Budget 2014 - emphasis on skills development

By Dinesh Weerakkody

The government has recognised the fact that Sri Lanka needs to ramp up its higher education system to staff its rapidly expanding economy and that creates major changes to the way we deliver education and in the demand for skilled knowledge workers.

The President in his Budget speech said that the country needs to fast track the skills development program to meet market demand by gearing youth to secure high paid jobs. He said the government has secured around $350 million budget support from the World Bank and ADB to supplement government expenditure on skills development.

The Budget proposal to support top professional bodies to set up and expand technical programs in the country would also help to grow our professional talent pipeline.

Sri Lanka which is building exports needs to prepare a large number of people to work in the industry.

However, maximising their value requires us to be aware of our talent, upcoming skills shortage and understand the impact of social media infusion.

The investments we make in education will contribute significantly to economic growth and will be key to our future competitiveness. Indeed, if the private returns are high on these investments, most households are likely to make adequate investments in human capital development on their own accord. However, the difficulty of borrowing to send children to school especially affects the poor.

Low income families

Creditors cannot easily stake a future claim on embodied human capital as they can for other types of collateral and therefore, many low-income families are forced to invest less in their children's schooling.

The free market failures on principle, suggest making concessionary loans available through the state. A more common, alternative is for the government to reduce the direct costs of schooling by making quality public schooling available free or at subsidised rates.

Most interventions generally consist of making schooling available free and sometimes even compulsory. Research suggests the difference between social and economic returns from education at a macro level is probably higher at the primary and secondary levels than at the university level.

Many positive spillovers come from literacy acquired at lower levels of schooling, while the returns from training at university level are almost fully captured by the higher income of university graduates. Vocational training also has high economic pay offs, if it improves worker productivity.

More importantly, evidence suggests that vocational training is most cost-effective if the trainees have a solid base of primary and secondary education. All of this argues for primary and broad based secondary education as a means to improve a nation's productivity and income distribution.

Devoted to education

Interestingly, higher shares of national income devoted only to education cannot explain the larger accumulation of human capital in some of the East Asian economies.

In the 1980s, public expenditure on education as a percentage of GDP was not much higher in East Asia than elsewhere.

In 1960s the share was 2.2% for all developing economies, 2.4% for Sub-Saharan Africa, and 2.5% for East Asia.

During the decades that followed, the governments of East Asia markedly increased the share of national output they invested in formal education, but so did governments in other developing countries.

In the late 1980s the share in Sub-Saharan Africa was around 4.1%, and was higher than the East Asian share, 3.7%, which barely exceeded the average share for all developing economies, 3.6%.

Research suggests that allocation of public expenditure between basic and higher education is perhaps one of the top public policy factor's that accounted for East Asia's extraordinary performance in basic education.

Low public funding of secondary education results in poorly qualified children from low-income backgrounds being forced into the private sector or entirely out of the education system.

Research suggests that the share of public expenditure on education allocated to basic education has been consistently higher in East Asia than most other regions.

By giving priority to expanding the primary and secondary bases of the education infrastructure, East Asian governments have stimulated the demand for higher education, while relying on the private sector to satisfy demand at the skills formation level.

In most developing regions governments have subsidised university education which have also benefited families with relatively high incomes that could afford to pay fees close to the actual cost of the university education.

Vocational training

The government in its Budget proposals said that the 2014-2020 Vocational Education Strategy consists of rehabilitation and construction of technical colleges and vocational training centres, development of training material and the provision of equipment, staff training and professional development.

This is a positive move because in most of the successful export economies the training provided by VTIs to upgrade the skills of their work force has been crucial, since high-level skills are essential for manufacturing activities.

But while vocational training is widely recognised as important, such training is rarely cost-efficient when provided by State systems. Most firms, prefer to do their own training, partly because many skills are company specific.

There is ample research to show that the return on the training investment is higher in industries that engage well-educated workers and also in environments where there is rapid technological change.

Singapore's use of training to promote the information technology sector through a concerted program that involved educational institutions, providing training subsidies to schools and office workers, and digitising of the civil service, helped the country to achieve leadership in technology related services.

This success illustrates the importance of a government's ability to foresee a major opportunity and then promote public-private partnership to invest in human capital formation. However, to make it a success, businesses must also be ready to take advantage of the support the government provides to promote human capital formation.

In addition, the State must ensure that they maintain the per student share, in real terms, of government funded education.

The writer is an HR professional.