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Human Capital Development

In countries such as China and India that are seeking to aggressively expand their economies and their capacity for technological innovation, a key limiting factor is human capital. Are there enough competent scientists and engineers to support that growth? Enough technicians? Enough managers who understand technology?

In opening a session on human capital development, moderator Pete Engardio of BusinessWeek said that with the recent dramatic growth of the technological sector in those two countries, companies—both foreign-owned and domestic—are running into a number of practical problems. One of them is that the skilled workforce in those countries is not as unlimited as many had assumed. “Although China and India have, no doubt, tremendous raw talent, a lot of questions are being raised now about the quality of this talent and how prepared Indian and Chinese engineering graduates are for global work.” Retention is also becoming a difficult problem, as wages in many fields of engineering are skyrocketing, particularly in India. And China faces an acute shortage of managers who are able to work effectively in multinational corporations. How China and India deal with such issues will have great influence on how well and how quickly the two countries develop their capacity for innovation.

HUMAN CAPITAL IN INDIA

V.S. Ramamurthy of the Indian Institute of Technology in New Delhi and co-chair of the Indo-U.S. Science and Technology Forum described the Indian challenge as a tension between increasing the number of premier educational institutions and addressing social obligations. The Indian government recently announced a plan to invest $133 billion in education over seven years, with private investment in higher education growing as well. He suggested that the growth of public and private investment will somewhat ease pressures on India’s educational system. Student intake is growing slowly; lab infrastructure is weak but the key constraint may be faculty shortages. Compensation packages for teachers cannot compete with the private sector, and the time required to launch an academic career is much longer than that to prepare for a career in industry. Ramamurthy called this lack of highly qualified faculty “a disaster in the making.” India has the demographic advantage mentioned earlier but faces challenges in its institutional structure for education. The Indian diaspora may be able to play a role in closing this gap.

Devesh Kapur of the University of Pennsylvania offered an equally sobering assessment. As enrollment rates have risen, state funding for education has stagnated; most growth has come from the private sector. Higher education institutions in India suffer from mediocrity and heavy politicization, restrictive centralized control, and endless litigation over policies. The market for talent is global, so the low salaries for Indian faculty will not draw foreign or domestic talent to that market. The fact that the system functions reasonably at all well is due to the “Darwinian struggle” for entry into the best Indian institutes of technology (IITs). An IIT graduate can make a better living by coaching applicants for IIT entrance exams than as a senior member of the IIT faculty. “Most learning in India,” Kapur said, “is not from your teachers but from your peers and yourself.” To address the overall



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3 Human Capital Development obligations. The Indian government recently In countries such as China and India that are announced a plan to invest $133 billion in seeking to aggressively expand their economies education over seven years, with private and their capacity for technological innovation, a investment in higher education growing as well. key limiting factor is human capital. Are there He suggested that the growth of public and enough competent scientists and engineers to private investment will somewhat ease pressures support that growth? Enough technicians? on India’s educational system. Student intake is Enough managers who understand technology? growing slowly; lab infrastructure is weak but In opening a session on human capital the key constraint may be faculty shortages. development, moderator Pete Engardio of Compensation packages for teachers cannot BusinessWeek said that with the recent dramatic compete with the private sector, and the time growth of the technological sector in those two required to launch an academic career is much countries, companies—both foreign-owned and longer than that to prepare for a career in domestic—are running into a number of industry. Ramamurthy called this lack of highly practical problems. One of them is that the qualified faculty “a disaster in the making.” skilled workforce in those countries is not as India has the demographic advantage mentioned unlimited as many had assumed. “Although earlier but faces challenges in its institutional China and India have, no doubt, tremendous raw structure for education. The Indian diaspora talent, a lot of questions are being raised now may be able to play a role in closing this gap. about the quality of this talent and how prepared Devesh Kapur of the University of Indian and Chinese engineering graduates are Pennsylvania offered an equally sobering for global work.” Retention is also becoming a assessment. As enrollment rates have risen, difficult problem, as wages in many fields of state funding for education has stagnated; most engineering are skyrocketing, particularly in growth has come from the private sector. India. And China faces an acute shortage of Higher education institutions in India suffer managers who are able to work effectively in from mediocrity and heavy politicization, multinational corporations. How China and restrictive centralized control, and endless India deal with such issues will have great litigation over policies. The market for talent is influence on how well and how quickly the two global, so the low salaries for Indian faculty will countries develop their capacity for innovation. not draw foreign or domestic talent to that market. The fact that the system functions reasonably at all well is due to the “Darwinian HUMAN CAPITAL IN INDIA struggle” for entry into the best Indian institutes of technology (IITs). An IIT graduate can make V.S. Ramamurthy of the Indian Institute of a better living by coaching applicants for IIT Technology in New Delhi and co-chair of the entrance exams than as a senior member of the Indo-U.S. Science and Technology Forum IIT faculty. “Most learning in India,” Kapur described the Indian challenge as a tension said, “is not from your teachers but from your between increasing the number of premier peers and yourself.” To address the overall educational institutions and addressing social 13

