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Bangladesh's LDC graduation

Leveraging human capital for attaining high-income status imperative

M Rokonuzzaman | November 12, 2023 00:00:00

Like a few other aspiring lower-middle-income countries, Bangladesh would like to reach high-income status. The country has already exhausted its natural resources and low-skilled workforce to reach lower-middle-income status. The next option, likely the only one, that is left is to turn 50 million students into human capital and leverage them to keep increasing per-capita income to get to the cherished high-income status in the LDC graduation process. For sure, banking on this vast student population to create economic value has the potential to meet the dream set in Bangladesh's perspective plan 2041.

Fortunately, we have demonstrated success in drawing lessons from others in the region who wrote success stories in development pursuits. For example, Japan, South Korea, and Taiwan were all natural resource-poor and had very little per-capita income in the 1960s. In 1962, South Korea's per-head GDP was $106, and Taiwan's $172. Japan was a bit richer, with $640 as per-capita GDP. However, with $3,007 per-capita GDP in 1962, the United States of America was many times richer than them.

Unlike Middle-Eastern countries, these countries did not have substantial natural resource stock. Of course, they had a low-cost labour force. However, did they reach the high-income status by fully engaging labour in productive activities? Of course, like Bangladesh, they also derived some economic benefits. For example, in the 1960s, European and American firms sourced low-cost factory labour from South Korea and Taiwan for assembling products. For sure, such labour commercialization did not catapult them to the high-income status. Instead, their success came from turning their young population into human capital and creating economic value from their knowledge and idea-production capacity.

No natural correlation: As there is a positive correlation between human- capital development and rising income in countries like Japan, South Korea, Taiwan, the USA, and Western European countries, there is a tendency to believe that a natural correlation exists. If that were the case, the development pathway for aspiring less-developed countries like Bangladesh could have been relatively straightforward. Hence, India could have been far more prosperous after producing 2.6 million science, technology, engineering, and math (STEM) graduates in 2016. Besides, India also produced far more scientific publications than Japan. Unfortunately, India's success has become a liability as more than 85 per cent of engineering graduates are unable to get engineering jobs.

Decreasing market for knowledge: Among less-developed countries, India's success in creating 4.0 million IT services and 12 million business-process-outsourcing jobs in serving the export market is remarkable. It's a strong testimony to creating economic value from graduates' knowledge. Unfortunately, this model is not scalable. Hence, despite expanding higher education in Information Technology and other areas, Bangladesh and many other less-fortunate nations could not create similar success. Furthermore, due to growing automation, the market for knowledge-based service export has been shrinking.

Increasing market for ideas: There has been a growing role of ideas in products and processes. According to a study by a few professors at Stanford University, jobs for STEM graduates in research and development (R&D) in the USA have been exponentially growing. At the company level, there has been similar growth in R&D investment for driving revenue and profit. For example, Apple's annual R&D investment has grown from $1.0 billion in 2007 to $29 billion in 2023 (estimated). Similarly, South Korea's R&D investment as a percentage of GDP had steadily grown from 2.53 per cent in 2004 to 4.93 per cent in 2021. In retrospect, South Korea successfully reached high-income status by creating ideas through R&D and profitably commercializing them. A similar reality is prevalent in Taiwan and Japan. For example, 40 per cent of Taiwan Semiconductor Manufacturing Company (TSMC) workforce has been in R&D for producing ideas. TSMC-led semiconductor industry's success in raising Taiwan to high-income status has been due to the production and commercialization of ideas. Specifically, Taiwan has succeeded in creating $0.7 million economic value from the ideas each microchip designer produces.

Supply capacity not sufficient: Despite the success of creating economic value from STEM education and R&D, supply capacity is not enough. As explained, India's success in deriving economic value from a growing number of STEM graduates and publications is unsatisfactory. Similarly, China's accelerating R&D investment, reaching above $400 billion, and 3.0 million patent filing in 2022 have yet to produce proportionate wealth.

Creating the demand: Creating a supply of human capital, R&D funding, publications, and patents is the first part of the development equation. A far more complicated part is to create the demand and leverage it at a profit. For example, upon becoming the FDI-led largest automobile manufacturer in 2008, China started contemplating how to be an idea exporter in the global automobile industry. Such thinking led to China's well-orchestrated programme in driving the electric-vehicle- reinvention race for creating the demand for China's ideas in battery and electronics. In this mission, from 2016 to 2022, China had not only provided $57 billion in subsidies (according to media reports) but, most importantly, has intelligently created the pathway of conducting R&D in batteries and commercializing produced ideas. The journey may begin with takeover of intellectual leadership and facilitating technology transfer in developing state-of-the-art infrastructures.

Transforming universities into idea providers: In 1971, South Korea set up the Korea Advanced Institute of Science & Technology (KAIST) to create economic value by developing human capital and engaging them in idea production. Like many aspiring countries, the objective of setting up KAIST was not to increase STEM graduates, publications, and patents so that KAIST could find an attractive place in the global university ranking. It appears that KAIST embarked on three objectives (i) offering profit-making direction from idea production to the industry (ii) facilitating technology transfer and fine-tuning licensed technologies with idea flow and (iii) developing human capital for the industry for producing and commercializing ideas. Upon drawing lessons from KAIST and a few others, like Taiwan's Industrial Technology Research Institute (ITRI), Bangladesh must restructure its university mandate.

Industry must switch from labour to idea: So far, Bangladesh's industry has been after profiting from the low-skilled, low-cost labour force. However, due to the decreasing role of labour in production and increasing wages, such a profit-making window has been shrinking. Hence, they are after policy support for getting tax differentials and subsidies. Unfortunately, such an approach is neither scalable nor sustainable. Depleting foreign- currency reserves underscores such a reality.

Showing the path of profiting from idea GENERATION and commercialiSation: Of course, the education system and industry need help figuring out how to generate and commercialise ideas. The journey should begin with a programme for educating academics, industry people and policymakers about the dynamics of economic value creation from the generation and commercialisation of ideas. Once they start to share the same bandwidth, the next step would be targeting a few emerging-technology cores, products and industries and strategizing a profit-making journey from idea production. A demonstration must be made to proceed with implementation, followed by policy updates in redefining the role of Government, Education System, and Industry. Of course, to stay on course, programme-management capability must be developed and empowered to suggest policy tunning, provide performance-centric incentives and take disciplinary actions.

M. Rokonuzzaman, Ph.D, is an academic and researcher.

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