Archive for February, 2011
Chapter 7: Enhancing Human Capital
Adding Value to a Routine Airport Taxi Ride
The second anecdote concerns an airport trip in Atlanta my wife and I took after a medical convention. On discovering that a limousine was only slightly more expensive than a taxi, we decided to go in style. We stepped into this luxurious limousine, with the driver in tuxedo no less, dutifully opening the door and helping us in. I felt like a celebrity, or perhaps a sultan. The driver inquired of our flight and he immediately phoned ahead to find its status. As the flight was going to be delayed, he suggested we take the scenic country road. Normally he would charge extra for such a detour but since he would be saving gas by not getting stuck on the freeway at peak commuting time, he would dispense with it. Delighted, we cheered him on. He also welcomed us to some complimentary beverages and fresh fruits from his small fridge. We felt vindicated; the extra cost more than compensated by the freebies!
The driver too was very informative. We drove by some stately historical mansions around the city with his giving us a running commentary on the history. We felt as if we were being taken through the Civil War, tracing the destructive path General Sherman took. It turned out that our driver was a history major at the local university. The point is, he was more than just a driver. Because of his education he was an informative tour guide and a history lecturer to boot! He added value to a routine airport trip, and we tipped him accordingly.
Contrast that with our experience recently at Malaysia’s spanking new multibillion-dollar Sepang airport. First, the “limousine” was nothing more than a fancy taxi. Second, the poor driver spoke not a word of English (imagine serving an international airport!) and only a smattering of Malay. As we had not been to Malaysia for sometime, we were suitably impressed first with the airport and then with the gleaming new freeways and all the new constructions. But for every question we asked the driver, we received a grunting, “Tak tau” (Don’t know). And when we reached our hotel, because of the lineup at the entrance, he tried to drop us by the curb. After we protested, he reluctantly drove us up to the lobby. He never so much as got out of his seat to help us. And this character expected a generous tip from us! Unlike my Atlanta driver, this Malaysian driver was probably a school dropout.
My last example is from Japan, a country famed for producing top quality goods. One of the reasons is that Japanese workers are highly trained and well educated. They all have at least a high school education. William Deming, the American quality control guru, was revered there for his work on statistical quality control. He wrote about a factory that tried very hard to improve the already high quality of its products. But it reached a plateau. Try as the workers might, they could not better their figures.
One day one of the workers noted the machines were shaking from the rolling of a nearby freight train. She immediately sensed the significance and intuited the cause of the factory’s product defects. Sure enough, on further analysis she found that statistically, goods produced on days the train was not running had a lower rejection rate. Supported by this finding the company decided to build a deep moat around the factory to shield it from the train’s vibrations. It worked, further dropping the already low rejection rate of the factory’s products.
If factory workers were merely simpletons working like robots, the significance of the train would have been missed. Again this proves the importance of education and training even for factory workers. Training and education alone are not enough by themselves. Workers in authoritarian countries may be equally well educated and highly trained, but because of their environment of repression and tight control, it is unlikely for them even if they were aware of the problem to even think of alerting their superiors.
These three anecdotes give a qualitative sense to the differences in the caliber of the workforce in different countries. The UN Development Program (UNDP) has created its Human Development Index (HDI) to quantify these differences. The HDI is actually a measure of the quality of the populace and thus indirectly, the workforce. Marked variations occur not only between but also within nations. The UNDP used a variety of measures to assess HDI, among them health indices, literacy rate, percentage of students completing high school, and per capita income.
According to the 2001 Index, Norway leads the way with United States, sixth. At the bottom are the three African states of Burundi, Niger, and Sierra Leone. Malaysia stands at 56 (it was 61 in 2000, and 56 way back in 1999). We are right behind Russia but ahead of Bulgaria. The three model states I discussed earlier stand at: South Korea, 15; Ireland, 18; and Argentina, 34. Our ASEAN neighbors are headed by Singapore at 26; Brunei, 32; while Thailand, Philippines, and Indonesia rank respectively at 60, 70 and 102.
Within Malaysia I would anticipate significant differences between regions, sexes, and most significantly from the political viewpoint, between Bumiputras and non-Bumiputras. As an aside, because of the sensitive issue of race in Malaysia, it is important that we appreciate the nuances and differences in these figures and be cautious in attributing the differences purely to race. Apparent differences in the school dropout rates between Malays and non-Malays for example, may not be due to race, rather to urban and rural factors. Until we can sharpen our statistical analysis, we should not be quick to attribute differences purely to race.
