EG5033 Current Issues In Economic Development HUMAN CAPITAL IN MALAYSIA 1. Introduction 1.1.

Definition of human capital : Is generated by formal education and formal training as well as by informal learning mechanism. Each time someone develops the ability to do something new, to increase human capital.(Barro, 1 !"

#he literature usually measuring the years of schooling in the wor$ing populations and using the outcome as a pro%y for all human capital in the country and attained through education, emphasi&ed as a critical determinant of economic progress. ' greater amount of educational attainment indicates more s$illed and more productive wor$ers( to increase an economy output of goods and services. )ell( educated human resources also help to facilitate the absorption of advanced technology from developed country. #he level and distribution of educational attainment has a strong impact on social outcomes, such as child mortality, fertility, education and income distribution. 1.*. +obb(Douglas ,unction in -uman +apital (.ross #heory" ' large body of theoretical and empirical literature postulates that human capital and inter(trade play on important role on growth. /elson and 0helps (1 absorption rate of new technology that has been discovered abroad. Intermediate inputs such as a machine embodies newer and superior technology. #hus, domestic technicians will be able to learn how to maintain and repair once this machine brea$ down, thus promoting the transfer of technology, innovation, and to some e%tend research and development. 1", postulate that a large stoc$ of human capital in a developing country increases the

EG5033 Current Issues In Economic Development 2omer (1 !", asserted that growth rate is increasing in the stoc$ of

human capital. It is predicted that poor countries with a very low level of human capital may cause stagnation. 'n economy with a large stoc$ of human capital tends to grow faster. )hen we study about human capital, we employ a simple +obb(Douglas aggregate production function where output is a function of physical capital, labor input, human capital and the degree of openness (international trade"of the economy. 3athematically, it can be written as 4 56 7 '86 9:;6 -<6 #=6 )here 5 is the total output, ' is a constant which stands for -ic$s(/eytral technological progress, 8 is the level of labor input. - is the level for human capital and # is a degree of openness of the economy at the period. Empirical wor$ employs various education measures to indicate the initial human capital s$ill level. But, the recent growth literature has not provided any clear and compelling empirical evidence on the relationship between human capital measures and the rate of growth of output. #he most common measures of human capital are school enrolment rates, which is investment in education. Investment in human capital ta$es the form of forgone earnings on education by the government and family. Barro (1 !", in his cross(country study found that school enrolment rates have a positive and significant impact on growth. -e used student(teacher ratio to measure the >uality of education. -is result shown that student ? teacher ratio was a negative impact on growth, as e%pected. -igh student teacher ratio signals lower >uality of education. .overnment e%penditure on education, literacy rate, and life e%pectancy rate are pro%y measures for human capital.

EG5033 Current Issues In Economic Development *.. HUMAN CAPITAL DEVELOPMENT IN MALAYSIA In Eight 3alaysia 0lan (*!!1(*!!@", #he economy maintained full employment and recorded growth in labor productivity. Employment e%panded with economic growth, which was mainly contributed by the services and manufacturing sectors. #he >uality of the labor force improved with the increasing supply of educated and s$illed human resource. Aarious initiatives were underta$en including the implementation of several training and retraining programs to reduce s$ills mismatch and enhance the employability of labor, particularly graduates. But, the >uality of the nationBs human capital will be the most critical element in the achievement of the /ational 3ission. -uman capital development will be a $ey thrust in the /inth 0lan period (*!!1(*!1!", human capital development will be holistic4 encompassing the ac>uisition of $nowledge and s$ills or intellectual capital including science and technology (CD#" and entrepreneurial capabilities as well as the internali&ation of positive and progressive attitudes, values and ethics through education, training and lifelong learning. -uman capital based n population, because is will be determined the employment in all sector and also can give affected in labor productivity. In table 1,it shows about population si&e and age structure *!!! until *!1! in /inth 3alaysia 0lan.

