How can Malaysia realize the potential of its human capital?

Anyone who visits Malaysia will quickly come to realize that Malaysians are blessed with enormous talent, ranging from the myriad of entrepreneurs creating new businesses online to those active in the creative industries including music, culture and sports. But there is also still a widespread sense that Malaysia is not making the most of its human capital, with concerns that despite large investments in education and health, the returns are not as high as they should be, and that a large share of Malaysians are still being left behind.

 
As Malaysia looks towards becoming a high-income and developed nation—particularly one where development progress is measured in much more than just GDP—ensuring that human capital is effectively nurtured, developed and protected will be critical. With the advent of digital and disruptive technologies changing the nature of work, this challenge is becoming ever more central to Malaysia’s future development progress. This puts an increasing premium on cognitive skills, such as complex problem solving, socio-behavioral skills, reasoning and self-efficacy. Building these skills effectively will require a transformation in the way that Malaysia invests in its human capital.
 
Human capital—the knowledge, skills, and health that people accumulate over their lives—has been a key factor behind the sustained economic growth and poverty reduction rates of many countries over the past half century, especially in East Asia. Education, health, and social protection all play vital and complementary roles in the development of human capital.
 
The World Bank’s new Human Capital Index is a cross-country metric designed to forecast a country’s human capital by tracking the trajectory, from birth to adulthood, of a child born today. In the latest edition of the Malaysia Economic Monitor, we investigate how Malaysia fared using this method. We found that overall, Malaysia scores 0.62, meaning that children in Malaysia will be 62% as productive as they could be in adulthood compared to optimal health and education outcomes. Overall, Malaysia ranks 55^th out of 157 countries, and while performance is good in some components of the index, it remains poor in others. Relative to other countries, Malaysia does well in child survival, expected years of schooling, and overall health conditions. But, there is significant room for improvement in the areas of child nutrition and learning outcomes.
 
Looking to the future, how can Malaysia continue to improve its human capital and boost productivity? In our report, we identify three priority areas: 

• To enhance learning outcomes, a key measure would be to provide universal access to high-quality early childhood care and education to ensure that children are “ready for school”. International evidence has shown that the quality of early childhood and preschool education programs are directly linked to better development of children’s cognitive and social skills. Improvements to learning assessment systems could also improve outcomes. Similarly, international evidence shows that the quality of an education system can only be accurately determined by an effective framework for assessment, including classroom-based, national and international comparative assessments. When implemented correctly, this type of continuous assessment can have a major impact on student learning. 
• Nutritional outcomes must be improved to overcome childhood stunting as a constraint on learning and human capital development. Child stunting affects one in five Malaysian children—a rate that is higher than that of other countries at similar levels of income. There is overwhelming international evidence that malnutrition in a child’s early years of life is associated with significant negative consequences for health, cognition and productivity throughout the course of their life. Further work is needed to better understand why poor nutrition remains a problem in Malaysia, across all states, ethnicities and income strata. 
• Protecting human capital from the impact of shocks through social welfare programs is of key importance. Rigorous evidence from around the world demonstrates the positive role that social protection programs can play by providing vulnerable households with the income support to fight poverty for human capital development. Malaysia’s current social protection system could be both expanded and reformed to integrate a mixture of mandates and incentives, thereby helping households to invest in human capital.

Accelerating human capital development will be critical for enabling Malaysia’s successful transition to a high-income and developed nation. With human capital, the country can boost productivity to ensure that it stays well on its development path and that no Malaysian gets left behind in the process of growth.