S. Majumdar, (ed.), Emerging Challenges and Trends in TVET in the Asia-Pacific Region, 37–40. © 2011 Sense Publishers. All rights reserved.

RAJAT M. NAG

4. SKILLS TRAINING AND INCLUSIVE DEVELOPMENT*

INTRODUCTION

As a development partner in the Asia-Pacific region, the Asian Development Bank takes great interest in how education can support economic and social development. Our involvement in the education sector is one of the core operational areas of ADB. ADB’s Long-Term Strategic Framework for 2009–2020 takes into account the dynamic changes in the region and the changing nature of poverty. It stresses the importance of inclusive development and growth to broaden and sustain progress on poverty reduction. With inequalities rising in the region, it is important for a developing Asia to embrace inclusiveness as a key development goal. Accordingly, I would like to mention about inclusion in the Asia-Pacific and the role education and skills development can play in widening the scope of Asia’s growing prosperity to encompass more of the region’s poor.

FROM INEQUALITY TO INCLUSIVE DEVELOPMENT

The past few decades have been a time of unprecedented economic growth and poverty reduction in the Asia-Pacific region, and of dramatic improvements in the standards of living. For example, per capita income in developing Asia, in real terms, grew from less than $170 in 1967 to over $1,000 in 2005. And the proportion of people living in absolute poverty has declined from more than one-third (34.6%) in 1990 to less than one-fifth (18.0%) in 2005. Despite this progress, however, an enormous poverty challenge still lies ahead. More than 1.7 billion Asian people still live below the $2-a-day poverty line, including nearly 600 million still struggling at $1 a day. And while we celebrate the shining face of Asia—its economic success and growing middle-classes—this other face, the face of Asia’s poor, is becoming starker as income and opportunity gaps widen. Our challenge is how to get these two faces of Asia to converge—our concern is that they are diverging. A recent progress report on the Millennium Development Goals, or MDGs, shows that while Asia is on track to meet the goal of reducing income poverty by half by 2015, progress against many of the non-income MDGs has been slow. For instance, the MDGs call for the rate of child malnutrition to be reduced by one-half. In the Asia-Pacific, more than 90 million children still suffer from hunger -that is about two-thirds of the world’s total.

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Similarly, 1.5 billion rural residents have no access to basic sanitation and 566 million are without clean water. In urban Asia, water problems have become worse as cities swell, leaving 93 million city-dwellers without clean water, compared to 54 million in 1990. Enrollments in primary education are generally high, with a regional average of close to 90%. Even in countries with high enrolments, providing access to education to the poor and other disadvantaged groups continues to be a serious challenge. As we know, the tremendous diversity of the Asia-Pacific region is one of its greatest strengths. But the dark side of that diversity is disparity - and the growing divide we see in Asia today between the rich and the poor is troubling. It threatens the very sustainability of growth, as well as national and regional stability. A sea of poverty co-exists with islands of extraordinary affluence in many developing Asian countries. Poor women and children and the youth have been disproportionately affected. The youth are a major segment of the population, and the lack of relevant skills and increase in unemployment among them is a serious problem. The only way to close these development gaps is to make the development process more inclusive in three inter-related dimensions. First is the economic dimension - ensuring that poor and low-income households have the ability and opportunity to participate in and benefit from the growth process. This requires policy makers to create a more conducive environment for private sector growth and job creation, with macroeconomic stability; sound institutional, legal and regulatory frameworks; good governance and rule of law; and well-functioning financial and capital markets. Second is the social dimension - investments in education, health, human resource development and social safety nets are needed to eliminate social inequalities, promote gender equality and women’s empowerment, and bring more people, especially the poor, into the process of growth. Third is the political dimension - improving the ability and opportunity for poor and low-income people, including women and ethnic minorities, to effectively participate in political processes.

THE IMPORTANCE OF EDUCATION AND SKILLS DEVELOPMENT FOR INCLUSIVE ECONOMIC AND SOCIAL DEVELOPMENT

While education is generally important to all three dimensions, it is particularly relevant to the social dimension. ADB’s comprehensive studies on poverty in the region indicate lack of education as one of the key factors contributing to inequality. Within the education sector, demand for improved skills development, in particular, is increasing. Despite rapid economic growth in many areas and a large population, the region is beset by a serious and increasing shortage of technical and vocational skills, especially in the fast growing economies. In a survey published in the Economist last year, the CEOs of 600 multinational companies saw a shortage of qualified staff as their biggest concern in China and South-East Asia. It was their second biggest worry in Japan and the fourth-biggest in India. Across almost every industry and sector, the result of the survey was the same.