EG5033 Current Issues In Economic Development

Table 1 Po!ulation Si"e And A#e$Structure% &'''$&'1'1

#he 3alaysian population increased to *1.F@ million in *!!@, as shown in #able 1. #he population growth rate continued to decline as a result o the decrease in total fertility rate to *.F1 in *!!@. #he life e%pectancy at birth of the population improved with male life e%pectancy increasing from F!.! years in *!!! to F!.1 years in *!!@ and female life e%pectancy from F@.1 years to F1.G years.

3alaysia (*!!1". Ninth Malaysia Plan 2001-2010. /ational 0ress, 8uala :umpur

EG5033 Current Issues In Economic Development

Table & E(!lo)(ent b) *ector &'''$&'1'

,or the labor force increased to 11.E million in *!!@, as shown in a!le 2. #he >uality of the labor force improved with the share having educational attainment at tertiary1 level increasing from 1E. per cent in *!!! to *!.! per cent in *!!@. #he economy registered full employment with the unemployment rate at E.@ per cent in *!!@. :abor shortages, especially for the low s$illed, resulted in the increased employment of foreign wor$ers. ,oreign wor$ers with wor$ permits increased to 1.F million in *!!@ with the manufacturing sector as the largest employer, accounting for E1.! per cent. #he number of e%patriates increased to E@,GH!, of whom @*.1 per cent were in the services sector. In table E, it shows about the employment rate Employment increased at an average rate of E.E per cent per annum with 1.1 million new Iobs created, as shown in a!le 11-2. #he services and the manufacturing sectors generated 1,!1*,H!! Iobs and @11,E!! Iobs, respectively. Employment in the agriculture sector contracted by 1F,E!! Iobs in *!!@ due to the increased use of labour(saving @

EG5033 Current Issues In Economic Development technologies and better farm management. #he structure of employment by maIor occupational categories reflected the increased demand for highly s$illed human resource. Table + E(!lo)(ent b) (a,or occu!ational #rou! &'''$&'1'

During the 0lan period, labour productivity improved in all sectors of the economy. :abour productivity in the agriculture sector increased, attributed among others, to good agricultural practices, utilisation of new technologies and the shift towards integrated farming and large(scale commercial production activities. In the manufacturing sector, growth in labour productivity was due to improvements in the >uality of the wor$force and better organi&ational management as well as increased labor efficiency. In the services sector, wider utili&ation of information and communications technology (I+#" such as e( 1

EG5033 Current Issues In Economic Development ban$ing and e(commerce as well as implementation of innovative wor$ processes, mergers and ac>uisitions, particularly in ban$ing and telecommunication sub sectors, contributed to productivity growth. &.1. -uildin# Hu(an Ca!ital in Mala)*ia and T.e C.allen#in# Ceveral mammoth infrastructure proIects have been rapidly sprouting up in 3alaysia. E%amples4 8:I' (8uala :umpur International 'irports", 0etronas #win #owers, new 0enang Bridge and others. #he core technical re>uired is constructing these infrastructure proIects includes, among other things, architectural science, >uantity surveying, civil engineering, structural design, mechanical power and electronic engineering. /one of these grandiose proIects was built with technical that is fully indigenous to 3alaysia. )hile some technical transfers might have ta$en place during the construction process, it is by no means a substitute for that developed indigenously. Cuch a shortcoming is in fact largely due to a severe shortage of technically s$illed labor force in the country. #his is attested by the low number of scientists and engineers per 1!,!!! labor force that climbed up from *.1 in 1 * to merely 1@.1 in *!!!.(3IE2" *. #he number is far smaller than that in both developed and newly industriali&ing economies, where it hovers around 1!! and @!, respectively. 0resently, only about E! per cent of the total enrolments at the public institutions of higher learning (I-:s" pursue technical and engineering courses. #his is baffling, as these dismal numbers do not Iive with the countryBs public education e%penditure as a percentage of gross national product, which is relatively high by world standards. #hatBs why .overnment could possibly resort to importing talented and s$illed labor from overseas, it does not constitute a long(term solution.

