How to build the knowledge economy in the ASEAN

Over the past three decades, Asia's extraordinary rise has been driven largely by its emergence as the world's low-cost, high-output factory.

But as countries strive to become more diversified in facing strains on resources and changing workforces, building a knowledge economy is increasingly seen as the most sustainable way to drive growth while providing citizens with higher incomes and more fulfilling work.

It is also the key to Asia realising its full potential this century and avoiding the ‘middle-income trap’ that has befallen other developing regions.

Building a knowledge economy takes quality and accessible higher education, sound information infrastructure, better research and development, innovation, the right economic institutions and autonomy to collaborate and share information.

Countries in the Association of South East Asian Nations, or ASEAN, region have posted impressive growth levels (above the global average) in recent years. But a cursory glance at their rankings in the 2012-13 Global Competitiveness Report indicates that all but Singapore are struggling to make the transition to knowledge driven economies.

Except for Singapore, none are innovation driven. Cambodia and Vietnam are factor driven. Indonesia and Thailand are efficiency driven, while Brunei and the Philippines are between the two. Malaysia has gained ground and is transitioning to become innovation driven.

Skills development

For ASEAN countries, much work needs to be done in education and skills development, technological readiness and innovation.

Gaps in the quality of education, compounded by low gross tertiary enrolment rates of less that 50%, remain major stumbling blocks. Besides Singapore, none ranks among the top 50 globally in technological readiness. Except for Singapore, Malaysia and Indonesia, innovation is likewise weak for the rest of the ASEAN.

Singapore's success, despite its small size and limited natural resources, has been remarkable, with the island state now the second most competitive economy in the world.

A quick look at the Knowledge Economy Index puts Singapore in the mid-range for OECD countries, but the Global Competitiveness Report shows it ahead of OECD countries in several areas, including economic incentives and institutions.

It has a highly efficient public sector that works with the private sector to promote knowledge development. It performs better than most OECD members in ability to adopt and absorb latest technologies.

Competition

As neighbouring economies become more knowledge driven, competition for a relatively small pool of skilled workers will increase, posing a potential challenge to innovative thinking. The ability to access this high-quality education is a way to address this future constraint.

Building knowledge economies will complement the ASEAN Economic Community, where goods, investments and skilled labour will be more mobile. But this means ASEAN countries will need to start redesigning their development programmes and regional cooperation activities around the elements of a knowledge economy.

Countries will need to invest in hard and soft infrastructure to facilitate knowledge creation and diffusion and build an active public sector that collaborates with the private sector to nurture knowledge and innovation. Thus, development assistance will need to be geared at building knowledge infrastructure – rather than just the ‘bricks and mortar’ investments of the past.

Becoming a knowledge economy means that knowledge is internalised and disseminated within the economy. It cannot happen merely through the production of knowledge-intensive goods and services – China and India are clear proof of that.

An educated and skilled workforce is critical, and poses a challenge in a region where the average length of education is barely eight years and informal employment is high. Investing in institutions, strengthening university-industry links and promoting cross-border institutional partnerships can create greater opportunities.

ASEAN countries exhibit the potential to achieve more growth. But for them to sustain this expansion and, at the same time, make it beneficial to all, they have to recognise these critical elements of a knowledge economy and work together in investing their growth dividends towards becoming knowledge economies.

* Bindu N Lohani is vice-president for knowledge management and sustainable development at the Asian Development Bank. This article was first published in The Nation and is republished with permission.