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INTERNATIONAL LABOUR ORGANIZATION
WORLD EMPLOYMENT REPORT 1998-99
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Education and training: The root and branch of global competitiveness
The ILO's World Employment Report 1998-99 points to increasing evidence that education and skill levels of the workforce are significant determinants of success or failure and urges an "activist" human-resource led strategy to meet the challenges of global competition. The report insists that training and education were at the heart of Southeast Asia's economic miracle and could well provide a way out of under-development and poverty for million of workers in other parts of the world.
While investment and training are "prime elements" in the effort to reach and maintain high levels of international competitiveness, the ILO report suggests that the sustainability of high growth rates is in many cases dependent upon a country's human resource capacity. It says that "countries which have high rates of income and productivity growth have high rates of investment and output growth." For three decades Southeast Asia has been the primary exemplar of this tendency; in light of the current crisis afflicting the region, Pacific Asia may also be the best exemplar of the need to continually revise and rejuvenate the skills of a competitive workforce.
The report notes that in the current economic climate of trade liberalization and rapid technological progress, competition is the only truly enduring feature. Success, as the crisis in Asia demonstrates, risks becoming ephemeral in even the most competitive economies. This means that constant upgrading of skills and adaptability of workers and enterprises to new market opportunities are essential features of long-term prospects. The exigencies of the global economy translate into faster turnover of machines and technical progress in the form of new capital goods, which require greater learning by doing and quicker development of new products.
Moreover, high education and skills levels are vital factors in attracting investment from external sources, notably multinational enterprises, which tend to locate investment in areas where skills are readily available or can be rapidly generated. "The ability of a country to attract, successfully absorb and benefit from foreign direct investment (FDI), and the transfer of technology which it may bring, depends to a large extent on its own technological capabilities, of which the skills and technical knowledge of its workforce are critical components."
A survey of development strategies in East Asia, South Asia and Latin America shows that the impressive economic results of East Asia during the last three decades were largely attributable to that region's ability to accumulate capital and skills at very rapid rates and to translate those resources into high value-added forms of production.
The ILO report reveals that economic planners in the Asia-Pacific region effectively speeded up their countries' development by circumventing two major obstacles, namely a widespread tendency of markets to fail to provide training and a reluctance for enterprises to embrace technological change and innovation.
In 1960, workers in East Asia and the Pacific had less than 3 years of schooling, less than in Latin America and the Caribbean. By 1990, countries in the region had the highest average years of educational attainment in the developing world, with a marked improvement in the educational attainment of females, and consistently improved teacher/pupil ratios.
At the enterprise level, investment and innovation could proceed apace, since growth was not held back through acute skill shortages. Government-led investment in education and skills effectively paved the way for enterprises moving into higher value added industries. The relative abundance of skilled labour improved the atmosphere for foreign investment, bringing even more skills and know-how in its wake.
The achievement of Singapore is a case in point. Decades ago, that country's Economic Development Board (EDB) was established to ensure that inward investment would be forthcoming to provide the necessary capital and know-how for new industries. But the EDB was also responsible for the human resource requirements of those industries. In order to persuade foreign investors to go to Singapore, the EDB had to ensure that the country's education and training systems were generating the right skills for industry. It did this in tandem with the Ministry of Trade and Industry, by feeding information to the Council for Professional and Technical Education, the main decision-making body for determining the output of the education and training system.
Provisions for vocational training were set by the Singapore Productivity and Standards board, which works with employers to meet the demands of existing and new industries.
In the Republic of Korea, the initial push to expand primary and secondary education in the 1960s was accompanied by an expansion of vocational training to provide the skilled labour for export-oriented industries. During the 1970s vocational education was expanded, despite public demand for more traditional academic education. The emphasis on vocational schools and technical universities has continued into the 1990s.
The linking mechanism between the demand for and supply of skilled labour in the Republic of Korea was the Economic Planning Board (EPB), which had three major functions: economic policy planning, coordination of economic and other policies and evaluation of policy effectiveness. Throughout the years of rapid growth, the EPB, worked closely with Ministries for Education, Labour and Science and Technology to coordinate the education and training requirements of the economic development strategy.
