Saturday, January 21, 2006

Economics & Education

I did a conference paper about 2 to 3 weeks ago with regards to the Malaysian Economy: Its Threats & Challenges. I thought it might just be useful to write a little about it here on this blog. So, how and what has the Malaysian economy got to do with education? Well, there's actually plenty to do with our economy, particularly in the future.

The diagram which I put up above probably summarises the entire gist of my presentation.

The Graph charts the growth path that Malaysian intends to pursue. For many years in the 1980s and early 1990s, Malaysia grew at a rapid rate of between 8-10% annually. Those would be the years that many businessmen will recall with fond memories. Unfortunately, by the time I started my own business, the boom years were a thing of the past.

Today, it appears that the structure of the Malaysian economy is only able to cater to growth in the region of 3-6%, with anything above 5%, we appear to be extremely thankful. Some of the tools that the government has to fine tune the 3-6% are highlighted in the bottom part of the chart. They include manipulating interest and exchange rates, the restructuring of government linked companies, tax and investment incentives etc.

On the left and right of the chart, you'll find the twin threats to the Malaysian economy as well as the largest factors keeping our growth rates capped at below 6%. First of all, we have China who have over the past decade emerged as the fastest growing economy in the world. As a result, China is sucking in all the foreign investments away from Southeast Asia - in manufacturing sectors from electronics to soft toys. Malaysia and Southeast Asia are no longer the "preferred" manufacturing base for foreign multinational companies.

On the right, you will have the sky-rocketing oil prices which may in the near term serve as an economic dampener to the global economy, which will in turn retard our growth. While the negative oil price impact on Malaysians will be negated somewhat from the fact that we are net exporters of oil, many other richer countries which dominate the global economy are not so lucky. As a result rising prices will result in a reduction of demand, particularly on electronic consumer goods. It's worth noting that manufacturing contributes to some 30% of the Malaysian economy, and the bulk of it is electrical manufacturing.

Hence the strategy of many nations like us today is really to diversify from industries in which China has an increasing (if not overwhelming) competitive advantage and focus on more intellectual property driven sectors. These "new" knowledge economy sectors as indicated in the top part of the chart, are meant to take Malaysia to the next level, hopefully a return to the glory days of 8-10% growth per annum, represented by the top arrow in the chart. You would have noted that the Malaysian government has "promoted" heavily in these "new economy" sectors such as information technology through the Multimedia Super Corridor and biotechnology through projects such as the BioValley and its corresponding tax and investment incentives.

However, try as hard as the government to promote these sectors, the rate of growth and development has been to date, a little disappointing. The underlying reason for the failure is extremely simple. While attempting to promote the "new economy", the regime is still pretty much focused on the "old economy" mechanisms. When Malaysia grew rapidly in the 1980s led by the manufacturing and industrial sectors, the key policies were to allocate land, provide pioneer and tax incentives, supply a pool of labour sufficiently literate to understanding assembly plant operations, and investors "flocked" to the country.

The same strategy appeared when Malaysia tried to move into the new economy. Promotions and incentives were given to geographically designated zones coupled with a liberalisation to import "knowledge workers" into the country.

What the government has failed to take into consideration really, and the real reason why these policies have not set the world alight, is simply "education". The knowledge economy is termed as such precisely because it relies almost entirely on top quality educated population. Practically everything else plays a supporting role. There is absolutely no short cut to the process. The "new economy", so to speak, is all about what's in the head, and not about competent workers operating machineries.

Only with the right amount, quality and level of education for the Malaysian population, can Malaysia hope to make the "jump" in growth rates from the unexciting 3-6% annually to anything above the 8% mark. Singapore is facing the same challenge as Malaysia in moving from a electronics-based manufacturing economy to a knowledge economy. However, their efforts, particularly in the biotechnology sector appears to be bearing fruits as the pharmaceutical based industries in Singapore helped pushed Singapore's growth rate last year to almost 7%, after "languishing" below 6% for a few years.

What's the difference in this case between Malaysia and Singapore? For me, it is in the difference between the educational institutions. This "education gap" is epitomised by the fact that the National University of Singapore (NUS) and the Nanyang Technological University (NTU) are both world-class institutions. For those interested in rankings, they are ranked 22nd and 48th respectively by the Times Higher Education Supplemnet (THES).

Probably more significantly, they are rated even higher for the new economy subjects, tecnology, science and biomedicine - which are critical inputs into the knowledge-based economy in the areas of information technology, high-end industrial design, biotechnology etc. Their rankings for these sectors are summarised below:
  • Technology - NUS (9th) and NTU (26th)
  • Science - NUS (34th) (There is no science faculty in NTU)
  • Biomedicine - NUS (15th) (There is only a biological sciences school in NTU, no medicine faculty)
Comparatively, Malaysia, despite having 17 public universities and 10 local private universities, as well as 11 "university colleges", none feature prominently, if at all, in the global university rankings. The best that Malaysia could achieve was a 169th ranking for Universiti Malaya overall, with none featuring in the top 50 for the 3 fields above. Malaysian universities are not featured at all in the other respected Shanghai JiaoTung University Top 500 universities rankings list. I've also written previously on the attitute and response of the interested parties of the two systems here.