3IE2 ? 3alaysian Institut Economy 2esearch (www.3IE2.gov.my"

EG5033 Current Issues In Economic Development But , foreign s$ills are not perfect substitutes for s$ills developed indigenously as only the latter can be transferred seamlessly and diffused permeably. 3ore importantly, many countries have long recogni&ed the importance of human capital to economic growth and are currently competing head(on for such intangible assets. Jnless 3alaysia can offer incentives that are not available elsewhere, labor force in the country is unli$ely to e%perience any significant brain(gain in the near future. :ong(run policy approach for boosting human capital should be essentially domestic(driven. )hile increasing the number of people with tertiary education is undoubtedly vital, the focus should be on increasing the enrolment of tertiary students in science, mathematics and engineering (C3E" courses. #he Issue is that the fees for such courses in both public and private I-:s are normally much higher than those for arts, business and management ('B3" courses, many poor students run the ris$ of being deprived of the opportunity to be technically s$illed. Kbviously, the fee gap between the two has to be reduced in order to balance the enrolment between the C3E and 'B3 courses. Kne possible option for the government is to partly subsidi&e the fees of the former. In 3alaysia, human capital has not been e%panding in tandem with the number of I-:s in 3alaysia. In addition to the e%isting 1H public local universities, the number of private colleges has also risen to around 1!! after the enactment of the 0rivate -igher Educational Institutions 'ct in 1 alone increased five(folds from 1!,!!! in 1 1. In fact, student enrolment in the former ! to E!!,!!! in *!!E.E

But the issue is about improvement in human capital has not $ept pace with the increase in the number of institutions and students. #his suggests that what 3alaysia really needs, to boost human capital, is full(fledged technical colleges and universities, the number of which is still relatively small. 0referably, such colleges

3IE2 ? 3alaysian Institut Economy 2esearch (www.3IE2.gov.my"

EG5033 Current Issues In Economic Development and universities could be run in collaboration with $ey industry players, so as to ma$e the courses offered more practical and mar$et(oriented. -uman capital is an intangible asset that is composed of both theoretical $nowledge and practical s$ills. Co, how about the syllabus and education system in 3alaysiaL #he local education system today places too much emphasis on academic >ualifications. It is important to reali&e that not all school dropouts are worthless. 3any of them might lac$ theoretical $nowledge but possess practical s$ills. #herefore, instead of targeting on school leavers, both the government and private sector should either ma$e use of the e%isting I-:s or set up new technical institutes to offer C3E courses that mainly cater for s$illed wor$ing adults. Kf course, the syllabus, training concepts and entry re>uirements would have to be adapted to suit the specific needs of these people. -ow about the 2DD in Ccience and #echnology education and to build up the human capitalL #he government must to provide financial incentives to strengthen research and development (2DD" activities, training and education4 they are largely targeted at local research institutes and public universities. Despite the fact that most researchers are attached to the government institutions, it is the private sector that mainly drives economic growth. 3ore of such incentives should in fact be offered to engineers, technical researchers and scientists in the private sector. It is not worthwhile for private firms to defray the costs of training and education, given the relatively high staff turnover. #his calls for increased government financial assistance for human capital formation in the private sector. 'n the other ways what government should do, the government needs to introduce financial schemes that could motivate highly s$illed old wor$ers to come out of retirement as well as encourage the private sector to proactively retain human capital. #his is because, a recent study shows that 3alaysia could lose over 1.1 million of its wor$force in the ne%t ten years through retirement and the number is

