­ment by 2025 for 60 per cent of jobs. How­ever, the stigma en­velop­ing TVET re­mains a sig­nif­i­cant prob­lem as shown in the slow take-up rate.

From Eco­nomic Plan­ning Unit records in 2010, only 10 per cent of stu­dents en­rolled in up­per sec­ondary TVET vo­ca­tional train­ing, com­pared with an av­er­age en­rol­ment rate of 44 per cent in the Or­gan­i­sa­tion for Eco­nomic Co­op­er­a­tion and Devel­op­ment coun­tries, point­ing to a cru­cial need to in­crease en­rol­ment rate for the sup­ply of skilled work­ers.

In­no­va­tion is also the name of the game. From the World Bank’s Knowl­edge Econ­omy In­dex Re­port 2012, a com­par­i­son with high in­come and other East Asian coun­tries shows that Malaysia lags in the ar­eas of in­no­va­tion and education.

For in­no­va­tion-based economies like South Korea, Ja­pan, and Tai­wan, the val­ues of Gross Do­mes­tic Ex­pen­di­ture on Re­search and Devel­op­ment (GERD) and ed­u­ca­tional in­vest­ments as a per­cent­age of Gross Do­mes­tic Prod­uct (GDP) are 3.4, 3.3 and 2.9 per cent, re­spec­tively. South Korea, for ex­am­ple, in­vests 7.6 per cent of its GDP in education, and Tai­wan and Ja­pan in­vest 5.8 and 4.9 per cent, re­spec­tively.

In con­trast, Malaysia’s ex­pen- di­ture in education was 4.5 per cent of its GDP; GERD to GDP was 1.13 per cent and re­search and devel­op­ment (R&D) ex­pen­di­ture was 1.3 per cent of GDP, with the busi­ness sec­tor as a ma­jor con­trib­u­tor (RM6.8 mil­lion, 64.45 per cent) of R&D, fol­lowed by in­sti­tu­tions of higher learn­ing at RM3 mil­lion (28.67 per cent) and govern­ment agen­cies and re­search in­sti­tutes at RM730,000 (6.88 per cent).

There is a lim­ited col­lab­o­ra­tion be­tween in­dus­try and re­search in­sti­tutes which re­sults in R&D out­put not be­ing linked to in­dus try de­mand

An­other task is to foster a cli­mate for growth of the en­tre­pre­neur­ial spirit by de­vel­op­ing strate­gies to in­crease out­puts of knowl­edge-in­ten­sive tech­nolo­gies and high val­ueadded prod­ucts. This, in turn, de­pends on the abil­ity to es­tab­lish the nec­es­sary ecosys­tem to trig­ger R&D, in­no­va­tion, and en­trepreneur­ship ac­tiv­i­ties.

All these would re­quire ef­fort not just by the govern­ment but also the pub­lic, for a ma­jor shift to an en­tre­pre­neur­ial mind­set and en­tre­pre­neur­ial skills that could al­low one to push bound­aries and gen­er­ate ideas that can be ap­plied not just to cre­at­ing busi­nesses, but also to chang­ing pub­lic pol­icy, im­prov­ing the coun­try’s econ­omy and chang­ing the qual­ity of our lives.

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