In general, the report says, "the East Asian economies were able to achieve a successful transition to higher value-added production because they maintained strict controls over the education system, the curriculum, and the types of vocational and technical skills acquired in the technical institutes and vocational schools established to meet the needs of new industry."
In addition, the countries proved to be successful, with some exceptions, at "picking winners," i.e., identifying the sectors where export growth potential was highest. These included high-tech electronics, information technology and financial services.
While the investment and training strategies pioneered by Asia/Pacific countries have proved their utility over three decades of rapid growth, the current Asian financial crisis highlights some of their potential shortcomings, including "education systems focused excessively on rote learning at the expense of encouraging creative expression; delay in expanding higher education, in Singapore, and secondary education, especially in Thailand; some indecision in the policy on enterprise level training in the Republic of Korea and an excessive focus on meeting the needs of large conglomerates and ambitious development projects."
While the report points out that the origins of the Asian crisis lie mainly in financial developments and that the region's loss of competitiveness is partly due to exchange rate policies, it suggests that "faster and more imaginative educational expansion could have helped, and could even have encouraged a faster spread of new technologies throughout the country."
South Asia
In sharp contrast, much of the Asian subcontinent appears mired in a low-skill, low-technical-competence trap, as evidenced by the far less impressive economic conditions prevailing there. The report says that in matters of education and workforce skilling "both India and Pakistan have made some progress, especially in primary enrolment ratios in India, but the pace of change, especially in Pakistan, still remains far too slow to make a substantive difference."
It explains the failure of both India and Pakistan to achieve a technological transformation in the composition of high value added exports by "their failure to ensure a simultaneous abundance in the supply of all the factors - notably capital and different levels of skill and technology - that are intensively used by these products."
Although Pakistan has recently initiated measures to upgrade and reform its vocational training systems, an overall comparison of the training resources of Pakistan with those of the Republic of Korea show the wide gaps between the two countries. Among the more glaring contrasts: 30 to 40% of teacher posts in Pakistani vocational training institutes are lying vacant, whereas teachers are oversupplied in Korea; drop out rates in Korean vocational training institutes do not exceed 10%, whereas they are very high in Pakistan; technical/vocational institutes for women in Pakistan are far fewer than for men, whereas in Korea girls can apply to any institute according to interest and competency and 46% of all enrolled students are female. Most pointedly, in Pakistan there are no close links between schools and industry, while in Korea schools and industries work together closely and industry provides scholarships for students in many technical schools.
The situation in India is examined via a comparison of two major export industries: computer software and leather goods. Leather goods, a traditional export sector is India's fourth largest export earner, and employs around 1.65 million people, of which almost 90% work in the informal sector. In spite of its size and importance, the sector is dogged by declining share of its exports in the world market. In sharp contrast, computer software is a more recent development. Exports of computer software from India are growing rapidly and an entire information technology sector is mushrooming.
However different the two sectors might appear, they are both particularly suited to India, in that they are people-intensive, rather than capital-intensive activities and require relatively low levels of physical capital and technology, factors with which India is poorly endowed.
Even so, information technology (IT) is booming and leather goods languishing. Employment is growing rapidly in IT while the leather sector faces acute shortage of workers. Why? The explanation is partly due to the buoyant market for IT products and the "demand-driven" nature of the industry. But it is also based on the vastly different education and training regimes that prevail in the two sectors, which generate dramatically different incentives for employers and the workforce.
Software production for export requires a high level of sophisticated skill, a factor in which India came to be relatively abundantly endowed as a consequence of its past educational development. But this endowment of home-grown and highly skilled manpower would not have been sufficient to spark growth in India's IT industry had not other factors intervened.
