Lessons of East Asia’s human-capital development

Nelson Mandela once said, “Education is the most powerful weapon which you can use to change the world.” Education does not just enable individuals to improve their lot in life; it enriches an economy’s human capital, which is vital to prosperity and social progress.
Nowhere is the value of human capital to development more apparent than in East Asia. The top four (of 157) spots in the World Bank’s recently introduced “Human Capital Index” – a composite measure of survival, learning-adjusted years of schooling, and health – are occupied by East Asian economies: Singapore, South Korea, Japan, and Hong Kong.
The new index estimates that a child born today in Singapore will be 88 per cent as productive when she grows up as she could be if she enjoyed complete education and full health. In Sub-Saharan Africa, by contrast, a child will be only 40 per cent as productive. Globally, 57 per cent of all children born today will grow up to be, at best, half as productive as they could be.
Given the effect of human capital on productive and development capacities, developing countries should be placing a high priority – as East Asia’s most prosperous economies have – on boosting human capital, as they pursue sustainable and equitable growth. What lessons can East Asia’s experience provide?
From the early 1960s to the late 1990s, when many East Asian economies were undergoing rapid industrialization, the development of a well-educated and skilled labour force, combined with well-directed economic policies, was key to enabling the diversification and upgrading of export industries. In a virtuous cycle, rising incomes and industrial upgrading stimulated continuous investment in education and skills, which contributed to productivity increases, technological progress, and the achievement of equitable growth.
Public policy was central to this success, with East Asian leaders ensuring that economic-development plans and associated measures always accounted for human-capital objectives. In South Korea, each of the five-year development plans implemented from 1962 to 1996 contained action plans for manpower development, including education and training policies.
Such policies – designed and implemented in close coordination with industrial and trade policies – enabled East Asian countries to meet evolving economic demands in a cost-effective manner as the industrial structure continued to be upgraded. The key was a sequential approach.
Faced with a growing school-age population, weak educational infrastructure, and limited funding, owing to low levels of national income, the East Asian economies could not simply overhaul the entire system at once.
So, early in the development process, as governments promoted labour-intensive industry, they focused on basic education. Later, when governments were promoting heavy manufacturing and technology-intensive industries, they focused on developing upper-secondary and tertiary education, vocational education, and training programs.
Another component of the East Asian economies’ strategies for developing human capital was a gradual shift in focus from quantity to quality. At first, when primary education was the emphasis, policymakers sought to get every child in school, even if it meant accepting lower-quality inputs, such as large class sizes.
They then began to invest more in boosting the quality of primary schooling, say, by reducing class size and improving resources, from books to teachers. When the focus shifted to secondary and tertiary education, the same sequence was followed.
Of course, even with this sequential approach, considerable – and expanding – financial resources had to be directed toward education and skill development. From the start, governments allocated large shares of their budgets to these objectives. As national income rose and birth rates dropped, total and per capita educational expenditures increased continuously.
In the earlier stages of human-capital investment in East Asia, countries also relied on foreign aid. External financial and technical assistance was a great help to South Korea and Singapore, for example, as they established their education and training systems.
Later, the private sector played a significant role in East Asia’s educational and skills development, especially at the upper-secondary and tertiary levels. In South Korea, for example, about 60 per cent of upper-secondary students were enrolled in private schools in the 1980s.
The private sector was also encouraged to provide training: in Singapore, employers contributed to a skills-development fund to promote upskilling and retraining workers.
Learning from these experiences, developing countries today should move to invest a substantial and growing amount of the public budget – augmented by foreign assistance – into education and skills development, while working to attract private investment into higher education and skills training. They should take a more cost-effective sequential approach to upgrading their education and training structures, which complements their stage of development. And they should enshrine human-capital development in policy.
Many developing countries today boast rapidly growing young populations that could be a boon for economic growth and dynamism. But, to meet their potential, these young people need strong educational and employment opportunities. Without deliberate and practical human-capital strategies, that will be virtually impossible to deliver. - Project Syndicate