It appears quite obvious that Malaysia has decided to place greater importance of quantity over the need for quality. 3 universities serves the interest of the 4.4 million population in Singapore, while 38 similar institutions are serving the needs of Malaysia's 25.6 million. That means that Malaysia has more than double the relative ratios of universities. The ratio will only increase further as Malaysia has plans to add another public university in Kelantan soon and are upgrading more private colleges to "university college" status.

The fact that we have tens of thousand of unemployed graduates only serves to provide empirical evidence to the fact that we are over-producing degree graduates, the bulk of which do not meet the necessary standards to partake in the new economy. It was unsurprising that despite the shortage of labour to meet demand for computer engineers and programmers in the country, a large proportion of these unemployed graduates are actually from the computer science faculties of the local universities.

In the past, our manufacturing industries have been driven by "raw materials" which we have in abundance - land, commodities and affordable competent labour. The competitive advantage in these sectors have been eroded in the past years by "emerging" China and may one day, disappear altogether. However, despite the earnest in which the government is promoting the knowledge economy, we have not done enough to provide and supply the necessary "raw materials" for the new economy - a large enough and competent talent pool of graduates produced by top quality universities.

It is my humble opinion that, until the Malaysian government hardens its resolve to dramatically reform the education system from primary to tertiary in Malaysia to raise the quality output significantly, Malaysia's dreams of having the 'knowledge economy' to help boost growth in the country will not be achieved anywhere in the near future. I would call on the Government to spend the windfall income derived from the high and rising oil prices on improving the quality of education in Malaysia to leave an enduring legacy for the country. That is why, education is intrinsically and critically related to the future economy of Malaysia.


S-Kay said...

Did you made the chart yourself? It's really nice and easy to understand.

Should prolly print out this page and the entry itself. It might afterall help me in my Econs =)

chenchow said...

I agree with Tony in the notion of how 3 universities in Singapore catered for their 4.4 million population vs 30+ or so universities in Malaysia for our 25.6 million population.

Right now, the question for us would be to strike a balance between quality and quantity. I don't have the statistics, but I am posing a question for everyone to ponder. The number quoted below is just for illustration. Would our society be more well-off with 50,000 graduates each year with better quality versus 100,000 graduates each year with poorer quality. Frankly, I am not sure whether if we maintain the 10-15 universities that we have today (and not opening more universities), the quality of students in those universities would increase? We may actually have 50,000 of graduates of low quality.

I would point towards an article by Ong Shien Jin & Charis Quay. . It points out about the needs for a single research university in Malaysia.

In my opinion, as a moving forward step, we may need to choose a couple of universities in Malaysia, and I would think UM, MUST and perhaps MMU, be selected to concentrate on being the elite universities. And hence, that could serve the purpose of elite universities, as per Singapore model, while still provide tertiary education to a wider base of Malaysians.

That is just my two cents.

lyl said...

I think the difference runs deeper than the educational institutions. I think the education system plays a major role too.

Take a look at Finland. They have one of the best education system in the world, pwning even Singapore. Their literacy rate is 100%!!! Although their universities arent that good as compared to those at Singapore, their economy is still in a very good shape.
Of course there are other factors too, but I think that applies too when we compare Malaysia to Singapore. We all know what they are - the mindsets, the policies, the sloth and inefficiency of the government...

As Ive said in a previous post, a good comparison would be Biovalley vs Biopolis. Do we have the talents? Well... I THINK we do. My cousin sister was qualified, but there were no jobs here. So shes at Singapore now.

Another factor in this problem is the brain drain. We have lots of talented and accomplished Malaysians everywhere in the world, but none are very keen to come back. Lots of Singaporeans on the other hand, return to serve their country upon graduation. Kian Ming has pointed out a friend who couldve went to MIT but didnt, instead opting to return to Singapore.

Another good example would be Professor He Ruimin. He got his MIT degree, master and PhD in 4 years!! Instead of opting to teach there, he returned to Singapore and is now a professor at one of the Singapore university. Would any sane/patriotic Malaysian do so? Hm.... maybe.. but look at the brilliant KS Jomo... :(

Im sure if we can tap about 10% of our foreign Malaysians, our economy will be better by a lot. :)

Anonymous said...

I completely agree that education is the missing ingredient. But don't forget that China is also developing its knowledge economy, while India already has an oversupply of IT & science graduates. Furthermore, changes/reforms do not happen overnight, and under the present government, I just don't see that happening. The odds are stacked against Malaysia competing in the global k-economy. This also means the long-term future economy of Malaysia does not look too bright.

Anonymous said...