According to the authors "India invested serious effort in making a success of the opportunity." Without substantial economic reforms that removed rigidities and stifled entrepreneurship, it is doubtful that the initial level of success would have been so high. But the current level of success would not have been so high if India had failed to energetically nurture the skills required for further success:
"The initial abundance of highly skilled manpower would not have lasted long in the absence of concentrated efforts to augment its supply. Successful entry in software production and export was quickly followed by a large expansion in IT training. Currently two of the largest IT companies together provide training to up to 300,000 people a year. It should be strongly emphasized that once again it is India's initial advantage in the supply of highly trained scientific manpower that has made it possible to expand IT training - a highly skill-intensive activity - so quickly."
This state of affairs stands in marked contrast to the leather industry. Although India has a large pool of cheap labour endowed with traditional skills in the manufacture of leather products, the majority of workers are in the informal sector and are uneducated. In such circumstances, "it is not easy to upgrade their skills beyond a certain point." Recent efforts to increase productivity have been largely limited to short-term training provided to workers in the modern segment by foreign buyers of leather goods.
According to ILO "The sector faces an acute shortage of trained manpower and especially lacks trained managers, supervisors and design operators. The stigma attached to the leather trade, lack of modern teaching infrastructure and outdated courses have all contributed to skill shortages in this sector."
It adds that "in 1995, only 635 candidates underwent formal training courses in leather work out of a total capacity in all courses of 420,000 in the Indian Training Institutes." Similarly, "the Apprentice Training Programme attracted only 355 apprentices (for leatherwork) out of a total capacity of 144,000. The conclusion: "Most companies do not invest in upgrading the skills of workers for fear of losing them."
Latin America
Whereas in several East Asian countries the requisite capabilities and skills to compete successfully in the global economy are already in place, other parts of the developing world, notably South Asia and sub-Saharan Africa, will take some time to develop these skills. In terms of human resource capabilities, Latin America is described as being in a "grey zone" between the two situations. Most countries in the region could step up to a higher level of technological capability; the issue is how to move to this stage.
"Latin America faces the challenge of recovering its growth performance in a context where this is likely to call for a substantially improved human capital base in order to raise productivity."
The report says that despite modest economic growth over the past two decades, Latin America has enjoyed a more or less continuous advance in educational attainment, as reflected in declining illiteracy and higher school enrolment rates. The regional average for schooling is about five years, varying from a low of 3.9 years in Brazil to a high of 8.7 years in Argentina. At the secondary level, the percentage of students following vocational training programmes in the region lies between 20 to 30%.
Among the major obstacles to improved human resource development in Latin American countries is the broad income disparities found in most countries. Increases in education and training resources will need to be sufficiently broad based to allow for those who have lost ground in recent decades to recover.
"On grounds both of productivity and equity, quality and access should be improved at the primary level, and training systems should play an increasing role in raising the skill levels of as large a segment of the labour force as possible," says the ILO report. Productivity growth in the period 1990-95 has been steady in Latin America and impressive in some countries - for example Argentina 10.6%, Brazil 27.3% and Chile 9.6% versus an average 11-14% in the Asian Tiger economies.
However the report points out that whereas productivity in East Asia was accompanied by job growth in manufacturing, in Latin America it has come at the expense of higher manufacturing unemployment. The difficulty for policy makers in Latin America is creating more employment in large formal sector enterprises. This tendency can be explained by a number of factors, including the consequences of industrial restructuring, reduced employment protection and greater import competition. However the trends are also "indicative of both a relative shortage of skilled workers and a distribution of skills and of years of education, which is more polarized in Latin America than in East Asia".
The result is that in most parts of the developing world, current trends risk encouraging new, technology-intensive activities appropriate to the relatively small share of the labour force with advanced education, but at the expense of large-scale export activities requiring large amounts of semi-skilled labour. To avoid the potentially polarizing social impact of such trends, education and training are vital components of national policies to attain and remain globally competitive.
The ILO report thus sees training and education as a prime ingredient, not only in the process of creating jobs and generating growth, but of improving the capacity of economies to "seize the moment" by capitalizing on opportunities and occupying the many niche markets that emerge from the interface between rapid globalization and technological change.
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