Human capital development for growth

Very often in training relating to the improvement of regional and local economies we stumble onto the topic of the importance of human capital for productivity and economic growth. This results in three arguments emerging between participants. Firstly, some participants are upset about human capital development, as this often implies a higher level of learning that involves the application of technology or other advanced topics. This is seen as benefiting too few people, especially in Africa where countries are generally suffering from high unemployment and large numbers of under-educated people that are mostly trained into low-technology low-skill (and low wage) jobs. The second argument is about the role of technology in economic growth. Again, people tend to shy away from technological development that is capital (or technology) intensive towards creating jobs for large numbers of people. The third argument is that productivity improvement is not important for growth, as it only benefits the owners of firms and it is according to some people counter-productive for employment creation, as it leads to job losses.

During these arguments it is important to remain calm and clear headed, and to not fall into ideological debates. I will not try to address all three these arguments now except to say that the importance of human capital development is increasingly been promoted by organisations like the Worldbank, the OECD and others (for a great recent report on this click here). This after the topic of tertiary education has received very little attention in global programmes like the Millennium Development Goals and other programmes, with more basic education programmes like universal primary school access receiving more attention. I am relieved that the big guns are now more supportive of tertiary education and its role in human capital development. While I agree that we have to increase employment for large numbers of low-skilled people, we should not behave as if we have endless resources and management capacity available in many developing countries. This means that while we have to create jobs, we also have to be mindfull to constantly work at increasing productivity in order to carefully maximise (or allocate) the resources of the society. I am always amazed at how our politicians in South Africa want to create hundreds of thousands of jobs when we are short managers at almost every level of our society. This means that we may have to settle for less jobs (because we cant manage all these people), and that we better make sure that all the people are in sustainable and productive jobs, within competitive firms in competitive industries. We can not disconnect these different things. In fact, I think we should be calling for far more technology intensive jobs in order to optimise the skills and our resources at our disposal, while not neglecting trying to find ways to get more people with lower skills into the job market.

The times have changed, and being loyal to a country or being comfortable in a society is no longer sticky enough to hold back the increasingly mobile creative talent people of the world. People with talent (or developed human capital) can now work almost anywhere in the world, and then be paid handsomly for the sacrifices of moving. These people do not always leave countries because they are negative about the challenges facing developing countries, although this certainly makes it easier to go and live between a different and often strange cultural group (no offence intended).

I propose that we raise the importance of tertiary education, human capital development and use technological advancement to achieve progress in our developing countries. This will lay important foundations for future economic growth and for the necessary increases in productivity to optimise the resources available to societies.

What do you make of this?

Climate technology for competitiveness

Following the calls and e-mails I received based on the previous post, I thought it might be a good idea to expand on the idea of how climate technology could be used to increase the competitiveness of industry and of certain locales. By the way, you are welcome to share your ideas by commenting and uploading pictures on the blog directly!

What do I mean with “climate technology”? Climate technology refer to the many technologies that are now being developed out there, with well-known examples of solar geysers, solar panels and windfarms. But there are many other technologies that are being developed that range from insulations for homes and offices, to home electricity and heat generation. If you dig deeper, then you find that many industries are now becoming aware that they are using electricity to generate heat, and then using electricity to cool things down again (Have they never heard of heat conversion?). So people are generally becoming aware that if they can use less energy to produce a product, that they will ultimately be saving costs and saving the planet.

There are many forces for change other than the riots, protests and bickering at international conferences about the climate. Last week the first supermarket chain in South Africa was certified as emission free, with several large retailers like  Massmart, Woolworths and Marks and Spencer in the process of assessing their emission footprint. These retail chains are now starting to assess how their COMPLETE supply chains are dealing with the environment.They are not only looking at their consumer goods, but also at their total operation. This is just one way that value chain promotion and climate technology is related.

What do I mean with climate technology as a means to increase the competitiveness of industries? Let me first create a picture of the South African manufacturing environment. In general, our manufacturers are losing out to more productive and lower cost Asian producers. But the South African manufacturing industry is still world class in many fields and in many advanced production methods, especially in shorter niche production runs. Furthermore, despite the brain drain that has affected the economy, South Africa still has a rich expert base in diverse technological fields ranging from electronics, metals, to chemicals and all the way to nuclear research. Compared to many other developing countries there is a rich institutional layer (ranging from research institutes to specialised tertiary institutions) that is supporting the private sector.

I believe that we should be actively mobilising the South African manufacturing sector into climate technology, as the international pressure on industries, government and consumers will only increase in the future. Many of these different users of technology are going to start making decisions not only the utility of the product that they are purchasing, but they will increasingly assess the environmental footprint of the product. Furthermore, industries that adopt climate friendly technology are reducing costs in new ways, increasing their cost and brand competitiveness.

Locales or places that start to promote climate technology might be able to get a headstart on other regions, and there are many places where the scale of environmental or climate pollution could actually be used to start completely new climate technology research and development capacity. I can think of the very sensitive waterlands in the Chrissiesmeer region in Mpumalanga province in South Africa that is under threat from coal mining as an example of an area that could provide a critical incentive for the development of a new industry of climate technology producers and service providers (see feature on the Carte Blanche investigative journalism programme).  The demand for this kind of technology is there, yet the environmental lobby is still trying in vain to fight industry.

But there are several obstacles, and the first is the limited economies of scale. If the cost of researching and developing new technology is set aside, then costs of finding potential customers (search costs)  or applications for new technology is high, and the scale of return is uncertain. Therefore investors are hesitant to enter many market segments. With Southern Africa’s tendency to perform well in small scale and specialised production the risk is lower, if only the producers could identify the right market opportunities. But government and development practitioners would have to play a critical role in supporting this new marketplace, and often public funds is needed to get this kind of initiative off the ground. The current policy obsession with benificiation and final product manufacturing is in my view misguided, and should focus on the strength of the South African industry to develop advanced niche technologies.

Secondly, I get the feeling that many people think that this interest in climate technology and the environment is a fad that will go away. Help, any ideas out there?

Lastly, as development practitioners we must get business, governments and households to understand that using new climate friendly technology save costs for the society on some new fronts. There is more to it than just saving the planet (although that is a good enough reason), it could also mean increasing the cost competitiveness of a company. It could mean smarter ways of doing thing, like finding ways to generate electricity and heat at a home or a business, instead of digging up roads and building coal fired power stations.

So when you conduct your next value chain assessment, ask yourself how the different links in the chain could benefit from technology that is climate friendly. Look at places where heat, steam, chemicals or other byprodycts are generated that may be of value to somebody else.

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