Another equally important factor is how the nation treats its talented and gifted. Every year we read in the popular press about students, usually non-Bumiputras, who have done well in their public examinations, only to be denied admission into Malaysian universities. A lucky few would be offered scholarships by foreign entities. Not surprisingly these individuals rarely return, their talent forever lost to the country. Nor is the treatment of bright young Bumiputras any better. It is widely acknowledged that Petronas scholars are among the best. Having met many of them, I agree. I congratulate Petronas for its ability to attract these promising young Malaysians. But when I meet these students I am struck that many of them are pursuing a field of study that is not their first choice or even one they really like. They simply accept the scholarship because that is the only way to get their studies funded or for going overseas. I wonder at the missed opportunities and unfulfilled dreams had these students been given the freedom to choose their own courses.
Malaysia has considered development mainly in physical terms – factories, roads, ports and airports. A more enduring and effective strategy would be to improve the nation’s greatest asset: its people. Enhancing the quality of the citizens, quite apart from being the “right thing” to do, would also better prepare the nation to meet the challenges of globalization.
Next: Enhancing Human Capital Through Better Health
Chapter 7: Enhancing Human Capital
People are the real wealth of nations.
—UNDP Human Development Report 2001
One surprising observation following the American stock market meltdown of October 1987 was that there was very little change in the behavior of American consumers. The Dow Jones Index may have dropped by over 40 percent but stockbrokers and their clients did not jump off the skyscrapers on Wall Street. Citizens did not hoard food or withdraw their savings as they would when faced with major uncertainties. Nor did they withhold spending in anticipation of tough times. To be sure the sales of luxury cars and yachts were dampened, but by and large there were minimal changes in the economic behavior of Americans.
Citizens’ reactions in Malaysia to the much more severe economic crisis of 1997 were also similar to the Americans’. Both were in marked contrast in nearby Indonesia, where the nation was nearly ripped apart because of the economic crisis.
The reason for such a wide difference in reaction is that for a modern nation like America and Malaysia, wealth resides less in such tangible assets as stocks, real estate, or material goods but more with its human capital. Stocks may plummet and real estate slump, but engineers can still build, doctors heal, and architects design. These precious skills and assets are not lost or affected by fluctuations in the market.
Indeed the most important asset of a nation is its human capital; not its fancy infrastructures, gleaming skyscrapers, or national airline. This wealth consists of the present and future earnings as a result of education, training, knowledge, skills, and health of the citizens. Because of this dominance of human capital in the aggregate wealth of a nation, large changes in the value of the stock market, currency value, and other physical assets will not greatly influence the behavior of citizens.
The quality, and thus value, of the human capital can be assessed in many ways. Intuitively one can be easily persuaded that workers in Silicon Valley, California, are of higher quality than those of Papua New Guinea. The former, being well educated and highly skilled, produce premium goods and services. Consequently they are well paid and highly valued. Not so with the folks in PNG.
The most interesting aspect is that humans are either assets or they are by default, liabilities. They either contribute to or are a drain on the economy. There is no neutral zone. If they are productive, the country benefits in two ways. One, they contribute to the economy, and two, the state would not be expending resources on them. Non-producers not only do not contribute but the state has to expend resources on them.
Non-producers come in many forms: criminals, drug addicts, the sick and disabled, and the unskilled. Criminals are not only destructive to society as a consequent of their criminal activities but they also cost a bundle to prosecute and incarcerate. Drug addicts consume resources in terms of their medical care, and they do not give back anything to society. In Western societies with their generous social safety net, unemployed workers not only do not contribute to the country’s coffer, but the state has to pay them unemployment, welfare, and other benefits.
America has elaborate programs to train the mentally challenged through special education and sheltered workshops, all in an attempt to turn them into productive citizens. Visitors to America may consider such expenditures wasteful, but it is not. Even if these handicapped workers end up doing the simplest menial job, they are still contributing and more importantly, no longer a drain on the system. These individuals work in special environments outside the usual rules and demands of the normal workplace. They perform simple jobs like packaging toys and non-demanding assembly work. Even considering such programs from the humane point of view, it is still a worthwhile investment. One needs only look at the faces of these individuals in their sheltered workshops to appreciate how happy they are to be useful and productive.