EG5033 Current Issues In Economic Development e%pected to have colossal implications for the economy in terms of human capital loss an human capital normally grows in tandem with a personBs age #hose who ac>uire new s$ills should also be willing to transfer their s$ills to those who would eventually replace them. *.*. Brain DrainG in Developing +ountries Developing countries are often unable to compete with the science and technology opportunities in industriali&ed countries. 'lthough some nations, such as Bra&il, +hina, and India, are holding on to more of their graduates by investing in education and research, many others are still seeing a steady emigration of scientists. /ancy .ore Caravia and Muan ,rancisco 3iranda e%plain that boosting science and technology is $ey to stemming the brain drain. 'lthough ta% incentives and prestige awards can lure scientists bac$ home, a good scientific infrastructure will be needed if scientists are to wor$ in their native countries. #he authors suggest governments could channel a portion of remittances sent from overseas (for e%ample money transfers from citi&ens living abroad to friends and family bac$ home" into social development. 3e%ico is the only country so far to do this. 'nd countries to which scientists emigrate could pay a fee to the home countries as reimbursement for the cost of training. #he proportion of highly s$illed and educated nationals that has migrated from individual developing countries is generally not $nown. 5et some data are available. ,or e%ample, E! !!!(@! !!! 'rgentinean scientists and technicians wor$ abroad, and there are fewer than 1@ !!! full(time investigators in all areas of science wor$ing in 'rgentina. Cimilarly, the *!!! emigrants from +olombia who are wor$ing in research and development abroad represent appro%imately half of the G!!! scientists involved in research and development in +olombia. Despite these stri$ing e%amples, the availability of up(to(date data on international migrants is limited and imprecise. Definitions of immigrants vary widely and these variations confound attempts to construct or utili&e statistical databases. +ountries that contribute human capital to the brain drain rarely record the characteristics of emigrants. In contrast, countries that receive the migrants, of which there are fewer ('ustralia, +anada, ,rance, .ermany and the Jnited Ctates account
G

Brain drain ( Efforts to counteract the emigration of highly s$illed personnel remain hotly pursued around the world. But while some countries suffer the conse>uences of the so(called Nbrain drainN, others are beginning to reap its potential benefits.

1!

EG5033 Current Issues In Economic Development for O !P of migratory flow to countries in the Krgani&ation for Economic +o( operation and Development", maintain statistics on foreign(born nationals and immigrants through census data and national databases on education and scientific and technological capacity. 'lthough the proportion of emigrating nationals having secondary level or tertiary level education varies by region and country, immigrants to the Jnited Ctates have a higher level of education than the average individual in their home country. ,urthermore, the proportion of the population migrating from either developing or industriali&ed countries, with few e%ceptions, is greatest among the most highly educated. 'lthough the migration of talented individuals can affect any country, and is intensified by social and economic crises, developing countries face the greatest challenge. #heir student emigrants and temporary migrants are most li$ely to remain abroad. ,or e%ample, among the doctoral graduates in science and engineering in the Jnited Ctates in 1 @, F P of those from India and HHP of those from +hina remained employed in the Jnited Ctates. In contrast, only 11P of students from the 2epublic of 8orea and 1@P of Mapanese students who received their doctoral degree during the same year remained in the Jnited Ctates. Incentives for migrants to return to developing countries have been insufficient to override the limitations at home, both real and perceived, and the attraction of opportunities found abroad. #hus, in *!!! an estimated 1@!! highly >ualified Indians returned from the Jnited Ctates but more than E! times that number leave India each year. 'ccording to the *!!* )orld Economic ,orum report, +hile and Bra&il generally retain their scientists and engineers while 'rgentina and +olombia do not. #he impact of the loss of highly s$illed and well educated individuals differs for countries with different si&ed economies. 3edium(si&ed economies in particular may be the most vulnerable since migration can subvert the possibility of achieving a critical mass of capacity to produce and innovate efficiently. 3any of these countries have made significant investments in infrastructure and education but have not achieved the scientific development and technological and innovative capability either to retain or to recover the human capital that they have generated. #his raises the >uestion of whether it is Iustified to continue losing human capital or to ma$e the additional investment in science and technology and bring about the innovations needed to stop the loss and convert it into wealth generation. 'lthough every country, irrespective of si&e, must be able to use $nowledge to compete in international 11

