Friday, June 13, 2014

The Skills Discussion: What Are We Missing?

Skills education is often seen as a panacea for poverty, and developing countries, in Africa and Asia, pour enormous sums of money to build skills infrastructure. There is an intuitive sense behind all this: The policy makers in these countries look up to the industrialised nations and ask what they need to get even. The need for infrastructure, physical and human, become too obvious both from the study of economic history and a casual walk down Oxford Circus. It also makes a lot of political sense: The government can build elaborate employability programmes to impress its rural population eager to join urban life, and the middle class voters, disappointed with the lack of skilled masons, plumbers and electricians, do not mind.

Indeed, all this makes sense if one believes that the world economy is moving in a straight line, but one clearly knows it isn't. Again, a reading of economic history or a casual walk down Oxford Circus makes the central idea quite clear: Things are changing and fast. The staged economic models loved so much by policy-makers, predicting things would happen in order, has got a lot messier. The same token that made us reject the socialist ideas of five-year plans should tell us that the developing countries will have to follow the same stages of the development as the industrial nations is crazy. The world is different now than then: The configurations were different, political power structures were different, technologies were different, money and capital were fundamentally different. One can't take the model from United States, Japan or Germany and replicate it in India and Kenya. 

One big difference is perhaps this fundamentally game-changing fusion of globalisation and ground-breaking automation. Globalisation 2.0, unleashed after the disappearance of Soviet Union and advent of Internet, created a temporary hierarchy of work, shipping out manufacturing and lower end jobs to the Asia and elsewhere. But next stage, Globalisation 3.0 builds on some of the throwbacks of the earlier era, including the realisation that the world is not a flat place after all, is bringing about something entirely different. If Globalisation 2.0 was built on consumers in rich countries consuming the benefits of cheap labour from around the world, the new Globalisation may stand for a diffusion of consumption - with the emerging country consumers joining the party and demanding the same levels of service - alongside the localisation of production, with smart IT, small scale fabrication and intelligent commodities. Indeed, the newly industrialised countries, a product of the previous web of globalisation and in a somewhat self-imposed cocoon of presumptive confidence, are missing out that the game has changed.

My central argument is that if the earlier wave of globalisation made it look like a global hierarchy of labour and work will come about, the next wave has undone it. The world is likely to become a collection of hierarchic regional economies, often shaped around regional political dynamic. This will not be a straightforward formulation with China having all the factories and India running all the Call Centres, but each economy shaping its demand around some common global parameters, each facing some common challenges, and each having its own winners and losers to deal with. But while nations have to play their part in enabling it, the world economy may organise itself not around nations but economic clusters, ecosystems of universities, companies and transport and communication systems. The approach to economic development may now need to take on this perspective rather than clinging to the old post-colonial structure of the metropolitan centres and the periphery.

This view has common sense evidence too. The economy of London behaves very differently from the rest of the UK, and the British government does everything to protect London and even promote it. Americans have mythlogised Silicon Valley, and now trying, though without much success, trying to replicate the model from Dallas to Detroit. Toronto has become very different from the rest of Canada; any Frenchman will tell you Paris always was different from France. The economies of Shanghai, Chongqing, Shenzhen and others are very different from rest of China and driving them forward has become the main policy priority for the Chinese government. In fact, the Indian government's big policy mistake over the last decade was to fail to develop such economic clusters and even losing its way to leverage the globally known brand of Bangalore in IT services.

Once we agree on this paradigm of economic cluster driven development, we will see that the 'ideas economy' plays a central part in developing and maintaining these clusters. Indeed, no one is debating that a good basic education, delivered through well-funded schools system, remains critical - for alleviating poverty, improving public health and creating social mobility. But the 'skills' agenda does not do any of that, other than promoting an old school closed economy paradigm where a hierarchy of privileges are maintained, and some people are condemned to skills education.

In an Open Economy, where development is driven through economic clusters, there will be a relative technological parity among the clusters - a job will be done at similar costs and within the same timeframe with comparable quality - though this may not mean absolute technology parity, given the cost and availability of labour. In this world of economic clusters, over time, markets will smooth out any cost arbitrage. [This is what we are missing in the discussion so far: The old Globalisation paradigm assumes that various nations will maintain superior or inferior productivity based on their historical economic positions. This is also behind many suicidal late ventures into Outsourcing work based on geographical cost arbitrage.]

In context of this model, education to create an 'ideas economy' is absolutely crucial. The talks of skills economy is counter-productive in this context, as the governments throwing money at ill-fated skills projects often crowd out investment in Higher and Professional Education. (See my earlier post here) The model for economic clusters need new imagination, a pointed departure from the closed economy thinking: This has not been forthcoming so far. Everyone wanted a Silicon something, without opening doors to outside ideas or talent, which indeed does not happen. However, by not making the conceptual leap, we are not just condemning millions to pointless education; we are getting into something when the game is already over.


 

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