Granted, the opportunity costs of such intensive training are high. In a country with limited resources, it would make more sense to spend them on educating the best and brightest. But when you do have the extra funds, as in America, the money used to train these “slow” workers is indeed well spent, a true investment.
I will illustrate the value of a well-trained workforce by relating three anecdotes.
When working in Malaysia, I used to complain about the poor quality of my clerical staff. Having worked in the West, the difference was glaring. I was lamenting this to my father one day but he was not impressed. “What is there to answering the phone?” he sniffed. “When it rings, pick it up and speak to the mouthpiece. What specialized training do you need? Really!”
Many Malaysians share exactly that attitude. Such low-level jobs, they believe, do not need any training. But there is much more to answering the phone than merely picking it up. Far too often my Malaysian secretary would simply respond, “Dr. Musa is not in the office.” End of conversation! Well, if she simply ignored the ring, then the caller would indeed know that I was not in. There is no need to pay someone to say the obvious. My secretary did not add any value in answering the phone that way.
In contrast, my efficient American secretary would answer it differently. In a clear voice she would first identify herself and the office: “Dr. Musa’s Morgan Hill office. Vicky speaking, may I help you?”
Short yet informative. If the caller had mistakenly dialed my office instead of the pizza place, he or she would know immediately. And if I were not in, she would not just simply state that fact but would add, “He is in surgery and not expected in until 3 PM. May I help you?” If the caller is simply enquiring about her bill, my secretary would be able to help accordingly. And if it is from a pesky salesman, she has protected me from wasting my valuable time in taking the call.
If the caller is someone important, such as a doctor wanting to refer a patient, she would add, “I can have him call you right away.” Then she would page me and I would call that referring doctor immediately. In that way I would not lose any potential referral. My secretary knows only too well that her job depends on whether I have patients. Hence she would treat every phone call as if it is coming from a potential customer. She cannot afford to simply dismiss it by saying, “The doctor is not in!”
Unfortunately the typical phone conversation in a Malaysian office goes something like this:
Caller: “Hello! Huh! Hello!”
Secretary: “Hello! Huh, who is this?”
Caller: “Huh, who is this? Is Aziz there?”
Secretary: “Aziz who?”
“Is this the right number?”
“What number do you want?”
“Yes, you got that”
“Is Abdul Aziz, your purchasing officer, in?”
After a long nonproductive preamble, comes the answer, “Encik Aziz is not in!” Minutes were consumed and yet no useful information was communicated. As to Aziz’s whereabouts, you would not dare start on another game of 20 questions! Even to relate this typical phone conversation took valuable space from my page. Imagine the wasted time and unnecessary aggravation! And that is assuming you have the right number in the first place. If you do not, you have to start the whole darn process all over again.
Back to my father, he could hardly contain himself when I remarked that my wife taught just that sort of much-needed telephone skills in her business class. Companies send their employees to such classes to learn effective communication skills. The person answering the phone is not simply mechanically doing it, for if she is doing her job well, she will be providing a valuable service. She would give the first impression a customer would have of that establishment. She is an advertising agent, a salesperson, and an information resource officer for that office. That is why my secretary gets paid well while her Malaysian counterpart earns minimum wage. Further as my secretary in Malaysia was a civil service employee, she was not answerable to me. Thus she could afford to blithely ignore my suggestion that she improve her skills.
Robert Townsend, the former CEO of Avis Rent-A-Car, related in his book Up the Organization how whenever he was on a road trip he used to phone his headquarters and also the local franchise pretending to be a potential customer. That was the best way for him to get a pulse of his company and also to experience what a potential client would have to endure. Under his leadership, Avis lived up to its advertising jingle, “We Are Number Two! We Try Harder!”
Many companies now use voice mail. Phone calls are mechanically answered thus, “ABC Corporation…Your call is important to us…Press one for sales, two for repairs, ….” To me, voice mail is irritating and offensive. I do not use it and I stay away from businesses using such devices. If they think that my call is important, then they should put their money where their mouth is – have a real live person to take my calls.
Next: Adding Value to a Routine Airport Taxi Ride