National HR and Current Accounts
Productivity, in the broadest sense, does not only reflect the ability of a country to generate growth that creates employment opportunities, but also reflects the competitiveness of the country to generate foreign exchange from exports to finance development.
Productivity, in the broadest sense, does not only reflect the ability of a country to generate growth that creates employment opportunities, but also reflects the competitiveness of the country to generate foreign exchange from exports to finance development.
Current account and trade deficits reflect the low productivity of the human resources of a country.
Indonesia\'s trade balance suffered a deficit of US$2.5 billion in April 2019 partly due to the impact of the escalation of the US-China trade conflict. Measures to mitigate this include increasing exports to new destination countries, reduce high-costs such as especially dwelling time at ports and becoming part of the world supply chain.
Is there anything else that can be done? In this regard, the enlightenment of endogenous growth theory and the experience of East Asian countries indicated that the trade balance can be improved by improving Indonesia’s human resources (HR).
Good HR and deficit
The quality of HR affects the competitiveness of the country as reflected by the current account surplus. In this case, the average score of the Program for International Student Assessment (PISA) for mathematics, reading and science is the reflection of the quality of HR.
A simple cross sectional regression analysis of the PISA score explains significantly why a country can achieve a surplus in its balance of payments. Attempts to add other variables, which represent competitiveness, make the PISA score variable or the new variable equally insignificant. This implies that errors at the basic level must be corrected at subsequent levels, both individually and systemically.
The PISA score shows basic abilities, in which during adulthood, someone needs to think out of the box, see and diagnose problems correctly and find solutions. There are three countries in ASEAN that produce a good balance of payments (there is a surplus, although not excessive) that can be used as a comparison. These countries are Malaysia, Thailand and Vietnam.
In 2017, the current account surplus of each country was 10.8, 3 and 4.1 percent of gross domestic product (GDP) respectively. Interestingly, the three countries have a higher involvement in international supply networks compared to Indonesia. As a result, domestic industries can produce inputs for domestic industries (saving foreign exchange) and produce intermediate products that are needed by export-oriented industries in the country and abroad (generating foreign exchange).
Overcoming backwardness
Indeed, Indonesia still has a large portion of primary school graduates, which is around 40 percent of the total workforce. However, in terms of secondary education and higher education, the proportion is not too far behind Malaysia and Thailand. The question is, why is the involvement of Indonesia in the international supply chain still far behind? International supply chains, both manufacturing and services, are not something that can be easily penetrated. It is more like an exclusive club in which a new member is allowed to join only after fulfilling certain values of professionalism, such as integrity, negotiation skills, coordination across nations and cultures, keeping time and maintaining quality.
In addition to improving the investment climate, with financial support from their respective governments, Malaysia and Thailand since the mid-1980s have adopted a strategy of cutting the learning curve to instill professional values in HR by encouraging their educational institutions to follow international accreditation.
Through the accreditation institutions, the best learning method to improve the HR quality is disseminated. The ability to plan, coordinate, and negotiate, to improve confidence, and to get out of the comfort zone explains their success in being on the radar to become a member of the international supply chain.
For Malaysia, the impact is indicated in its ability to increase the contribution of service exports and tourism from the total exports of services and goods from 5.2 percent in 2001 to 8.2 percent in 2017. The greater impact is seen in the supply chain of high-tech products. Exports of high-tech products in 2017 accounted for 60 percent of total manufacturing exports, up from 53 percent since 1990.
Thailand focuses more on tourism. However, the high technology portion of the manufacturing exports remained high at 21.5 percent in 2017. Meanwhile, up to 2017, the contribution of Indonesia’s high technology exports only reached 5.4 percent. Surprisingly, newcomer Vietnam’s high technology exports accounted for 29.5 percent of the total exports of manufactured goods in 2018.
It\'s better late than nothing at all, so the saying goes. Higher education in Indonesia has begun to improve since 2005 by participating in an international accreditation program to be able to hold multiple degree programs.
At least Indonesia has begun to enter the international radar, such as the QS (Quacquarelli Symonds) and THE (Times Higher Education) ranking system.
The University of Indonesia (UI), the Bandung Institute of Technology\'s (ITB) and Gadjah Mada University (UGM) are still the above other universities in Indonesia.
The Indonesian corporate world also plays its part. Several internal HR training units have become corporate universities. There is a positive correlation between the current account surplus and the international ranking of universities and educational institutions that are internationally accredited in each country.
For the Indonesian government, providing financial support for domestic universities and encouraging the corporate world to be involved in the HR improvement system through international networks has become a necessity.
Ari Kuncoro, Professor and Dean, Economics and Business School, University of Indonesia