For your information, besides School of Biological Sciences, NTU has a new School of Physical and Mathematical Sciences, whose Dean (Prof. Lee Soo Ying) is a graduate from the Science Faculty, University of Malaya.

Please visit

The funny thing is had Prof. Lee been a staff of any one of our local public universities or university-colleges, he may not be appointed Dean.

This is a brand new school or faculty, a baby. Watch how this baby flies within 5 years and how it overtakes the science faculties of our established local public universities or university-colleges.

The School of Biological Sciences, NTU, was established in July 2001.

Please visit
and look for yourself the achievements of SBS so far. Compare their achievements with the achievements of the long-established biology departments of our local public universities and university-colleges, which loved to claim to be of world-class standard.

Can we ask some of our local universities to turn over a new leaf to become research productive universities? I'm afraid it's too late and it will involve too drastic a change to be accepted by the current group of academics. It will involve a drastic overhauling of the current group of academics, like sacking many of them, some holding top positions as well. Will anyone go that far? No way, so status quo. Like begets like, and fools beget more fools.

Someone mentioned MUST. Forget about MUST. Will it still be around in 5 years?

Tony P said...

Hey S-Kay,

Yes, the diagram is original :-) Took a couple of hours of on-off thinking to put it logically together though, and with a bit of help from Microsoft Clip Art online.

A little bit of non-education subject write up:

Economics is my favouritest subject ever. Before I started 'A' levels, I thought I wanted to be a lawyer, or maybe an architect. But after 2 weeks of Economics lectures during junior college, I fell absolutely head-over-heels for it. To me, it explains totally how everything in the world works - demand, supply, price, elasticity etc etc etc.

That was the reason I wanted to pursue a degree in Economics. Oxford didn't offer a pure Economics degree (Cambridge does), so I applied for "Philosophy, Politics and Economics" instead 'cos I was sort of interested in the other 2 subjects as well. For my final year, I took 4 papers in Econs, 2 each for the other subjects.

I hope you are enjoying your Econs as much as I totally did. :-)

Anonymous said...

Tony, you may be interested in blogging on this issue

CMU is going to offer Masters at UM....

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Anonymous said...

thats like hijack/ransom.. :/..
o well.. i suppose the publicity is good..

Wow.. CMU is partnering up with UM. Thats a good sign I suppose. But then again, the MIT-Malaysia alliance for the supposed biotech industry never took off. :/

Anonymous said...

The difference between Singapore success and our failure with knowledge economy is the university? Fundamentally yes but its only half, if that, of the answer.

The truth is a complete commitment towards a game plan that really did it. Yes, at the foundation is the school which have adapted remarkably well, but on top of that are tax incentives, liberal import of talent and workers, infrastructure development, a systematic implementation, etc.

Basically, there are way too many things the government here cannot do because of the NEP that prevents us from getting there and while education is the weak foundation of it all, it can't be fixed to offset the rest either. So its actually hopeless.

observer2 said...

the MIT alliance took form in the shape of MUST. there is quite a big misconception regarding MUST. MUST was created in collaboration with MIT and only offers postgraduate programmes at Masters and Doctorate levels. although it is still a very young university, it does boast quite an impressive faculty with most of the senior academic staff having degrees from MIT, Stanford, Northwestern, Camb, etc.

the success of the university remains to be known at least for the next decade. it's hard to say, but on paper, it definitely has the potential to be a leading research-led university in this region.

clk said...

In anywhere in the world, the key to success is not just great ideas , the key is implementation. A great idea is a start and its just that. It takes MANY things to be right before anything is realised but it only takes ONE thing to go wrong to fail.

In M'sia, implementation is always the sore point. Just look at our legal system, economic and trade policies etc. We probably got all sorts of laws to cover many holes but poor implementation , you know the answer!

JL said...

It takes < 5 years to build world class infrastructures, but it may take > 3 generations to cultivate mindset...this is why Malaysia, despite its rich resources will never be on par with our tiny neighbour...

Anonymous said...

JL is right..
the mindset that wants nothing but
standards par excellence

I would like to add to this list:
a culture that recognises and rewards true effort...

wong keat wai said...

Well, having an abundance of high quality knowledge workers is just one of the many criteria in moving towards the K-economy. It is not the SOLE reasons why foreign investors should choose Malaysia in setting up their sophisticated Research Labs etc-etc. If you look at the perspective of foreigners, the whole world is full of low cost engineering & scientific brain-power, from the mass unemployed brains of the former Soviet Union & Eastern European countries to the Asian giants of India and China. Foreign investors are spoilt in choices in selecting the location for their brand-new high tech labs or high valued added manufacturing facilities. So, having plenty of brain workers isn't enough today. Other factors are becoming increasing important.

For example, the world renowned Bell Laboratories and many mobile phones MNC decisions to set up R&D centers in China & India instead of in Malaysia because the market size of these countries which Malaysia doesn't have!

Anonymous said...

to clarify, He Ruimin indeed got his bachelors + phd in 4 years but he is not a professor