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14 THE DRAGON AND THE ELEPHANT where the markets are.” Meanwhile, Asian deficiencies of Indian higher education, large immigrants are driving enterprise growth in the firms have created in-house corporate United States. Twenty-five percent of universities. technology and engineering firms launched in In seeking education abroad, there has been the last decade and 52% of Silicon Valley a shift away from U.S. universities toward startups had immigrant founders. Indian Australia and Singapore as a result in part of U.S. immigrants accounted for one-quarter of these. immigration rules and practices. Unlike their Among America’s new immigrant entrepreneurs, counterparts in the 1950s, who returned from more than 74 percent have a master’s or a PhD abroad for careers in the public sector, most degree. Yet the backlog of U.S. immigration contemporary graduates return to positions in applications puts this stream of talent in limbo. the private sector. Belatedly, the government One million skilled immigrants are waiting for has stepped up education funding with the the annual quota of 120,000 visas, with caps of fourfold increase referred to by Ramamurthy, 8,400 per country. This is causing a “reverse but that is designated primarily for “hardware” brain drain” from the United States back to upgrades. Faculty shortages will almost countries of origin, the majority to India and certainly persist. China. This endangers U.S. innovation and It is true, Kapur observed, that the pool of economic growth. There is a high likelihood, talent going to college will increase, not only however, that returning skilled talent will create with the growing population but also with a new linkages to U.S. companies, as they are higher percentage pursuing higher education. doing within General Electric, IBM, and other But higher education will continue to be companies. politicized and its deficiencies could even Jai Menon of IBM Corporation began his precipitate a constitutional crisis. survey of IBM’s view of global talent recruitment by suggesting that “multinational” is an antiquated term. IBM pursues growth of its INTERNATIONAL PERSPECTIVES ON operations as a global entity. There are 372,000 HUMAN CAPITAL IBMers in 172 countries; 123,000 of these are in the Asia-Pacific region. Eighty percent of the Vivek Wadhwa, an entrepreneur affiliated firm’s R&D activity is still based in the United with Harvard School of Law and Duke States. IBM supports open standards University, has studied the supply of researchers development and networked business models to and graduation rates in the United States facilitate global collaboration. Three factors compared to the surges in graduates produced in drive the firm’s decisions on staff placement and India and China from the perspective of U.S. location of recruitment -- economics, skills and access to human capital. Wadhwa concluded environment. IBM India has grown its staff that China is indeed racing ahead of both India tenfold in five years; its $6 billion investment in and the United States in producing master’s three years represents a tripling of resources in degree holders in science and engineering. In people, infrastructure and capital. Increasingly, 2002 it surpassed the United States in producing as Vivek Wadhwa suggested, people get degrees PhDs in computer science, engineering, and IT. in the United States and return to India for their Nonetheless, the notion of a U.S. engineering first jobs. shortage is a myth in his view. On the value of a IBM follows a comparable approach in conventional four-year degree, studies showed China, with 10,000+ IBM employees involved that companies were hiring engineers with two- in R&D, services and sales. In 2006, for the first and three-year degrees and training those time the number of service workers overtook the employees themselves. “Bachelor’s degrees number of agricultural laborers worldwide. don’t even matter,” Wadhwa said. Thus the needs of a service economy comprise Wadhwa found in his surveys that an issue looming for world leaders. companies go offshore for reasons of “cost and