EG5033 Current Issues In Economic Development mar$ets, smaller economies may lac$ the mar$et or population si&e to ma$e the ac>uisition of certain s$ills profitable4 they may thus be less affected by emigration. Kn the other hand, large economies may have the diversity of human resources and educational infrastructure to overcome losses resulting from emigration. /evertheless, the >ualitative characteristics of the individuals (creativity, vision, high tolerance for ris$" and the population lost through emigration can critically limit specific capabilities that are not readily compensated for either by other endogenously trained individuals or the influ% of immigrants. @ Brain Drain In 3alaysia Cituation1 2enewed efforts to lure home 3alaysian scientists currently wor$ing overseas were announced by the countryQs prime minister last wee$ in a fresh attempt to reverse the countryQs brain drain. #he proposed per$s include better pay, improved contracts and earlier retirement, as well as increased investments in research and development. 3alaysiaQs prime minister 'bdullah 'hmad Badawi said that the countryQs losses, in terms of $nowledge and money, were considerable, and that attempts by universities in other countries to lure 3alaysian students were Ntantamount to poachingN. Badawi has instructed the 3inistry of Ccience, #echnology and Innovation (3KC#I" to review incentives to attract 3alaysian scientists wor$ing overseas to return home. #he countryQs human resources ministry has already agreed to ma$e venture capital, financial assistance and research development facilities more accessible. #he suggestion that other moves being e%plored by the science ministry may include the encouragement of more research collaboration between 3alaysians abroad and those at home. Cuch proIects are a good way of tapping
@

(/... Caravia D M.,. 3iranda.(*!!G". Plum!in" the !rain #rain (Bulletin of the )orld -ealthKrgani&ation", Bull )orld -ealth Krgan vol.H*. .eneva : )orld -ealth Krgani&ation."

:inda :. (*!!G". Malaysia !oosts e$$orts to to reverse !rain #rain% 2etrieved from : www.CciDev.net.

1*

EG5033 Current Issues In Economic Development into the $nowledge of the former while allowing them to continue wor$ing overseas. In total, E!,!!! 3alaysian graduates are thought to wor$ in foreign countries. Come have held scholarships in top universities overseas li$e those offered by the 0ublic Cervice Department, but have decided to stay at the end of their studies. It costs the government a lot of money to send our students overseas. #hose countries should pay R3alaysiaS for having ta$en away our graduates since, by right, the graduatesQ training and $nowledge should be called intellectual property.N Kther scientists have left their country to pursue a research career in well(e>uipped laboratories abroad. #he countryQs efforts to regain its scientific talent started in 1 @. 'ccording to a report in the Ne& 'traits imes( however, a scheme introduced that year managed to lure bac$ only *E scientists #he current incentive programs, run by the 3inistry of -uman 2esources, has said that a top priority should be the return of 3alaysians with e%pertise in information and communication technology, microelectronics, biotechnology, advanced manufacturing, advanced materials, pharmaceuticals, aerospace and energy. 3alaysiaQs last national survey of research and development (2DD", carried out in *!!!, indicated that spending on 2DD represented only !.@ per cent of gross domestic product, and that there were 1@.1 researchers per 1!,!!! of the labor force. #he Cecond /ational Ccience and #echnology 0olicy, drawn up by 3KC#I, aims to increase 2DD e%penditure to at least 1.@ per cent of .D0, and to achieve a competent wor$ force of at least 1! researchers per 1!,!!! labor force by *!1!. #hese goals fall into 3alaysiaQs broader obIectives of achieving the status of a developed nation by *!*!. #he challenge of the brain drain #he challenge of redirectingNbrain recirculationN is to find ways of creating opportunities at home. 0otential nuclei for development could be established by focusing on research and development that is based on national priorities and niches of opportunity. #he re>uirements necessary to achieve this include: 1. Implementing educational strategies that support and nurture these nuclei through both targeted national programs and training abroad4

