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Spending on human capital an investment in Asia’s future economic growth

by Takashi Kitazume

If Asia wants to remain the world’s growth center, it needs to invest more in education and skill training for its human capital, said Mahani Zainal Abidin, director general of Malaysia’s Institute of Strategic and International Studies.

Asia’s strategy of relying on labor-intensive manufacturing industries to drive its growth will no longer be sustainable as the region faces changing demographic trends, Mahani told the March 24 symposium.

Mahani noted how countries in Asia, which today has 3.4 billion people, or 57 percent of the global population, are seeing diverse demographic trends. While some countries face a population explosion, others — notably Japan and South Korea — have falling birthrates and rapidly aging societies, she said.

Forecasts show, however, that by 2050 populations will have peaked in most of the major Asian countries except for India, Mahani said. And even China is facing a rapid aging of its population, she added.

And the region is witnessing an increased female labor participation and urbanization, which have resulted in lower fertility rates, higher divorce rates and erosion of the traditional family support system, she said.

Mahani noted that there is a growing recognition in Asia that human capital is an important source of economic growth “because most Asian countries have come to a stage where we can no longer grow based on labor-intensive activity.”

One traditional feature of Asia’s growth, she said, has been the so-called flying geese pattern, in which production of labor-intensive goods shifted from country to country in accordance with the cost of labor — first from Japan to South Korea, then to Southeast Asia and now to China.

“But this kind of system is not going to be sustainable” in the future, she noted. Asia needs to build human capital because many of its economies still lack the technology to drive their growth, and such technology “comes only with human capital,” she said.

As Asia seeks to move to higher levels of industrialization, and shift to technology-intensive and higher value-added production, demand will grow for access to higher education, Mahani said.

The question, she said, is how can Asian nations provide education at affordable costs to their growing populations. Some countries do not have the savings to pay for education because resources go to providing basic food and shelter, and this will likely result in the internationalization of education, she added.

The traditional pattern has been for Asia’s best students to study in the United States and Europe — and possibly get jobs there, Mahani noted. The challenge for Asia, she added, is how it can attract them back to the region and have them contribute to its growth.

Today, some of the education providers from Western nations are coming to Asia, and the next stage of internationalization will be online education, in which Asian youths will not have to leave the region to get education, she said.

Mahani said migration will be a major issue because Asia will have to deal with the current disproportionate location of labor — with the most advanced economies in Northeast Asia facing population aging and labor shortages while the poorer countries have abundant labor supply.

However, reallocation of labor must be handled carefully so as not to cause social upheavals, she pointed out.

Mahani noted that the ASEAN Economic Community Blueprint, adopted at the Association of Southeast Asian Nations summit last November, recognizes that there will be difficulties if the group is to have a free flow of labor, and thereby envisions regional integration of the labor market only for skilled workers.

It will be tough for East Asia to have regional movement of labor to the degree of the European Union given the wide development gap among Asian nations as well as their different social, cultural and religious backgrounds, she said.

Asia needs to have a more open migration policy if it wants to continue to grow, but such a policy must take into account the characteristics, adaptability and capabilities of countries that absorb the labor, so that there will be no social maladjustments, Mahani said.

It is therefore important to ensure that countries with high population growth have sufficient economic growth to provide adequate jobs to their population and not force people to seek jobs in other parts of the region, she added.