Problems with human capital in Malaysia

Author: Shankaran Nambiar, MIU, Malaysia

The present and future quality of Malaysia’s human capital is of considerable concern for the country’s policy makers.

Human capital is not improving as it should, and it threatens to constrain Malaysia’s growth objectives.

The Second Industrial Master Plan (IMP2) discusses at length moving up the value chain. This can have various meanings, but it must involve sophistication in production processes and an accompanying improvement in management methods.

The IMP2 covered the period 1996 to 2005. But the need for a skilled workforce is more pronounced now than it was 15 years ago when the IMP2 was drafted. This is especially true since multinational corporations can choose from a variety of locations within the region, like China, India and Vietnam. But even discounting the need to attract FDI by offering skilled labour, the development plans charted for Malaysia require high-quality workers.

The New Economic Model (NEM) for Malaysia (Part 1) unequivocally admits the country has a human capital deficit.

The NEM observes that Malaysia’s weak productivity growth ‘highlights the stark reality that Malaysia still lacks the sort of creativity and innovation that result in technological and technical progress’. Nothing can be more telling than to have a sub-section heading in the NEM Report which reads: ‘We are not developing talent and what we do have is leaving’.

However, the Tenth Malaysia Plan 2011–15 (10MP) was launched on the premise that Malaysia has an adequate supply of skilled labour.

The 10MP forwards ‘ten big ideas’ to move Malaysia into the high-income category, and two of these ideas are particularly pertinent to high-quality human capital. The 10MP also mentions ‘developing and retaining a first-world talent base’ as one of its five key thrusts.

In addition, the 10MP is supposed to focus on 12 national key economic areas (NKEAs), some of which are heavily dependent on the availability of skilled labour. Of these areas, financial services, information and communications technology, education, electrical products and electronics, business services, private healthcare, and greater Kuala Lumpur are the NKEAs that require a strong skilled labour force to achieve the targeted objectives.

For example, the ‘greater Kuala Lumpur’ NKEA is meant to transform KL into a world-class city and international financial district. But without skilled workers with international exposure — from top-level management supported by competent middle-level managers and, lower down, skilled officers — it will not be possible to have an international financial district.

Similarly, the indicators regarding the level of science and technology in Malaysia do not portray an encouraging picture.

Malaysia’s research and development expenditure, as a percentage of GDP, stands at 0.6 per cent. This lags behind Singapore’s expenditure of 2.3 per cent, South Korea’s 3 per cent and Japan’s 3.4 per cent. And while Malaysia had about 531 patent applications in 2006, Korea had 125,476 and Japan over 300,000. The number of journal publications is equally unimpressive: Malaysia had 808 published articles in 2007, eclipsed by Singapore’s 3792 and Japan’s 52,895.

But despite the Malaysian government’s concerns, surprisingly, very little is being done to rectify human capital issues.

Plans like the 10MP speak as if nothing is wrong. They are being drawn up on the assumption that skilled workers are readily available: the areas specified for moving up the value chain are those dependent on high-quality labour.

On top of all this, there are complaints that fundamental education reforms have diluted the spirit of nationalism and the rights of the majority.

Until 1976, English was the medium of instruction in Malaysia’s schools and universities. This was subsequently changed to Bahasa Malaysia, and remained so until 2002 when then-Prime Minister Mahathir Mohamad directed that science and mathematics be taught in English, with the medium of instruction otherwise remaining in Bahasa Malaysia. The reason for this sudden shift was so Malaysians could be better equipped to keep abreast of developments in science and technology, making Malaysia more globally competitive.

But now there are emotional suggestions that the teaching of science and mathematics should revert to Bahasa Malaysia. The arguments for this reversion are justified in a number of ways, primarily by appealing to nationalistic feelings and the imagined threat of the erosion of the Malay identity. Nevertheless, there is widespread acceptance that the general level of competence in English is declining. People ranging from industry leaders to former ambassadors are bemoaning this phenomenon. Again, the resulting implications for the development of human capital are not good.

A labour force that is educated, creative and innovative is the foundation for economic growth. Unless education reforms, including the teaching of science and technology in schools, are approached in a realistic and far-sighted fashion, it may be difficult to achieve substantial changes.

Shankaran Nambiar is an economist who consults for national and international agencies.  A version of this article first appeared in the Edge Financial Daily.