1E

EG5033 Current Issues In Economic Development *. Investing in infrastructure for research and development and creating conditions that foster the growth of public(sector and private(sector demand for research results, technological development and innovation4 E. Building an enlightened leadership and an enabling national scientific community that advocates internally and e%ternally for the coherent development of scientific and technological capacity. Ccientists who have emigrated are recoverable assets that can play a part in developing opportunities at home. -owever, recovery re>uires the opening of diverse and creative conduits. Kne of these could be the strategic channeling of remittances to generate investment in research and development and used together with government matching funds andTor fiscal benefits as incentives. 'nother potential return conduit of emigrantsQ capacities would be to engage them in innovative graduate education opportunities at home and in technology transfer in areas of national priorities for research and development. Jltimately, involving individuals who are living abroad in creating opportunities at home favors both the retention and repatriation of national talent. 0erhaps these and other strategies to achieve return flows of human resources and capital, together with the participation of the scientific community in national development through planning and policy, could indeed change the landscape of opportunity.

+. Conclu*ion #here are numerous foreign technology(based companies in distress and 3alaysian companies can actually contemplate ta$ing some of them over. +onsidering that global corporate technology spending is at the early stage of recovery now would be the best time for such ac>uisitions. If 3alaysian wor$ers can then be integrated into the organi&ations that are composed mainly of foreign s$illed technical staff, e%perience(based learning that ta$es place in the assimilation process would be a shot in the arm for the national human capital. If no serious attention is paid to human capital, the reali&ation of 3alaysiaBs Aision *!*! will be severely impaired. )e run the ris$ of world(class

1G

EG5033 Current Issues In Economic Development organi&ations and institutions not being put to good use simply because first(world infrastructure is miss(matched by third(world human capital. During the Eighth 0lan period (*!!1(*!!@", the >uality of the labor force improves with the increasing supply of educated and s$illed human resource due to the e%pansion in the capacity of education and training institutions. During the /inth 0lan period, human capital development will be one of the main thrusts as envisaged in the /ational 3ission. .reater focus will be given to holistic human capital development encompassing $nowledge and s$ills, progressive attitude as well as strong moral and ethical values. :ifelong learning programs will be e%panded. #he inculcation of entrepreneurial values will be intensified to promote self(employment. 3easures will be underta$en to upgrade CD# capabilities to drive innovation. Cmart partnerships and collaboration among sta$eholders in education, training and lifelong learning will be intensified. .reater private sector participation in the provision of >uality education and training will be encouraged. #he education, training and lifelong learning delivery systems will be improved to enhance the >uality of human capital and produce the towering individuals needed to meet the challenges of development and

1@

EG5033 Current Issues In Economic Development

/e0erence* /... Caravia D M.,. 3iranda.(*!!G". Plum!in" the !rain #rain (Bulletin of the )orld -ealthKrgani&ation", Bull )orld -ealth Krgan vol.H*. .eneva : )orld -ealth Krgani&ation. 'san 'li, .. -. D Ba$ti -asan B. (*!!G". 0rognosis 0embangunan D #ransformasi Ctru$tur. In 'san 'li .. -. (eds", Mi"rasi Dan Peru!ahan 'tru)tur Pasaran *uruh +pp 3,1-3-0.. 0enerbit Jniversiti Jtara 3alaysia. Cinto$ Barro 2.M. D Cala ?i( 3artin, %. (1 @". Economic .rowth. /ew 5or$ : 3c .raw -ill. 2omer 0. (1 !". Endogenous #echnological +hange. Mournal Kf 0olitical Economy H (@", sF1 ? s 1!* /elson 2.2. D 0helps, E.C (1 1". Investment in /umans( echnolo"ical Di$$usion( an# Economic Gro&th. 'merican Economic 2eview. :AI 1 (F@. :inda :. (*!!G". Malaysia !oosts e$$orts to to reverse !rain #rain% 2etrieved from : www.CciDev.net. 3alaysia (1 F1". #hird 3alaysia 0lan 1 F1(1 H!. 8uala :umpur .overnment 0ress, 8uala :umpur. 3alaysia (*!!1". Ei"hth Malaysia Plan 2001-2005. /ational 0ress, 8uala :umpur 3alaysia (*!!1". Ninth Malaysia Plan 2001-2010. /ational 0ress, 8uala :umpur

11

EG5033 Current Issues In Economic Development

1F