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HUMAN CAPITAL DEVELOPMENT 15 Indian innovation that would dispel some of the HUMAN CAPITAL IN CHINA misconceptions about that country. Called upon by the current Prime Minister, Cong Cao of the Levin Graduate Institute of Manmohan Singh, to help improve Indian higher the State University of New York painted an education and relieve skill shortages critical to unconventional picture of China’s education economic growth in the 21st century, Pitroda system and talent challenge. Despite the very agreed to head the Indian National Knowledge large numbers of science graduates frequently Commission, charged with making policy reported, Cao suggested that China, too, has a recommendations to enhance Indians’ access to relatively low percentage of students going into knowledge, contribution to knowledge creation, science and technology, and there is insufficient and facility in applying knowledge. The business investment in training. China’s leader Commission’s recommendations address higher Hu Jintao recently pronounced that innovation education, science and technology training, will drive China’s future development and libraries, digital networks, and vocational determine the success of efforts to meet energy, education, as well as E-governance at all levels. environmental protection, and public health Acknowledging earlier speakers’ needs. That puts a premium on accelerating the observations, Pitroda said that issues in development of human resources. A recent education are highly political and progress in Levin Institute study concluded that China faces addressing them requires reform within the a shortage of more than 250,000 qualified government. But he expressed optimism for people, especially in the highly skilled segment India’s capacity to address those challenges, of the labor pool. The looming talent shortage pointing to its transformation in the IT sector, has its roots in the Cultural Revolution of the which 20 years ago faced comparable hurdles. late 1960s and 1970s, the brain drain of the Three main issues are: 1970s and 1980s, and the population’s aging. • Disparities in wealth. • Uneven development: “We are creating KEYNOTE billionaires, but we don’t have power 24 hours a day.” At the beginning of his remarks, • Demography: India’s 500 million Satyanarayan “Sam” Pitroda of the Indian citizens under the age of 25 represent National Knowledge Commission and WorldTel, “the workforce of the world.” Ltd., observed that his personal history reflects The Indian government is responding to the the power of innovation and international question of how to create jobs by pledging at a networks. Raised in a tribal area in Orissa and recent Planning Commission meeting to the first member of his family to get more than quadruple the public investment in education four years of schooling, Pitroda graduated from over the next five years relative to the previous college, pursued higher education in the United five years. This will involve establishing 30 States, and developed his entrepreneurial skills new universities, 6,000 new schools and 8 new here before returning to India to work with IITs (Indian Institutes of Technology). “We also Prime Minister Rajiv Gandhi in the 1980s to recognize it is not about hardware,” said Pitroda, assist in developing a robust telecommunications “but about software” -- addressing the critical industry in an inhospitable policy environment. need for qualified teachers. For that, India needs The dragon and the elephant are as different as to change the teaching paradigm, from the Yellow and the Ganges Rivers. The blackboard and chalk to new media. conventional view, he said, is that China is Surplus optic fiber installed in recent years focused on manufacturing and is far ahead in will be used to connect schools and enhance that field while India is focused on services and educational delivery systems. In view of the fact is lagging in manufacturing. That impression is that India cannot deliver enough “software,” the partly true, but it is also partly mistaken. Then role of teacher will change to something more he set out to provide an up-to-date description of like mentoring. In addition, basic assumptions

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16 THE DRAGON AND THE ELEPHANT owners would be more certain about the extent of the education system are being questioned: and reliability of their IP rights. why does a B.S. degree require four years? How In creating these new models of education, can space on a university campus, where many health, and intellectual property, India needs to classrooms are often unfilled, be better used? change long-held perceptions. Pitroda The debate has already begun, aided by India’s underscored the difficulty with a story about a democratic platform. Texas farmer’s visit to an Indian village, where The Knowledge Commission’s main priority he asked a small farmer, “How big is your is improving primary education, but higher farm?” The local farmer pointed out the limits of education is also critical and may need to be his land – about an acre, bounded by tree, stone, handled differently. For example, the Indian and building. In turn he asked the Texas farmer, government recently raised quotas for lower “How big is your land?” The Texan pondered caste students in primary schools, but in higher how to reply in meaningful terms and answered, education quotas would entail letting quality “If I start out driving at 6 a.m. at one end of my suffer. In this respect the Knowledge farm, it can take me 18 hours to reach the other Commission emphasizes “a process of change, end.” The Indian farmer considered the answer not a product,” Pitroda said. for a few moments and responded, “I had a car To address inequality in development, India like that once, too.” needs first to identify new measures of economic Asked by a member of the audience about health and growth. “The models of the past the scope for and rate of change in a democracy don’t make sense,” Pitroda said, including versus an authoritarian system, Pitroda said if measures used for decades by the World Bank. the goal is swift change on pre-determined lines, Second, India needs to incorporate human authoritarian systems can respond well; but capital development in measures of national democracy is better suited to bringing about health and economy. Third, India needs to change where the goal is more far-reaching reform its intellectual property (IP) rights system. improvement in the quality of life. Will rapid “It’s very painful to get a patent in today’s IP technological change convince hundreds of system,” said Pitroda. The delay in processing millions of Indians not engaged in technology of patent applications has increased and the need the benefits of globalization? Pitroda replied, for translation of applications has resulted in the answer lies in part in how we communicate duplicated effort and higher cost. “Basically, the about the issue. Today “globalization” is widely message to would-be creators and entrepreneurs seen as an attribute of multinational corporations is, ‘Don’t invent.’” not conducive to improvements in the general The Commission’s recommendations on IP population’s quality of life. It needs to be policy support a single open international communicated that globalization also means platform for intellectual property protection. open platform development and collaboration The system would determine within a year among agile teams bringing widely shared whether the applicant has an invention or not. benefits. After that, opportunities for challenges to a patent would be limited. As a result, patent