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It seems that the region’s rapid economic growth has fished out the pool of available talent, and the problem can only be solved by expanding education and skills development systems. But the situation is more complex than that. The rapid growth in many parts of Asia has transformed the type of skills needed, and this transformation will continue. For example, information technology is a vibrant sector suffering from a shortage of skilled graduates to fill new jobs. A similar situation is increasingly evident in many other skills areas and in certain generic skills, such as managerial skills. This has produced high staff turnover and rising wage costs, undermining sustainable economic growth and development as a whole. Some have stressed that Asia is experiencing a shift from a technology deficit to a talent deficit. Companies are trading off one productivity loss for another. There are some estimates that wages in Asia will rise within five years to Western levels in certain skills areas. Wages for lower skills level staff are rising quickly, well above inflation in many countries in the region. Pay rates for senior staff in certain Asian countries already exceed those for their counterparts in some parts of Europe. At the same time, and paradoxically, many of the region’s less industrialized countries cannot generate enough traditional wage jobs to accommodate those entering the labor market. The majority of new workers in Central and South Asia and in the Pacific will have no alternative but to work in the informal sector. This is also true for many entering the labor force in Indonesia, in certain areas in China, and in Vietnam, for example. Skills development can reduce poverty by expanding and increasing access to training that promotes entrepreneurship and self-employment among the poor. Of course, training alone cannot guarantee employment or alleviate poverty, but improved knowledge and skills can help the poor find decent jobs or add value to existing subsistence employment. Skills training are essential for promoting sustainable livelihoods, particularly where environments are fragile and informal economic activities need suitable techniques and practices for resource management. The skills shortage in the region is also an attitude issue. Too often, the youth pursue white-collar jobs as their only career option, and have negative attitudes toward pursuing skills training that involves manual labor. Understandably, these negative attitudes persist particularly in countries where skills training systems are not responsive to labor market needs, leaving graduates unemployed, or where the wage levels in the skills sectors are much lower than those in the white-collar jobs. Migrant labor is an important economic force in the region. For example, Bangladesh, Pakistan, and the Philippines actively market workers for temporary assignments abroad. While short-term emigration can relieve unemployment and generate revenues from remittances, it also creates serious challenges for skills development. In the Pacific countries, the exodus of skilled workers to richer countries has created acute skills shortages. In China, the movement of large numbers of unskilled people from rural to urban areas has created a need to provide new and more rapid forms of skills training. But skills formation is complex. It crosses institutional boundaries, takes place in varied settings (including on-the-job and non-formal ways), engages a highly

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diverse clientele, involves multiple delivery methods, and addresses constantly changing occupational requirements. The challenge is to unravel these complexities to meet the growing economic demand for skills. In 2004, ADB commissioned a study on technical education and vocational skills training strategies in Asia. More recently, in 2007, we implemented a broader strategic study in education, also focusing on skills development. These studies highlight the importance of adjusting skills training strategies to take into account the changes in demands arising from the region’s rapid growth and evolving labor market. The relevance of skills training needs to be tackled along with the expansion of training systems. The widening gap between labor market needs and available skills is one particular result of the quality and relevance of skills development. In recent years, technical and vocational education and skills training has comprised about 10% of ADB’s education loan portfolio. We anticipate increasing that proportion in the future. We are eager to work in partnership with relevant skills training institutions in the region, such as the CPSC. We will also support innovative reforms and dynamic public and private partnerships in our developing member countries. Thinking out-of-the box is extremely important, given how rapidly the demand for new and changing skills is evolving.

CONCLUSION

Asia is on the threshold of achieving tremendous prosperity. But there are also many challenges ahead, not the least of which is to ensure that this prosperity is widely shared and can be sustained through a more inclusive development approach. Education and skills development play a crucial role in supporting inclusive development. Policy makers must undertake comprehensive reforms to establish an environment in which innovative training strategies, including dynamic public and private partnerships, can flourish. By doing so, they will improve the relevance of skills of the labor force in the region, promote economic growth and social development, and accomplish all this in an inclusive manner. There is much to do to close Asia’s skills gaps and fulfil its enormous potential, but if all of us take these issues to heart, the future can truly be one of continued growth and opportunity for the people of the Asia-Pacific.

*An Inaugural Speech delivered at the International Symposium on Skills Development for Poverty Alleviation, Manila, Philippines, 25 January 2008.

Rajat M. Nag Managing Director General Asian Development Bank